March 20, 1952

December 19, 1940

G.R. No. L-4197

FIDELA SALES DE GONZAGA, plaintiff-appellant,
vs.
THE CROWN LIFE INSURANCE COMPANY, defendant-appellee.

G. R. No. 47362
JOHN F. Villarroel, appellant-Appellant,
vs.
ESTRADA BERNARDINO, I resorted-appellee.

Beltran and Anuat for appellant.

Nicodemus L. Dasig for appellee.

D. Felipe Agoncillo in representation of the appellant-appelante.

D. Crispin Oben in representation of the defendant-appellee.

TUASON, J.:

Avancea, Pres .:

This is one more case wherein the question of the effects of war in a pre-war insurance contracts is presented.

On May 9, 1912, Alejandro F. Callao, mother of defendant John F. Villarroel, obtained from spouses Mariano
Estrada and Severina a loan of P1,000 payable after seven years (Exhibito A). Alejandra died, leaving as sole
heir to the defendant. Spouses Mariano Estrada and Severina also died, leaving as sole heir to the applicant
Bernardino Estrada. On August 9, 1930, the defendant signed a document (Exhibito B) whereby duty to the
plaintiff states in the amount of P1,000, with an interest of 12 percent per year. This action concerns the
recovery of this amount.

Reduced to their absolute essentials, the facts are that, on September 26, 1939 the Crown Life Insurance Co.,
whose home office is in Toronto, Canada, issued to Ramon Gonzaga through its branch office in Manila a 20year endowment policy for P15,000. The insured paid in due time the agreed yearly premium, which was
P591.00, for three consecutive years, the last payment having been effected on September 6, 1941. On
account of the outbreak of war, no premiums were paid after that date, although the policy was continued in
force up to June 12, 1943, under its automatic premium loan clause.
Ramon Gonzaga died on June 27, 1945 from an accident. Unsuccessful in her attempt to collect the amount
of the policy his widow and the beneficiary named in the policy began this suit on December 18, 1947. The
defendant set up the defense that the policy had lapsed by non-payment of the stipulated premiums of the
stipulated dates. And the trial court in a carefully written decision ruled against the plaintiff.
Since this action was decided by the court below, several cases analogous to this one in its main
characteristics have come up before this Court. (Paz Lopez de Constantino vs. Asia Life Insurance Company,
[[ ]]
1 G.R. No. L-1669; Agustina Peralta vs. Asia Life Insurance Company,[[2]] G.R. No. L-1670; James McGuire
vs. The Manufacturers Life Insurance Co; [[3]] G. R. No. L-3581; National Leather Co; Inc. vs. The United States
Life Insurance Co.,[[4]] G.R. No. L-2668; Victoria Hidalgo Vda. de Carrero, et al., vs. The Manufacturers Life
Insurance Co.,[[5]] G. R. No. L-3032; and West Coast Life Insurance Co. vs. Patricio H. Gubagaras, [[6]] G. R.
No. L-2810) In Paz Lopez de Constantinos. Asia Life Insurance Company, G. R. No. L-1669, the leading case,
the Court speaking through Mr. Justice Bengzon, adopted this doctrine:
The case, therefore, is one in which time is material and of the essence of the contract. Non-payment at the
day involves absolute forfeiture is such be the terms of the contract, as is the case here. Courts cannot with
safety vary the stipulation of the parties by introducing equities for the relief of the insured against their own
negligence.
The aforecited decisions are decisive of the proposition that non-payment of premiums by reason of war puts
an end to the contract.
There is, however, one aspect of the case at bar not raised before and upon which the plaintiff rest her case in
the alternative.
In its answer, the defendant alleged that "through its General Agents, Hanson, Orth and Stevenson, Inc., it had
its offices open in the city of Manila during the Japanese occupation in the Philippines." Taking advantage of
this allegation, and ignoring her own in her complaint

The Court of First Instance of Laguna, in which this action was filed, condemn the defendant to pay the
claimed amount of P1,000 with your legal interests of 12 percent a year since August 9, 1930 until full
payment. She appealed this ruling.
It will be noted that the parties in the present case are, respectively, the only heirs of the original creditor and
debtor. This action is exercised under the obligation that the defendant as the only son of the original debtor
contracted for the plaintiff, sole heir of primitive loa creditors. It is recognized that the amount of P1,000 to this
obligation contracts is the same debt mother sued the parents of the applicant.
Although the action to recover the original debt has already prescribed when the lawsuit was filed in this case,
the question that arises in this appeal is primarily whether, notwithstanding such prescription is brought from
the action. However, this action is not based on the original obligation contracted by the mother of the
defendant, who has already prescribed, but which contracted the defendant's August 9, 1930 (Exhibito B) to
assume the fulfillment of that obligation, as prescribed. As the defendant the only herdero of primitive debtor,
with the right to succeed her in his inheritance, that debt brought by her mother legally, but lost its
effectiveness by prescription, is now, however, for a moral obligation, which is consideration enough to create
and make effective and enforceable its voluntarily contracted obligation on August 9, 1930 in Exhibito B.
The rule that a new promise to pay a prescribed debt must be made by the same person obligated or other
legally authorized by it, is not applicable to the present case that compliance with the obligation of the obligor
orignalmente is not required, but which des because I wanted voluntarily assume this obligation.
The judgment appealed from, with costs against the appellant is confirmed. So it is ordered.

G.R. No. 46274

November 2, 1939

A.O. FISHER, plaintiff-appellee,

vs.
JOHN C. ROBB, defendant-appellant.
Marcial P. Lichauco and Manuel M. Mejia for appellant.
Wolfson, Barrion and Baradi and Ignacio Ycaza for appellee.

VILLA-REAL, J.:
The defendant John C. Robb appeals to this Court from the judgment of the Court of First Instance of Manila,
the dispositive part of which reads:
Judgment is hereby rendered in favor of the plaintiff and against the defendant, who is ordered to
pay to the former the sum of P2,000, with interest at the legal rate from March 11, 1938, until paid,
plus costs.

In the fifth paragraph of the letter Exhibit B, dated March 16, 1936, addressed by the defendant-appellant to
the plaintiff-appellee, the former said: "I feel a moral responsibility for these second payments, which were
made in order to carry out my plan (not the first payments, as you have it in your letter), and Mr. Hilscher and I
will see to it that stockholders who made second payments receive these amounts back as soon as possible,
out of our own personal funds. "As it is, I have had to take my loss along with everyone else here, and so far
as I can see that is what all of us must do. The corporation is finally flat, so it is out of the question to receive
back any of your investment from that source; the only salvage will be the second payment that you made,
and that will come from Hilscher and me personally, as I say, not because of any obligation, but simply
because we have taken it on ourselves to do that. (And I wish I could find someone who would undertake to
repay a part of my own losses in the enterprise!)" And in the seventh paragraph of the letter Exhibit C, dated
February 21, 1936, addressed by the same defendant-appellant to the same plaintiff-appellee the former said
the following:
However, Mr. Fischer and I feel a personal responsibility to those few stockholders who made their second
payments, including yourself, and it is our intention to personally repay the amounts of the second payments
made by those few.
. . . And, finally, paragraph 8 of the same letter Exhibit C states: "We are to receive a certain share
of the new Philippine Racing Club for our services as promoters of that organization, and as soon
as this is received by us, we will be in a position to compensate you and the few others who made
the second payments. That, as T have said, will come from us personally, in an effort to make
things easier for those who were sportsmen enough to try to save the Greyhound organization by
making second payments.

The facts established at the trial without discussion are the following:
Article 1254 of the Civil Code provides as follows:
In September, 1935, the board of directors of the Philippine Greyhound Club, Inc., told the herein defendantappellant John C. Robb, to make a business trip to Shanghai to study the operation of a dog racing course. In
Shanghai, the defendant-appellant stayed at the American Club where be became acquainted with the
plaintiff-appellee, A. O. Fisher, through their mutual friends. In the course of a conversation, the defendantappellant came to know that the plaintiff-appellee was the manager of a dog racing course. Upon knowing the
purpose of the defendant-appellant's trip, the plaintiff-appellee showed great interest and invited him to his
establishment and for several days gave him information about the business. It seems that the plaintiff
became interested in the Philippine Greyhound Club, Inc., and asked the defendant if he could have a part
therein as a stockholder. As the defendant-appellant answered in the affirmative, the plaintiff-appellee
thereupon filled a subscription blank and, through his bank in Shanghai, sent to the Philippine Greyhound
Club, Inc., in Manila telegraphic transfer for P3,000 in payment of the first installment of his subscription. Later
on the defendant-appellant returned to Manila from Shanghai.
Some months thereafter, when the board of directors of the Philippine Greyhound Club, Inc., issued a call for
the payment of the second installment of the subscriptions, the defendant-appellant sent a radiogram to the
plaintiff-appellee did so and sent P2,000 directly to the Philippine Greyhound Club, Inc., in payment of the said
installment. Due to the manipulations of those who controlled the Philippine Greyhound Club, Inc., during the
absence of the defendant-appellant undertook the organization of a company called The Philippine Racing
Club, which now manages the race track of the Santa Ana park. The defendant immediately endeavored to
save the investment of those who had subscribed to the Philippine Greyhound Club, Inc., by having the
Philippine Racing Club acquire the remaining assets of the Philippine Greyhound Club, Inc. The defendantappellant wrote a letter to the plaintiff-appellee in Shanghai explaining in detail the critical condition of the
Philippine Greyhound Club, Inc., and outlining his plans to save the properties and assets of the plaintiffappellee that he felt morally responsible to the stockholders who had paid their second installment (Exh. C). In
answer to said letter, the plaintiff-appellee wrote the defendant-appellant requiring him to return the entire
amount paid by him to the Philippine Greyhound Club, Inc., (exhibit E). Upon receiving this letter, the
defendant-appellant answered the plaintiff-appellee for any loss which he might have suffered in connection
with the Philippine Greyhound Club, Inc., in the same way that he could not expect anyone to reimburse him
for his own losses which were much more than those of the plaintiff-appellee (Exh. B).
The principal question to be decided in this appeal is whether or not the trial court erred in holding that there
was sufficient consideration to justify the promise made by the defendant-appellant in his letters Exhibits B and
C.

A contract exists from the moment one or more persons consent to be bound with respect to
another or others to deliver something or to render some services.
And article 1261 of the same Civil Code provides the following:
ART. 1261. There is no contract unless the following requisites exists:
1. The consent of the contracting parties;
2. A definite object which is the subject-matter of the contract;
3. A consideration for the obligation established.
In the present case, while the defendant-appellant told the plaintiff-appellee that he felt morally responsible for
the second payments which had been made to carry out his plan, and that Mr. Hilscher and he would do
everything possible so that the stockholders who had made second payments may receive the amount paid by
them from their personal funds because they voluntarily assumed the responsibility to make such payment as
soon as they receive from the Philippine racing Club certain shares for their services as promoters of said
organization, it does not appear that the plaintiff-appellee had consented to said form of reimbursement of the
P2,000 which he had directly paid to the Philippine Greyhound Club, Inc., in satisfaction of the second
installment.
The first essential requisite, therefore, required by the cited article 1261 of the Civil Code for the existence of a
contract, does not exists.
As to the third essential requisite, namely, "A consideration for the obligation established," article 1274 of the
same Code provides:lawphi1.net

In onerous contracts the consideration as to each of the parties is the delivery or performance or
the promise of delivery or performance of a thing or service by the other party; in remuneratory
contracts the consideration is the service or benefit for which the remuneration is given, and in
contracts of pure beneficence the consideration is the liberality of the benefactors.
And article 1275 of the same Code provides:
ART. 1275. Contracts without consideration or with an illicit consideration produce no effect
whatsoever. A consideration is illicit when it is contrary to law or morality.
Manresa, in volume 8, 4rth edition, pages 618-619 of his Commentaries on the Civil Code, has this to say:
Considering the concept of the consideration as the explanation and motive of the contract, it is
related to the latter's object and even more to its motives with which it is often confused. It is
differentiated from them, however, in that the former is the essential reason for the contract, while
the latter are the particular reasons of a contracting party which do not affect the other party and
which do not preclude the existence of a different consideration. To clarify by an example: A thing
purchased constitutes the consideration for the purchaser and not the motives which have
influenced his mind, like its usefulness, its perfection, its relation to another, the use thereof which
he may have in mind, etc., a very important distinction, which precludes the annulment of the
contract by the sole influence of the motives, unless the efficacy of the former had been
subordinated to compliance with the latter as conditions.
The jurisprudence shows some cases wherein this important distinction is established. The
consideration of contracts, states the decision of February 24, 1904, is distinct from the motive
which may prompt the parties in executing them. The inaccuracies committed in expressing its
accidental or secondary details do not imply lack of consideration or false consideration,
wherefore, they do not affect the essence and validity of the contract. In a loan the consideration in
its essence is, for the borrower the acquisition of the amount, and for the lender the power to
demand its return, whether the money be for the former or for another person and whether it be
invested as stated or otherwise.
The same distinction between the consideration and the motive is found in the decisions of
November 23, 1920 and March 5, 1924.
The contract sought to be judicially enforced by the plaintiff-appellee against the defendant-appellant is
onerous in character, because it supposes the deprivation of the latter of an amount of money which impairs
his property, which is a burden, and for it to be legally valid it is necessary that it should have a consideration
consisting in the lending or or promise of a thing or service by such party. The defendant-appellant is required
to give a thing, namely, the payment of the sum of P2,000, but the plaintiff-appellee has not given or promised
anything or service to the former which may compel him to make such payment. The promise which said
defendant-appellant has made to the plaintiff-appellee to return to him P2,000 which he had paid to the
Philippine Greyhound Club, Inc., as second installment of the payment of the amount of the shares for which
he has subscribed, was prompted by a feeling of pity which said defendant-appellant had for the plaintiffappellee as a result of the loss which the latter had suffered because of the failure of the enterprise. The
obligation which the said defendant-appellant had contracted with the plaintiff-appellee is, therefore, purely
moral and, as such, is not demandable in law but only in conscience, over which human judges have no
jurisdiction.1awphi1.net
As to whether a moral obligation is a sufficient consideration, read in volume 12 of the American
Jurisprudence, pages 589-590, paragraphs 96, 67, the following:
SEC. 96. Moral obligation. Although there is authority in support of the board proposition that a
moral obligation is sufficient consideration, such proposition is usually denied. . . . .

The case presenting the question whether a moral obligation will sustain an express executory
promise may be divided into five classes: (1) Cases in which the moral obligation arose wholly
from ethical considerations, unconnected with any legal obligations, perfect or imperfect, and
without the receipt of actual pecuniary or material benefit by the promisor prior to the subsequent
promise; (2) cases in which the moral obligation arose from a legal liability already performed or
still enforceable; (3) cases in which the moral obligation arose out of, or was connected with, a
previous request or promise creating originally an enforceable legal liability, which, however, at the
time of the subsequent express promise had become discharged or barred by operation of a
positive rule of law, so that at that time there was no enforceable legal liability; (4) cases in which
the moral obligation arose from, or was connected with, a previous request or promise which,
however, never created any enforceable legal liability, because of a rule of law which rendered the
original agreement void, or at least unenforceable; and (5) cases in which the moral obligation
arose out of, or was connected with, the receipt of actual material or pecuniary benefit by the
promisor, without, however, any previous request or promise on his part, express or implied, and
therefore, of course, without any original legal liability, perfect or imperfect.
SEC. 97. Moral obligation unconnected with legal liability or legal benefit. Although, as
subsequently shown was formerly some doubt as to the point, it is now well established that a
mere moral obligation or conscience duty arising wholly from ethical motives or a mere
conscientious duty unconnected with any legal obligation, perfect or imperfect, or with the receipt
of benefit by the promisor of a material or pecuniary nature will not furnish a consideration for an
executory promise. . . . .

In view of the foregoing considerations, we are of the opinion and so hold, that the promise made by an
organizer of a dog racing course to a stockholder to return to him certain amounts paid by the latter in
satisfaction of his subscription upon the belief of said organizer that he was morally responsible because of
the failure of the enterprise, is not the consideration rquired by article 1261 of the Civil Code as an essential
element for the legal existence of an onerous contract which would bind the promisor to comply with his
promise. Wherefore, the appealed judgment is reversed and the costs to the plaintiff.

of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the Petition failed to state a cause of
action.
The SICD denied petitioners Motion to Dismiss in an Order dated 4 May 1994. Petitioners again
challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition for Certiorari,
docketed as SEC-EB No. 403.

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO,

ADOLFO M. DUARTE, MYRON C. PAPA, NORBERTO C.
NAZARENO, GEORGE UY-TIOCO, ANTONIO A. LOPA,
RAMON B. ARNAIZ, LUIS J.L. VIRATA, and ANTONIO
GARCIA, JR.
Petitioners,
- versus MIGUEL V. CAMPOS, substituted by JULIA ORTIGAS VDA.
DE CAMPOS,[1]
Respondent.

G.R. No. 138814

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10 March 1994
Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary Injunction in favor of
respondent. Likewise, in an Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc annulled the
4 May 1994 Order of SICD in SEC Case No. 02-94-4678 denying petitioners Motion to Dismiss, and
accordingly ordered the dismissal of respondents Petition before the SICD.

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.

Promulgated:

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders of the
SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No. 403,
respectively. Respondents Petition before the appellate court was docketed as CA-G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No. 38455,
granting respondents Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for annulment of the Orders
dated May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null and void and set aside.
Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied by the
Court of Appeals in a Resolution dated 18 May 1999.

April 16, 2009

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

Hence, the present Petition for Review raising the following arguments:
I.

DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision[2] dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R. SP
No. 38455.
The facts of the case are as follows:
SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos,
who filed with the Securities, Investigation and Clearing Department (SICD) of the Securities and Exchange
Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE
directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-Tioco,
Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in said Petition,
sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of Directors, which
allegedly deprived him of his right to participate equally in the allocation of Initial Public Offerings (IPO) of
corporations registered with MKSE; (2) the delivery of the IPO shares he was allegedly deprived of, for which
he would pay IPO prices; and (3) the payment of P2 million as moral damages, P1 million as exemplary
damages, and P500,000.00 as attorneys fees and litigation expenses.
On 14 February 1994, the SICD issued an Order granting respondents prayer for the issuance of
a Temporary Restraining Order to enjoin petitioners from implementing or enforcing the 3 June
1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting respondents application
for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No. 02-94-4678,
the implementation or enforcement of the MKSE Board Resolution in question. Petitioners assailed this SICD
Order dated 10 March 1994 in a Petition for Certiorarifiled with the SEC en banc, docketed as SEC-EB No.
393.
On 11 March 1994, petitioners filed a Motion to Dismiss respondents Petition in SEC Case No. 0294-4678, based on the following grounds: (1) the Petition became moot due to the cancellation of the license

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE
PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE
A CAUSE OF ACTION.
II.
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A
MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF
THE MAKATI STOCK EXCHANGE, INC.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED
TO MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENTS
ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED
DURING THE HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY
INJUNCTION TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED
CAUSE OF ACTION.
IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE
BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
PUBLIC. HENCE, RESPONDENTS CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.[3]
On 18 September 2001, counsel for respondent manifested to this Court that his client died on 7
May 2001. In a Resolution dated 24 October 2001, the Court directed the substitution of respondent by his
surviving spouse, Julia Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of respondents Petition in
SEC Case No. 02-94-4678 for failure to state a cause of action. On the other hand, respondent insists on the
sufficiency of his Petition and seeks the continuation of the proceedings before the SICD.
A cause of action is the act or omission by which a party violates a right of another. [4] A complaint
states a cause of action where it contains three essential elements of a cause of action, namely: (1) the legal
right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant
in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to dismissal on
the ground of failure to state a cause of action.
If a defendant moves to dismiss the complaint on the ground of lack of cause of action, he is
regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of the facts found
in a complaint as constituting a cause of action is whether or not admitting the facts alleged, the court can
render a valid judgment upon the same in accordance with the prayer thereof. The hypothetical admission
extends to the relevant and material facts well pleaded in the complaint and inferences fairly deducible
therefrom. Hence, if the allegations in the complaint furnish sufficient basis by which the complaint can be
maintained, the same should not be dismissed regardless of the defense that may be assessed by the
defendant.[5]
Given the foregoing, the issue of whether respondents Petition in SEC Case No. 02-94-4678
sufficiently states a cause of action may be alternatively stated as whether, hypothetically admitting to be true
the allegations in respondents Petition in SEC Case No. 02-94-4678, the SICD may render a valid judgment
in accordance with the prayer of said Petition.
A reading of the exact text of respondents Petition in SEC Case No. 02-94-4678 is, therefore,
unavoidable. Pertinent portions of the said Petition reads:
7. In recognition of petitioners invaluable services, the general membership
of respondent corporation [MKSE] passed a resolution sometime in 1989 amending its
Articles of Incorporation, to include the following provision therein:
ELEVENTH WHEREAS, Mr. Miguel Campos is
the only surviving incorporator of the Makati Stock Exchange,
Inc. who has maintained his membership;
WHEREAS, he has unselfishly served the
Exchange in various capacities, as governor from 1977 to the
present and as President from 1972 to 1976 and again as
President from 1988 to the present;
WHEREAS, such dedicated service and leadership
which has contributed to the advancement and well being not
only of the Exchange and its members but also to the Securities
industry, needs to be recognized and appreciated;

enjoyed the right given to all the other members to participate equally in the Initial Public
Offerings (IPOs for brevity) of corporations.
10. IPOs are shares of corporations offered for sale to the public, prior to
the listing in the trading floor of the countrys two stock exchanges. Normally, Twenty
Five Percent (25%) of these shares are divided equally between the two stock
exchanges which in turn divide these equally among their members, who pay therefor at
the offering price.
11. However, on June 3, 1993, during a meeting of the Board of Directors of
respondent-corporation, individual respondents passed a resolution to stop giving
petitioner the IPOs he is entitled to, based on the ground that these shares were
allegedly benefiting Gerardo O. Lanuza, Jr., who these individual respondents wanted to
get even with, for having filed cases before the Securities and Exchange (SEC) for their
disqualification as member of the Board of Directors of respondent corporation.
12. Hence, from June 3, 1993 up to the present time, petitioner has been
deprived of his right to subscribe to the IPOs of corporations listing in the stock market
at their offering prices.
13. The collective act of the individual respondents in depriving petitioner of
his right to a share in the IPOs for the aforementioned reason, is unjust, dishonest and
done in bad faith, causing petitioner substantial financial damage. [6]
There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of
respondent, particularly, respondents alleged right to subscribe to the IPOs of corporations listed in the stock
market at their offering prices; and stipulates the correlative obligation of petitioners to respect respondents
right, specifically, by continuing to allow respondent to subscribe to the IPOs of corporations listed in the stock
market at their offering prices.
However, the terms right and obligation in respondents Petition are not magic words that would
automatically lead to the conclusion that such Petition sufficiently states a cause of
action. Right and obligation are legal terms with specific legal meaning. A right is a claim or title to an interest
in anything whatsoever that is enforceable by law. [7] An obligation is defined in the Civil Code as a juridical
necessity to give, to do or not to do. [8] For every right enjoyed by any person, there is a corresponding
obligation on the part of another person to respect such right. Thus, Justice J.B.L. Reyes offers[9] the definition
given by Arias Ramos as a more complete definition:
An obligation is a juridical relation whereby a person (called the creditor)
may demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.
The Civil Code enumerates the sources of obligations:

WHEREAS, as such, the Board of Governors in its

meeting held on February 09, 1989 has correspondingly
adopted a resolution recognizing his valuable service to the
Exchange, reward the same, and preserve for posterity such
recognition by proposing a resolution to the membership body
which would make him as Chairman Emeritus for life and install
in the Exchange premises a commemorative bronze plaque in
his honor;
NOW, THEREFORE, for and in consideration of the
above premises, the position of the Chairman Emeritus to be
occupied by Mr. Miguel Campos during his lifetime and
irregardless of his continued membership in the Exchange with
the Privilege to attend all membership meetings as well as the
meetings of the Board of Governors of the Exchange, is hereby
created.
8. Hence, to this day, petitioner is not only an active member of the
respondent corporation, but its Chairman Emeritus as well.
9. Correspondingly, at all times material to this petition, as an active
member and Chairman Emeritus of respondent corporation, petitioner has always

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Therefore, an obligation imposed on a person, and the corresponding right granted to another,
must be rooted in at least one of these five sources. The mere assertion of a right and claim of an obligation
in an initiatory pleading, whether a Complaint or Petition, without identifying the basis or source thereof, is
merely a conclusion of fact and law. A pleading should state the ultimate facts essential to the rights of action
or defense asserted, as distinguished from mere conclusions of fact or conclusions of law.[10] Thus, a
Complaint or Petition filed by a person claiming a right to the Office of the President of this Republic, but
without stating the source of his purported right, cannot be said to have sufficiently stated a cause of
action. Also, a person claiming to be the owner of a parcel of land cannot merely state that he has a right to
the ownership thereof, but must likewise assert in the Complaint either a mode of acquisition of ownership or
at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondents
right to subscribe to the IPOs of corporations listed in the stock market at their offering prices, and petitioners
obligation to continue respecting and observing such right, the Petition utterly failed to lay down the source or
basis of respondents right and/or petitioners obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989,
granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in the said Petition
from which the Court can deduce that respondent, by virtue of his position as Chairman Emeritus of MKSE,
was granted by law, contract, or any other legal source, the right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices.
A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged to
have been done in accord with a practice normally observed by the members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public, prior to their listing in the
trading floor of the countrys two stock exchanges. Normally, Twenty-Five Percent
(25%) of these shares are divided equally between the two stock exchanges which in
turn divide these equally among their members, who pay therefor at the offering price.
[11]
(Emphasis supplied)
A practice or custom is, as a general rule, not a source of a legally demandable or enforceable
right.[12] Indeed, in labor cases, benefits which were voluntarily given by the employer, and which have ripened
into company practice, are considered as rights that cannot be diminished by the employer. [13] Nevertheless,
even in such cases, the source of the employees right is not custom, but ultimately, the law, since Article 100
of the Labor Code explicitly prohibits elimination or diminution of benefits.

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.

There is no such law in this case that converts the practice of allocating IPO shares to MKSE
members, for subscription at their offering prices, into an enforceable or demandable right. Thus, even if it is
hypothetically admitted that normally, twenty five percent (25%) of the IPOs are divided equally between the
two stock exchanges -- which, in turn, divide their respective allocation equally among their members,
including the Chairman Emeritus, who pay for IPO shares at the offering price -- the Court cannot grant
respondents prayer for damages which allegedly resulted from the MKSE Board Resolution dated 3 June
1993 deviating from said practice by no longer allocating any shares to respondent.

Umali, Soriano & Associates for private respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-944678 should be dismissed for failure to state a cause of action. It does not matter that the SEC en banc, in its
Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not limiting itself to the issue of
whether respondents Petition before the SICD sufficiently stated a cause of action. The SEC en banc may
have been mistaken in considering extraneous evidence in granting petitioners Motion to Dismiss, but its
discussion thereof are merely superfluous andobiter dictum. In the main, the SEC en banc did correctly
dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state the basis for respondents alleged right,
to wit:

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CAG.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial
court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.

Private respondent Campos has failed to establish the basis or authority for
his alleged right to participate equally in the IPO allocations of the Exchange. He cited
paragraph 11 of the amended articles of incorporation of the Exchange in support of his
position but a careful reading of the said provision shows nothing therein that would
bear out his claim. The provision merely created the position of chairman emeritus of
the Exchange but it mentioned nothing about conferring upon the occupant thereof the
right to receive IPO allocations.[14]
With the dismissal of respondents Petition in SEC Case No. 02-94-4678, there is no more need for
this Court to resolve the propriety of the issuance by SCID of a writ of preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 11 February
1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 areREVERSED and SET ASIDE. The
Orders dated 31 May 1995 and 14 August 1995 of the Securities and Exchange Commission en banc in SECEB Case No. 393 and No. 403, respectively, are hereby reinstated. No pronouncement as to costs.
SO ORDERED.

VITUG, J.:

The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by
Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 8741058, alleging, among others, that plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street,
Binondo, Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the lease contract;
that on several occasions before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them priority to acquire the same;
that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request defendants acceded; that in
reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that when plaintiffs did not receive
any reply, they sent another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the offer to sell and
because of information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to sell the property
to them.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which
was granted by the lower court. The trial court found that defendants' offer to sell was

never accepted by the plaintiffs for the reason that the parties did not agree upon the
terms and conditions of the proposed sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the defendants subsequently offer their
property for sale at a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiffs summarily dismissing the
complaint subject to the aforementioned condition that if the
defendants subsequently decide to offer their property for sale
for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first
refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million
Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by
Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court's
judgment, holding:
In resume, there was no meeting of the minds between the
parties concerning the sale of the property. Absent such
requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages
will likewise fail as there exists no justifiable ground for its
award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is
no genuine issue as to any material fact and the moving party is
entitled to a judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the decision
of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment
appealed from is hereby AFFIRMED, but subject to the
following modification: The court a quo in the aforestated
decision gave the plaintiffs-appellants the right of first refusal
only if the property is sold for a purchase price of Eleven Million
pesos or lower; however, considering the mercurial and
uncertain forces in our market economy today. We find no
reason not to grant the same right of first refusal to herein
appellants in the event that the subject property is sold for a
price in excess of Eleven Million pesos. No pronouncement as
to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in
form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by
this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition)

transferring the property in question to herein petitioner Buen Realty and Development
Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in full is
hereby acknowledged, the VENDORS hereby sells, transfers
and conveys for and in favor of the VENDEE, his heirs,
executors, administrators or assigns, the above-described
property with all the improvements found therein including all
the rights and interest in the said property free from all liens and
encumbrances of whatever nature, except the pending
ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax,
registration fees for the transfer of title in his favor and other
expenses incidental to the sale of above-described property
including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of
petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to
the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought
the property subject to the notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil
Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as
follows:
Presented before the Court is a Motion for Execution filed by
plaintiff represented by Atty. Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by
the rubber stamp and signatures upon the copy of the Motion
for Execution.
The gist of the motion is that the Decision of the Court dated
September 21, 1990 as modified by the Court of Appeals in its
decision in CA G.R. CV-21123, and elevated to the Supreme
Court upon the petition for review and that the same was
denied by the highest tribunal in its resolution dated May 6,
1991 in G.R. No.
L-97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the Supreme
Court as of June 6, 1991, stating that the aforesaid modified
decision had already become final and executory.
It is the observation of the Court that this property in dispute
was the subject of theNotice of Lis Pendens and that the

modified decision of this Court promulgated by the Court of

Appeals which had become final to the effect that should the
defendants decide to offer the property for sale for a price of
P11 Million or lower, and considering the mercurial and
uncertain forces in our market economy today, the same right of
first refusal to herein plaintiffs/appellants in the event that the
subject property is sold for a price in excess of Eleven Million
pesos or more.
WHEREFORE, defendants are hereby ordered to execute the
necessary Deed of Sale of the property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15 Million pesos in recognition of plaintiffs'
right of first refusal and that a new Transfer Certificate of Title
be issued in favor of the buyer.
All previous transactions involving the same property
notwithstanding the issuance of another title to Buen Realty
Corporation, is hereby set aside as having been executed in
bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion
of which reads:
WHEREFORE, let there be Writ of Execution issue in the
above-entitled case directing the Deputy Sheriff Ramon
Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week
from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of
the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the
consideration of P15,000,000.00 and ordering the Register of
Deeds of the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants and to
register the new title in favor of the aforesaid plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared
without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen
Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of
first refusal, a purchase option and a contract to sell. For ready reference, we might point out some
fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of obligations (law, contracts, quasicontracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed
(to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation,
are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between
two persons whereby one binds himself, with respect to the other, to give something or to render some service
(Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded (perfected).
The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract
which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of
offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the
above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as
a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a
donation of real property, is essential in order to make the act valid, the prescribed form being thereby an
essential element thereof. The stage ofconsummation begins when the parties perform their respective
undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of
the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of
the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an
obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a
"Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will
then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the
failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party
which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art.
1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is
fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled
with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of
Article 1479 of the Civil Code, viz:

Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option,
a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their
respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is
merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations
to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico
vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following
rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's
coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see
also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell
under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos,
45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in
the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a
breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance(exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on
the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care
should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of
the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out,
it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code.
An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate,
the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter
into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be
later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory
juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would
still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely

recognizes its existence, nor would it sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right
of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for
damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment,
since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to
respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058,
cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the
ownership and possession of the property, without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of
execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123.
The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court
as modified by this Court. As already stated, there was nothing in said decision 13 that
decreed the execution of a deed of sale between the Cu Unjiengs and respondent
lessees, or the fixing of the price of the sale, or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs.
IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA
885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the
time the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30
August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.

The Facts
The facts of the case are narrated by the CA in this wise:
"On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract
with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a
drainage system in Republic-Asahis compound in Barrio Pinagbuhatan, Pasig City, where [respondent] was to
pay x x x JDS five million three hundred thousand pesos (P5,300,000.00) inclusive of value added tax for said
construction, which was supposed to be completed within a period of two hundred forty (240) days beginning
May 8, 1989. In order to guarantee the faithful and satisfactory performance of its undertakings x x x JDS,
shall post a performance bond of seven hundred ninety five thousand pesos (P795,000.00). x x x JDS
executed, jointly and severally with [petitioner] Stronghold Insurance Co., Inc. (SICI) Performance Bond No.
SICI-25849/g(13)9769.
"On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos (P795,000.00) by
way of downpayment.
"Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of two hundred
seventy four thousand six hundred twenty one pesos and one centavo (P274,621.01) were submitted by x x x
JDS to [respondent], which the latter paid. According to [respondent], these two progress billings accounted for
only 7.301% of the work supposed to be undertaken by x x x JDS under the terms of the contract.
"Several times prior to November of 1989, [respondents] engineers called the attention of x x x JDS to the
alleged alarmingly slow pace of the construction, which resulted in the fear that the construction will not be
finished within the stipulated 240-day period. However, said reminders went unheeded by x x x JDS.
"On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS, [respondent]
Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of said contract, and wrote a letter
to x x x JDS informing the latter of such rescission. Such rescission, according to Article XV of the contract
shall not be construed as a waiver of [respondents] right to recover damages from x x x JDS and the latters
sureties.

G.R. No. 147561

June 22, 2006

STRONGHOLD INSURANCE COMPANY, INC., Petitioner,

vs.
REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
DECISION
PANGANIBAN, CJ:
Asurety companys liability under the performance bond it issues is solidary. The death of the principal obligor
does not, as a rule, extinguish the obligation and the solidary nature of that liability.
The Case

"[Respondent] alleged that, as a result of x x x JDSs failure to comply with the provisions of the contract,
which resulted in the said contracts rescission, it had to hire another contractor to finish the project, for which
it incurred an additional expense of three million two hundred fifty six thousand, eight hundred seventy four
pesos (P3,256,874.00).
"On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond for not less
thanP795,000.00. On March 22, 1991, [respondent] again sent another letter reiterating its demand for
payment under the aforementioned bond. Both letters allegedly went unheeded.
"[Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS payment
ofP3,256,874.00 representing the additional expenses incurred by [respondent] for the completion of the
project using another contractor, and from x x x JDS and SICI, jointly and severally, payment of P750,000.00
as damages in accordance with the performance bond; exemplary damages in the amount of P100,000.00
and attorneys fees in the amount of at least P100,000.00.

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the March 13, 2001
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed Decision disposed as follows:

"According to the Sheriffs Return dated June 14, 1991, submitted to the lower court by Deputy Sheriff Rene R.
Salvador, summons were duly served on defendant-appellee SICI. However, x x x Jose D. Santos, Jr. died the
previous year (1990), and x x x JDS Construction was no longer at its address at 2nd Floor, Room 208-A, San
Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and its whereabouts were unknown.

"WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and SET ASIDE.
Let the records of the instant case be REMANDED to the lower court for the reception of evidence of all
parties."3

"On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondents] money claims against
[petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr. Even if this were not the case,
[petitioner] SICI had been released from its liability under the performance bond because there was no

liquidation, with the active participation and/or involvement, pursuant to procedural due process, of herein
surety and contractor Jose D. Santos, Jr., hence, there was no ascertainment of the corresponding liabilities of
Santos and SICI under the performance bond. At this point in time, said liquidation was impossible because of
the death of Santos, who as such can no longer participate in any liquidation. The unilateral liquidation on the
party (sic) of [respondent] of the work accomplishments did not bind SICI for being violative of procedural due
process. The claim of [respondent] for the forfeiture of the performance bond in the amount of P795,000.00
had no factual and legal basis, as payment of said bond was conditioned on the payment of damages which
[respondent] may sustain in the event x x x JDS failed to complete the contracted works. [Respondent] can no
longer prove its claim for damages in view of the death of Santos. SICI was not informed by [respondent] of
the death of Santos. SICI was not informed by [respondent] of the unilateral rescission of its contract with JDS,
thus SICI was deprived of its right to protect its interests as surety under the performance bond, and therefore
it was released from all liability. SICI was likewise denied due process when it was not notified of plaintiffappellants process of determining and fixing the amount to be spent in the completion of the unfinished
project. The procedure contained in Article XV of the contract is against public policy in that it denies SICI the
right to procedural due process. Finally, SICI alleged that [respondent] deviated from the terms and conditions
of the contract without the written consent of SICI, thus the latter was released from all liability. SICI also
prayed for the award of P59,750.00 as attorneys fees, andP5,000.00 as litigation expenses.
"On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent] against x x x
JDS and SICI, on the ground that the claim against JDS did not survive the death of its sole proprietor, Jose D.
Santos, Jr. The dispositive portion of the [O]rder reads as follows:
ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business under trade and
style, JDS Construction and Stronghold Insurance Company, Inc. is ordered DISMISSED.
SO ORDERED.
"On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking reconsideration of the lower
courts August 16, 1991 order dismissing its complaint. [Petitioner] SICI field its Comment and/or Opposition
to the Motion for Reconsideration. On October 15, 1991, the lower court issued an Order, the dispositive
portion of which reads as follows:
WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due course. The Order
dated 16 August 1991 for the dismissal of the case against Stronghold Insurance Company, Inc., is
reconsidered and hereby reinstated (sic). However, the case against defendant Jose D. Santos, Jr. (deceased)
remains undisturbed.
Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance Company Inc.,
are set for hearing on November 7, 1991 at 2:00 oclock in the afternoon.
SO ORDERED.
"On June 4, 1992, [petitioner] SICI filed its Memorandum for Bondsman/Defendant SICI (Re: Effect of Death
of defendant Jose D. Santos, Jr.) reiterating its prayer for the dismissal of [respondents] complaint.
"On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated October 15,
1991, and ordered the case, insofar as SICI is concerned, dismissed. [Respondent] filed its motion for
reconsideration which was opposed by [petitioner] SICI. On April 16, 1993, the lower court denied
[respondents] motion for reconsideration. x x x." 4
Ruling of the Court of Appeals
The CA ruled that SICIs obligation under the surety agreement was not extinguished by the death of Jose D.
Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond.

The appellate court also found that the lower court had erred in pronouncing that the performance of the
Contract in question had become impossible by respondents act of rescission. The Contract was rescinded
because of the dissatisfaction of respondent with the slow pace of work and pursuant to Article XIII of its
Contract with JDS.
The CA ruled that "[p]erformance of the [C]ontract was impossible, not because of [respondents] fault, but
because of the fault of JDS Construction and Jose D. Santos, Jr. for failure on their part to make satisfactory
progress on the project, which amounted to non-performance of the same. x x x [P]ursuant to the [S]urety
[C]ontract, SICI is liable for the non-performance of said [C]ontract on the part of JDS Construction." 5
Hence, this Petition.6
Issue
Petitioner states the issue for the Courts consideration in the following manner:
"Death is a defense of Santos heirs which Stronghold could also adopt as its defense against obligees
claim."7
More precisely, the issue is whether petitioners liability under the performance bond was automatically
extinguished by the death of Santos, the principal.
The Courts Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Suretys Liability
Petitioner contends that the death of Santos, the bond principal, extinguished his liability under the surety
bond. Consequently, it says, it is automatically released from any liability under the bond.
As a general rule, the death of either the creditor or the debtor does not extinguish the obligation. 8 Obligations
are transmissible to the heirs, except when the transmission is prevented by the law, the stipulations of the
parties, or the nature of the obligation. 9 Only obligations that are personal10 or are identified with the persons
themselves are extinguished by death.11
Section 5 of Rule 8612 of the Rules of Court expressly allows the prosecution of money claims arising from a
contract against the estate of a deceased debtor. Evidently, those claims are not actually extinguished. 13 What
is extinguished is only the obligees action or suit filed before the court, which is not then acting as a probate
court.14
In the present case, whatever monetary liabilities or obligations Santos had under his contracts with
respondent were not intransmissible by their nature, by stipulation, or by provision of law. Hence, his death did
not result in the extinguishment of those obligations or liabilities, which merely passed on to his estate. 15 Death
is not a defense that he or his estate can set up to wipe out the obligations under the performance bond.
Consequently, petitioner as surety cannot use his death to escape its monetary obligation under its
performance bond.
The liability of petitioner is contractual in nature, because it executed a performance bond worded as follows:

"KNOW ALL MEN BY THESE PRESENTS:

"That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd., Pasig, MM
Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized
and existing under and by virtue of the laws of the Philippines with head office at Makati, as Surety, are held
and firmly bound unto the REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm, partnership,
corporation or association supplying the principal with labor or materials in the penal sum of SEVEN
HUNDRED NINETY FIVE THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum,
well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns,
jointly and severally, firmly by these presents.

"Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected."
Elucidating on these provisions, the Court in Garcia v. Court of Appeals 18 stated thus:
"x x x. The suretys obligation is not an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a
surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the
principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the
principal. x x x."19

"The CONDITIONS OF THIS OBLIGATION are as follows;

"WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a contract with the
REPUBLIC ASAHI GLASS CORPORATION represented by _________________, to fully and faithfully.
Comply with the site preparation works road and drainage system of Philippine Float Plant at Pinagbuhatan,
Pasig, Metro Manila.
"WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the sum of PESOS
SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00) Philippine Currency, inclusive of interest,
attorneys fee, and other damages, and shall not be liable for any advances of the obligee to the principal.

Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor and the
petitioner herein, in view of the solidary nature of their liability. The death of the principal debtor will not work to
convert, decrease or nullify the substantive right of the solidary creditor. Evidently, despite the death of the
principal debtor, respondent may still sue petitioner alone, in accordance with the solidary nature of the latters
liability under the performance bond.
WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED. Costs against
petitioner.
SO ORDERED.

"WHEREAS, said contract requires the said principal to give a good and sufficient bond in the above-stated
sum to secure the full and faithfull performance on its part of said contract, and the satisfaction of obligations
for materials used and labor employed upon the work;
"NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings, covenants,
terms, conditions, and agreements of said contract during the original term of said contract and any extension
thereof that may be granted by the obligee, with notice to the surety and during the life of any guaranty
required under the contract, and shall also perform well and truly and fulfill all the undertakings, covenants,
terms, conditions, and agreements of any and all duly authorized modifications of said contract that may
hereinafter be made, without notice to the surety except when such modifications increase the contract price;
and such principal contractor or his or its sub-contractors shall promptly make payment to any individual, firm,
partnership, corporation or association supplying the principal of its sub-contractors with labor and materials in
the prosecution of the work provided for in the said contract, then, this obligation shall be null and void;
otherwise it shall remain in full force and effect. Any extension of the period of time which may be granted by
the obligee to the contractor shall be considered as given, and any modifications of said contract shall be
considered as authorized, with the express consent of the Surety.
"The right of any individual, firm, partnership, corporation or association supplying the contractor with labor or
materials for the prosecution of the work hereinbefore stated, to institute action on the penal bond, pursuant to
the provision of Act No. 3688, is hereby acknowledge and confirmed." 16
As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as
follows:
"Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions of Section 4, 17 Chapter 3, Title I of
this Book shall be observed. In such case the contract is called a suretyship."

July 8, 1942
G.R. No. 48006
FAUSTO BARREDO, petitioner,
vs.
SEVERINO GARCIA and TIMOTEA ALMARIO, respondents.
Celedonio P. Gloria and Antonio Barredo for petitioner.
Jose G. Advincula for respondents.
BOCOBO, J.:

xxxxxxxxx

This case comes up from the Court of Appeals which held the petitioner herein, Fausto Barredo, liable in
damages for the death of Faustino Garcia caused by the negligence of Pedro Fontanilla, a taxi driver
employed by said Fausto Barredo.

At about half past one in the morning of May 3, 1936, on the road between Malabon and Navotas, Province of
Rizal, there was a head-on collision between a taxi of the Malate Taxicab driven by Pedro Fontanilla and a
carretela guided by Pedro Dimapalis. The carretela was overturned, and one of its passengers, 16-year-old
boy Faustino Garcia, suffered injuries from which he died two days later. A criminal action was filed against
Fontanilla in the Court of First Instance of Rizal, and he was convicted and sentenced to an indeterminate
sentence of one year and one day to two years of prision correccional. The court in the criminal case granted
the petition that the right to bring a separate civil action be reserved. The Court of Appeals affirmed the
sentence of the lower court in the criminal case. Severino Garcia and Timotea Almario, parents of the
deceased on March 7, 1939, brought an action in the Court of First Instance of Manila against Fausto Barredo
as the sole proprietor of the Malate Taxicab and employer of Pedro Fontanilla. On July 8, 1939, the Court of
First Instance of Manila awarded damages in favor of the plaintiffs for P2,000 plus legal interest from the date
of the complaint. This decision was modified by the Court of Appeals by reducing the damages to P1,000 with
legal interest from the time the action was instituted. It is undisputed that Fontanilla 's negligence was the
cause of the mishap, as he was driving on the wrong side of the road, and at high speed. As to Barredo's
responsibility, the Court of Appeals found:
... It is admitted that defendant is Fontanilla's employer. There is proof that he exercised the diligence of a
good father of a family to prevent damage. (See p. 22, appellant's brief.) In fact it is shown he was careless in
employing Fontanilla who had been caught several times for violation of the Automobile Law and speeding
(Exhibit A) violation which appeared in the records of the Bureau of Public Works available to be public and
to himself. Therefore, he must indemnify plaintiffs under the provisions of article 1903 of the Civil Code.
The main theory of the defense is that the liability of Fausto Barredo is governed by the Revised Penal Code;
hence, his liability is only subsidiary, and as there has been no civil action against Pedro Fontanilla, the person
criminally liable, Barredo cannot be held responsible in the case. The petitioner's brief states on page 10:
... The Court of Appeals holds that the petitioner is being sued for his failure to exercise all the diligence of a
good father of a family in the selection and supervision of Pedro Fontanilla to prevent damages suffered by the
respondents. In other words, The Court of Appeals insists on applying in the case article 1903 of the Civil
Code. Article 1903 of the Civil Code is found in Chapter II, Title 16, Book IV of the Civil Code. This fact makes
said article to a civil liability arising from a crime as in the case at bar simply because Chapter II of Title 16 of
Book IV of the Civil Code, in the precise words of article 1903 of the Civil Code itself, is applicable only to
"those (obligations) arising from wrongful or negligent acts or commission notpunishable by law.
The gist of the decision of the Court of Appeals is expressed thus:
... We cannot agree to the defendant's contention. The liability sought to be imposed upon him in this action is
not a civil obligation arising from a felony or a misdemeanor (the crime of Pedro Fontanilla,), but an obligation
imposed in article 1903 of the Civil Code by reason of his negligence in the selection or supervision of his
servant or employee.
The pivotal question in this case is whether the plaintiffs may bring this separate civil action against Fausto
Barredo, thus making him primarily and directly, responsible under article 1903 of the Civil Code as an
employer of Pedro Fontanilla. The defendant maintains that Fontanilla's negligence being punishable by the
Penal Code, his (defendant's) liability as an employer is only subsidiary, according to said Penal code, but
Fontanilla has not been sued in a civil action and his property has not been exhausted. To decide the main
issue, we must cut through the tangle that has, in the minds of many confused and jumbled
together delitos and cuasi delitos, or crimes under the Penal Code and fault or negligence under articles 19021910 of the Civil Code. This should be done, because justice may be lost in a labyrinth, unless principles and
remedies are distinctly envisaged. Fortunately, we are aided in our inquiry by the luminous presentation of the
perplexing subject by renown jurists and we are likewise guided by the decisions of this Court in previous
cases as well as by the solemn clarity of the consideration in several sentences of the Supreme Tribunal of
Spain.
Authorities support the proposition that a quasi-delict or "culpa aquiliana " is a separate legal institution under
the Civil Code with a substantivity all its own, and individuality that is entirely apart and independent from delict
or crime. Upon this principle and on the wording and spirit article 1903 of the Civil Code, the primary and direct
responsibility of employers may be safely anchored.
The pertinent provisions of the Civil Code and Revised Penal Code are as follows:
CIVIL CODE
ART. 1089 Obligations arise from law, from contracts and quasi-contracts, and from acts and omissions which
are unlawful or in which any kind of fault or negligence intervenes.
xxxxxxxxx

ART. 1092. Civil obligations arising from felonies or misdemeanors shall be governed by the provisions of the
Penal Code.
ART. 1093. Those which are derived from acts or omissions in which fault or negligence, not punishable by
law, intervenes shall be subject to the provisions of Chapter II, Title XVI of this book.
xxxxxxxxx
ART 1902. Any person who by an act or omission causes damage to another by his fault or negligence shall
be liable for the damage so done.
ART. 1903. The obligation imposed by the next preceding article is enforcible, not only for personal acts and
omissions, but also for those of persons for whom another is responsible.
The father and in, case of his death or incapacity, the mother, are liable for any damages caused by the minor
children who live with them.
Guardians are liable for damages done by minors or incapacitated persons subject to their authority and living
with them.
Owners or directors of an establishment or business are equally liable for any damages caused by their
employees while engaged in the branch of the service in which employed, or on occasion of the performance
of their duties.
The State is subject to the same liability when it acts through a special agent, but not if the damage shall have
been caused by the official upon whom properly devolved the duty of doing the act performed, in which case
the provisions of the next preceding article shall be applicable.
Finally, teachers or directors of arts trades are liable for any damages caused by their pupils or apprentices
while they are under their custody.
The liability imposed by this article shall cease in case the persons mentioned therein prove that they are
exercised all the diligence of a good father of a family to prevent the damage.
ART. 1904. Any person who pays for damage caused by his employees may recover from the latter what he
may have paid.
REVISED PENAL CODE
ART. 100. Civil liability of a person guilty of felony. Every person criminally liable for a felony is also civilly
liable.
ART. 101. Rules regarding civil liability in certain cases. The exemption from criminal liability established in
subdivisions 1, 2, 3, 5, and 6 of article 12 and in subdivision 4 of article 11 of this Code does not include
exemption from civil liability, which shall be enforced to the following rules:
First. In cases of subdivision, 1, 2 and 3 of article 12 the civil liability for acts committed by any imbecile or
insane person, and by a person under nine years of age, or by one over nine but under fifteen years of age,
who has acted without discernment shall devolve upon those having such person under their legal authority or
control, unless it appears that there was no fault or negligence on their part.
Should there be no person having such insane, imbecile or minor under his authority, legal guardianship, or
control, or if such person be insolvent, said insane, imbecile, or minor shall respond with their own property,
excepting property exempt from execution, in accordance with the civil law.
Second. In cases falling within subdivision 4 of article 11, the person for whose benefit the harm has been
prevented shall be civilly liable in proportion to the benefit which they may have received.
The courts shall determine, in their sound discretion, the proportionate amount for which each one shall be
liable.
When the respective shares can not be equitably determined, even approximately, or when the liability also
attaches to the Government, or to the majority of the inhabitants of the town, and, in all events, whenever the
damage has been caused with the consent of the authorities or their agents, indemnification shall be made in
the manner prescribed by special laws or regulations.

Third. In cases falling within subdivisions 5 and 6 of article 12, the persons using violence or causing the fear
shall be primarily liable and secondarily, or, if there be no such persons, those doing the act shall be liable,
saving always to the latter that part of their property exempt from execution.

intervenes." However, it should be noted that not all violations of the penal law produce civil responsibility,
such as begging in contravention of ordinances, violation of the game laws, infraction of the rules of traffic
when nobody is hurt. (See Colin and Capitant, "Curso Elemental de Derecho Civil," Vol. 3, p. 728.)

ART. 102. Subsidiary civil liability of innkeepers, tavern keepers and proprietors of establishment. In default
of persons criminally liable, innkeepers, tavern keepers, and any other persons or corporation shall be civilly
liable for crimes committed in their establishments, in all cases where a violation of municipal ordinances or
some general or special police regulation shall have been committed by them or their employees.

Let us now ascertain what some jurists say on the separate existence of quasi-delicts and the employer's
primary and direct liability under article 1903 of the Civil Code.

Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft within their houses
lodging therein, or the person, or for the payment of the value thereof, provided that such guests shall have
notified in advance the innkeeper himself, or the person representing him, of the deposit of such goods within
the inn; and shall furthermore have followed the directions which such innkeeper or his representative may
have given them with respect to the care of and vigilance over such goods. No liability shall attach in case of
robbery with violence against or intimidation against or intimidation of persons unless committed by the
innkeeper's employees.
ART. 103. Subsidiary civil liability of other persons. The subsidiary liability established in the next preceding
article shall also apply to employers, teachers, persons, and corporations engaged in any kind of industry for
felonies committed by their servants, pupils, workmen, apprentices, or employees in the discharge of their
duties.
xxxxxxxxx
ART. 365. Imprudence and negligence. Any person who, by reckless imprudence, shall commit any act
which, had it been intentional, would constitute a grave felony, shall suffer the penalty of arresto mayor in its
maximum period to prision correccional in its minimum period; if it would have constituted a less grave felony,
the penalty of arresto mayor in its minimum and medium periods shall be imposed.
Any person who, by simple imprudence or negligence, shall commit an act which would otherwise constitute a
grave felony, shall suffer the penalty of arresto mayorin its medium and maximum periods; if it would have
constituted a less serious felony, the penalty of arresto mayor in its minimum period shall be imposed."
It will thus be seen that while the terms of articles 1902 of the Civil Code seem to be broad enough to cover
the driver's negligence in the instant case, nevertheless article 1093 limits cuasi-delitos to acts or omissions
"not punishable by law." But inasmuch as article 365 of the Revised Penal Code punishes not only reckless
but even simple imprudence or negligence, the fault or negligence under article 1902 of the Civil Code has
apparently been crowded out. It is this overlapping that makes the "confusion worse confounded." However, a
closer study shows that such a concurrence of scope in regard to negligent acts does not destroy the
distinction between the civil liability arising from a crime and the responsibility for cuasi-delitos or culpa extracontractual. The same negligent act causing damages may produce civil liability arising from a crime under
article 100 of the Revised Penal Code, or create an action for cuasi-delito orculpa extra-contractual under
articles 1902-1910 of the Civil Code.
The individuality of cuasi-delito or culpa extra-contractual looms clear and unmistakable. This legal institution
is of ancient lineage, one of its early ancestors being the Lex Aquilia in the Roman Law. In fact, in Spanish
legal terminology, this responsibility is often referred to as culpa aquiliana. The Partidas also contributed to the
genealogy of the present fault or negligence under the Civil Code; for instance, Law 6, Title 15, of Partida 7,
says: "Tenudo es de fazer emienda, porque, como quier que el non fizo a sabiendas en dao al otro, pero
acaescio por su culpa."
The distinctive nature of cuasi-delitos survives in the Civil Code. According to article 1089, one of the five
sources of obligations is this legal institution of cuasi-delito orculpa extra-contractual: "los actos . . . en que
intervenga cualquier genero de culpa o negligencia." Then article 1093 provides that this kind of obligation
shall be governed by Chapter II of Title XVI of Book IV, meaning articles 1902-0910. This portion of the Civil
Code is exclusively devoted to the legal institution of culpa aquiliana.
Some of the differences between crimes under the Penal Code and the culpa aquilianaor cuasi-delito under
the Civil Code are:
1. That crimes affect the public interest, while cuasi-delitos are only of private concern.
2. That, consequently, the Penal Code punishes or corrects the criminal act, while the Civil Code, by means of
indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because the former are punished only if there is a penal law
clearly covering them, while the latter, cuasi-delitos, include all acts in which "any king of fault or negligence

Dorado Montero in his essay on "Responsibilidad" in the "Enciclopedia Juridica Espaola" (Vol. XXVII, p. 414)
says:
El concepto juridico de la responsabilidad civil abarca diversos aspectos y comprende a diferentes personas.
Asi, existe una responsabilidad civil propiamente dicha, que en ningun casl lleva aparejada responsabilidad
criminal alguna, y otra que es consecuencia indeclinable de la penal que nace de todo delito o falta."
The juridical concept of civil responsibility has various aspects and comprises different persons. Thus, there is
a civil responsibility, properly speaking, which in no case carries with it any criminal responsibility, and another
which is a necessary consequence of the penal liability as a result of every felony or misdemeanor."
Maura, an outstanding authority, was consulted on the following case: There had been a collision between two
trains belonging respectively to the Ferrocarril Cantabrico and the Ferrocarril del Norte. An employee of the
latter had been prosecuted in a criminal case, in which the company had been made a party as subsidiarily
responsible in civil damages. The employee had been acquitted in the criminal case, and the employer, the
Ferrocarril del Norte, had also been exonerated. The question asked was whether the Ferrocarril Cantabrico
could still bring a civil action for damages against the Ferrocarril del Norte. Maura's opinion was in the
affirmative, stating in part (Maura,Dictamenes, Vol. 6, pp. 511-513):
Quedando las cosas asi, a proposito de la realidad pura y neta de los hechos, todavia menos parece
sostenible que exista cosa juzgada acerca de la obligacion civil de indemnizar los quebrantos y menoscabos
inferidos por el choque de los trenes. El titulo en que se funda la accion para demandar el resarcimiento, no
puede confundirse con las responsabilidades civiles nacidas de delito, siquiera exista en este, sea el cual sea,
una culpa rodeada de notas agravatorias que motivan sanciones penales, mas o menos severas. La lesion
causada por delito o falta en los derechos civiles, requiere restituciones, reparaciones o indemnizaciones, que
cual la pena misma ataen al orden publico; por tal motivo vienen encomendadas, de ordinario, al Ministerio
Fiscal; y claro es que si por esta via se enmiendan los quebrantos y menoscabos, el agraviado excusa
procurar el ya conseguido desagravio; pero esta eventual coincidencia de los efectos, no borra la diversidad
originaria de las acciones civiles para pedir indemnizacion.
Estas, para el caso actual (prescindiendo de culpas contractuales, que no vendrian a cuento y que tiene otro
regimen), dimanan, segun el articulo 1902 del Codigo Civil, de toda accion u omision, causante de daos o
perjuicios, en que intervenga culpa o negligencia. Es trivial que acciones semejantes son ejercitadas ante los
Tribunales de lo civil cotidianamente, sin que la Justicia punitiva tenga que mezclarse en los asuntos. Los
articulos 18 al 21 y 121 al 128 del Codigo Penal, atentos al espiritu y a los fines sociales y politicos del mismo,
desenvuelven y ordenan la materia de responsabilidades civiles nacidas de delito, en terminos separados del
regimen por ley comun de la culpa que se denomina aquiliana, por alusion a precedentes legislativos
del Corpus Juris. Seria intempestivo un paralelo entre aquellas ordenaciones, y la de la obligacion de
indemnizar a titulo de culpa civil; pero viene al caso y es necesaria una de las diferenciaciones que en el tal
paralelo se notarian.
Los articulos 20 y 21 del Codigo Penal, despues de distribuir a su modo las responsabilidades civiles, entre
los que sean por diversos conceptos culpables del delito o falta, las hacen extensivas a las empresas y los
establecimientos al servicio de los cuales estan los delincuentes; pero con caracter subsidiario, o sea, segun
el texto literal, en defecto de los que sean responsables criminalmente. No coincide en ello el Codigo Civil,
cuyo articulo 1903, dice; La obligacion que impone el articulo anterior es exigible, no solo por los actos y
omisiones propios, sino por los de aquellas personas de quienes se debe responder; personas en la
enumeracion de las cuales figuran los dependientes y empleados de los establecimientos o empresas, sea
por actos del servicio, sea con ocasion de sus funciones. Por esto acontece, y se observa en la
jurisprudencia, que las empresas, despues de intervenir en las causas criminales con el caracter subsidiario
de su responsabilidad civil por razon del delito, son demandadas y condenadas directa y aisladamente,
cuando se trata de la obligacion, ante los tribunales civiles.
Siendo como se ve, diverso el titulo de esta obligacion, y formando verdadero postulado de nuestro regimen
judicial la separacion entre justicia punitiva y tribunales de lo civil, de suerte que tienen unos y otros normas
de fondo en distintos cuerpos legales, y diferentes modos de proceder, habiendose, por aadidura, abstenido
de asistir al juicio criminal la Compaia del Ferrocarril Cantabrico, que se reservo ejercitar sus acciones,
parece innegable que la de indemnizacion por los daos y perjuicios que le irrogo el choque, no estuvo sub
judice ante el Tribunal del Jurado, ni fue sentenciada, sino que permanecio intacta, al pronunciarse el fallo de
21 de marzo. Aun cuando el veredicto no hubiese sido de inculpabilidad, mostrose mas arriba, que tal accion

quedaba legitimamente reservada para despues del proceso; pero al declararse que no existio delito, ni
responsabilidad dimanada de delito, materia unica sobre que tenian jurisdiccion aquellos juzgadores, se
redobla el motivo para la obligacion civil ex lege, y se patentiza mas y mas que la accion para pedir su
cumplimiento permanece incolume, extraa a la cosa juzgada.
As things are, apropos of the reality pure and simple of the facts, it seems less tenable that there should
be res judicata with regard to the civil obligation for damages on account of the losses caused by the collision
of the trains. The title upon which the action for reparation is based cannot be confused with the civil
responsibilities born of a crime, because there exists in the latter, whatever each nature, a culpa surrounded
with aggravating aspects which give rise to penal measures that are more or less severe. The injury caused by
a felony or misdemeanor upon civil rights requires restitutions, reparations, or indemnifications which, like the
penalty itself, affect public order; for this reason, they are ordinarily entrusted to the office of the prosecuting
attorney; and it is clear that if by this means the losses and damages are repaired, the injured party no longer
desires to seek another relief; but this coincidence of effects does not eliminate the peculiar nature of civil
actions to ask for indemnity.
Such civil actions in the present case (without referring to contractual faults which are not pertinent and belong
to another scope) are derived, according to article 1902 of the Civil Code, from every act or omission causing
losses and damages in which culpa or negligence intervenes. It is unimportant that such actions are every day
filed before the civil courts without the criminal courts interfering therewith. Articles 18 to 21 and 121 to 128 of
the Penal Code, bearing in mind the spirit and the social and political purposes of that Code, develop and
regulate the matter of civil responsibilities arising from a crime, separately from the regime under common law,
of culpa which is known as aquiliana, in accordance with legislative precedent of the Corpus Juris. It would be
unwarranted to make a detailed comparison between the former provisions and that regarding the obligation to
indemnify on account of civil culpa; but it is pertinent and necessary to point out to one of such differences.
Articles 20 and 21 of the Penal Code, after distriburing in their own way the civil responsibilities among those
who, for different reasons, are guilty of felony or misdemeanor, make such civil responsibilities applicable to
enterprises and establishments for which the guilty parties render service, but with subsidiary character, that is
to say, according to the wording of the Penal Code, in default of those who are criminally responsible. In this
regard, the Civil Code does not coincide because article 1903 says: "The obligation imposed by the next
preceding article is demandable, not only for personal acts and omissions, but also for those of persons for
whom another is responsible." Among the persons enumerated are the subordinates and employees of
establishments or enterprises, either for acts during their service or on the occasion of their functions. It is for
this reason that it happens, and it is so observed in judicial decisions, that the companies or enterprises, after
taking part in the criminal cases because of their subsidiary civil responsibility by reason of the crime, are sued
and sentenced directly and separatelywith regard to the obligation, before the civil courts.
Seeing that the title of this obligation is different, and the separation between punitive justice and the civil
courts being a true postulate of our judicial system, so that they have different fundamental norms in different
codes, as well as different modes of procedure, and inasmuch as the Compaa del Ferrocarril Cantabrico has
abstained from taking part in the criminal case and has reserved the right to exercise its actions, it seems
undeniable that the action for indemnification for the losses and damages caused to it by the collision was
notsub judice before the Tribunal del Jurado, nor was it the subject of a sentence, but it remained intact when
the decision of March 21 was rendered. Even if the verdict had not been that of acquittal, it has already been
shown that such action had been legitimately reserved till after the criminal prosecution; but because of the
declaration of the non-existence of the felony and the non-existence of the responsibility arising from the
crime, which was the sole subject matter upon which the Tribunal del Jurado had jurisdiction, there is greater
reason for the civil obligation ex lege, and it becomes clearer that the action for its enforcement remain intact
and is not res judicata.
Laurent, a jurist who has written a monumental work on the French Civil Code, on which the Spanish Civil
Code is largely based and whose provisions on cuasi-delito orculpa extra-contractual are similar to those of
the Spanish Civil Code, says, referring to article 1384 of the French Civil Code which corresponds to article
1903, Spanish Civil Code:
The action can be brought directly against the person responsible (for another), without including the author of
the act. The action against the principal is accessory in the sense that it implies the existence of a prejudicial
act committed by the employee, but it is not subsidiary in the sense that it can not be instituted till after the
judgment against the author of the act or at least, that it is subsidiary to the principal action; the action for
responsibility (of the employer) is in itself a principal action. (Laurent, Principles of French Civil Law, Spanish
translation, Vol. 20, pp. 734-735.)
Amandi, in his "Cuestionario del Codigo Civil Reformado" (Vol. 4, pp. 429, 430), declares that the
responsibility of the employer is principal and not subsidiary. He writes:

Cuestion 1. La responsabilidad declarada en el articulo 1903 por las acciones u omisiones de aquellas
personas por las que se debe responder, es subsidiaria? es principal? Para contestar a esta pregunta es
necesario saber, en primer lugar, en que se funda el precepto legal. Es que realmente se impone una
responsabilidad por una falta ajena? Asi parece a primera vista; pero semejante afirmacion seria contraria a la
justicia y a la maxima universal, segun la que las faltas son personales, y cada uno responde de aquellas que
le son imputables. La responsabilidad de que tratamos se impone con ocasion de un delito o culpa, pero
no por causa de ellos, sino por causa del causi delito, esto es, de la imprudencia o de la negligencia del
padre, del tutor, del dueo o director del establecimiento, del maestro, etc. Cuando cualquiera de las personas
que enumera el articulo citado (menores de edad, incapacitados, dependientes, aprendices) causan un dao,
la ley presume que el padre, el tutor, el maestro, etc., han cometido una falta de negligencia para prevenir o
evitar el dao. Esta falta es la que la ley castiga. No hay, pues, responsabilidad por un hecho ajeno, sino en la
apariencia; en realidad la responsabilidad se exige por un hecho propio. La idea de que esa responsabilidad
sea subsidiaria es, por lo tanto, completamente inadmisible.
Question No. 1. Is the responsibility declared in article 1903 for the acts or omissions of those persons for who
one is responsible, subsidiary or principal? In order to answer this question it is necessary to know, in the first
place, on what the legal provision is based. Is it true that there is a responsibility for the fault of another
person? It seems so at first sight; but such assertion would be contrary to justice and to the universal maxim
that all faults are personal, and that everyone is liable for those faults that can be imputed to him. The
responsibility in question is imposed on the occasion of a crime or fault, but not because of the same, but
because of the cuasi-delito, that is to say, the imprudence or negligence of the father, guardian, proprietor or
manager of the establishment, of the teacher, etc. Whenever anyone of the persons enumerated in the article
referred to (minors, incapacitated persons, employees, apprentices) causes any damage, the law presumes
that the father, guardian, teacher, etc. have committed an act of negligence in not preventing or avoiding the
damage. It is this fault that is condemned by the law. It is, therefore, only apparent that there is a responsibility
for the act of another; in reality the responsibility exacted is for one's own act. The idea that such responsibility
is subsidiary is, therefore, completely inadmissible.
Oyuelos, in his "Digesto: Principios, Doctrina y Jurisprudencia, Referentes al Codigo Civil Espaol," says in
Vol. VII, p. 743:
Es decir, no responde de hechos ajenos, porque se responde solo de su propia culpa, doctrina del articulo
1902; mas por excepcion, se responde de la ajena respecto de aquellas personas con las que media algun
nexo o vinculo, que motiva o razona la responsabilidad. Esta responsabilidad, es directa o es subsidiaria? En
el orden penal, el Codigo de esta clase distingue entre menores e incapacitados y los demas, declarando
directa la primera (articulo 19) y subsidiaria la segunda (articulos 20 y 21); pero en el orden civil, en el caso
del articulo 1903, ha de entenderse directa, por el tenor del articulo que impone la responsabilidad
precisamente "por los actos de aquellas personas de quienes se deba responder."
That is to say, one is not responsible for the acts of others, because one is liable only for his own faults, this
being the doctrine of article 1902; but, by exception, one is liable for the acts of those persons with whom
there is a bond or tie which gives rise to the responsibility. Is this responsibility direct or subsidiary? In the
order of the penal law, the Penal Code distinguishes between minors and incapacitated persons on the one
hand, and other persons on the other, declaring that the responsibility for the former is direct (article 19), and
for the latter, subsidiary (articles 20 and 21); but in the scheme of the civil law, in the case of article 1903, the
responsibility should be understood as direct, according to the tenor of that articles, for precisely it imposes
responsibility "for the acts of those persons for whom one should be responsible."
Coming now to the sentences of the Supreme Tribunal of Spain, that court has upheld the principles above set
forth: that a quasi-delict or culpa extra-contractual is a separate and distinct legal institution, independent from
the civil responsibility arising from criminal liability, and that an employer is, under article 1903 of the Civil
Code, primarily and directly responsible for the negligent acts of his employee.
One of the most important of those Spanish decisions is that of October 21, 1910. In that case, Ramon
Lafuente died as the result of having been run over by a street car owned by the "compaia Electric Madrilea
de Traccion." The conductor was prosecuted in a criminal case but he was acquitted. Thereupon, the widow
filed a civil action against the street car company, paying for damages in the amount of 15,000 pesetas. The
lower court awarded damages; so the company appealed to the Supreme Tribunal, alleging violation of articles
1902 and 1903 of the Civil Code because by final judgment the non-existence of fault or negligence had been
declared. The Supreme Court of Spain dismissed the appeal, saying:
Considerando que el primer motivo del recurso se funda en el equivocado supuesto de que el Tribunal a quo,
al condonar a la compaia Electrica Madrilea al pago del dao causado con la muerte de Ramon La fuente
Izquierdo, desconoce el valor y efectos juridicos de la sentencia absolutoria deictada en la causa criminal que
se siguio por el mismo hecho, cuando es lo cierto que de este han conocido las dos jurisdicciones bajo
diferentes as pectos, y como la de lo criminal declrao dentro de los limites de su competencia que el hecho de
que se trata no era constitutivo de delito por no haber mediado descuido o negligencia graves, lo que no

excluye, siendo este el unico fundamento del fallo absolutorio, el concurso de la culpa o negligencia no
califacadas, fuente de obligaciones civiles segun el articulo 1902 del Codigo, y que alcanzan, segun el 1903,
netre otras perosnas, a los Directores de establecimientos o empresas por los daos causados por sus
dependientes en determinadas condiciones, es manifesto que la de lo civil, al conocer del mismo hehco baho
este ultimo aspecto y al condenar a la compaia recurrente a la indemnizacion del dao causado por uno de
sus empleados, lejos de infringer los mencionados textos, en relacion con el articulo 116 de la Ley de
Enjuciamiento Criminal, se ha atenido estrictamente a ellos, sin invadir atribuciones ajenas a su jurisdiccion
propia, ni contrariar en lo mas minimo el fallo recaido en la causa.
Considering that the first ground of the appeal is based on the mistaken supposition that the trial court, in
sentencing the Compaia Madrilea to the payment of the damage caused by the death of Ramon Lafuente
Izquierdo, disregards the value and juridical effects of the sentence of acquittal rendered in the criminal case
instituted on account of the same act, when it is a fact that the two jurisdictions had taken cognizance of the
same act in its different aspects, and as the criminal jurisdiction declared within the limits of its authority that
the act in question did not constitute a felony because there was no grave carelessness or negligence, and
this being the only basis of acquittal, it does no exclude the co-existence of fault or negligence which is not
qualified, and is a source of civil obligations according to article 1902 of the Civil Code, affecting, in
accordance with article 1903, among other persons, the managers of establishments or enterprises by reason
of the damages caused by employees under certain conditions, it is manifest that the civil jurisdiccion in taking
cognizance of the same act in this latter aspect and in ordering the company, appellant herein, to pay an
indemnity for the damage caused by one of its employees, far from violating said legal provisions, in relation
with article 116 of the Law of Criminal Procedure, strictly followed the same, without invading attributes which
are beyond its own jurisdiction, and without in any way contradicting the decision in that cause. (Emphasis
supplied.)
It will be noted, as to the case just cited:
First. That the conductor was not sued in a civil case, either separately or with the street car company. This is
precisely what happens in the present case: the driver, Fontanilla, has not been sued in a civil action, either
alone or with his employer.
Second. That the conductor had been acquitted of grave criminal negligence, but the Supreme Tribunal of
Spain said that this did not exclude the co-existence of fault or negligence, which is not qualified, on the part of
the conductor, under article 1902 of the Civil Code. In the present case, the taxi driver was found guilty of
criminal negligence, so that if he had even sued for his civil responsibility arising from the crime, he would
have been held primarily liable for civil damages, and Barredo would have been held subsidiarily liable for the
same. But the plaintiffs are directly suing Barredo, on his primary responsibility because of his own presumed
negligence which he did not overcome under article 1903. Thus, there were two liabilities of Barredo:
first, the subsidiary one because of the civil liability of the taxi driver arising from the latter's criminal
negligence; and, second, Barredo's primary liability as an employer under article 1903. The plaintiffs were free
to choose which course to take, and they preferred the second remedy. In so doing, they were acting within
their rights. It might be observed in passing, that the plaintiff choose the more expeditious and effective
method of relief, because Fontanilla was either in prison, or had just been released, and besides, he was
probably without property which might be seized in enforcing any judgment against him for damages.
Third. That inasmuch as in the above sentence of October 21, 1910, the employer was held liable civilly,
notwithstanding the acquittal of the employee (the conductor) in a previous criminal case, with greater reason
should Barredo, the employer in the case at bar, be held liable for damages in a civil suit filed against him
because his taxi driver had been convicted. The degree of negligence of the conductor in the Spanish case
cited was less than that of the taxi driver, Fontanilla, because the former was acquitted in the previous criminal
case while the latter was found guilty of criminal negligence and was sentenced to an indeterminate sentence
of one year and one day to two years of prision correccional.

ganancias que dejo de obtener al verse privado de servir los pedidos que se le habian hecho por los
remitentes en los envases:
Considerando que sobre esta base hay necesidad de estimar los cuatro motivos que integran este recurso,
porque la demanda inicial del pleito a que se contrae no contiene accion que nazca del incumplimiento del
contrato de transporte, toda vez que no se funda en el retraso de la llegada de las mercancias ni de ningun
otro vinculo contractual entre las partes contendientes, careciendo, por tanto, de aplicacion el articulo 371 del
Codigo de Comercio, en que principalmente descansa el fallo recurrido, sino que se limita a pedir la
reparaction de los daos y perjuicios producidos en el patrimonio del actor por la injustificada y dolosa
negativa del porteador a la entrega de las mercancias a su nombre consignadas, segun lo reconoce la
sentencia, y cuya responsabilidad esta claramente sancionada en el articulo 1902 del Codigo Civil, que obliga
por el siguiente a la Compaia demandada como ligada con el causante de aquellos por relaciones de
caracter economico y de jurarquia administrativa.
Considering that the sentence, in question recognizes, in virtue of the facts which it declares, in relation to the
evidence in the case: (1) that the invoice issued by the railroad company in favor of the plaintiff contemplated
that the empty receptacles referred to in the complaint should be returned to the consignors with wines and
liquors; (2) that when the said merchandise reached their destination, their delivery to the consignee was
refused by the station agent without justification and with fraudulent intent, and (3) that the lack of delivery of
these goods when they were demanded by the plaintiff caused him losses and damages of considerable
importance, as he was a wholesale vendor of wines and liquors and he failed to realize the profits when he
was unable to fill the orders sent to him by the consignors of the receptacles:
Considering that upon this basis there is need of upholding the four assignments of error, as the original
complaint did not contain any cause of action arising from non-fulfillment of a contract of transportation,
because the action was not based on the delay of the goods nor on any contractual relation between the
parties litigant and, therefore, article 371 of the Code of Commerce, on which the decision appealed from is
based, is not applicable; but it limits to asking for reparation for losses and damages produced on the
patrimony of the plaintiff on account of the unjustified and fraudulent refusal of the carrier to deliver the goods
consigned to the plaintiff as stated by the sentence, and the carrier's responsibility is clearly laid down in
article 1902 of the Civil Code which binds, in virtue of the next article, the defendant company, because the
latter is connected with the person who caused the damage by relations of economic character and by
administrative hierarchy. (Emphasis supplied.)
The above case is pertinent because it shows that the same act may come under both the Penal Code and
the Civil Code. In that case, the action of the agent was unjustified and fraudulent and therefore could have
been the subject of a criminal action. And yet, it was held to be also a proper subject of a civil action under
article 1902 of the Civil Code. It is also to be noted that it was the employer and not the employee who was
being sued.
Let us now examine the cases previously decided by this Court.
In the leading case of Rakes vs. Atlantic Gulf and Pacific Co. (7 Phil., 359, 362-365 [year 1907]), the trial court
awarded damages to the plaintiff, a laborer of the defendant, because the latter had negligently failed to repair
a tramway in consequence of which the rails slid off while iron was being transported, and caught the plaintiff
whose leg was broken. This Court held:
It is contended by the defendant, as its first defense to the action that the necessary conclusion from these
collated laws is that the remedy for injuries through negligence lies only in a criminal action in which the official
criminally responsible must be made primarily liable and his employer held only subsidiarily to him. According
to this theory the plaintiff should have procured the arrest of the representative of the company accountable for
not repairing the track, and on his prosecution a suitable fine should have been imposed, payable primarily by
him and secondarily by his employer.

(See also Sentence of February 19, 1902, which is similar to the one above quoted.)
In the Sentence of the Supreme Court of Spain, dated February 14, 1919, an action was brought against a
railroad company for damages because the station agent, employed by the company, had unjustly
and fraudulently, refused to deliver certain articles consigned to the plaintiff. The Supreme Court of Spain held
that this action was properly under article 1902 of the Civil Code, the court saying:
Considerando que la sentencia discutida reconoce, en virtud de los hechos que consigna con relacion a las
pruebas del pleito: 1., que las expediciones facturadas por la compaia ferroviaria a la consignacion del actor
de las vasijas vacias que en su demanda relacionan tenian como fin el que este las devolviera a sus
remitentes con vinos y alcoholes; 2., que llegadas a su destino tales mercanias no se quisieron entregar a
dicho consignatario por el jefe de la estacion sin motivo justificado y con intencion dolosa, y 3., que la falta de
entrega de estas expediciones al tiempo de reclamarlas el demandante le originaron daos y perjuicios en
cantidad de bastante importancia como expendedor al por mayor que era de vinos y alcoholes por las

This reasoning misconceived the plan of the Spanish codes upon this subject. Article 1093 of the Civil Code
makes obligations arising from faults or negligencenot punished by the law, subject to the provisions of
Chapter II of Title XVI. Section 1902 of that chapter reads:
"A person who by an act or omission causes damage to another when there is fault or negligence shall be
obliged to repair the damage so done.
"SEC. 1903. The obligation imposed by the preceeding article is demandable, not only for personal acts and
omissions, but also for those of the persons for whom they should be responsible.
"The father, and on his death or incapacity, the mother, is liable for the damages caused by the minors who
live with them.

xxxxxxxxx
"Owners or directors of an establishment or enterprise are equally liable for the damages caused by their
employees in the service of the branches in which the latter may be employed or in the performance of their
duties.
xxxxxxxxx
"The liability referred to in this article shall cease when the persons mentioned therein prove that they
employed all the diligence of a good father of a family to avoid the damage."
As an answer to the argument urged in this particular action it may be sufficient to point out that nowhere in
our general statutes is the employer penalized for failure to provide or maintain safe appliances for his
workmen. His obligation therefore is one 'not punished by the laws' and falls under civil rather than criminal
jurisprudence. But the answer may be a broader one. We should be reluctant, under any conditions, to adopt a
forced construction of these scientific codes, such as is proposed by the defendant, that would rob some of
these articles of effect, would shut out litigants against their will from the civil courts, would make the assertion
of their rights dependent upon the selection for prosecution of the proper criminal offender, and render
recovery doubtful by reason of the strict rules of proof prevailing in criminal actions. Even if these articles had
always stood alone, such a construction would be unnecessary, but clear light is thrown upon their meaning by
the provisions of the Law of Criminal Procedure of Spain (Ley de Enjuiciamiento Criminal), which, though
never in actual force in these Islands, was formerly given a suppletory or explanatory effect. Under article 111
of this law, both classes of action, civil and criminal, might be prosecuted jointly or separately, but while the
penal action was pending the civil was suspended. According to article 112, the penal action once started, the
civil remedy should be sought therewith, unless it had been waived by the party injured or been expressly
reserved by him for civil proceedings for the future. If the civil action alone was prosecuted, arising out of a
crime that could be enforced only on private complaint, the penal action thereunder should be extinguished.
These provisions are in harmony with those of articles 23 and 133 of our Penal Code on the same subject.
An examination of this topic might be carried much further, but the citation of these articles suffices to show
that the civil liability was not intended to be merged in the criminal nor even to be suspended thereby, except
as expressly provided in the law. Where an individual is civilly liable for a negligent act or omission, it is not
required that the injured party should seek out a third person criminally liable whose prosecution must be a
condition precedent to the enforcement of the civil right.
Under article 20 of the Penal Code the responsibility of an employer may be regarded as subsidiary in respect
of criminal actions against his employees only while they are in process of prosecution, or in so far as they
determine the existence of the criminal act from which liability arises, and his obligation under the civil law and
its enforcement in the civil courts is not barred thereby unless by the election of the injured person. Inasmuch
as no criminal proceeding had been instituted, growing our of the accident in question, the provisions of the
Penal Code can not affect this action. This construction renders it unnecessary to finally determine here
whether this subsidiary civil liability in penal actions has survived the laws that fully regulated it or has been
abrogated by the American civil and criminal procedure now in force in the Philippines.
The difficulty in construing the articles of the code above cited in this case appears from the briefs before us to
have arisen from the interpretation of the words of article 1093, "fault or negligence not punished by law," as
applied to the comprehensive definition of offenses in articles 568 and 590 of the Penal Code. It has been
shown that the liability of an employer arising out of his relation to his employee who is the offender is not to
be regarded as derived from negligence punished by the law, within the meaning of articles 1902 and 1093.
More than this, however, it cannot be said to fall within the class of acts unpunished by the law, the
consequence of which are regulated by articles 1902 and 1903 of the Civil Code. The acts to which these
articles are applicable are understood to be those not growing out of pre-existing duties of the parties to one
another. But where relations already formed give rise to duties, whether springing from contract or quasi
contract, then breaches of those duties are subject to articles 1101, 1103, and 1104 of the same code. A
typical application of this distinction may be found in the consequences of a railway accident due to defective
machinery supplied by the employer. His liability to his employee would arise out of the contract of
employment, that to the passengers out of the contract for passage, while that to the injured bystander would
originate in the negligent act itself.
In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the mother of the 8 of 9-year-old child Salvador Bona
brought a civil action against Moreta to recover damages resulting from the death of the child, who had been
run over by an automobile driven and managed by the defendant. The trial court rendered judgment requiring
the defendant to pay the plaintiff the sum of P1,000 as indemnity: This Court in affirming the judgment, said in
part:
If it were true that the defendant, in coming from the southern part of Solana Street, had to stop his auto
before crossing Real Street, because he had met vehicles which were going along the latter street or were

coming from the opposite direction along Solana Street, it is to be believed that, when he again started to run
his auto across said Real Street and to continue its way along Solana Street northward, he should have
adjusted the speed of the auto which he was operating until he had fully crossed Real Street and had
completely reached a clear way on Solana Street. But, as the child was run over by the auto precisely at the
entrance of Solana Street, this accident could not have occurred if the auto had been running at a slow speed,
aside from the fact that the defendant, at the moment of crossing Real Street and entering Solana Street, in a
northward direction, could have seen the child in the act of crossing the latter street from the sidewalk on the
right to that on the left, and if the accident had occurred in such a way that after the automobile had run over
the body of the child, and the child's body had already been stretched out on the ground, the automobile still
moved along a distance of about 2 meters, this circumstance shows the fact that the automobile entered
Solana Street from Real Street, at a high speed without the defendant having blown the horn. If these
precautions had been taken by the defendant, the deplorable accident which caused the death of the child
would not have occurred.
It will be noticed that the defendant in the above case could have been prosecuted in a criminal case because
his negligence causing the death of the child was punishable by the Penal Code. Here is therefore a clear
instance of the same act of negligence being a proper subject-matter either of a criminal action with its
consequent civil liability arising from a crime or of an entirely separate and independent civil action for fault or
negligence under article 1902 of the Civil Code. Thus, in this jurisdiction, the separate individually of a cuasidelito or culpa aquiliana under the Civil Code has been fully and clearly recognized, even with regard to a
negligent act for which the wrongdoer could have been prosecuted and convicted in a criminal case and for
which, after such a conviction, he could have been sued for this civil liability arising from his crime.
Years later (in 1930) this Court had another occasion to apply the same doctrine. InBernal and Enverso vs.
House and Tacloban Electric & Ice Plant, Ltd. , 54 Phil., 327, the parents of the five-year-old child, Purificacion
Bernal, brought a civil action to recover damages for the child's death as a result of burns caused by the fault
and negligence of the defendants. On the evening of April 10, 1925, the Good Friday procession was held in
Tacloban, Leyte. Fortunata Enverso with her daughter Purificacion Bernal had come from another municipality
to attend the same. After the procession the mother and the daughter with two others were passing along
Gran Capitan Street in front of the offices of the Tacloban Electric & Ice Plant, Ltd., owned by defendants J. V.
House, when an automobile appeared from the opposite direction. The little girl, who was slightly ahead of the
rest, was so frightened by the automobile that she turned to run, but unfortunately she fell into the street gutter
where hot water from the electric plant was flowing. The child died that same night from the burns. The trial
courts dismissed the action because of the contributory negligence of the plaintiffs. But this Court held, on
appeal, that there was no contributory negligence, and allowed the parents P1,000 in damages from J. V.
House who at the time of the tragic occurrence was the holder of the franchise for the electric plant. This Court
said in part:
Although the trial judge made the findings of fact hereinbefore outlined, he nevertheless was led to order the
dismissal of the action because of the contributory negligence of the plaintiffs. It is from this point that a
majority of the court depart from the stand taken by the trial judge. The mother and her child had a perfect
right to be on the principal street of Tacloban, Leyte, on the evening when the religious procession was held.
There was nothing abnormal in allowing the child to run along a few paces in advance of the mother. No one
could foresee the coincidence of an automobile appearing and of a frightened child running and falling into a
ditch filled with hot water. The doctrine announced in the much debated case of Rakes vs. Atlantic Gulf and
Pacific Co. ([1907]), 7 Phil., 359), still rule. Article 1902 of the Civil Code must again be enforced. The
contributory negligence of the child and her mother, if any, does not operate as a bar to recovery, but in its
strictest sense could only result in reduction of the damages.
It is most significant that in the case just cited, this Court specifically applied article 1902 of the Civil Code. It is
thus that although J. V. House could have been criminally prosecuted for reckless or simple negligence and
not only punished but also made civilly liable because of his criminal negligence, nevertheless this Court
awarded damages in an independent civil action for fault or negligence under article 1902 of the Civil Code.
In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year 1915), the action was for damages for the death of the
plaintiff's daughter alleged to have been caused by the negligence of the servant in driving an automobile over
the child. It appeared that the cause of the mishap was a defect in the steering gear. The defendant Leynes
had rented the automobile from the International Garage of Manila, to be used by him in carrying passengers
during the fiesta of Tuy, Batangas. Leynes was ordered by the lower court to pay P1,000 as damages to the
plaintiff. On appeal this Court reversed the judgment as to Leynes on the ground that he had shown that the
exercised the care of a good father of a family, thus overcoming the presumption of negligence under article
1903. This Court said:
As to selection, the defendant has clearly shown that he exercised the care and diligence of a good father of a
family. He obtained the machine from a reputable garage and it was, so far as appeared, in good condition.
The workmen were likewise selected from a standard garage, were duly licensed by the Government in their
particular calling, and apparently thoroughly competent. The machine had been used but a few hours when

the accident occurred and it is clear from the evidence that the defendant had no notice, either actual or
constructive, of the defective condition of the steering gear.

diligence of a good father of a family to prevent the damage. The lower court rendered judgment in favor of the
plaintiff. This Court held, in part, that this case was governed by the Penal Code, saying:

The legal aspect of the case was discussed by this Court thus:

With this preliminary point out of the way, there is no escaping the conclusion that the provisions of the Penal
Code govern. The Penal Code in easily understandable language authorizes the determination of subsidiary
liability. The Civil Code negatives its application by providing that civil obligations arising from crimes or
misdemeanors shall be governed by the provisions of the Penal Code. The conviction of the motorman was a
misdemeanor falling under article 604 of the Penal Code. The act of the motorman was not a wrongful or
negligent act or omission not punishable by law. Accordingly, the civil obligation connected up with the Penal
Code and not with article 1903 of the Civil Code. In other words, the Penal Code affirms its jurisdiction while
the Civil Code negatives its jurisdiction. This is a case of criminal negligence out of which civil liability arises
and not a case of civil negligence.

Article 1903 of the Civil Code not only establishes liability in cases of negligence, but also provides when the
liability shall cease. It says:
"The liability referred to in this article shall cease when the persons mentioned therein prove that they
employed all the diligence of a good father of a family to avoid the damage."
From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or
employee there instantly arises a presumption of law that there was negligence on the part of the matter or
employer either in the selection of the servant or employee, or in supervision over him after the selection, or
both; and (2) that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision
he has exercised the care and diligence of a good father of a family, the presumption is overcome and he is
relieve from liability.
This theory bases the responsibility of the master ultimately on his own negligence and not on that of his
servant.
The doctrine of the case just cited was followed by this Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In
the latter case, the complaint alleged that the defendant's servant had so negligently driven an automobile,
which was operated by defendant as a public vehicle, that said automobile struck and damaged the plaintiff's
motorcycle. This Court, applying article 1903 and following the rule in Bahia vs. Litonjua and Leynes, said in
part (p. 41) that:
The master is liable for the negligent acts of his servant where he is the owner or director of a business or
enterprise and the negligent acts are committed while the servant is engaged in his master's employment as
such owner.
Another case which followed the decision in Bahia vs. Litonjua and Leynes was Cuison vs. Norton & Harrison
Co., 55 Phil., 18 (year 1930). The latter case was an action for damages brought by Cuison for the death of his
seven-year-old son Moises. The little boy was on his way to school with his sister Marciana. Some large
pieces of lumber fell from a truck and pinned the boy underneath, instantly killing him. Two youths, Telesforo
Binoya and Francisco Bautista, who were working for Ora, an employee of defendant Norton & Harrison Co.,
pleaded guilty to the crime of homicide through reckless negligence and were sentenced accordingly. This
Court, applying articles 1902 and 1903, held:
The basis of civil law liability is not respondent superior but the relationship of pater familias. This theory bases
the liability of the master ultimately on his own negligence and not on that of his servant. (Bahia vs. Litonjua
and Leynes [1915], 30 Phil., 624; Cangco vs. Manila Railroad Co. [1918], 38 Phil., 768.)
In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber Co., 55 Phil., 517 (year 1930) the plaintiff brought an
action for damages for the demolition of its wharf, which had been struck by the steamer Helen C belonging to
the defendant. This Court held (p. 526):
The evidence shows that Captain Lasa at the time the plaintiff's wharf collapsed was a duly licensed captain,
authorized to navigate and direct a vessel of any tonnage, and that the appellee contracted his services
because of his reputation as a captain, according to F. C. Cadwallader. This being so, we are of the opinion
that the presumption of liability against the defendant has been overcome by the exercise of the care and
diligence of a good father of a family in selecting Captain Lasa, in accordance with the doctrines laid down by
this court in the cases cited above, and the defendant is therefore absolved from all liability.

xxxxxxxxx
Our deduction, therefore, is that the case relates to the Penal Code and not to the Civil Code. Indeed, as
pointed out by the trial judge, any different ruling would permit the master to escape scot-free by simply
alleging and proving that the master had exercised all diligence in the selection and training of its servants to
prevent the damage. That would be a good defense to a strictly civil action, but might or might not be to a civil
action either as a part of or predicated on conviction for a crime or misdemeanor. (By way of parenthesis, it
may be said further that the statements here made are offered to meet the argument advanced during our
deliberations to the effect that article 0902 of the Civil Code should be disregarded and codal articles 1093 and
1903 applied.)
It is not clear how the above case could support the defendant's proposition, because the Court of Appeals
based its decision in the present case on the defendant's primary responsibility under article 1903 of the Civil
Code and not on his subsidiary liability arising from Fontanilla's criminal negligence. In other words, the case
of City of Manila vs. Manila Electric Co., supra, is predicated on an entirely different theory, which is the
subsidiary liability of an employer arising from a criminal act of his employee, whereas the foundation of the
decision of the Court of Appeals in the present case is the employer's primary liability under article 1903 of the
Civil Code. We have already seen that this is a proper and independent remedy.
Arambulo vs. Manila Electric Co. (55 Phil., 75), is another case invoked by the defendant. A motorman in the
employ of the Manila Electric Company had been convicted o homicide by simple negligence and sentenced,
among other things, to pay the heirs of the deceased the sum of P1,000. An action was then brought to
enforce the subsidiary liability of the defendant as employer under the Penal Code. The defendant attempted
to show that it had exercised the diligence of a good father of a family in selecting the motorman, and
therefore claimed exemption from civil liability. But this Court held:
In view of the foregoing considerations, we are of opinion and so hold, (1) that the exemption from civil liability
established in article 1903 of the Civil Code for all who have acted with the diligence of a good father of a
family, is not applicable to the subsidiary civil liability provided in article 20 of the Penal Code.
The above case is also extraneous to the theory of the defendant in the instant case, because the action there
had for its purpose the enforcement of the defendant's subsidiary liability under the Penal Code, while in the
case at bar, the plaintiff's cause of action is based on the defendant's primary and direct responsibility under
article 1903 of the Civil Code. In fact, the above case destroys the defendant's contention because that
decision illustrates the principle that the employer's primary responsibility under article 1903 of the Civil Code
is different in character from his subsidiary liability under the Penal Code.
In trying to apply the two cases just referred to, counsel for the defendant has failed to recognize the
distinction between civil liability arising from a crime, which is governed by the Penal Code, and the
responsibility for cuasi-delito or culpa aquilianaunder the Civil Code, and has likewise failed to give the
importance to the latter type of civil action.

It is, therefore, seen that the defendant's theory about his secondary liability is negatived by the six cases
above set forth. He is, on the authority of these cases, primarily and directly responsible in damages under
article 1903, in relation to article 1902, of the Civil Code.

The defendant-petitioner also cites Francisco vs. Onrubia (46 Phil., 327). That case need not be set forth.
Suffice it to say that the question involved was also civil liability arising from a crime. Hence, it is as
inapplicable as the two cases above discussed.

Let us now take up the Philippine decisions relied upon by the defendant. We study first, City of Manila vs.
Manila Electric Co., 52 Phil., 586 (year 1928). A collision between a truck of the City of Manila and a street car
of the Manila Electric Co. took place on June 8, 1925. The truck was damaged in the amount of P1,788.27.
Sixto Eustaquio, the motorman, was prosecuted for the crime of damage to property and slight injuries through
reckless imprudence. He was found guilty and sentenced to pay a fine of P900, to indemnify the City of Manila
for P1,788.27, with subsidiary imprisonment in case of insolvency. Unable to collect the indemnity from
Eustaquio, the City of Manila filed an action against the Manila Electric Company to obtain payment, claiming
that the defendant was subsidiarily liable. The main defense was that the defendant had exercised the

The foregoing authorities clearly demonstrate the separate individuality of cuasi-delitosor culpa
aquiliana under the Civil Code. Specifically they show that there is a distinction between civil liability arising
from criminal negligence (governed by the Penal Code) and responsibility for fault or negligence under articles
1902 to 1910 of the Civil Code, and that the same negligent act may produce either a civil liability arising from
a crime under the Penal Code, or a separate responsibility for fault or negligence under articles 1902 to 1910
of the Civil Code. Still more concretely, the authorities above cited render it inescapable to conclude that the
employer in this case the defendant-petitioner is primarily and directly liable under article 1903 of the
Civil Code.

The legal provisions, authors, and cases already invoked should ordinarily be sufficient to dispose of this case.
But inasmuch as we are announcing doctrines that have been little understood in the past, it might not be
inappropriate to indicate their foundations.

In view of the foregoing, the judgment of the Court of Appeals should be and is hereby affirmed, with costs
against the defendant-petitioner.

Firstly, the Revised Penal Code in article 365 punishes not only reckless but also simple negligence. If we
were to hold that articles 1902 to 1910 of the Civil Code refer only to fault or negligence not punished by law,
according to the literal import of article 1093 of the Civil Code, the legal institution of culpa aquiliana would
have very little scope and application in actual life. Death or injury to persons and damage to property through
any degree of negligence even the slightest would have to be indemnified only through the principle of
civil liability arising from a crime. In such a state of affairs, what sphere would remain for cuasi-delito or culpa
aquiliana? We are loath to impute to the lawmaker any intention to bring about a situation so absurd and
anomalous. Nor are we, in the interpretation of the laws, disposed to uphold the letter that killeth rather than
the spirit that giveth life. We will not use the literal meaning of the law to smother and render almost lifeless a
principle of such ancient origin and such full-grown development as culpa aquiliana or cuasi-delito, which is
conserved and made enduring in articles 1902 to 1910 of the Spanish Civil Code.
Secondly, to find the accused guilty in a criminal case, proof of guilt beyond reasonable doubt is required,
while in a civil case, preponderance of evidence is sufficient to make the defendant pay in damages. There are
numerous cases of criminal negligence which can not be shown beyond reasonable doubt, but can be proved
by a preponderance of evidence. In such cases, the defendant can and should be made responsible in a civil
action under articles 1902 to 1910 of the Civil Code. Otherwise, there would be many instances of
unvindicated civil wrongs. Ubi jus ibi remedium.
Thirdly, to hold that there is only one way to make defendant's liability effective, and that is, to sue the driver
and exhaust his (the latter's) property first, would be tantamount to compelling the plaintiff to follow a devious
and cumbersome method of obtaining relief. True, there is such a remedy under our laws, but there is also a
more expeditious way, which is based on the primary and direct responsibility of the defendant under article
1903 of the Civil Code. Our view of the law is more likely to facilitate remedy for civil wrongs, because the
procedure indicated by the defendant is wasteful and productive of delay, it being a matter of common
knowledge that professional drivers of taxis and similar public conveyance usually do not have sufficient
means with which to pay damages. Why, then, should the plaintiff be required in all cases to go through this
roundabout, unnecessary, and probably useless procedure? In construing the laws, courts have endeavored
to shorten and facilitate the pathways of right and justice.
At this juncture, it should be said that the primary and direct responsibility of employers and their presumed
negligence are principles calculated to protect society. Workmen and employees should be carefully chosen
and supervised in order to avoid injury to the public. It is the masters or employers who principally reap the
profits resulting from the services of these servants and employees. It is but right that they should guarantee
the latter's careful conduct for the personnel and patrimonial safety of others. As Theilhard has said, "they
should reproach themselves, at least, some for their weakness, others for their poor selection and all for their
negligence." And according to Manresa, "It is much more equitable and just that such responsibility should fall
upon the principal or director who could have chosen a careful and prudent employee, and not upon the
injured person who could not exercise such selection and who used such employee because of his confidence
in the principal or director." (Vol. 12, p. 622, 2nd Ed.) Many jurists also base this primary responsibility of the
employer on the principle of representation of the principal by the agent. Thus, Oyuelos says in the work
already cited (Vol. 7, p. 747) that before third persons the employer and employee "vienen a ser como una
sola personalidad, por refundicion de la del dependiente en la de quien le emplea y utiliza." ("become as one
personality by the merging of the person of the employee in that of him who employs and utilizes him.") All
these observations acquire a peculiar force and significance when it comes to motor accidents, and there is
need of stressing and accentuating the responsibility of owners of motor vehicles.
Fourthly, because of the broad sweep of the provisions of both the Penal Code and the Civil Code on this
subject, which has given rise to the overlapping or concurrence of spheres already discussed, and for lack of
understanding of the character and efficacy of the action for culpa aquiliana, there has grown up a common
practice to seek damages only by virtue of the civil responsibility arising from a crime, forgetting that there is
another remedy, which is by invoking articles 1902-1910 of the Civil Code. Although this habitual method is
allowed by our laws, it has nevertheless rendered practically useless and nugatory the more expeditious and
effective remedy based onculpa aquiliana or culpa extra-contractual. In the present case, we are asked to help
perpetuate this usual course. But we believe it is high time we pointed out to the harm done by such practice
and to restore the principle of responsibility for fault or negligence under articles 1902 et seq. of the Civil Code
to its full rigor. It is high time we caused the stream of quasi-delict or culpa aquiliana to flow on its own natural
channel, so that its waters may no longer be diverted into that of a crime under the Penal Code. This will, it is
believed, make for the better safeguarding of private rights because it re-establishes an ancient and additional
remedy, and for the further reason that an independent civil action, not depending on the issues, limitations
and results of a criminal prosecution, and entirely directed by the party wronged or his counsel, is more likely
to secure adequate and efficacious redress.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32599 June 29, 1979
EDGARDO E. MENDOZA, petitioner
vs.
HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First Instance of Manila, FELINO
TIMBOL, and RODOLFO SALAZAR, respondents.
David G. Nitafan for petitioner.
Arsenio R. Reyes for respondent Timbol.
Armando M. Pulgado for respondent Salazar.

MELENCIO-HERRERA, J:
Petitioner, Edgardo Mendoza, seeks a review on certiorari of the Orders of respondent Judge in Civil Case No.
80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and
Rodolfo Salazar.

owner Timbol were joined as defendants, either in the alternative or in solidum allegedly for the reason that
petitioner was uncertain as to whether he was entitled to relief against both on only one of them.
On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that
the Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An
Opposition thereto was filed by petitioner.

The facts which spawned the present controversy may be summarized as follows:
On October 22, 1969, at about 4:00 o'clock in the afternoon, a three- way vehicular accident occurred along
Mac-Arthur Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private
jeep owned and driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent
Felipino Timbol and driven by Freddie Montoya. As a consequence of said mishap, two separate Informations
for Reckless Imprudence Causing Damage to Property were filed against Rodolfo Salazar and Freddie
Montoya with the Court of First Instance of Bulacan. The race against truck-driver Montoya, docketed as
Criminal Case No. SM-227, was for causing damage to the jeep owned by Salazar, in the amount of
Pl,604.00, by hitting it at the right rear portion thereby causing said jeep to hit and bump an oncoming car,
which happened to be petitioner's Mercedes Benz. The case against jeep-owner-driver Salazar, docketed as
Criminal Case No. SM 228, was for causing damage to the Mercedes Benz of petitioner in the amount of
P8,890.00
At the joint trial of the above cases, petitioner testified that jeep-owner- driver Salazar overtook the truck driven
by Montoya, swerved to the left going towards the poblacion of Marilao, and hit his car which was bound for
Manila. Petitioner further testified that before the impact, Salazar had jumped from the jeep and that he was
not aware that Salazar's jeep was bumped from behind by the truck driven by Montoya. Petitioner's version of
the accident was adopted by truck driver Montoya. Jeep-owner-driver Salazar, on the other hand, tried to show
that, after overtaking the truck driven by Montoya, he flashed a signal indicating his intention to turn left
towards the poblacion of Marilao but was stopped at the intersection by a policeman who was directing traffic;
that while he was at a stop position, his jeep was bumped at the rear by the truck driven by Montova causing
him to be thrown out of the jeep, which then swerved to the left and hit petitioner's car, which was coming from
the opposite direction.
On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in
its decretal portion:
IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya
GUILTY beyond reasonable doubt of the crime of damage to property thru reckless
imprudence in Crime. Case No. SM-227, and hereby sentences him to pay a fine of
P972.50 and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual
damages, with subsidiary imprisonment in case of insolvency, both as to fine and
indemnity, with costs.
Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crime.
Case No. SM-228, with costs de oficio, and his bond is ordered canceled
SO ORDERED. 1
Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings
that the collision between Salazar's jeep and petitioner's car was the result of the former having been bumped
from behind by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a
complainant against truck-driver Montoya but only against jeep-owner-driver Salazar.
On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with
the Court of First Instance of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the
latter being the owner of the gravel and sand truck driven by Montoya, for indentification for the damages
sustained by his car as a result of the collision involving their vehicles. Jeep-owner-driver Salazar and truck-

In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truck-owner
Timbol for reasons stated in the afore- mentioned Motion to Dismiss On September 30, 1970, petitioner
sought before this Court the review of that dismissal, to which petition we gave due course.
On January 30, 1971, upon motion of jeep-owner-driver Salazar, respondent Judge also dismissed the case
as against the former. Respondent Judge reasoned out that "while it is true that an independent civil action for
liability under Article 2177 of the Civil Code could be prosecuted independently of the criminal action for the
offense from which it arose, the New Rules of Court, which took effect on January 1, 1964, requires an
express reservation of the civil action to be made in the criminal action; otherwise, the same would be barred
pursuant to Section 2, Rule 111 ... 2 Petitioner's Motion for Reconsideration thereof was denied in the order
dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court "for a
more decisive interpretation of the rule. 3
On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two
mentioned Orders, to which we required jeep-owner-driver Salazar to file an Answer.
The Complaint against
truck-owner Timbol
We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioner's Complaint
against truck-owner Timbol.
In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbol's allegations that the
civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no
reservation to file a separate civil case was made by petitioner and where the latter actively participated in the
trial and tried to prove damages against jeep-driver-Salazar only; and that the Complaint does not state a
cause of action against truck-owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as
the one solely responsible for the damage suffered by his car.
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following
requisites must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having
jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merits; and (4) there
must be, between the first and second actions, Identity of parties, Identity of subject matter and Identity of
cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that
there is no Identity of cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious
is the fact that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioner's car but
for damage to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it
"the owner of the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he
(Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-228. 4 And more
importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from
criminal negligence under Article l of the Revised Penal Code, whereas Civil Case No. 80803 is based on
quasi-delict under Article 2180, in relation to Article 2176 of the Civil Code As held in Barredo vs. Garcia, et al.
5

The foregoing authorities clearly demonstrate the separate in. individuality of cuasidelitos or culpa aquiliana under the Civil Code. Specifically they show that there is a
distinction between civil liability arising from criminal negligence (governed by the
Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of
the Civil Code, and that the same negligent act may produce either a civil liability
arising from a crime under the Penal Code, or a separate responsibility for fault or
negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the
authorities above cited render it inescapable to conclude that the employer in this case
the defendant- petitioner is primarily and directly liable under article 1903 of the Civil
Code.
That petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident from the
recitals in the complaint to wit: that while petitioner was driving his car along MacArthur Highway at Marilao,
Bulacan, a jeep owned and driven by Salazar suddenly swerved to his (petitioner's) lane and collided with his
car That the sudden swerving of Salazar's jeep was caused either by the negligence and lack of skill of
Freddie Montoya, Timbol's employee, who was then driving a gravel and sand truck iii the same direction as
Salazar's jeep; and that as a consequence of the collision, petitioner's car suffered extensive damage
amounting to P12,248.20 and that he likewise incurred actual and moral damages, litigation expenses and
attorney's fees. Clearly, therefore, the two factors that a cause of action must consist of, namely: (1) plaintiff's
primary right, i.e., that he is the owner of a Mercedes Benz, and (2) defendant's delict or wrongful act or
omission which violated plaintiff's primary right, i.e., the negligence or lack of skill either of jeep-owner Salazar
or of Timbol's employee, Montoya, in driving the truck, causing Salazar's jeep to swerve and collide with
petitioner's car, were alleged in the Complaint. 6
Consequently, petitioner's cause of action being based on quasi-delict, respondent Judge committed
reversible error when he dismissed the civil suit against the truck-owner, as said case may proceed
independently of the criminal proceedings and regardless of the result of the latter.
Art. 31. When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the
criminal proceedings and regardless of the result of the latter.
But it is truck-owner Timbol's submission (as well as that of jeep-owner-driver Salazar) that petitioner's failure
to make a reservation in the criminal action of his right to file an independent civil action bars the institution of
such separate civil action, invoking section 2, Rule 111, Rules of Court, which says:
Section 2. Independent civil action. In the cases provided for in Articles 31, 32,
33, 34 and 2177 of the Civil Code of the Philippines, an independent civil action entirely
separate and distinct from the criminal action may be brought by the injured party
during the pendency of the criminal case, provided the right is reserved as required in
the preceding section. Such civil action shau proceed independently of the criminal
prosecution, and shall require only a preponderance of evidence.
Interpreting the above provision, this Court, in Garcia vs. Florida 7 said:
As we have stated at the outset, the same negligent act causing damages may
produce a civil liability arising from crime or create an action for quasi-delict or culpa
extra-contractual. The former is a violation of the criminal law, while the latter is a
distinct and independent negligence, having always had its own foundation and
individuality. Some legal writers are of the view that in accordance with Article 31, the
civil action based upon quasi-delict may proceed independently of the criminal
proceeding for criminal negligence and regardless of the result of the latter. Hence, 'the
proviso in Section 2 of Rule 111 with reference to ... Articles 32, 33 and 34 of the Civil
Code is contrary to the letter and spirit of the said articles, for these articles were
drafted ... and are intended to constitute as exceptions to the general rule stated in
what is now Section 1 of Rule 111. The proviso, which is procedural, may also be
regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of
the Civil Code, which do not provide for the reservation required in the proviso ... .

In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as
Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising
from the offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the
criminal case; that Section 2 of Rule 111 is inoperative, "it being substantive in character and is not within the
power of the Supreme Court to promulgate; and even if it were not substantive but adjective, it cannot stand
because of its inconsistency with Article 2177, an enactment of the legislature superseding the Rules of 1940."
We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by
the fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based
on quasi-delict.
The suit against
jeep-owner-driver Salazar
The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a
different picture altogether.
At the outset it should be clarified that inasmuch as civil liability co-exists with criminal responsibility in
negligence cases, the offended party has the option between an action for enforcement of civil liability based
on culpa criminal under Article 100 of the Revised Penal Code, and an action for recovery of damages based
on culpa aquiliana under Article 2177 of the Civil Code. The action for enforcement of civil liability based on
culpa criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the
criminal action, unless expressly waived or reserved for separate application by the offended party. 8
The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his
cause of action against jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana as evidenced
by his active participation and intervention in the prosecution of the criminal suit against said Salazar. The
latter's civil liability continued to be involved in the criminal action until its termination. Such being the case,
there was no need for petitioner to have reserved his right to file a separate civil action as his action for civil
liability was deemed impliedly instituted in Criminal Case No. SM-228.
Neither would an independent civil action he. Noteworthy is the basis of the acquittal of jeep-owner-driver
Salazar in the criminal case, expounded by the trial Court in this wise:
In view of what has been proven and established during the trial, accused Freddie
Montoya would be held able for having bumped and hit the rear portion of the jeep
driven by the accused Rodolfo Salazar,
Considering that the collision between the jeep driven by Rodolfo Salazar and the car
owned and driven by Edgardo Mendoza was the result of the hitting on the rear of the
jeep by the truck driven by Freddie Montoya, this Court behaves that accused Rodolfo
Salazar cannot be held able for the damages sustained by Edgardo Mendoza's car. 9
Crystal clear is the trial Court's pronouncement that under the facts of the case, jeep-owner-driver Salazar
cannot be held liable for the damages sustained by petitioner's car. In other words, "the fact from which the
civil might arise did not exist. " Accordingly, inasmuch as petitioner's cause of action as against jeep-ownerdriver Salazar is ex- delictu, founded on Article 100 of the Revised Penal Code, the civil action must be held to
have been extinguished in consonance with Section 3(c), Rule 111 of the Rules of Court 10 which provides:
Sec. 3. Other civil actions arising from offenses. In all cases not included in the
preceding section the following rules shall be observed:
xxx xxx xxx

c) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil night arise did not exist. ...

10 Eleano Hill, 77 SCRA 98 (1977)

Republic of the Philippines

SUPREME COURT
Manila

And even if petitioner's cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end
result would be the same, it being clear from the judgment in the criminal case that Salazar's acquittal was not
based upon reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is
explicitly provided for in Article 29 of the Civil Code quoted here under:
Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his
guilt has not been proved beyond reasonable doubt, a civil action for damages for the
same act or omission may be instituted. Such action requires only a preponderance of
evidence ...
If in a criminal case the judgment of acquittal is based upon reasonable doubt, the
court shall so declare. In the absence of any declaration to that effect, it may be
inferred from the text of the decision whether or not the acquittal is due to that ground.

FIRST DIVISION
G.R. No. L-32599 June 29, 1979
EDGARDO E. MENDOZA, petitioner
vs.
HON. ABUNDIO Z. ARRIETA, Presiding Judge of Branch VIII, Court of First Instance of Manila, FELINO
TIMBOL, and RODOLFO SALAZAR, respondents.
David G. Nitafan for petitioner.

In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judge's
Order dated January 30, 1971 dismissing the complaint, albeit on different grounds.

Arsenio R. Reyes for respondent Timbol.

WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private
respondent Felino Timbol is set aside, and respondent Judge, or his successor, hereby ordered to proceed
with the hearing on the merits; 2) but the Orders dated January 30, 1971 and February 23, 1971 dismissing
the Complaint in Civil Case No. 80803 against respondent Rodolfo Salazar are hereby upheld.

Armando M. Pulgado for respondent Salazar.

No costs.

MELENCIO-HERRERA, J:

SO ORDERED.

Petitioner, Edgardo Mendoza, seeks a review on certiorari of the Orders of respondent Judge in Civil Case No.
80803 dismissing his Complaint for Damages based on quasi-delict against respondents Felino Timbol and
Rodolfo Salazar.

Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.

The facts which spawned the present controversy may be summarized as follows:

#Footnotes
1 p. 26, Rollo
2 pp. 147-149, Ibid.
3 pp. 138-139, Ibid.
4 Decision P. 26, Ibid

On October 22, 1969, at about 4:00 o'clock in the afternoon, a three- way vehicular accident occurred along
Mac-Arthur Highway, Marilao, Bulacan, involving a Mercedes Benz owned and driven by petitioner; a private
jeep owned and driven by respondent Rodolfo Salazar; and a gravel and sand truck owned by respondent
Felipino Timbol and driven by Freddie Montoya. As a consequence of said mishap, two separate Informations
for Reckless Imprudence Causing Damage to Property were filed against Rodolfo Salazar and Freddie
Montoya with the Court of First Instance of Bulacan. The race against truck-driver Montoya, docketed as
Criminal Case No. SM-227, was for causing damage to the jeep owned by Salazar, in the amount of
Pl,604.00, by hitting it at the right rear portion thereby causing said jeep to hit and bump an oncoming car,
which happened to be petitioner's Mercedes Benz. The case against jeep-owner-driver Salazar, docketed as
Criminal Case No. SM 228, was for causing damage to the Mercedes Benz of petitioner in the amount of
P8,890.00

5 73 PhiL 607, 620 (1942)

6 Racoma vs. Fortich, 39S CRA 521(1971)
7 52 SCRA 420 (1973)
8 Padua vs. Robles, 66 SCRA 485 (1975)
9 pp. 25-26, Rollo

At the joint trial of the above cases, petitioner testified that jeep-owner- driver Salazar overtook the truck driven
by Montoya, swerved to the left going towards the poblacion of Marilao, and hit his car which was bound for
Manila. Petitioner further testified that before the impact, Salazar had jumped from the jeep and that he was
not aware that Salazar's jeep was bumped from behind by the truck driven by Montoya. Petitioner's version of
the accident was adopted by truck driver Montoya. Jeep-owner-driver Salazar, on the other hand, tried to show
that, after overtaking the truck driven by Montoya, he flashed a signal indicating his intention to turn left
towards the poblacion of Marilao but was stopped at the intersection by a policeman who was directing traffic;
that while he was at a stop position, his jeep was bumped at the rear by the truck driven by Montova causing
him to be thrown out of the jeep, which then swerved to the left and hit petitioner's car, which was coming from
the opposite direction.

On July 31, 1970, the Court of First Instance of Bulacan, Branch V, Sta. Maria, rendered judgment, stating in
its decretal portion:
IN VIEW OF THE FOREGOING, this Court finds the accused Freddie Montoya
GUILTY beyond reasonable doubt of the crime of damage to property thru reckless
imprudence in Crime. Case No. SM-227, and hereby sentences him to pay a fine of
P972.50 and to indemnify Rodolfo Salazar in the same amount of P972.50 as actual
damages, with subsidiary imprisonment in case of insolvency, both as to fine and
indemnity, with costs.
Accused Rodolfo Salazar is hereby ACQUITTED from the offense charged in Crime.
Case No. SM-228, with costs de oficio, and his bond is ordered canceled
SO ORDERED. 1
Thus, the trial Court absolved jeep-owner-driver Salazar of any liability, civil and criminal, in view of its findings
that the collision between Salazar's jeep and petitioner's car was the result of the former having been bumped
from behind by the truck driven by Montoya. Neither was petitioner awarded damages as he was not a
complainant against truck-driver Montoya but only against jeep-owner-driver Salazar.
On August 22, 1970, or after the termination of the criminal cases, petitioner filed Civil Case No. 80803 with
the Court of First Instance of Manila against respondents jeep-owner-driver Salazar and Felino Timbol, the
latter being the owner of the gravel and sand truck driven by Montoya, for indentification for the damages
sustained by his car as a result of the collision involving their vehicles. Jeep-owner-driver Salazar and truckowner Timbol were joined as defendants, either in the alternative or in solidum allegedly for the reason that
petitioner was uncertain as to whether he was entitled to relief against both on only one of them.
On September 9, 1970, truck-owner Timbol filed a Motion to Dismiss Civil Case No. 80803 on the grounds that
the Complaint is barred by a prior judgment in the criminal cases and that it fails to state a cause of action. An
Opposition thereto was filed by petitioner.
In an Order dated September 12, 1970, respondent Judge dismissed the Complaint against truck-owner
Timbol for reasons stated in the afore- mentioned Motion to Dismiss On September 30, 1970, petitioner
sought before this Court the review of that dismissal, to which petition we gave due course.
On January 30, 1971, upon motion of jeep-owner-driver Salazar, respondent Judge also dismissed the case
as against the former. Respondent Judge reasoned out that "while it is true that an independent civil action for
liability under Article 2177 of the Civil Code could be prosecuted independently of the criminal action for the
offense from which it arose, the New Rules of Court, which took effect on January 1, 1964, requires an
express reservation of the civil action to be made in the criminal action; otherwise, the same would be barred
pursuant to Section 2, Rule 111 ... 2 Petitioner's Motion for Reconsideration thereof was denied in the order
dated February 23, 1971, with respondent Judge suggesting that the issue be raised to a higher Court "for a
more decisive interpretation of the rule. 3
On March 25, 1971, petitioner then filed a Supplemental Petition before us, also to review the last two
mentioned Orders, to which we required jeep-owner-driver Salazar to file an Answer.
The Complaint against
truck-owner Timbol
We shall first discuss the validity of the Order, dated September 12, 1970, dismissing petitioner's Complaint
against truck-owner Timbol.

In dismissing the Complaint against the truck-owner, respondent Judge sustained Timbol's allegations that the
civil suit is barred by the prior joint judgment in Criminal Cases Nos. SM-227 and SM-228, wherein no
reservation to file a separate civil case was made by petitioner and where the latter actively participated in the
trial and tried to prove damages against jeep-driver-Salazar only; and that the Complaint does not state a
cause of action against truck-owner Timbol inasmuch as petitioner prosecuted jeep-owner-driver Salazar as
the one solely responsible for the damage suffered by his car.
Well-settled is the rule that for a prior judgment to constitute a bar to a subsequent case, the following
requisites must concur: (1) it must be a final judgment; (2) it must have been rendered by a Court having
jurisdiction over the subject matter and over the parties; (3) it must be a judgment on the merits; and (4) there
must be, between the first and second actions, Identity of parties, Identity of subject matter and Identity of
cause of action.
It is conceded that the first three requisites of res judicata are present. However, we agree with petitioner that
there is no Identity of cause of action between Criminal Case No. SM-227 and Civil Case No. 80803. Obvious
is the fact that in said criminal case truck-driver Montoya was not prosecuted for damage to petitioner's car but
for damage to the jeep. Neither was truck-owner Timbol a party in said case. In fact as the trial Court had put it
"the owner of the Mercedes Benz cannot recover any damages from the accused Freddie Montoya, he
(Mendoza) being a complainant only against Rodolfo Salazar in Criminal Case No. SM-228. 4 And more
importantly, in the criminal cases, the cause of action was the enforcement of the civil liability arising from
criminal negligence under Article l of the Revised Penal Code, whereas Civil Case No. 80803 is based on
quasi-delict under Article 2180, in relation to Article 2176 of the Civil Code As held in Barredo vs. Garcia, et al.
5

The foregoing authorities clearly demonstrate the separate in. individuality of cuasidelitos or culpa aquiliana under the Civil Code. Specifically they show that there is a
distinction between civil liability arising from criminal negligence (governed by the
Penal Code) and responsibility for fault or negligence under articles 1902 to 1910 of
the Civil Code, and that the same negligent act may produce either a civil liability
arising from a crime under the Penal Code, or a separate responsibility for fault or
negligence under articles 1902 to 1910 of the Civil Code. Still more concretely, the
authorities above cited render it inescapable to conclude that the employer in this case
the defendant- petitioner is primarily and directly liable under article 1903 of the Civil
Code.
That petitioner's cause of action against Timbol in the civil case is based on quasi-delict is evident from the
recitals in the complaint to wit: that while petitioner was driving his car along MacArthur Highway at Marilao,
Bulacan, a jeep owned and driven by Salazar suddenly swerved to his (petitioner's) lane and collided with his
car That the sudden swerving of Salazar's jeep was caused either by the negligence and lack of skill of
Freddie Montoya, Timbol's employee, who was then driving a gravel and sand truck iii the same direction as
Salazar's jeep; and that as a consequence of the collision, petitioner's car suffered extensive damage
amounting to P12,248.20 and that he likewise incurred actual and moral damages, litigation expenses and
attorney's fees. Clearly, therefore, the two factors that a cause of action must consist of, namely: (1) plaintiff's
primary right, i.e., that he is the owner of a Mercedes Benz, and (2) defendant's delict or wrongful act or
omission which violated plaintiff's primary right, i.e., the negligence or lack of skill either of jeep-owner Salazar
or of Timbol's employee, Montoya, in driving the truck, causing Salazar's jeep to swerve and collide with
petitioner's car, were alleged in the Complaint. 6
Consequently, petitioner's cause of action being based on quasi-delict, respondent Judge committed
reversible error when he dismissed the civil suit against the truck-owner, as said case may proceed
independently of the criminal proceedings and regardless of the result of the latter.
Art. 31. When the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the
criminal proceedings and regardless of the result of the latter.

But it is truck-owner Timbol's submission (as well as that of jeep-owner-driver Salazar) that petitioner's failure
to make a reservation in the criminal action of his right to file an independent civil action bars the institution of
such separate civil action, invoking section 2, Rule 111, Rules of Court, which says:
Section 2. Independent civil action. In the cases provided for in Articles 31, 32,
33, 34 and 2177 of the Civil Code of the Philippines, an independent civil action entirely
separate and distinct from the criminal action may be brought by the injured party
during the pendency of the criminal case, provided the right is reserved as required in
the preceding section. Such civil action shau proceed independently of the criminal
prosecution, and shall require only a preponderance of evidence.

there was no need for petitioner to have reserved his right to file a separate civil action as his action for civil
liability was deemed impliedly instituted in Criminal Case No. SM-228.
Neither would an independent civil action he. Noteworthy is the basis of the acquittal of jeep-owner-driver
Salazar in the criminal case, expounded by the trial Court in this wise:
In view of what has been proven and established during the trial, accused Freddie
Montoya would be held able for having bumped and hit the rear portion of the jeep
driven by the accused Rodolfo Salazar,
Considering that the collision between the jeep driven by Rodolfo Salazar and the car
owned and driven by Edgardo Mendoza was the result of the hitting on the rear of the
jeep by the truck driven by Freddie Montoya, this Court behaves that accused Rodolfo
Salazar cannot be held able for the damages sustained by Edgardo Mendoza's car. 9

Interpreting the above provision, this Court, in Garcia vs. Florida 7 said:
As we have stated at the outset, the same negligent act causing damages may
produce a civil liability arising from crime or create an action for quasi-delict or culpa
extra-contractual. The former is a violation of the criminal law, while the latter is a
distinct and independent negligence, having always had its own foundation and
individuality. Some legal writers are of the view that in accordance with Article 31, the
civil action based upon quasi-delict may proceed independently of the criminal
proceeding for criminal negligence and regardless of the result of the latter. Hence, 'the
proviso in Section 2 of Rule 111 with reference to ... Articles 32, 33 and 34 of the Civil
Code is contrary to the letter and spirit of the said articles, for these articles were
drafted ... and are intended to constitute as exceptions to the general rule stated in
what is now Section 1 of Rule 111. The proviso, which is procedural, may also be
regarded as an unauthorized amendment of substantive law, Articles 32, 33 and 34 of
the Civil Code, which do not provide for the reservation required in the proviso ... .
In his concurring opinion in the above case, Mr. Justice Antonio Barredo further observed that inasmuch as
Articles 2176 and 2177 of the Civil Code create a civil liability distinct and different from the civil action arising
from the offense of negligence under the Revised Penal Code, no reservation, therefore, need be made in the
criminal case; that Section 2 of Rule 111 is inoperative, "it being substantive in character and is not within the
power of the Supreme Court to promulgate; and even if it were not substantive but adjective, it cannot stand
because of its inconsistency with Article 2177, an enactment of the legislature superseding the Rules of 1940."
We declare, therefore, that in so far as truck-owner Timbol is concerned, Civil Case No. 80803 is not barred by
the fact that petitioner failed to reserve, in the criminal action, his right to file an independent civil action based
on quasi-delict.

Crystal clear is the trial Court's pronouncement that under the facts of the case, jeep-owner-driver Salazar
cannot be held liable for the damages sustained by petitioner's car. In other words, "the fact from which the
civil might arise did not exist. " Accordingly, inasmuch as petitioner's cause of action as against jeep-ownerdriver Salazar is ex- delictu, founded on Article 100 of the Revised Penal Code, the civil action must be held to
have been extinguished in consonance with Section 3(c), Rule 111 of the Rules of Court 10 which provides:
Sec. 3. Other civil actions arising from offenses. In all cases not included in the
preceding section the following rules shall be observed:
xxx xxx xxx
c) Extinction of the penal action does not carry with it extinction of the civil, unless the
extinction proceeds from a declaration in a final judgment that the fact from which the
civil night arise did not exist. ...
And even if petitioner's cause of action as against jeep-owner-driver Salazar were not ex-delictu, the end
result would be the same, it being clear from the judgment in the criminal case that Salazar's acquittal was not
based upon reasonable doubt, consequently, a civil action for damages can no longer be instituted. This is
explicitly provided for in Article 29 of the Civil Code quoted here under:
Art. 29. When the accused in a criminal prosecution is acquitted on the ground that his
guilt has not been proved beyond reasonable doubt, a civil action for damages for the
same act or omission may be instituted. Such action requires only a preponderance of
evidence ...

The suit against

jeep-owner-driver Salazar

If in a criminal case the judgment of acquittal is based upon reasonable doubt, the
court shall so declare. In the absence of any declaration to that effect, it may be
inferred from the text of the decision whether or not the acquittal is due to that ground.

The case as against jeep-owner-driver Salazar, who was acquitted in Criminal Case No. SM-228, presents a
different picture altogether.
At the outset it should be clarified that inasmuch as civil liability co-exists with criminal responsibility in
negligence cases, the offended party has the option between an action for enforcement of civil liability based
on culpa criminal under Article 100 of the Revised Penal Code, and an action for recovery of damages based
on culpa aquiliana under Article 2177 of the Civil Code. The action for enforcement of civil liability based on
culpa criminal under section 1 of Rule 111 of the Rules of Court is deemed simultaneously instituted with the
criminal action, unless expressly waived or reserved for separate application by the offended party. 8
The circumstances attendant to the criminal case yields the conclusion that petitioner had opted to base his
cause of action against jeep-owner-driver Salazar on culpa criminal and not on culpa aquiliana as evidenced
by his active participation and intervention in the prosecution of the criminal suit against said Salazar. The
latter's civil liability continued to be involved in the criminal action until its termination. Such being the case,

In so far as the suit against jeep-owner-driver Salazar is concerned, therefore, we sustain respondent Judge's
Order dated January 30, 1971 dismissing the complaint, albeit on different grounds.
WHEREFORE, 1) the Order dated September 12, 1970 dismissing Civil Case No. 80803 against private
respondent Felino Timbol is set aside, and respondent Judge, or his successor, hereby ordered to proceed
with the hearing on the merits; 2) but the Orders dated January 30, 1971 and February 23, 1971 dismissing
the Complaint in Civil Case No. 80803 against respondent Rodolfo Salazar are hereby upheld.
No costs.

SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
#Footnotes

G.R. No. L-47745 April 15, 1988

1 p. 26, Rollo

4 Decision P. 26, Ibid

JOSE S. AMADORA, LORETA A. AMADORA, JOSE A. AMADORA JR., NORMA A. YLAYA PANTALEON
A. AMADORA, JOSE A. AMADORA III, LUCY A. AMADORA, ROSALINDA A. AMADORA, PERFECTO A.
AMADORA, SERREC A. AMADORA, VICENTE A. AMADORA and MARIA TISCALINA A.
AMADORA,petitioners
vs.
HONORABLE COURT OF APPEALS, COLEGIO DE SAN JOSE-RECOLETOS, VICTOR LLUCH SERGIO P.
DLMASO JR., CELESTINO DICON, ANIANO ABELLANA, PABLITO DAFFON thru his parents and
natural guardians, MR. and MRS. NICANOR GUMBAN, and ROLANDO VALENCIA, thru his guardian, A.
FRANCISCO ALONSO, respondents.

5 73 PhiL 607, 620 (1942)

Jose S. Amadora & Associates for petitioners.

6 Racoma vs. Fortich, 39S CRA 521(1971)

Padilla Law Office for respondents.

2 pp. 147-149, Ibid.

3 pp. 138-139, Ibid.

7 52 SCRA 420 (1973)

8 Padua vs. Robles, 66 SCRA 485 (1975)

CRUZ, J.:

9 pp. 25-26, Rollo

Like any prospective graduate, Alfredo Amadora was looking forward to the commencement exercises where
he would ascend the stage and in the presence of his relatives and friends receive his high school diploma.
These ceremonies were scheduled on April 16, 1972. As it turned out, though, fate would intervene and deny
him that awaited experience. On April 13, 1972, while they were in the auditorium of their school, the Colegio
de San Jose-Recoletos, a classmate, Pablito Damon, fired a gun that mortally hit Alfredo, ending all his
expectations and his life as well. The victim was only seventeen years old. 1

10 Eleano Hill, 77 SCRA 98 (1977)

Daffon was convicted of homicide thru reckless imprudence . 2 Additionally, the herein petitioners, as the
victim's parents, filed a civil action for damages under Article 2180 of the Civil Code against the Colegio de
San Jose-Recoletos, its rector the high school principal, the dean of boys, and the physics teacher, together
with Daffon and two other students, through their respective parents. The complaint against the students was
later dropped. After trial, the Court of First Instance of Cebu held the remaining defendants liable to the
plaintiffs in the sum of P294,984.00, representing death compensation, loss of earning capacity, costs of
litigation, funeral expenses, moral damages, exemplary damages, and attorney's fees . 3 On appeal to the
respondent court, however, the decision was reversed and all the defendants were completely absolved . 4
In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules of Court, the
respondent court found that Article 2180 was not applicable as the Colegio de San Jose-Recoletos was not a
school of arts and trades but an academic institution of learning. It also held that the students were not in the
custody of the school at the time of the incident as the semester had already ended, that there was no clear
identification of the fatal gun and that in any event the defendant, had exercised the necessary diligence in
preventing the injury. 5
The basic undisputed facts are that Alfredo Amadora went to the San Jose-Recoletos on April 13, 1972, and
while in its auditorium was shot to death by Pablito Daffon, a classmate. On the implications and
consequences of these facts, the parties sharply disagree.
The petitioners contend that their son was in the school to show his physics experiment as a prerequisite to
his graduation; hence, he was then under the custody of the private respondents. The private respondents
submit that Alfredo Amadora had gone to the school only for the purpose of submitting his physics report and
that he was no longer in their custody because the semester had already ended.

There is also the question of the identity of the gun used which the petitioners consider important because of
an earlier incident which they claim underscores the negligence of the school and at least one of the private
respondents. It is not denied by the respondents that on April 7, 1972, Sergio Damaso, Jr., the dean of boys,
confiscated from Jose Gumban an unlicensed pistol but later returned it to him without making a report to the
principal or taking any further action . 6 As Gumban was one of the companions of Daffon when the latter fired
the gun that killed Alfredo, the petitioners contend that this was the same pistol that had been confiscated from
Gumban and that their son would not have been killed if it had not been returned by Damaso. The
respondents say, however, that there is no proof that the gun was the same firearm that killed Alfredo.
Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as it happens, is
invoked by both parties in support of their conflicting positions. The pertinent part of this article reads as
follows:
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.
Three cases have so far been decided by the Court in connection with the above-quoted provision, to wit:
Exconde v. Capuno 7 Mercado v. Court of Appeals, 8 and Palisoc v. Brillantes. 9 These will be briefly reviewed
in this opinion for a better resolution of the case at bar.
In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy Scout,
attended a Rizal Day parade on instructions of the city school supervisor. After the parade, the boy boarded a
jeep, took over its wheel and drove it so recklessly that it turned turtle, resulting in the death of two of its
passengers. Dante was found guilty of double homicide with reckless imprudence. In the separate civil action
flied against them, his father was held solidarily liable with him in damages under Article 1903 (now Article
2180) of the Civil Code for the tort committed by the 15-year old boy.
This decision, which was penned by Justice Bautista Angelo on June 29,1957, exculpated the school in
an obiter dictum (as it was not a party to the case) on the ground that it was riot a school of arts and trades.
Justice J.B.L. Reyes, with whom Justices Sabino Padilla and Alex Reyes concurred, dissented, arguing that it
was the school authorities who should be held liable Liability under this rule, he said, was imposed on (1)
teachers in general; and (2) heads of schools of arts and trades in particular. The modifying clause "of
establishments of arts and trades" should apply only to "heads" and not "teachers."
Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate with a razor
blade during recess time at the Lourdes Catholic School in Quezon City, and the parents of the victim sued the
culprits parents for damages. Through Justice Labrador, the Court declared in another obiter (as the school
itself had also not been sued that the school was not liable because it was not an establishment of arts and
trades. Moreover, the custody requirement had not been proved as this "contemplates a situation where the
student lives and boards with the teacher, such that the control, direction and influences on the pupil
supersede those of the parents." Justice J.B.L. Reyes did not take part but the other members of the court
concurred in this decision promulgated on May 30, 1960.
In Palisoc vs. Brillantes, decided on October 4, 1971, a 16-year old student was killed by a classmate with fist
blows in the laboratory of the Manila Technical Institute. Although the wrongdoer who was already of age
was not boarding in the school, the head thereof and the teacher in charge were held solidarily liable with him.
The Court declared through Justice Teehankee:
The phrase used in the cited article "so long as (the students) remain in their
custody" means the protective and supervisory custody that the school and its
heads and teachers exercise over the pupils and students for as long as they are at
attendance in the school, including recess time. There is nothing in the law that
requires that for such liability to attach, the pupil or student who commits the tortious
act must live and board in the school, as erroneously held by the lower court, and
the dicta in Mercado (as well as in Exconde) on which it relied, must now be deemed to
have been set aside by the present decision.

This decision was concurred in by five other members, 10 including Justice J.B.L. Reyes, who stressed, in
answer to the dissenting opinion, that even students already of age were covered by the provision since they
were equally in the custody of the school and subject to its discipline. Dissenting with three others, 11 Justice
Makalintal was for retaining the custody interpretation in Mercado and submitted that the rule should apply
only to torts committed by students not yet of age as the school would be acting only in loco parentis.
In a footnote, Justice Teehankee said he agreed with Justice Reyes' dissent in the Exconde Case but added
that "since the school involved at bar is a non-academic school, the question as to the applicability of the cited
codal provision to academic institutions will have to await another case wherein it may properly be raised."
This is the case.
Unlike in Exconde and Mercado, the Colegio de San Jose-Recoletos has been directly impleaded and is
sought to be held liable under Article 2180; and unlike in Palisoc, it is not a school of arts and trades but an
academic institution of learning. The parties herein have also directly raised the question of whether or not
Article 2180 covers even establishments which are technically not schools of arts and trades, and, if so, when
the offending student is supposed to be "in its custody."
After an exhaustive examination of the problem, the Court has come to the conclusion that the provision in
question should apply to all schools, academic as well as non-academic. Where the school is academic rather
than technical or vocational in nature, responsibility for the tort committed by the student will attach to the
teacher in charge of such student, following the first part of the provision. This is the general rule. In the case
of establishments of arts and trades, it is the head thereof, and only he, who shall be held liable as an
exception to the general rule. In other words, teachers in general shall be liable for the acts of their students
except where the school is technical in nature, in which case it is the head thereof who shall be answerable.
Following the canon ofreddendo singula singulis "teachers" should apply to the words "pupils and students"
and "heads of establishments of arts and trades" to the word "apprentices."
The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde where he
said in part:
I can see no sound reason for limiting Art. 1903 of the Old Civil Code to teachers of
arts and trades and not to academic ones. What substantial difference is there
between them insofar as concerns the proper supervision and vice over their pupils? It
cannot be seriously contended that an academic teacher is exempt from the duty of
watching that his pupils do not commit a tort to the detriment of third Persons, so long
as they are in a position to exercise authority and Supervision over the pupil. In my
opinion, in the phrase "teachers or heads of establishments of arts and trades" used in
Art. 1903 of the old Civil Code, the words "arts and trades" does not qualify "teachers"
but only "heads of establishments." The phrase is only an updated version of the
equivalent terms "preceptores y artesanos" used in the Italian and French Civil Codes.
If, as conceded by all commentators, the basis of the presumption of negligence of Art.
1903 in someculpa in vigilando that the parents, teachers, etc. are supposed to have
incurred in the exercise of their authority, it would seem clear that where the parent
places the child under the effective authority of the teacher, the latter, and not the
parent, should be the one answerable for the torts committed while under his custody,
for the very reason/that the parent is not supposed to interfere with the discipline of the
school nor with the authority and supervision of the teacher while the child is under
instruction. And if there is no authority, there can be no responsibility.
There is really no substantial distinction between the academic and the non-academic schools insofar as torts
committed by their students are concerned. The same vigilance is expected from the teacher over the
students under his control and supervision, whatever the nature of the school where he is teaching. The
suggestion in the Exconde and Mercado Cases is that the provision would make the teacher or even the head
of the school of arts and trades liable for an injury caused by any student in its custody but if that same tort
were committed in an academic school, no liability would attach to the teacher or the school head. All other

circumstances being the same, the teacher or the head of the academic school would be absolved whereas
the teacher and the head of the non-academic school would be held liable, and simply because the latter is a
school of arts and trades.
The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the
basis only of the nature of their respective schools. There does not seem to be any plausible reason for
relaxing that vigilance simply because the school is academic in nature and for increasing such vigilance
where the school is non-academic. Notably, the injury subject of liability is caused by the student and not by
the school itself nor is it a result of the operations of the school or its equipment. The injury contemplated may
be caused by any student regardless of the school where he is registered. The teacher certainly should not be
able to excuse himself by simply showing that he is teaching in an academic school where, on the other hand,
the head would be held liable if the school were non-academic.
These questions, though, may be asked: If the teacher of the academic school is to be held answerable for the
torts committed by his students, why is it the head of the school only who is held liable where the injury is
caused in a school of arts and trades? And in the case of the academic or non- technical school, why not apply
the rule also to the head thereof instead of imposing the liability only on the teacher?
The reason for the disparity can be traced to the fact that historically the head of the school of arts and trades
exercised a closer tutelage over his pupils than the head of the academic school. The old schools of arts and
trades were engaged in the training of artisans apprenticed to their master who personally and directly
instructed them on the technique and secrets of their craft. The head of the school of arts and trades was such
a master and so was personally involved in the task of teaching his students, who usually even boarded with
him and so came under his constant control, supervision and influence. By contrast, the head of the academic
school was not as involved with his students and exercised only administrative duties over the teachers who
were the persons directly dealing with the students. The head of the academic school had then (as now) only
a vicarious relationship with the students. Consequently, while he could not be directly faulted for the acts of
the students, the head of the school of arts and trades, because of his closer ties with them, could be so
blamed.
It is conceded that the distinction no longer obtains at present in view of the expansion of the schools of arts
and trades, the consequent increase in their enrollment, and the corresponding diminution of the direct and
personal contract of their heads with the students. Article 2180, however, remains unchanged. In its present
state, the provision must be interpreted by the Court according to its clear and original mandate until the
legislature, taking into account the charges in the situation subject to be regulated, sees fit to enact the
necessary amendment.
The other matter to be resolved is the duration of the responsibility of the teacher or the head of the school of
arts and trades over the students. Is such responsibility co-extensive with the period when the student is
actually undergoing studies during the school term, as contended by the respondents and impliedly admitted
by the petitioners themselves?
From a reading of the provision under examination, it is clear that while the custody requirement, to
repeatPalisoc v. Brillantes, does not mean that the student must be boarding with the school authorities, it
does signify that the student should be within the control and under the influence of the school authorities at
the time of the occurrence of the injury. This does not necessarily mean that such, custody be co-terminous
with the semester, beginning with the start of classes and ending upon the close thereof, and excluding the
time before or after such period, such as the period of registration, and in the case of graduating students, the
period before the commencement exercises. In the view of the Court, the student is in the custody of the
school authorities as long as he is under the control and influence of the school and within its premises,
whether the semester has not yet begun or has already ended.
It is too tenuous to argue that the student comes under the discipline of the school only upon the start of
classes notwithstanding that before that day he has already registered and thus placed himself under its rules.
Neither should such discipline be deemed ended upon the last day of classes notwithstanding that there may
still be certain requisites to be satisfied for completion of the course, such as submission of reports, term
papers, clearances and the like. During such periods, the student is still subject to the disciplinary authority of
the school and cannot consider himself released altogether from observance of its rules.

As long as it can be shown that the student is in the school premises in pursuance of a legitimate student
objective, in the exercise of a legitimate student right, and even in the enjoyment of a legitimate student right,
and even in the enjoyment of a legitimate student privilege, the responsibility of the school authorities over the
student continues. Indeed, even if the student should be doing nothing more than relaxing in the campus in the
company of his classmates and friends and enjoying the ambience and atmosphere of the school, he is still
within the custody and subject to the discipline of the school authorities under the provisions of Article 2180.
During all these occasions, it is obviously the teacher-in-charge who must answer for his students' torts, in
practically the same way that the parents are responsible for the child when he is in their custody. The
teacher-in-charge is the one designated by the dean, principal, or other administrative superior to exercise
supervision over the pupils in the specific classes or sections to which they are assigned. It is not necessary
that at the time of the injury, the teacher be physically present and in a position to prevent it. Custody does not
connote immediate and actual physical control but refers more to the influence exerted on the child and the
discipline instilled in him as a result of such influence. Thus, for the injuries caused by the student, the teacher
and not the parent shag be held responsible if the tort was committed within the premises of the school at any
time when its authority could be validly exercised over him.
In any event, it should be noted that the liability imposed by this article is supposed to fall directly on the
teacher or the head of the school of arts and trades and not on the school itself. If at all, the school, whatever
its nature, may be held to answer for the acts of its teachers or even of the head thereof under the general
principle ofrespondeat superior, but then it may exculpate itself from liability by proof that it had exercised the
diligence of abonus paterfamilias.
Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly
held to answer for the tort committed by the student. As long as the defendant can show that he had taken the
necessary precautions to prevent the injury complained of, he can exonerate himself from the liability imposed
by Article 2180, which also states that:
The responsibility treated of in this article shall cease when the Persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damages.
In this connection, it should be observed that the teacher will be held liable not only when he is acting in loco
parentis for the law does not require that the offending student be of minority age. Unlike the parent, who wig
be liable only if his child is still a minor, the teacher is held answerable by the law for the act of the student
under him regardless of the student's age. Thus, in the Palisoc Case, liability attached to the teacher and the
head of the technical school although the wrongdoer was already of age. In this sense, Article 2180 treats the
parent more favorably than the teacher.
The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his dissenting opinion in
Palisoc that the school may be unduly exposed to liability under this article in view of the increasing activism
among the students that is likely to cause violence and resulting injuries in the school premises. That is a valid
fear, to be sure. Nevertheless, it should be repeated that, under the present ruling, it is not the school that will
be held directly liable. Moreover, the defense of due diligence is available to it in case it is sought to be held
answerable as principal for the acts or omission of its head or the teacher in its employ.
The school can show that it exercised proper measures in selecting the head or its teachers and the
appropriate supervision over them in the custody and instruction of the pupils pursuant to its rules and
regulations for the maintenance of discipline among them. In almost all cases now, in fact, these measures are
effected through the assistance of an adequate security force to help the teacher physically enforce those
rules upon the students. Ms should bolster the claim of the school that it has taken adequate steps to prevent
any injury that may be committed by its students.
A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold him directly
answerable for the damage caused by his students as long as they are in the school premises and
presumably under his influence. In this respect, the Court is disposed not to expect from the teacher the same
measure of responsibility imposed on the parent for their influence over the child is not equal in degree.

Obviously, the parent can expect more obedience from the child because the latter's dependence on him is
greater than on the teacher. It need not be stressed that such dependence includes the child's support and
sustenance whereas submission to the teacher's influence, besides being coterminous with the period of
custody is usually enforced only because of the students' desire to pass the course. The parent can instill
more las discipline on the child than the teacher and so should be held to a greater accountability than the
teacher for the tort committed by the child.

the law they have invoked. WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It
is so ordered.

And if it is also considered that under the article in question, the teacher or the head of the school of arts and
trades is responsible for the damage caused by the student or apprentice even if he is already of age and
therefore less tractable than the minor then there should all the more be justification to require from the
school authorities less accountability as long as they can prove reasonable diligence in preventing the injury.
After all, if the parent himself is no longer liable for the student's acts because he has reached majority age
and so is no longer under the former's control, there is then all the more reason for leniency in assessing the
teacher's responsibility for the acts of the student.
Applying the foregoing considerations, the Court has arrived at the following conclusions:1. At the time Alfredo
Amadora was fatally shot, he was still in the custody of the authorities of Colegio de San Jose-Recoletos
notwithstanding that the fourth year classes had formally ended. It was immaterial if he was in the school
auditorium to finish his physics experiment or merely to submit his physics report for what is important is that
he was there for a legitimate purpose. As previously observed, even the mere savoring of the company of his
friends in the premises of the school is a legitimate purpose that would have also brought him in the custody of
the school authorities.
2. The rector, the high school principal and the dean of boys cannot be held liable because none of them was
the teacher-in-charge as previously defined. Each of them was exercising only a general authority over the
student body and not the direct control and influence exerted by the teacher placed in charge of particular
classes or sections and thus immediately involved in its discipline. The evidence of the parties does not
disclose who the teacher-in-charge of the offending student was. The mere fact that Alfredo Amadora had
gone to school that day in connection with his physics report did not necessarily make the physics teacher,
respondent Celestino Dicon, the teacher-in-charge of Alfredo's killer.
3. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was negligent in
enforcing discipline upon Daffon or that he had waived observance of the rules and regulations of the school
or condoned their non-observance. His absence when the tragedy happened cannot be considered against
him because he was not supposed or required to report to school on that day. And while it is true that the
offending student was still in the custody of the teacher-in-charge even if the latter was physically absent when
the tort was committed, it has not been established that it was caused by his laxness in enforcing discipline
upon the student. On the contrary, the private respondents have proved that they had exercised due diligence,
through the enforcement of the school regulations, in maintaining that discipline.
4. In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable especially in
view of the unrefuted evidence that he had earlier confiscated an unlicensed gun from one of the students and
returned the same later to him without taking disciplinary action or reporting the matter to higher authorities.
While this was clearly negligence on his part, for which he deserves sanctions from the school, it does not
necessarily link him to the shooting of Amador as it has not been shown that he confiscated and returned
pistol was the gun that killed the petitioners' son.

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:

5. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly liable under the
article because only the teacher or the head of the school of arts and trades is made responsible for the
damage caused by the student or apprentice. Neither can it be held to answer for the tort committed by any of
the other private respondents for none of them has been found to have been charged with the custody of the
offending student or has been remiss in the discharge of his duties in connection with such custody.
In sum, the Court finds under the facts as disclosed by the record and in the light of the principles herein
announced that none of the respondents is liable for the injury inflicted by Pablito Damon on Alfredo Amadora
that resulted in the latter's death at the auditorium of the Colegio de San Jose-Recoletos on April 13, 1972.
While we deeply sympathize with the petitioners over the loss of their son under the tragic circumstances here
related, we nevertheless are unable to extend them the material relief they seek, as a balm to their grief, under

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". 16They 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. 24Implicit 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 TouristClass accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff
has been compelledby 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 oustedby 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.

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.1awphl.nt
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

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

I move to strike out the last part of the testimony of the witness because the best evidence would
be the notes. Your Honor.

6. A contract to transport passengers is quite different in kind and degree from any other contractual
relation. 43And 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.

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.

August 31, 1954

G.R. No. L-7089
DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees. MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern
Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and among
the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties
were to guard the main entrance of the cine, to maintain peace and order and to report the commission of
disorders within the premises. As such guard he carried a revolver. In the afternoon of July 4, 1941, one
Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the refusal of plaintiff
De la Cruz to let him in without first providing himself with a ticket, Martin attacked him with a bolo. De la Cruz
defendant himself as best he could until he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.

For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First Instance
of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss
the complaint, which was granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally
acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz employed a lawyer to defend
him. He demanded from his former employer reimbursement of his expenses but was refused, after which he
filed the present action against the movie corporation and the three members of its board of directors, to
recover not only the amounts he had paid his lawyers but also moral damages said to have been suffered, due
to his worry, his neglect of his interests and his family as well in the supervision of the cultivation of his land, a
total of P15,000. On the basis of the complaint and the answer filed by defendants wherein they asked for the
dismissal of the complaint, as well as the agreed statement of facts, the Court of First Instance of Ilocos Norte
after rejecting the theory of the plaintiff that he was an agent of the defendants and that as such agent he was
entitled to reimbursement of the expenses incurred by him in connection with the agency (Arts. 1709-1729 of
the old Civil Code), found that plaintiff had no cause of action and dismissed the complaint without costs. De la
Cruz appealed directly to this Tribunal for the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the plaintiff was not that
of principal and agent because the principle of representation was in no way involved. Plaintiff was not
employed to represent the defendant corporation in its dealings with third parties. He was a mere employee
hired to perform a certain specific duty or task, that of acting as special guard and staying at the main entrance
of the movie house to stop gate crashers and to maintain peace and order within the premises. The question
posed by this appeal is whether an employee or servant who in line of duty and while in the performance of
the task assigned to him, performs an act which eventually results in his incurring in expenses, caused not
directly by his master or employer or his fellow servants or by reason of his performance of his duty, but rather
by a third party or stranger not in the employ of his employer, may recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint said that "after studying
many laws or provisions of law to find out what law is applicable to the facts submitted and admitted by the
parties, has found none and it has no other alternative than to dismiss the complaint." The trial court is right.
We confess that we are not aware of any law or judicial authority that is directly applicable to the present case,
and realizing the importance and far-reaching effect of a ruling on the subject-matter we have searched,
though vainly, for judicial authorities and enlightenment. All the laws and principles of law we have found, as
regards master and servants, or employer and employee, refer to cases of physical injuries, light or serious,
resulting in loss of a member of the body or of any one of the senses, or permanent physical disability or even
death, suffered in line of duty and in the course of the performance of the duties assigned to the servant or
employee, and these cases are mainly governed by the Employer's Liability Act and the Workmen's
Compensation Act. But a case involving damages caused to an employee by a stranger or outsider while said
employee was in the performance of his duties, presents a novel question which under present legislation we
are neither able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation company, who while in
the course of employment runs over and inflicts physical injuries on or causes the death of a pedestrian; and
such driver is later charged criminally in court, one can imagine that it would be to the interest of the employer
to give legal help to and defend its employee in order to show that the latter was not guilty of any crime either
deliberately or through negligence, because should the employee be finally held criminally liable and he is
found to be insolvent, the employer would be subsidiarily liable. That is why, we repeat, it is to the interest of
the employer to render legal assistance to its employee. But we are not prepared to say and to hold that the
giving of said legal assistance to its employees is a legal obligation. While it might yet and possibly be
regarded as a normal obligation, it does not at present count with the sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer,
naturally said employee may not recover the amount he may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses
incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the gate crasher but
rather by the filing of the charge of homicide which made it necessary for him to defend himself with the aid of
counsel. Had no criminal charge been filed against him, there would have been no expenses incurred or
damage suffered. So the damage suffered by plaintiff was caused rather by the improper filing of the criminal
charge, possibly at the instance of the heirs of the deceased gate crasher and by the State through the Fiscal.
We say improper filing, judging by the results of the court proceedings, namely, acquittal. In other words, the
plaintiff was innocent and blameless. If despite his innocence and despite the absence of any criminal
responsibility on his part he was accused of homicide, then the responsibility for the improper accusation may
be laid at the door of the heirs of the deceased and the State, and so theoretically, they are the parties that
may be held responsible civilly for damages and if this is so, we fail to see now this responsibility can be
transferred to the employer who in no way intervened, much less initiated the criminal proceedings and whose
only connection or relation to the whole affairs was that he employed plaintiff to perform a special duty or task,
which task or duty was performed lawfully and without negligence.

Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee did
not flow directly from the performance of his duties but only indirectly because there was an efficient,
intervening cause, namely, the filing of the criminal charges. In other words, the shooting to death of the
deceased by the plaintiff was not the proximate cause of the damages suffered but may be regarded as only a
remote cause, because from the shooting to the damages suffered there was not that natural and continuous
sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.

The plaintiff demurred to the above answer, and the court below sustained the demurrer, directing the
defendants, on the 23rd of January, 1907, to amend their answer. In compliance with this order the defendants
presented, on the same date, their amended answer, denying each and every one of the allegations contained
in the complaint, and requesting that the same be dismissed with costs.
As a result of the evidence adduced by both parties, judgment was entered by the court below on the 5th of
April, 1907, whereby the defendants were absolved from the former complaint, on account of the lack of
sufficient evidence to establish a right of action against the defendants, with costs against the plaintiff, who
excepted to the said judgment and in addition moved for a new trial on the ground that the judgment was
contrary to law; the motion was overruled and the plaintiff excepted and in due course presented the
corresponding bill of exceptions. The motion of the defendants requesting that the declaration contained in the
judgment that the defendants had demanded therefrom, for the reason that, according to the evidence, no
such request had been made, was also denied, and to the decision the defendants excepted.
Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by virtue of having been sent
for by the former, attended a physician and rendered professional services to a daughter-in-law of the said
defendants during a difficult and laborious childbirth, in order to decide the claim of the said physician
regarding the recovery of his fees, it becomes necessary to decide who is bound to pay the bill, whether the
father and mother-in-law of the patient, or the husband of the latter.
According to article 1089 of the Civil Code, obligations are created by law, by contracts, by quasi-contracts,
and by illicit acts and omissions or by those in which any kind of fault or negligence occurs.
Obligations arising from law are not presumed. Those expressly determined in the code or in special laws,
etc., are the only demandable ones. Obligations arising from contracts have legal force between the
contracting parties and must be fulfilled in accordance with their stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised among the mutual obligations to which the
spouses are bound by way of mutual support. (Arts. 142 and 143.)

January 12, 1909

G.R. No. 4089
ARTURO PELAYO, plaintiff-appellant,
vs.
MARCELO LAURON, ET AL., defendants-appellees.
J.H. Junquera, for appellant.
Filemon Sotto, for appellee.
TORRES, J.:
On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a complaint against Marcelo
Lauron and Juana Abella setting forth that on or about the 13th of October of said year, at night, the plaintiff
was called to the house of the defendants, situated in San Nicolas, and that upon arrival he was requested by
them to render medical assistance to their daughter-in-law who was about to give birth to a child; that
therefore, and after consultation with the attending physician, Dr. Escao, it was found necessary, on account
of the difficult birth, to remove the fetus by means of forceps which operation was performed by the plaintiff,
who also had to remove the afterbirth, in which services he was occupied until the following morning, and that
afterwards, on the same day, he visited the patient several times; that the just and equitable value of the
services rendered by him was P500, which the defendants refuse to pay without alleging any good reason
therefor; that for said reason he prayed that the judgment be entered in his favor as against the defendants, or
any of them, for the sum of P500 and costs, together with any other relief that might be deemed proper.
In answer to the complaint counsel for the defendants denied all of the allegation therein contained and
alleged as a special defense, that their daughter-in-law had died in consequence of the said childbirth, and
that when she was alive she lived with her husband independently and in a separate house without any
relation whatever with them, and that, if on the day when she gave birth she was in the house of the
defendants, her stay their was accidental and due to fortuitous circumstances; therefore, he prayed that the
defendants be absolved of the complaint with costs against the plaintiff.

If every obligation consists in giving, doing or not doing something (art. 1088), and spouses are mutually
bound to support each other, there can be no question but that, when either of them by reason of illness
should be in need of medical assistance, the other is under the unavoidable obligation to furnish the necessary
services of a physician in order that health may be restored, and he or she may be freed from the sickness by
which life is jeopardized; the party bound to furnish such support is therefore liable for all expenses, including
the fees of the medical expert for his professional services. This liability originates from the above-cited mutual
obligation which the law has expressly established between the married couple.
In the face of the above legal precepts it is unquestionable that the person bound to pay the fees due to the
plaintiff for the professional services that he rendered to the daughter-in-law of the defendants during her
childbirth, is the husband of the patient and not her father and mother- in-law, the defendants herein. The fact
that it was not the husband who called the plaintiff and requested his assistance for his wife is no bar to the
fulfillment of the said obligation, as the defendants, in view of the imminent danger, to which the life of the
patient was at that moment exposed, considered that medical assistance was urgently needed, and the
obligation of the husband to furnish his wife in the indispensable services of a physician at such critical
moments is specially established by the law, as has been seen, and compliance therewith is unavoidable;
therefore, the plaintiff, who believes that he is entitled to recover his fees, must direct his action against the
husband who is under obligation to furnish medical assistance to his lawful wife in such an emergency.
From the foregoing it may readily be understood that it was improper to have brought an action against the
defendants simply because they were the parties who called the plaintiff and requested him to assist the
patient during her difficult confinement, and also, possibly, because they were her father and mother-in-law
and the sickness occurred in their house. The defendants were not, nor are they now, under any obligation by
virtue of any legal provision, to pay the fees claimed, nor in consequence of any contract entered into between
them and the plaintiff from which such obligation might have arisen.
In applying the provisions of the Civil Code in an action for support, the supreme court of Spain, while
recognizing the validity and efficiency of a contract to furnish support wherein a person bound himself to
support another who was not his relative, established the rule that the law does impose the obligation to pay
for the support of a stranger, but as the liability arose out of a contract, the stipulations of the agreement must
be held. (Decision of May 11, 1897.)
Within the meaning of the law, the father and mother-in-law are strangers with respect to the obligation that
devolves upon the husband to provide support, among which is the furnishing of medical assistance to his wife
at the time of her confinement; and, on the other hand, it does not appear that a contract existed between the
defendants and the plaintiff physician, for which reason it is obvious that the former can not be compelled to

pay fees which they are under no liability to pay because it does not appear that they consented to bind
themselves.
The foregoing suffices to demonstrate that the first and second errors assigned to the judgment below are
unfounded, because, if the plaintiff has no right of action against the defendants, it is needless to declare
whether or not the use of forceps is a surgical operation.
Therefore, in view of the consideration hereinbefore set forth, it is our opinion that the judgment appealed from
should be affirmed with the costs against the appellant. So ordered.

Borilla in the Court of First Instance of Rizal at Pasay City, docketed as C Case No. 3162-P of said court; that
at the hearing of the said criminal case on December 12, 1975, Atty. Julio Francisco, the private prosecutor,
made a reservation to file a separate civil action for damages against the driver on his criminal liability; that on
February 19, 1976 Atty. Julio Francisco filed a motion in said c case to withdraw the reservation to file a
separate civil action; that thereafter, the private prosecutor actively participated in the trial and presented
evidence on the damages; that on June 29, 1976 the heirs of Arsenio Virata again reserved their right to
institute a separate civil action; that on July 19, 1977 the heirs of Arsenio Virata, petitioners herein,
commenced Civil No. B-134 in the Court of First Instance of Cavite at Bacoor, Branch V, for damages based
on quasi-delict against the driver Maximo Borilla and the registered owner of the jeepney, Victorio Ochoa; that
on August 13, 1976 the defendants, private respondents filed a motion to dismiss on the ground that there is
another action, Criminal Case No. 3162-P, pending between the same parties for the same cause; that on
September 8, 1976 the Court of First Instance of Rizal at Pasay City a decision in Criminal Case No. 3612-P
acquitting the accused Maximo Borilla on the ground that he caused an injury by name accident; and that on
January 31, 1977, the Court of First Instance of Cavite at Bacoor granted the motion to Civil Case No. B-134
for damages. 2
The principal issue is weather or not the of the Arsenio Virata, can prosecute an action for the damages based
on quasi-delict against Maximo Borilla and Victoria Ochoa, driver and owner, respectively on the passenger
jeepney that bumped Arsenio Virata.
It is settled that in negligence cases the aggrieved parties may choose between an action under the Revised
Penal Code or of quasi-delict under Article 2176 of the Civil Code of the Philippines. What is prohibited by
Article 2177 of the Civil Code of the Philippines is to recover twice for the same negligent act.
The Supreme Court has held that:

G.R. No. L-46179 January 31, 1978

CANDIDA VIRATA, TOMAS VIRATA, MANOLITO VIRATA, EDERLINDA VIRATA, NAPOLEON VIRATA,
ARACELY VIRATA, ZENAIDA VIRATA, LUZMINDA VIRATA, PACITA VIRATA, and EVANGELINA
VIRATA,petitioners,
vs.
VICTORIO OCHOA, MAXIMO BORILLA and THE COURT OF FIRST INSTANCE OF CAVITE, 7th
JUDICIAL DISTRICT, BRANCH V, stationed at BACOOR, CAVITE, respondents.
Remulla, Estrella & Associates for petitioners
Exequil C. Masangkay for respondents.

FERNANDEZ, J.:
This is an appeal by certiorari, from the order of the Court of First Instance of Cavite, Branch V, in Civil Case
No. B-134 granting the motion of the defendants to dismiss the complaint on the ground that there is another
action pending between the same parties for the same cause. 1
The record shows that on September 24, 1975 one Arsenio Virata died as a result of having been bumped
while walking along Taft Avenue, Pasay City by a passenger jeepney driven by Maximo Borilla and registered
in the name Of Victoria Ochoa; that Borilla is the employer of Ochoa; that for the death of Arsenio Virata, a
action for homicide through reckless imprudence was instituted on September 25, 1975 against Maximo

According to the Code Commission: 'The foregoing provision (Article 2177) though at
first sight startling, is not so novel or extraordinary when we consider the exact nature
of criminal and civil negligence. The former is a violation of the criminal law, while the
latter is a 'culpa aquiliana' or quasi-delict, of ancient origin, having always had its own
foundation and individuality, separate from criminal negligence. Such distinction
between criminal negligence and 'culpa extra-contractual' or quasi-delito has been
sustained by decision of the Supreme Court of Spain and maintained as clear, sound
and perfectly tenable by Maura, an outstanding Spanish jurist. Therefore, under the
proposed Article 2177, acquittal from an accusation of criminal negligence, whether on
reasonable doubt or not, shall not be a bar to a subsequent civil action, not for civil
liability arising from criminal negligence, but for damages due to a quasi-delict or 'culpa
aquiliana'. But said article forestalls a double recovery. (Report of the Code
Commission, p. 162.)
Although, again, this Article 2177 does seem to literally refer to only acts of negligence,
the same argument of Justice Bocobo about construction that upholds 'the spirit that
given life' rather than that which is literal that killeth the intent of the lawmaker should
be observed in applying the same. And considering that the preliminary chapter on
human relations of the new Civil Code definitely establishes the separability and
independence of liability in a civil action for acts criminal in character (under Articles 29
to 32) from the civil responsibility arising from crime fixed by Article 100 of the Penal
Code, and, in a sense, the Rules of Court, under Sections 2 and 3(c), Rule 111,
contemplate also the same separability, it is 'more congruent' with the spirit of law,
equity and justice, and more in harmony with modern progress', to borrow the felicitous
language in Rakes vs. Atlantic Gulf and Pacific Co., 7 Phil. to 359, to hod as We do
hold, that Article 2176, where it refers to 'fault covers not only acts 'not punishable by
law' but also criminal in character, whether intentional and voluntary or consequently, a
separate civil action lies against the in a criminal act, whether or not he is criminally
prosecuted and found guilty and acquitted, provided that the offended party is not
allowed, if he is actually charged also criminally, to recover damages on both scores,
and would be entitled in such eventuality only to the bigger award of the, two assuming
the awards made in the two cases vary. In other words the extinction of civil liability
refereed to in Par. (c) of Section 13, Rule 111, refers exclusively to civil liability founded

on Article 100 of the Revised Penal Code, whereas the civil liability for the same act
considered as a quasi-delict only and not as a crime is not extinguished even by a
declaration in the criminal case that the criminal act charged has not happened or has
not been committed by the accused. Brief stated, We hold, in reitration of Garcia, that
culpa aquilina includes voluntary and negligent acts which may be punishable by law. 3
The petitioners are not seeking to recover twice for the same negligent act. Before Criminal Case No. 3162-P
was decided, they manifested in said criminal case that they were filing a separate civil action for damages
against the owner and driver of the passenger jeepney based on quasi-delict. The acquittal of the driver,
Maximo Borilla, of the crime charged in Criminal Case No. 3162-P is not a bar to the prosecution of Civil Case
No. B-134 for damages based on quasi-delict The source of the obligation sought to be enforced in Civil Case
No. B-134 isquasi-delict, not an act or omission punishable by law. Under Article 1157 of the Civil Code of the
Philippines, quasi-delict and an act or omission punishable by law are two different sources of obligation.
Moreover, for the petitioners to prevail in the action for damages, Civil Case No. B-134, they have only to
establish their cause of action by preponderance of the evidence.
WHEREFORE, the order of dismissal appealed from is hereby set aside and Civil Case No. B-134 is
reinstated and remanded to the lower court for further proceedings, with costs against the private respondents.
SO ORDERED.

Assailed and sought to be set aside in this petition for review on certiorari is the Decision[1]dated April
25, 2003 of the Court of Appeals (CA), as reiterated in its Resolution of July 10, 2003, [2]in CA-G.R. SP No.
67600, affirming an earlier Order of the Regional Trial Court (RTC) of Bacolod City, Branch 43, which denied
the petitioners motion to dismiss in Civil Case No. 99-10845, an action for damages arising from a vehicular
accident thereat instituted by the herein private respondents - the spouses Florentino Vallejera and Theresa
Vallejera - against the petitioners.
The antecedent facts may be briefly stated as follows:
On February 26, 1996, Charles Vallereja, a 7-year old son of the spouses Florentino Vallejera and
Theresa Vallejera, was hit by a Ford Fiera van owned by the petitioners and driven at the time by their
employee, Vincent Norman Yeneza y Ferrer. Charles died as a result of the accident.
In time, an Information for Reckless Imprudence Resulting to Homicide was filed against the driver
before the Municipal Trial Court in Cities (MTCC), Bacolod City, docketed as Criminal Case No. 67787,
entitled People of the Philippines v. Vincent Norman Yeneza.
Unfortunately, before the trial could be concluded, the accused driver committed suicide, evidently
bothered by conscience and remorse. On account thereof, the MTCC, in its order ofSeptember 30, 1998,
dismissed the criminal case.
On June 23, 1999, in the RTC of Bacolod City, the spouses Vallejera filed a complaint [3] for damages
against the petitioners as employers of the deceased driver, basically alleging that as such employers, they
failed to exercise due diligence in the selection and supervision of their employees. Thereat docketed as Civil
Case No. 99-10845, the complaint was raffled to Branch 43 of the court.
In their Answer with Compulsory Counterclaim,[4] the petitioners as defendants denied liability for the
death of the Vallejeras 7-year old son, claiming that they had exercised the required due diligence in the
selection and supervision of their employees, including the deceased driver. They thus prayed in their Answer
for the dismissal of the complaint for lack of cause of action on the part of the Vallejera couple.
During pre-trial, the defendant petitioners insisted that their dismissal prayer be resolved. Hence, the
trial court required them to file within ten days a memorandum of authorities supportive of their position.

L.G. FOODS CORPORATION and VICTORINO GABOR, VicePresident and General Manager,
Petitioners,
- versus HON. PHILADELFA B. PAGAPONG-AGRAVIADOR, in her
capacity as Presiding Judge of Regional Trial Court, Branch 43,
Bacolod City, and SPS. FLORENTINO and THERESA
VALLEJERA,
Respondents.

G.R. No. 158995

Present:
PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
Promulgated:
September 26, 2006

x------------------------------------------------------------------------------------x
DECISION
GARCIA, J.:

Instead, however, of the required memorandum of authorities, the defendant petitioners filed a Motion to
Dismiss, principally arguing that the complaint is basically a claim for subsidiary liability against an employer
under the provision of Article 103 [5] of the Revised Penal Code. Prescinding therefrom, they contend that there
must first be a judgment of conviction against their driver as a condition sine qua non to hold them
liable. Ergo, since the driver died during the pendency of the criminal action, the sine qua non condition for
their subsidiary liability was not fulfilled, hence the of lack of cause of action on the part of the plaintiffs. They
further argue that since the plaintiffs did not make a reservation to institute a separate action for damages
when the criminal case was filed, the damage suit in question is thereby deemed instituted with the criminal
action. which was already dismissed.
In an Order dated September 4, 2001,[6] the trial court denied the motion to dismiss for lack of merit and
set the case for pre-trial. With their motion for reconsideration having been denied by the same court in its
subsequent order[7] of September 26, 2001, the petitioners then went on certiorari to the CA in CA-G.R. SP
No. 67600, imputing grave abuse of discretion on the part of the trial judge in refusing to dismiss the basic
complaint for damages in Civil Case No. 99-10845.
In the herein assailed decision [8] dated April 25, 2003, the CA denied the petition and upheld the trial
court. Partly says the CA in its challenged issuance:
xxx
xxx
xxx
It is clear that the complaint neither represents nor implies that the
responsibility charged was the petitioners subsidiary liability under Art. 103, Revised
Penal Code. As pointed out [by the trial court] in the Order of September 4, 2001,
the complaint does not even allege the basic elements for such a liability, like the
conviction of the accused employee and his insolvency. Truly enough, a civil action to
enforce subsidiary liability separate and distinct from the criminal action is even
unnecessary.
xxx

xxx

xxx

Specifically, Civil Case No. 99-10845 exacts responsibility for fault or

negligence under Art. 2176, Civil Code, which is entirely separate and distinct from the
civil liability arising from negligence under the Revised Penal Code. Verily, therefore,
the liability under Art. 2180, Civil Code, is direct and immediate, and not conditioned
upon prior recourse against the negligent employee or prior showing of the latters
insolvency. (Underscoring in the original.)

In time, the petitioners moved for a reconsideration but their motion was denied by the CA in its
resolution[9] of July 10, 2003. Hence, the petitioners present recourse on their submission that the appellate
court committed reversible error in upholding the trial courts denial of their motion to dismiss.

Admittedly, the complaint did not explicitly state that plaintiff Vallejeras were suing the defendant
petitioners for damages based on quasi-delict. Clear it is, however, from the allegations of the complaint
that quasi-delict was their choice of remedy against the petitioners. To stress, the plaintiff spouses alleged in
their complaint gross fault and negligence on the part of the driver and the failure of the petitioners, as
employers, to exercise due diligence in the selection and supervision of their employees. The spouses further
alleged that the petitioners are civilly liable for the negligence/imprudence of their driver since they failed to
exercise the necessary diligence required of a good father of the family in the selection and supervision of
their employees, which diligence, if exercised, could have prevented the vehicular accident that resulted to the
death of their 7-year old son.
Section 2, Rule 2, of the 1997 Rules of Civil Procedure defines cause of action as the act or omission
by which a party violates the right of another. Such act or omission gives rise to an obligation which may
come from law, contracts, quasi contracts, delicts or quasi-delicts.[11]

We DENY.
As the Court sees it, the sole issue for resolution is whether the spouses Vallejeras cause of
action in Civil Case No. 99-10845 is founded on Article 103 of the Revised Penal Code, as maintained by the
petitioners, or derived from Article 2180[10] of the Civil Code, as ruled by the two courts below.
It thus behooves us to examine the allegations of the complaint for damages in Civil Case No. 9910845. That complaint alleged, inter alia, as follows:
xxx

xxx

xxx

3.
That defendant [LG Food Corporation] is the registered owner of a Ford
Fiera Van with Plate No. NMS 881 and employer sometime February of 1996 of one
Vincent Norman Yeneza y Ferrer, a salesman of said corporation;
4.
That sometime February 26, 1996 at around 2:00 P.M. at Rosario
St., Bacolod City, the minor son of said plaintiffs [now respondents], Charles Vallejera,
7 years old, was hit and bumped by above-described vehicle then driven by said
employee, Vincent Norman Yeneza y Ferrer;
5.
That the mishap was due to the gross fault and negligence of
defendants employee, who drove said vehicle, recklessly, negligently and at a high
speed without regard to traffic condition and safety of other road users and likewise to
the fault and negligence of the owner employer, herein defendants LG Food
Corporation who failed to exercise due diligence in the selection and supervision of his
employee, Vincent Norman Yeneza y Ferrer;
6.
That as a result of said incident, plaintiffs son suffered multiple body
injuries which led to his untimely demise on that very day;
7.
That a criminal case was filed against the defendants employee,
docketed as Criminal Case No. 67787, (earlier filed as Crim. Case No. 96-17570
before RTC) before MTC-Branch III, entitled People v. Yeneza for Reckless
Imprudence resulting to Homicide, but the same was dismissed because pending
litigation, then remorse-stricken [accused] committed suicide;
xxx
xxx
xxx
8.
That the injuries and complications as well as the resultant death
suffered by the late minor Charles Vallejera were due to the negligence and
imprudence of defendants employee;
9.
That defendant LG Foods Corporation is civilly liable for the
negligence/imprudence of its employee since it failed to exercise the necessary
diligence required of a good father of the family in the selection and supervision of his
employee, Vincent Norman Yeneza y Ferrer which diligence if exercised, would have
prevented said incident. (Bracketed words and emphasis ours.)
Nothing in the foregoing allegations suggests, even remotely, that the herein petitioners are being made
to account for their subsidiary liability under Article 103 of the Revised Penal Code. As correctly pointed
out by the trial court in its order of September 4, 2001 denying the petitionersMotion to Dismiss, the
complaint did not even aver the basic elements for the subsidiary liability of an employer under Article 103 of
the Revised Penal Code, such as the prior conviction of the driver in the criminal case filed against him nor his
insolvency.

Corollarily, an act or omission causing damage to another may give rise to two separate civil liabilities
on the part of the offender, i.e., 1) civil liability ex delicto;[12] and 2) independent civil liabilities, such as those (a)
not arising from an act or omission complained of as felony (e.g., culpa contractual or obligations arising from
law;[13] the intentional torts;[14] and culpa aquiliana[15]); or (b) where the injured party is granted a right to file an
action independent and distinct from the criminal action. [16] Either of these two possible liabilities may be
enforced against the offender.[17]
Stated otherwise, victims of negligence or their heirs have a choice between an action to enforce the
civil liability arising from culpa criminal under Article 100 of the Revised Penal Code, and an action for quasidelict (culpa aquiliana) under Articles 2176 to 2194 of the Civil Code. If, as here, the action chosen is
for quasi-delict, the plaintiff may hold the employer liable for the negligent act of its employee, subject to the
employers defense of exercise of the diligence of a good father of the family. On the other hand, if the action
chosen is for culpa criminal, the plaintiff can hold the employer subsidiarily liable only upon proof of prior
conviction of its employee.[18]
Article 1161[19] of the Civil Code provides that civil obligation arising from criminal offenses shall be
governed by penal laws subject to the provision of Article 2177 [20] and of the pertinent provision of Chapter 2,
Preliminary Title on Human Relation, and of Title XVIII of this Book, regulating damages. Plainly, Article 2177
provides for the alternative remedies the plaintiff may choose from in case the obligation has the possibility of
arising indirectly from the delict/crime or directly from quasi-delict/tort. The choice is with the plaintiff who
makes known his cause of action in his initiatory pleading or complaint, [21] and not with the defendant who can
not ask for the dismissal of the plaintiffs cause of action or lack of it based on the defendants perception that
the plaintiff should have opted to file a claim under Article 103 of the Revised Penal Code.
Under Article 2180 of the Civil Code, the liability of the employer is direct or immediate. It is not
conditioned upon prior recourse against the negligent employee and a prior showing of insolvency of such
employee.[22]
Here,
the
complaint
sufficiently
alleged
that
the
death
of
the
couples
minor son was caused by the negligent act of the petitioners driver; and that the petitioners themselves
were civilly liable for the negligence of their driver for failing to exercise the necessary diligence required of a
good father of the family in the selection and supervision of [their] employee, the driver, which diligence, if
exercised, would have prevented said accident.
Had the respondent spouses elected to sue the petitioners based on Article 103 of the Revised Penal
Code, they would have alleged that the guilt of the driver had been proven beyond reasonable doubt; that
such accused driver is insolvent; that it is the subsidiary liability of the defendant petitioners as employers to
pay for the damage done by their employee (driver) based on the principle that every person criminally liable is
also civilly liable.[23] Since there was no conviction in the criminal case against the driver, precisely because
death intervened prior to the termination of the criminal proceedings, the spouses recourse was, therefore, to
sue the petitioners for their direct and primary liability based on quasi-delict.
Besides, it is worthy to note that the petitioners, in their Answer with Compulsory Counter-Claim,
repeatedly made mention of Article 2180 of the Civil Code and anchored their defense on their allegation
that they had exercised due diligence in the selection and supervision of [their] employees. The Court views
this defense as an admission that indeed the petitioners acknowledged the private respondents cause of
action as one for quasi-delict under Article 2180 of the Civil Code.
[24]

All told, Civil Case No. 99-10845 is a negligence suit brought under Article 2176 - Civil Code to
recover damages primarily from the petitioners as employers responsible for their negligent driver pursuant to
Article 2180 of the Civil Code. The obligation imposed by Article 2176 is demandable not only for ones own
acts or omissions, but also for those of persons for whom one is responsible. Thus, the employer is liable for

damages caused by his employees and household helpers acting within the scope of their assigned tasks,
even though the former is not engaged in any business or industry.
Citing Maniago v. CA,[25] petitioner would argue that Civil Case No. 99-10845 should have been
dismissed for failure of the respondent spouses to make a reservation to institute a separate civil action for
damages when the criminal case against the driver was filed.
The argument is specious.
To start with, the petitioners reliance on Maniago is obviously misplaced. There, the civil case was filed
while the criminal case against the employee was still pending. Here, the criminal case against the employee
driver was prematurely terminated due to his death. Precisely, Civil Case No. 99-10845 was filed by the
respondent spouses because no remedy can be obtained by them against the petitioners with the dismissal of
the criminal case against their driver during the pendency thereof.
The circumstance that no reservation to institute a separate civil action for damages was made when
the criminal case was filed is of no moment for the simple reason that the criminal case was dismissed without
any pronouncement having been made therein. In reality, therefor, it is as if there was no criminal case to
speak of in the first place. And for the petitioners to insist for the conviction of their driver as a condition sine
qua non to hold them liable for damages is to ask for the impossible.

At bar is a petition for certiorari under Rule 65 of the Rules of Court challenging the Joint
Resolution[1] dated May 2, 1997 of then Ombudsman Aniano Desierto in OMB-0-94-1109, dismissing the
complaint filed by petitioners against private respondents, and the Order [2] denying their motion for
reconsideration.
This case stems from an all too familiar chapter in Philippine history, i.e., the declaration of martial
law by then President Ferdinand Marcos and the simultaneous sequestration of not a few private corporations,
including one of the petitioners herein, ABS-CBN Broadcasting Corporation (ABS-CBN).
On April 18 and 26, 1994, petitioners Eugenio, Jr., Oscar and Augusto Almeda, all surnamed Lopez, as
officers and on behalf of ABS-CBN, executed separate complaint-affidavits charging private respondents
Roberto S. Benedicto, Exequiel B. Garcia, Miguel V. Gonzalez, and Salvador (Buddy) Tan with the following
crimes penalized under the Revised Penal Code (RPC): (a) Article 298 - Execution of Deeds by Means of
Violence or Intimidation; (b) Article 315 paragraphs 1[b], 2[a], 3[a] - Estafa; (c) Article 308 - Theft; (d) Article
302 - Robbery; (e) Article 312 - Occupation of Real Property or Usurpation of Real Rights in Property; and (f)
Article 318 - Other Deceits.
Individual petitioners complaint-affidavits [3] uniformly narrated the following facts:
1.
The day after the declaration of martial law, or on September 22, 1972, just before midnight,
military troops arrived at the ABS-CBN Broadcast Center in Bohol Avenue, Quezon City, and informed the
officers and personnel thereat of the seizure and closure of the premises by virtue of Letter of Instruction (LOI)
No. 1 issued by President Marcos ordering the closure of all radio and television stations in the country.

IN VIEW WHEREOF, the instant petition is DENIED for lack of merit.

Costs against the petitioners.

2.
LOI No. 1 authorized the Secretary of National Defense to take over or control, or cause the
taking over and control of all x x x newspapers, magazines, radio and television facilities and all other media of
communications throughout the country. Consequently, a total of seven (7) television stations owned and
operated by ABS-CBN were closed down by the government. [4]
3.
When it became apparent that petitioners would not be granted a permit to re-open, ABS-CBN on
October 31, 1972, terminated the services of all its employees, giving each employee his/her retirement
benefits. Corollary thereto, sometime in November 1972, Eugenio Lopez, Jr., then president of ABS-CBN,
wrote then Secretary of National Defense, Juan Ponce Enrile, [5] of their desire to sell ABS-CBN to the
government. In that same month, however, Eugenio Lopez, Jr. was arrested by the military, and detained
at Fort Bonifacio for almost five (5) years until his escape therefrom on September 30, 1977.
4.
Subsequently, after the proposal to sell ABS-CBN to the Marcos government did not materialize,
ABS-CBN started negotiations with then Governor of Leyte, Benjamin Kokoy Romualdez, who expressed his
desire and intention to acquire the former. However, the negotiations with Kokoy Romualdez in 1973 likewise
did not result in the sale and re-opening of ABS-CBN.

ABS-CBN BROADCASTING CORPORATION, EUGENIO LOPEZ, JR.,

AUGUSTO ALMEDA-LOPEZ, and OSCAR M. LOPEZ,
Petitioners,
- versus OFFICE OF THE OMBUDSMAN, ROBERTO S. BENEDICTO,*EXEQUIEL B.
GARCIA, MIGUEL V. GONZALES, and SALVADOR (BUDDY) TAN,*
Respondents.

G.R. No. 133347

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
October 15, 2008

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

5.
On June 6, 1973, the television and radio stations of Kanlaon Broadcasting System (KBS)
on Roxas Boulevard, Pasay City were consumed by fire. KBS was the umbrella corporation of the Benedicto
Group of broadcasting companies, including Radio Philippines Network (RPN), [6] which operated TV Channel
9, the only television station allowed to continue operating during the early years of the martial law regime.
Respondent Benedicto, then Philippine Ambassador to Japan, managed, controlled, and was one of the
principal stockholders of RPN.
6.
On even date, both Benedicto and Alfredo Montelibano, who at that time was Chairperson of the
Board of Directors (BOD) of ABS-CBN, were in Bacolod. Benedicto constituted Montelibano as his emissary to
the Lopezes, relaying his plan to temporarily use ABS-CBNs broadcast studios in Quezon City, from which to
operate TV Channel 9, for such period of time as may be necessary to rebuild KBS burned studios.

7.
On June 8, 1973, Montelibano met with other officers and executives of ABS-CBN, including
herein petitioners Oscar and Augusto Lopez, informing them of Benedictos request. Oscar and Augusto, and
the rest of the ABS-CBN management team, strongly opposed the request. Eventually, however, when
Montelibano mentioned that Malacaang and Romualdez had cleared said request, the possibility of a
government-ordered confiscation of ABS-CBN, and not least of all, the possible release of Eugenio Lopez, Jr.,
petitioners Oscar and Augusto, as with the rest of ABS-CBNs executives, acquiesced to Benedictos request.
8.
Thus, at noontime on the same day, representatives of KBS headed by Jose Montalvo arrived at
the Meralco Building to finalize the proposed arrangement with ABS-CBN. The transaction between ABS-CBN
and KBS is evidenced by a letter-agreement dated June 8, 1973, which reads in relevant part:

This is to confirm the agreement arrived at between RPN and ABS-CBN to the
following effect:
1.
Commencing on the date hereof, ABS-CBN hereby conveys to RPN by
way of lease its TV and radio equipment (excluding TV channels and radio
frequencies) and its premises at the ABS-CBN Broadcast Center, Bohol Avenue,
Quezon City (collectively called the leased facilities) listed in the schedule attached
hereto and marked as Annex A.
2.
RPN shall pay ABS-CBN monthly rental as is reasonable compensation
for the use of the leased facilities. The amount of the rental shall be determined after a
discussion with Ambassador Roberto Benedicto.
3.
The term of this lease shall commence on the date hereof and continue
for such reasonable time as may be normally necessary for the rehabilitation of RPNs
facilities unless an earlier period may be fixed by RPN and ABS-CBN after discussion
with Ambassador Benedicto.
4.
RPN hereby assumes full and complete responsibility for the leased
facilities and shall be answerable for any and all losses and damages to such facilities.

14. In the years following until the Marcos government was toppled in 1986, the ABS-CBN stations
were transferred to the National Media Production Center (NMPC) headed by Gregorio Cendaa of the
Ministry of Information. Starting in January 1980, KBS, on a staggered basis, transferred possession, control
and management of ABS-CBNs provincial television stations to NMPC. Some of the radio stations of ABSCBN were turned over to the governments Bureau of Broadcast, while some were retained by KBS thru the
Banahaw Broadcasting Corporation (BBC) and Radio Philippines Network (RPN).
15. Parenthetically, during a military inventory in 1979-1980, and a visit by ABS-CBN executives at
ABS-CBNs radio transmitting stations in Meycauayan, Bulacan, headed by petitioner Augusto, on August 13,
1984, ABS-CBN properties and massive equipment were found to be missing. In addition, the musical records
and radio dramas accumulated by ABS-CBN in a span of twenty-five (25) years and stored in its library were
now gone.
16. In June 1986, President Corazon Aquino, acting on the request of ABS-CBN through Senator
Taada, returned to ABS-CBN these radio and TV stations on a gradual and scheduled basis.
As required by the Ombudsman, the respondents, except for Garcia, filed their respective counteraffidavits,[7] with Benedicto adopting that of Gonzales, denying petitioners charges, and averring that:
1.
The execution of the June 8, 1973 letter-agreement was a free and voluntary act of ABS-CBN
which agreed thereto fully expecting remuneration in the form of rentals, thus:

xxxx
6.
Upon termination of this lease, RPN shall return the possession of the
leased facilities to ABS-CBN and vacate the same without the need of notice or
demand.
7.
ABS-CBN, through its Chairman, Mr. Alfredo Montelibano, shall have
the right to select and designate the personnel (not to exceed 20 at any one time) to
maintain and operate all specialized TV and radio equipment.

2. RPN shall pay ABS-CBN monthly rental as is reasonable compensation for

the use of the lease facilities. The amount of the rental shall be determined after a
discussion with Ambassador Roberto Benedicto.
2.
In that regard, respondent Gonzales, counsel for KBS, RPN and Benedicto, participated in the
negotiations and was present at three (3) meetings for the fixing of rentals. Also in attendance were former
Senator Estanislao Fernandez, specially engaged to represent RPN and Benedicto, and Senator Taada and
petitioner Augusto for ABS-CBN.

xxxx
10.
ABS-CBN shall have the right to enter the Broadcast Center at any
reasonable time during the term of this lease for the purpose of determining
compliance by RPN of the terms hereof.
xxxx
12.
RPN shall not, without the prior written consent of ABS-CBN, sub-lease
the leased facilities or any part thereof nor shall any part be removed from the
premises
except
the
equipment,
which
are
intended
for
operation
the Broadcast Center in due course of operations.
9.
Meanwhile, it appears that the parties were hard pressed to negotiate and fix the monthly rental
rate. Several attempts by Oscar to set up a meeting with Benedicto for the fixing of the monthly rentals proved
unsuccessful.
10. After more than four months of trying, a meeting between Oscar and Benedicto finally
materialized on October 31, 1973. At that meeting, the discussion not only covered fixing of reasonable rentals
for the lease of the ABS-CBN studios, but likewise included the possibility of an outright sale.
11. Thereafter, the discussions and negotiations stopped as none of the petitioners were able to meet
anew with Benedicto who had supposedly referred the matter to people above and the man on top.
12. Frustrated, then Senator Lorenzo Taada, as counsel for ABS-CBN, in May 1976, wrote
Benedicto demanding vacation of the ABS-CBN Broadcast Center and payment of back rentals for the use of
the ABS-CBN studios and facilities.
13. In response, Senator Estanislao Fernandez, on behalf of Benedicto, met with Senator Taada in
June 1976. Another meeting took place between the parties respective counsels which included respondent
Gonzales, another counsel for Benedicto. Despite these meetings, no agreement was reached between
Benedicto and ABS-CBN. On the whole, from June 8, 1973, the time KBS occupied the ABS-CBN studios
in Quezon City, no rental was paid by the former to the latter.

3.
Initially, the discussions centered on the possible formulas for the fixing of rentals. Later on,
however, before an agreement on the rental rate could be reached, the discussions shifted to the possibility of
an outright sale. The discussions on the sale were expanded as various creditors of ABS-CBN had made and
presented claims before respondent Garcia, then Comptroller of KBS-RPN.
4.
However, the discussions were discontinued when then Secretary of National Defense Juan
Ponce Enrile reminded KBS of the sequestered status of ABS-CBN facilities such that arrangements
undertaken for the use and lease thereof should be taken up with the government. [8]
5.
Meanwhile, in July 1974, Secretary Ponce Enrile authorized KBS, acting on behalf of BBC, to
make use of the ABS-CBN provincial stations which were not covered by the June 8, 1973letter-agreement.
The authorization was granted in connection with the increased undertakings assigned by the Department of
National Defense (DND) to KBS, specifically, for the governments mass-media developmental peace and
order nationwide campaign.
7.
Thereafter, in October 1977, RPN vacated the ABS-CBN studios and turned over the properties to
George Viduya, the general manager of the government station GTV-4. Viduya continued operations of GTV-4
at the ABS-CBN properties, after which, the properties were all delivered in 1979 to the NMPC headed by
Cendaa. The provincial stations were delivered and turned over on a staggered basis, with the DZRI station
in Dagupan handed over in 1979. The successive transfer of all ABS-CBN studios and stations, in Quezon
City and the provinces, were covered by receipts which were collated by the law firm of respondent Gonzales
retained by KBS for that purpose.
8.
The use of the ABS-CBN studios involved only three (3) juridical entities, RPN, ABS-CBN and the
government. The charges leveled by petitioners in their complaint-affidavits merely point to civil liability as
specified in the letter-agreement itself:
4. RPN hereby assumes full and complete responsibility for the leased facilities
and shall be answerable for any and all losses and damages to such facilities.
On the whole, the allegations of petitioners do not support the elements of the crimes charged.
9.
Lastly, respondents invoke the grant of absolute immunity to Benedicto as part of the
Compromise Agreement in Sandiganbayan Civil Case No. 34 which states:

The Government hereby extends absolute immunity, as authorized under the

pertinent provisions of Executive Orders Nos. 1, 2, 14 and 14-A, to Benedicto, the
members of his family, officers and employees of the corporations above mentioned,
who are included in past, present and future cases and investigations of the Philippine
Government, such that there shall be no criminal investigation or prosecution against
said persons for acts, omissions committed prior to February 25, 1986 that may be
alleged to have violated any penal law, including but not limited to Republic Act No.
3019, in relation to the acquisition of any asset treated, mentioned or included in this
Agreement.
Expectedly, the petitioners in their joint reply-affidavit refuted respondents counter-affidavits. Contrary to
respondents allegations, petitioners reiterated Benedictos over-all ploy, in conspiracy with the other
respondents who were officers of KBS and/or RPN, to use and occupy ABS-CBN properties without paying
compensation therefor. Petitioners maintain that respondents grand scheme was to take-over ABS-CBN,
albeit ostensibly covered by the letter-lease agreement, giving the take over a semblance of legality.
Thereafter, with the issues having been joined, the Ombudsman issued the herein assailed Joint
Resolution dismissing petitioners complaints. To the Ombudsman, the following circumstances did not give
rise to probable cause necessary to indict respondents for the various felonies charged:
1.
The Letter-Agreement of June 8, 1973 belie any illegal take-over of the ABSCBN complex.
While the Lopezes are now complaining that the letter-agreement was virtually
forced unto them thru intimidation, hence, the vitiated consent of Mr. Montelibano,
there is nothing however which the complainants adduced to prove this allegation
except their threadbare allegations of threats. On the contrary, it appears that the
Lopezes blessed the letter-agreement hoping that their financial difficulties with respect
to the affairs of the ABS-CBN and their problem concerning the continued detention of
Eugenio Lopez, Jr. by the military, would at least be mitigated. x x x
It is thus clear that the ABS-CBN complex was freely leased by Montelibano
upon consultation with the Lopezes who entertained some ulterior motives of their own
which they expect would result from the agreement, either directly or indirectly. Of
course, the Lopezes may not have realized some of these expectations (i.e., the
rentals, the release of Eugenio, Jr. from detention) but this does not change the fact
that the parties consent to the contract appears to have been freely given. Perforce,
the complaint under Article 298 of the Revised Penal Code of the Philippines must fail.
2.
Other TV and radio stations were taken over pursuant to LOI 1-A, hence no
violations of Art. 312, 302 and 308 of RPC.
To the alleged violation of Art. 312 of the Revised Penal Code, the respondents
contended that their use of ABS-CBNs facilities other than those included in the leaseagreement, was in fact with the authority of the then Department of National Defense
(DND). There is no denying that all of the ABS-CBN properties including the provincial
ones are under sequestration pursuant to Presidential Letter of Instruction No. 1-A,
issued on September 28, 1972. It was under the strength of this Presidential Letter of
Instruction that KBS-RPN was authorized to enter, occupy and operate the facilities of
ABS-CBN. This was also confirmed by DND Secretary Juan Ponce Enrile in his letter
to RPN dated June 26, 1976. Unmistakably, KBS-RPNs possession of the ABS-CBNs
property other than those in the ABS-CBN complex is primarily anchored on the
authority pursuant to LOI 1-A. With this apparent authority, this investigation can not
see in any which way how the respondents could have illegally taken over the
properties of the [petitioners], particularly those in the province; there is therefore no
convincing proof to support a charge under Article 312 of the Revised Penal Code. It
may come to mind that occupation of real property or usurpation of real rights in
property under Article 312 requires as one of its elements the presence of violence
against or intimidation of persons as a means in securing real property or rights
belonging to another. Plainly, this element is not shown. The complainants may have
felt intimidated by the sequestration order, but it is in the nature of such Order to be
coercive. It was an act flowing from the martial law powers of then President Marcos.
3.

No unlawful taking as to justify charges for Robbery or Theft.

Robbery and Theft under Articles 302 and 308 of the Revised Penal Code were
also attributed by the [petitioners] against the respondents. From the records, it is clear
that KBS-RPN has juridical possession of the ABS-CBN properties subject of this
complaint; a right which can be validly set-up even against ABS-CBN itself. It can be
recalled that KBS-RPN was authorized to enter, occupy and operate ABS-CBN
facilities by virtue of the authority granted by the President, pursuant to LOI No. 1-A.
Aside, the Broadcast Center itself was covered by the lease-agreement. Under these
situations, there is obviously no basis to charge the respondents for robbery and theft;
for these penal offense require as an element the act of unlawful taking or asportation.
Asportation is simply poles apart from the juridical possession which KBS-RPN
enjoyed over the properties.
4.
No deceit was employed to gain possession of the Broadcast Center and the
provincial TV and radio stations.
In the prosecution for estafa under [Articles 315, paragraphs 2(a), 3(a) and 318]
of the Revised Penal Code, it is indispensable that the element of deceit, consisting in
the false statement of fraudulent representation of the accused, be made prior to, or, at
least simultaneously with, the delivery of the thing by the complainants, it being
essential that such false statement or fraudulent representation constitutes the very
cause or the only motive which induces the complainants to part with the thing. If there
be no such prior or simultaneous false statement or fraudulent representation, any
subsequent act of the respondent, however fraudulent or suspicious it may appear, can
not serve as basis for the prosecution of these crimes.
[From petitioners complaint-affidavits], it is very clear that the late Alfredo
Montelibano was the one who talked with Roberto Benedicto, preparatory to the
signing of the lease-agreement. As the complainants did not identify exactly which
constitute the deceitful act (or the intimidation) which could have induced the Lopezes
into accepting the lease agreement, in most probability, the occurrences which vitiated
their consent happened during this preliminary discussion. Noticeably however, it is not
Alfredo Montelibano, the one who supposedly talked with Benedicto, who is testifying
on the alleged veiled threat or deceits, if there are. Precisely, because he is already
dead.
x x x [I]t is submitted that the Lopezes can not now testify on something which
are not derived from their own personal perception. The bottomline is that what they
are now trying to adduce, pertaining to the alleged deceits [or intimidation] attending
the negotiation of the lease agreement are purely hearsay. This is a matter which only
Alfredo Montelibano could testify competently.[9]
The Ombudsman saw no need to discuss the defenses of prescription and immunity from suit raised by
the respondents given his dismissal of the complaint-affidavits on the merits. However, in a subsequent Order
denying petitioners Motion for Reconsideration of the Joint Resolution, the Ombudsman lifted the Office of the
Chief Legal Counsels ratiocination for dismissing the complaint-affidavits, thus:
Incidentally, RPN has been identified as among the corporation in which respondent
Benedicto has substantial interests. In fact, it was one of the subject matters of the
Compromise Agreement reached by the government and respondent Benedicto in
Sandiganbayan Civil Case no. 34.
In that Compromise Agreement, for and in consideration of respondent
Benedictos cession of equities, and assignment of his rights and interest in
corporations therein listed, among them RPN, the government extended absolute
immunity to Benedicto, including officers of his corporations as therein mentioned,
such that there shall be no criminal investigation or prosecution against said persons
for acts or omissions committed prior to February 25, 1986 that may be alleged to have
violated any penal law, including but not limited to Republic Act No. 3019, in relation to
the acquisition of any asset treated or included in this Agreement.
In effect, the People of the Philippines as the offended party in criminal cases
has waived its right to proceed criminally against Benedicto, et. al., for whatever crime
they may have committed relative to, among others, the alleged plunder of ABS-CBN
properties. Again, whatever liability that remains thereabout on respondents part is
perforce only civil in nature.[10]

Hence, this recourse by the petitioners alleging grave abuse of discretion in the Ombudsmans Joint
Resolution and Order.
Before anything else, we note that on April 5, 1999 and June 13, 2000, the respective counsel for
respondents Tan and Benedicto, in compliance with Section 16, [11] Rule 3 of the Rules of Court, filed pleadings
informing the Court of their clients demise. Benedictos counsel filed a Notice of Death (With Prayer for
Dismissal)[12] moving that Benedicto be dropped as respondent in the instant case for the reason that the
pending criminal cases subject of this appeal are actions which do not survive the death of the party accused.
Petitioners opposed the move to drop Benedicto as respondent, citing Torrijos v. Court of
Appeals[13] which held that civil liability of the accused survives his death; because death is not a valid cause
for the extinguishment of civil obligations.
Our ruling on this issue need not be arduous. The rules on whether the civil liability of an accused, upon
death, is extinguished together with his criminal liability, has long been clarified and settled in the case
of People v. Bayotas:[14]

Significantly, this Court in Benedicto v. Court of Appeals,[18] taking cognizance of respondent

Benedictos death on May 15, 2000, has ordered that the latter be dropped as a party, and declared
extinguished any criminal as well as civil liability ex delicto that might be attributable to him in Criminal Cases
Nos. 91-101879 to 91-101883, 91-101884 to 101892, and 92-101959 to 92-101969 pending before the
Regional Trial Court of Manila.
Lastly, we note that petitioners appear to have already followed our ruling in People v.
Bayotas[19] by filing a separate civil action to enforce a claim against the estate of respondent Benedicto. [20] The
claim against the estate of Benedicto is based on contractthe June 8, 1973letter- agreementin
consonance with Section 5,[21] Rule 86 of the Rules of Court. Plainly, the dropping of respondents Benedicto
and Tan as parties herein is in order.
We now come to the core issue of whether the Ombudsman committed grave abuse of discretion
in dismissing petitioners complaint against the respondents. We rule in the negative and, accordingly, dismiss
the petition.

1.
Death of an accused pending appeal of his conviction extinguishes his criminal
liability as well as the civil liability based solely thereon. As opined by Justice
Regalado, in this regard, the death of the accused prior to final judgment terminates
his criminal liability and only the civil liability directlyarising from and based solely on
the offense committed, i.e., civil liability ex delicto in senso strictiore.

We cannot overemphasize the fact that the Ombudsman is a constitutional officer duty bound to
investigate on its own, or on complaint by any person, any act or omission of any public official, employee,
office or agency, when such act or omission appears to be illegal, unjust, improper, or inefficient. [22] The raison
d etre for its creation and endowment of broad investigative authority is to insulate it from the long tentacles of
officialdom that are able to penetrate judges and fiscals offices, and others involved in the prosecution of
erring public officials, and through the execution of official pressure and influence, quash, delay, or dismiss
investigations into malfeasances and misfeasances committed by public officers. [23]

2.
Corollarily, the claim for civil liability survives notwithstanding the death of
accused, if the same may also be predicated on a source of obligation other than
delict. Article 1157 of the Civil Code enumerates these other sources of obligation from
which the civil liability may arise as a result of the same act or omission:

In Presidential Commission on Good Government (PCGG) v. Desierto,[24] we dwelt on the powers,

functions and duties of the Ombudsman, to wit:

a)
b)
c)
d)
e)

Law
Contracts
Quasi-contracts
xxx
Quasi-delicts

3.
Where the civil liability survives, as explained in Number 2 above, an action for
recovery therefor may be pursued but only by way of filing a separate civil action and
subject to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure [15] as amended.
The separate civil action may be enforced either against the executor/administrator or
the estate of the accused, depending on the source of obligation upon which the same
is based as explained above.
4.
Finally, the private offended party need not fear a forfeiture of his right to file
this separate civil action by prescription, in cases where during the prosecution of the
criminal action and prior to its extinction, the private-offended party instituted together
therewith the civil action. In such case, the statute of limitations on the civil liability is
deemed interrupted during the pendency of the criminal case, conformably with
provisions of Article 1155 of the Civil Code, that should thereby avoid any
apprehension on a possible [de]privation of right by prescription.
Applying the foregoing rules, ABS-CBNs insistence that the case at bench survives because the civil
liability of the respondents subsists is stripped of merit.
To begin with, there is no criminal case as yet against the respondents. The Ombudsman did not
find probable cause to prosecute respondents for various felonies in the RPC. As such, the rule that a civil
action is deemed instituted along with the criminal action unless the offended party: (a) waives the civil action,
(b) reserves the right to institute it separately, or (c) institutes the civil action prior to the criminal action, [16] is
not applicable.
In any event, consistent with People v. Bayotas,[17] the death of the accused necessarily calls for the
dismissal of the criminal case against him, regardless of the institution of the civil case with it. The civil action
which survives the death of the accused must hinge on other sources of obligation provided in Article 1157 of
the Civil Code. In such a case, a surviving civil action against the accused founded on other sources of
obligation must be prosecuted in a separate civil action. In other words, civil liability based solely on the
criminal action is extinguished, and a different civil action cannot be continued and prosecuted in the same
criminal action.

The prosecution of offenses committed by public officers is vested primarily in

the Office of the Ombudsman. It bears emphasis that the Office has been given a wide
latitude of investigatory and prosecutory powers under the Constitution and Republic
Act No. 6770 (The Ombudsman Act of 1989). This discretion is all but free from
legislative, executive or judicial intervention to ensure that the Office is insulated from
any outside pressure and improper influence.
Indeed, the Ombudsman is empowered to determine whether there exist
reasonable grounds to believe that a crime has been committed and that the accused
is probably guilty thereof and, thereafter, to file the corresponding information with the
appropriate courts. The Ombudsman may thus conduct an investigation if the
complaint filed is found to be in the proper form and substance. Conversely, the
Ombudsman may also dismiss the complaint should it be found insufficient in form or
substance.
Unless there are good and compelling reasons to do so, the Court will refrain
from interfering with the exercise of the Ombudsmans powers, and respect the
initiative and independence inherent in the latter who, beholden to no one, acts as the
champion of the people and the preserver of the integrity of public service.
The pragmatic basis for the general rule was explained in Ocampo v.
Ombudsman:
The rule is based not only upon respect for the
investigatory and prosecutory powers granted by the
Constitution to the Office of the Ombudsman but upon
practicality as well. Otherwise, the functions of the courts will be
grievously hampered by innumerable petitions assailing the
dismissal of investigatory proceedings conducted by the Office
of the Ombudsman with regard to complaints filed before it, in
much the same way that the courts would be extremely
swamped if they would be compelled to review the exercise of
discretion on the part of the fiscals or prosecuting attorneys
each time they decide to file an information in court or dismiss
a complaint by private complainants.[25]
From the foregoing, it is crystal clear that we do not interfere with the Ombudsmans exercise of his
investigatory and prosecutory powers vested by the Constitution. In short, we do not review the Ombudsmans

exercise of discretion in prosecuting or dismissing a complaint except when the exercise thereof is tainted with
grave abuse of discretion.

Esteban B. Bautista for accused-appellant.

By grave abuse of discretion is meant such capricious and whimsical exercise of judgment tantamount
to lack of jurisdiction. The abuse of discretion must be so patent and gross as to amount to an evasion of a
positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law, as
where the power is exercised in an arbitrary and despotic manner by reason of passion or hostility. [26] In this
regard, petitioners utterly failed to demonstrate the Ombudsmans abuse, much less grave abuse, of
discretion.

GUTIERREZ, JR., J.:p

Apart from a blanket and general charge that remaining respondents herein, Gonzales and Garcia, are
officers of KBS/RPN and/or alter egos of Benedicto, petitioners complaint-affidavits are bereft of sufficient
ground to engender a well-founded belief that crimes have been committed and the respondents, namely,
Gonzales and Garcia, are probably guilty thereof and should be held for trial. [27] Certainly, the Ombudsman did
not commit grave abuse of discretion in dismissing petitioners complaint-affidavits.

Heinrich Stefan Ritter was charged with the crime of rape with homicide under an information which reads:

From the entirety of the records, it is beyond cavil that petitioners seek to attach criminal liability to an
unequivocally civil undertaking gone awry. As pointed out by the Ombudsman, although the petitioners may
not have realized their expectations in entering into the June 8, 1973letter-agreement, such does not render
their consent thereto defective.
The execution and validity of this letter-agreement is connected with respondents culpability for the
felonies charged as these include the element of whether they had juridical possession of the ABS-CBN
properties. Essentially, petitioners claim they did not freely give their consent to the letter-agreement.
However, on more than one occasion, petitioners have invoked the letter-agreements provisions, and made
claims thereunder.
First, petitioners met and discussed with respondents the fixing of the rental rate for the ABS-CBN
studios in Quezon City as provided in paragraph 2 of the letter-lease agreement. Next, petitioners counsel
wrote a demand letter to respondents for the payment of rentals for the latters occupation and use of ABSCBN properties pursuant to the letter-agreement. Last and most importantly, petitioners have made a claim
against the estate of Benedicto based on the same June 8, 1973 letter-agreement.
This action of petitioners clearly evinces their ratification of the letter-agreement. As previously
discussed, the civil liability of respondents Benedicto and Tan hinging on the charged criminal acts herein was
extinguished upon their death. But other civil liabilities founded on other sources of obligations under Article
1157 of the Civil Code may still be prosecuted either against the estate of the deceased if based on contract,
[28]
or against the executors and administrators of the deceaseds estate if based on quasi-delict. [29]
As petitioners have ratified the letter-agreement, even after the lifting of martial law and the
toppling of the Marcos government, and advanced the validity of the letter-agreement in their claim against the
estate of Benedicto, they cannot, in the same breath, aver that respondents actuations in the execution of the
letter-agreement were criminal in nature, or that the letter-agreement was more ostensible than real and to
insist on the prosecution of respondents for felonies supposedly committed in connection with this ubiquitous
letter-agreement.[30]
In fine, the Ombudsman did not abuse his discretion in determining that the allegations of
petitioners against respondents are civil in nature, bereft of criminal character. Perforce, he was correct in
dismissing petitioners complaint-affidavits.
WHEREFORE, premises considered, the petition is hereby DISMISSED. Roberto S. Benedicto
and Salvador Tan are dropped as private respondents without prejudice to the filing of separate civil actions
against their respective estates. The assailed Joint Resolution and Order of the Ombudsman in OMB-0-941109 are AFFIRMED.
SO ORDERED.
G.R. No. 88582 March 5, 1991
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
HEINRICH S. RITTER, accused-appellant,
The Solicitor General for plaintiff-appellee.

The appellant challenges his conviction of the crime involving a young girl of about 12 years old who had been
allegedly raped and who later died because of a foreign object left inside her vaginal canal.

That on or about the tenth (10th day of October, 1986 in the City of Olongapo,
Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused with lewd design and with intent to kill one Rosario Baluyot, a woman under
twelve (12) years of age, did then and there wilfully, unlawfully and feloniously have
carnal knowledge of said Rosario Baluyot and inserted a foreign object into the vaginal
canal of said Rosario Baluyot which caused her death shortly thereafter, to the damage
and prejudice of her relatives. (66)
When arraigned, the accused pleaded "Not Guilty". Thereafter, the case was set for trial on the merits.
To prove the guilt of the accused, the prosecutor presented the following witnesses, namely: (1) Jessie
Ramirez, (2) Maria Burgos y Turla, (3) P/Cpl. Mariano Victoria, (4) Policarpio Baluyot, (5) Dr. Reino Rosete, (6)
Sumulong Daniel, (7) Jessica Herrera, (8) Sister Eva Palencia, (9) Conrado Salonga, (10) Dr. Devonne Loop,
(11) Dr. Leo Cruz, (12) Paul Maclor, (13) Aida Sarmiento, (14) Patricia Prollamanta (15) Mel Santos, (16)
Lorna Limos, (17) Eduard Lee Bungarner, (18) Ronaldo Marquez, (19) Tom Bonte, (20) 2nd Asst. City Fiscal
Nini Alcala, (21) lst Asst. City Fiscal Dorentino Z. Floresta, (22) Corazon Caber, (23) Rodolfo Mercurio and (24)
Fe Israel.
On the other hand, the defense offered in evidence Exhibits "1" to "24" and the testimonies of (1) Heinrich S.
Ritter, (2) Father Roque Villanueva, (3) Angelita Amulong (4) Gaspar Alcantara, (5) Dr. Val Barcinal and (6) Dr.
Pedro C. Solis.
The facts of the case upon which the lower court based its finding of guilt beyond reasonable doubt are
summarized in its decision, as follows:
The people's evidence show that on October 10, 1986 about midnight, accused
Heinrich Stefan Ritter brought a boy and girl namely: Jessie Ramirez and Rosario
Baluyot inside his hotel room at MGM Hotel along Magsaysay Drive, Olongapo City.
These two (2) children were chosen from among a bunch of street children. Once
inside the hotel room accused told them to take a bath. Jessie Ramirez, alias "Egan",
was the first to take a bath and when he came out Rosario Baluyot went to the
bathroom to do the same. While Rosario Baluyot was inside the bathroom, accused
Ritter took out some pictures depicting dressed up young boys, and put them on top of
the table. Other things which were taken out and placed on top of a table were three
(3) other objects which he described as like that of a vicks inhaler. One of these objects
the accused played with his hands and placed it on his palms. The color of which is
grayish blue which turned out later to be the foreign object which was inserted inside
the vagina of Rosario Baluyot. The other objects were later established to be anti-nasal
inhalers against pollution purchased by the accused in Bangkok when he went there as
a tourist. While Rosario was in the bathroom, accused told Ramirez to lay down on
bed, and so did the accused. He then started masturbating the young boy and also
guided the boy's hand for him to be masturbated, so that they masturbated each other,
while they were both naked, and he gave Jessie Ramirez an erection. When Rosario
Baluyot came out of the bathroom, she was told to remove her clothes by accused and

to join him in bed. The accused then placed himself between the two (2) children and
accused started fingering Rosario.
At this time, Ramirez was already sleepy, but Rosario touched him to call his attention.
He looked, and he saw accused placing his penis against the vagina of Rosario and
that he was trying to penetrate the vagina but it would not fit. After what he saw,
Ramirez did not anymore bother to look because he was sleepy and fell asleep.
The following morning, the accused, whom the juveniles described as an "American,
paid Ramirez alias "Egan" P200.00 and Rosario P300.00. He then left them in the
hotel. After the American left, they went downstairs, and Rosario told Egan that the
American inserted something in her vagina. But they could not do anything anymore,
because the American had already left, and neither did they report the matter to the
police. Sometime the following day, Jessie saw Rosario and he asked her whether the
object was already removed from her body and Rosario said "Yes". However, Jessie
Ramirez claimed that on the evening of that same date, he saw Rosario and she was
complaining of pain in her vagina and when Egan asked her, she said that the foreign
object was not yet removed. Then there was another occasion wherein Jessie was
summoned and when he came he saw Rosario writhing in pain and when he tried to
talk to Rosario she scolded him with defamatory remarks. Thereafter, he did not see
Rosario anymore because he already went home to his aunt's house who resided at
Barrio Barretto and resumed his studies in the primary grades.
On May 14, 1987, Gaspar Alcantara, a defense witness, while garbage scavenging at
Lot 21, near the gate of the U.S. Naval Base saw Rosario at Magsaysay Drive near the
Happy Bake Shop near Lot 21, being ogled by people because Rosario's skirt was
bloodied and she was unconscious and foul smelling. Since nobody helped Rosario,
he took pity on her condition and brought her to the Olongapo City General Hospital in
an unconscious condition, via jeepney. He went to the Information desk and he was the
one who gave the personal circumstances of Rosario as to her name, age, her
residence as Nagbakulaw, Lower Kalaklan, and Gaspar Alcantara signed as "guardian"
of Rosario, while Rosario was already in the emergency room. Although Gaspar
Alcantara denied that he did not know the name of Rosario Baluyot when he brought
her to the hospital, this is belied by the testimony of the Information clerk Lorna Limos,
who was then on duty. Limos testified that it was Alcantara who supplied the personal
circumstances of Rosario. The Court gives more credence to the testimony of Miss
Limos as against Gaspar Alcantara who became a defense witness, for the reason that
through his own testimony, Gaspar Alcantara claimed that even prior to May 14, 1987,
he had already known Rosario Baluyot for more than one (1) year, because he has
seen the said girl go to the house of his twin brother, Melchor Alcantara, who is his
immediate neighbor. Rosario used to visit a girl by the name of "Nora" who was then in
the custody of his brother. His brother Melchor was also living with their mother, brother
and sister-in-law and their two (2) children in his house. Rosario as per Gaspar's
testimony even stays for one week or a few days at his brother's house when she visits
Nora. So the Court can safely assume that of all the more than one (1) year that he
had regularly seen Rosario at his brother's house, he must have already did come to
know the name of Rosario Baluyot including her age. In his testimony in Court he
stated that he even asked Rosario for movie and softdrinks money which can safely be
concluded that he knows her very well. It is against normal behavior especially to a
Filipino who have a characteristic of curiosity not to have found out the real name of
the girl he claims to know only as "Tomboy".
While Rosario Baluyot was confined at the Olongapo City General Hospital, nobody
was attending to her since she is a street child, having stowed away from the custody
of her grandmother. Three (3) good samaritans who belong to religious and civic
organizations, in the persons of Jessica Herrera, Fe Israel and Sr. Eva Palencia, in one
of their missions in the hospital chanced upon Rosario Baluyot who was all alone with
no relatives attending to her and after finding out that she was only 12 years old
decided to help her. After a short interview with Rosario, regarding her name and age
only because she clamped up about her residence and her relatives, they decided to

help her by providing her the medicine she needed during her confinement in
readiness for an operation. It was Fe Israel who was able to get the name and age of
Rosario Baluyot from Rosario Baluyot herself when she saw her for the first time. For
Fe Israel, the age of Rosario Baluyot was an important factor because their program
assisted only indigent patients from infants up to 13 years old.
Rosario's first ailment at the Olongapo City General Hospital was loose bowel
movement and vomiting, which was first suspected as gastro-enteritis, but which came
out later as symptoms of peritonitis due to a massive infection in the abdominal cavity.
Subsequently, on May 17, 1987, after she was examined by the physicians at the
hospital, it was found out that there was a foreign object lodged in her vaginal canal
and she had vaginal discharge tinged with blood and foul smelling odor emanating
from her body. One of the doctors who attended to her was Dr. Barcinal, an OB-GYNE.
Dr. Barcinal tried to extract the foreign object by means of a forceps, but several
attempts proved futile because said object was deeply embedded in the vaginal canal
and was covered by tissues. Her abdomen was enlarged, tender and distended,
symptoms of peritonitis. The patient was feverish and incoherent when she was
scheduled for operation on May 19, 1987, after the first attempt for an operation on
May 17 was aborted allegedly because the consent of Dr. Reino Rosete, the hospital
director was not obtained. The surgeon who operated on her was Dr. Rosete himself.
He testified that Rosario had to be operated even in that condition in order to save her
life. Her condition was guarded. This was corroborated by Dr. Leo Cruz, the
anesthesiologist during Rosario's operation. It was in the evening of May 19 at about
7:00 p.m. when Dr. Rosete opened her abdomen by making a 5 inch incision on her
stomach. He found out that the fallopian tubes were congested with pus and so with
the peritonieum, and the pelvic cavity, and patches of pus in the liver, although the
gallbladder and kidney appeared to have septicemia, poisoning of the blood. The
peritonitis and septicemia were traced to have been caused through infection by the
foreign object which has been lodged in the intra-vaginal canal of Rosario. The foreign
object which was already agreed upon by both parties that it is a portion of a sexual
vibrator was extracted from the vagina of Rosario while under anesthesia. Said object
was coated with tissues, pus and blood. Dr. Rosete gave it to the assisting surgical
nurse for safekeeping and gave instructions to release it to the authorized person. This
object was shown by the nurse to Dr. Leo Cruz. Dr. Rosete considered the operation
successful and the patient was alive when he left her under Dr. Cruz. Dr. Cruz stayed
with said patient in the ward for about 30 minutes and thereafter he left. The following
day, Rosario got serious and it was Dr. Leo Cruz who pronounced her death at 2:00 to
2:15 in the afternoon of May 20, 1987.
Thereafter, a death certificate was prepared under the direction of Dr. Cruz which was
indicated therein that the cause of death was cardio-respiratory arrest, secondary to
septicemia caused by the foreign object lodged in the intra uteral vaginal canal of
Rosario Baluyot.
The foreign object was washed by nurse Obedina, then placed it in a transparent small
jar and labelled "Rosario Baluyot". Jessica Herrera asked the nurse for the foreign
object, and it was given to her under proper receipt. Herrera then showed the same to
the persons who helped financially Rosario's case, and afterwards she gave it to Sister
Eva Palencia. Sis. Palencia was in custody of the said object until Mr. Salonga came
and asked her for the object.
After Rosario Baluyot died, Sis. Palencia and a companion went to Gaspar Alcantara to
ask him in locating the relatives of Rosario. They were able to trace Rosario's
grandmother, Mrs. Maria Burgos Turla, and informed her that her granddaughter was
already dead and lying in state at St. Martin Funeral Parlor. Mrs. Turla went there with
her son, who shouldered all the burial expenses for Rosario.
Subsequently, Sis. Palencia, Fr. Cullens and Mr. Salonga came to her residence at Sta.
Rita and asked her if she was interested in filing a case against the person who caused

the death of her granddaughter. Of course she agreed. Hence, she was brought to the
Fiscal's (City) Office to file the same.
After the case was filed against the herein accused, Atty. Edmundo Legaspi with his
messenger came to her house and told her that the accused was willing to settle the
case, but that accused Ritter had only P15,000.00. The old woman did not accept it
because she knows that the accused is liable to pay damages anyway. After that, she
received a letter from Atty. Legaspi telling her to get a lawyer for her case. By this time,
Mrs. Turla, who wanted to have the case settled once and for all giving the reason that
she can no longer bear the situation, sent her nephew, Conrado Marcelo to Atty.
Legaspi. Her nephew obliged and told her that she will be paid at the office of Atty.
Legaspi. On a date not clear in the records, she went with her nephew Conrado
Marcelo, and Roberto Sundiam, an assistant barangay tanod of Sta. Rita, and while
they were there, she saw Ritter arrive at the law office. Ritter and Atty. Legaspi talked
at the office near the bathroom, and thereafter Ritter left. After he left, Atty. Legaspi told
Rosario's grandmother that they are willing to settle for P20,000.00, but that Ritter left
only P15,000.00, so she received the money with the understanding that there was a
balance of P5,000.00 yet. She was made to sign a statement, and she was asked to
change the age of her granddaughter Rosario. With the document prepared, she and
the lawyer's messenger went to the Fiscal's office to have it subscribed, and was
subscribed before an assistant city fiscal. But the balance of P5,000.00 was not paid,
because later on Atty. Legaspi became the OIC of Olongapo City and he could no
longer attend to it. Atty. Legaspi, during one of the hearings before the Court even
apologized to her.
As to the case, P/Cpl. Marino Victoria, as criminal investigator of Station "A", was
directed by Col. Daos, Station Commander of the Olongapo Police Department to
make a follow up of the case of Rosario Baluyot. On the other hand, since the suspect
who inserted the foreign object inside Rosario's vagina was said to be an American,
the NISRA Subic Naval Base also conducted its investigation headed by criminal
investigator Agent Conrado Salonga. Coordinating with the local police and with Sister
Eva Palencia, since Rosario was a street child at Magsaysay Drive, they rounded up
about 43 street children and from some of them they learned that Rosario Baluyot was
with Jessie Ramirez with an American at the MGM Hotel when the foreign object was
inserted in her vagina. After finding Jessie Ramirez, they asked him about Rosario
Baluyot. They found out that indeed he was with Rosario Baluyot sometime before
Christmas of 1986 with an American, who brought them to the said hotel. Jessie
Ramirez was taken inside the U.S. Naval Base, Olongapo City and took his statement.
Then he was brought to Mr. Edward Lee Bungarner, a cartographer, and out of the
description supplied by Ramirez, a composite drawing was photocopied and copies
thereof were distributed to the local police and to the sentries at the gate of the U.S.
Naval Base. Some American servicemen who had resemblance to the composite
drawing were photographed and these were shown to Jessie Ramirez, but the result
was negative. Aside from the physical description by Ramirez about the appearance of
the suspect, he also described him as having the mannerisms of a homo-sexual.
After obtaining information that foreign homo-sexuals frequented Ermita, Manila, and
thinking that the so-called American may be European or Australian national, the team
composed of Agent Salonga, Mr. Heinsell, P/Cpl. Marino Victoria and P/Cpl. Andres
Montaon, Jessie Ramirez and Michael Johnson, another juvenile, proceeded to Manila.
They first went to the Manila NISRA Office, and thereafter checked in a hotel. That was
on September 23, 1987. On the first night, they went to Luneta Park where foreign
homo-sexuals were said to be frequenting, but the result was negative. Then on
September 25, at about 11:00 p.m., while they were standing at the corner of A. Mabini
and M.H. del Pilar Street, a male caucasian who looked like a homo-sexual stopped by
admiringly infront of the two (2) juveniles, Ramirez and Johnson. Jessie Ramirez then
reported to Mr. Salonga that this foreigner had a similarity with the American suspect,
so the two minors were instructed to follow the foreigner and to strike a conversation.
They did, and when they returned, Jessie Ramirez told them that indeed the said
foreigner was the one who brought him and Rosario Baluyot to the MGM Hotel. Bobby

Salonga told Ramirez that this foreigner had no beard while the one previously
described by Ramirez had a beard. Jessie Ramirez told them that maybe he have just
shaved it off. The said caucasian then entered a bar, and after several minutes he
came out, and Jessie Ramirez upon his signal with his thumbs up, as a signal to
confirm that the said foreigner is the suspect, arrested Ritter and brought him to the
Manila Western Police District. It could be mentioned at this stage that in this operation
they were accompanied by two (2) policemen from the Western Police District. The
foreigner was hand cuffed and was told that he was a suspect for Rape with Homicide.
After the arrest, they first went to the pension house of the suspect in Ermita, Manila to
get his shoulder bag which contained his personal belongings, and from there they
brought him to the Western Police Department. At the said police headquarters, they
were allowed a permissive search by the foreigner of his clutch bag and his small
shoulder bag and confiscated his passport, I.D., 3 inhalers, money in the form of
dollars and travellers checks amounting about $1,500.00 and about P100.00, all duly
receipted for. From the passport they learned that the suspect's name was Heinrich
Stefan Ritter, an Austrian national. During the questioning of Hitter, Salonga and his
team already left the headquarters and went to their hotel, because at this time Jessie
Ramirez was already shaking with fear after he identified the accused.
The following day, they brought the accused to Olongapo and was detained at the
Olongapo City Jail. The case for Rape with Homicide was filed against him at the City
Fiscal of Olongapo. At the preliminary investigation, accused was assisted by his own
counsel. The private complainant was Maria Burgos Turla because it was she who had
custody of Rosario Baluyot after her mother Anita Burgos died on January 12, 1982,
and their father Policarpio Baluyot had left them under her custody. When this case
was filed, the father's whereabouts was unknown, and he only appeared when the trial
of this case before the Court was already in progress. And upon his (Policarpio
Baluyot) own admission, he only learned about the death of his daughter Rosario
Baluyot from the newspaper, long after Rosario was already gone.
The defense tried to dislodge the case by claiming that there could be no crime of
Rape with Homicide because the suspect was described as an American while Ritter is
an Austrian. Also advanced by the defense is that, it is a case of mistaken identity. That
Rosario Baluyot was at the time of the commission of the offense, already more than
13 years old, she having been born on December 26, 1973 as per baptismal certificate,
wherein it appears that Rosario Baluyot was baptized on December 25, 1974 and was
born on December 26, 1973 as testified to by Fr. Roque Villanueva of St. James Parish
Church who issued the Baptismal Certificate, having custody and possession of the
book of baptism for the year 1975, but admitted that he had no personal knowledge
about the matters or entries entered therein. Likewise, the defense's stand is that the
accused cannot be liable for Homicide because a vibrator is not a weapon of death but
it is a thing for the purpose of giving sexual pleasure, and that the death of Rosario
Baluyot was due to the incompetence of Dr. Rosete, the surgeon and Director of the
Olongapo City General Hospital, who operated on her. (Rollo, pp. 109-116)
On March 29, 1989, the trial court rendered its decision. The dispositive portion of the decision reads as
follows:
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the Court holds, that the
prosecution has established the GUILT of the accused beyond reasonable doubt for
the crime of Rape with Homicide as defined and penalized in Art. 335 No. 3 of the
Revised Penal Code, and hereby sentences HEINRICH STEFAN RITTER to a penalty
of RECLUSION PERPETUA, to indemnify the heirs of the deceased in the sum of
SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, and TEN THOUSAND
PESOS (Pl0,000.00) by way of attorney's fees to the private prosecutors and to pay
the costs. (Rollo, p. 126)
The accused now comes to this Court on the following assigned errors allegedly committed by the court:

I
THE TRIAL COURT GRAVELY ERRED AND ABUSED ITS DISCRETION IN FINDING
THAT THE ALLEGED OFFENSE WAS COMMITTED ON OCTOBER 10, 1986 AND
THAT IT WAS ACCUSED-APPELLANT WHO COMMITTED IT.
II
THE TRIAL COURT GRAVELY ERRED AND ABUSED ITS DISCRETION IN FINDING
THAT ROSARIO BALUYOT WAS LESS THAN TWELVE (12) YEARS OLD WHEN
THE ALLEGED OFFENSE WAS COMMITTED AND IN HOLDING THAT THERE WAS
RAPE WITH HOMICIDE.
III
THE TRIAL COURT GRAVELY ERRED AND ABUSED ITS DISCRETION IN GIVING
CREDENCE TO AND NOT REJECTING THE PROSECUTION'S EVIDENCE AND IN
NOT UPHOLDING THAT OF THE DEFENSE AND ACQUITTING THE ACCUSED.
Inasmuch as it is the bounden duty of this Court to affirm a judgment of conviction only if the guilt of the
accused has been proved beyond reasonable doubt, it behooves us to exert the most painstaking effort to
examine the records in the light of the arguments of both parties if only to satisfy judicial conscience that the
appellant indeed committed the criminal act (See People v. Villapaa, 161 SCRA 73 [1988]).
The appellant was convicted by the trial court of the crime of rape with homicide of a young girl who died after
the rape because of a foreign object, believed to be a sexual vibrator, left inside her vagina.
As stated by the trial court one crucial issue in this case is the age of the victimwhether or not Rosario
Baluyot was less than twelve (12) years old at the time the alleged incident happened on October 10, 1986.
The age is important in determining whether or not there was statutory rape, Article 335 of the Revised Penal
Code defines the third type of rape as having carnal knowledge of a woman under 12 years of age, in which
case force, intimidation, deprivation of reason or unconscious state do not have to be present.
The trial court found that Rosario was below 12 years old when she was sexually abused by the accused and,
therefore, rape was committed inspite of the absence of force or intimidation.
In resolving the issue, the trial court put great weight on the testimonies of the victim's grandmother and father
who testified that she was born on December 22, 1975. These oral declarations were admitted pursuant to
then Rule 130, Section 33 of the Rules of Court where, in the absence of a birth certificate, the act or
declaration about pedigree may be received in evidence on any notable fact in the life of a member of the
family. Since birth is a matter of pedigree within the rule which permits the admission of hearsay evidence, oral
declarations are therefore admissible as proof of birth (Decision, p. 54).

record clerk, Lorna Limos. Fe Israel, a social worker who interviewed Rosario Baluyot also testified that she
was told by Rosario that she was 12 years old. The trial court accepted this as adequate evidence of the truth.
Moreover, Jessie Ramirez, the principal witness in this case declared that he was born on September 5, 1973
and that he was older than Rosario Baluyot. Therefore, since he was 13 years old in 1986, Rosario must have
been less than 12 yeas old in 1986. (Decision, p. 55)
The trial court concluded that the oral declarations of the grandmother and father supported by other
independent evidence such as the clinical record, death certificate and the testimonies of Fe Israel and Jessie
Ramirez, rendered the baptismal certificate presented by the defense without any probative or evidentiary
value. (Decision, p. 55)
The findings of the trial court with respect to Rosario Baluyot's age cannot stand the application of evidentiary
rules.
The trial court relied on Section 33, Rule 130 (now Section 40 of Rule 130 of the 1989 Revised Rules of
Court).
For oral evidence to be admissible under this Rule, the requisites are:
(1) That the declarant must be dead or outside of the Philippines or unable to testify;
(2) That pedigree is in issue;
(3) That the person whose pedigree is in question must be related to the declarant by
birth or marriage;
(4) That the declaration must be made before the controversy occurred or ante litem
motam; and
(5) That the relationship between the declarant and the person whose pedigree is in
question must as a general rule be shown by evidence other than such act or
declaration.
These requirements were not satisfied by the evidence for the prosecution nor do the declarations fall within
the purview of the rule.
The victim's grandmother and father whose declarations regarding Rosario's age were admitted by the trial
court are both alive, in the Philippines and able to testify as they both did testify in court. Their declarations
were made at the trial which is certainly not before the controversy arose. The other witnesses who testified on
Rosario's age are not members of the victim's family. The testimonies of Rosario's relatives must be weighed
according to their own personal knowledge of what happened and not as hearsay evidence on matters of
family history.

The grandmother, Maria Burgos Turla, testified that she remembered Rosario's birth date because her brother
died in Pampanga and her daughter, Anita (Rosario's mother) was the only one who failed to attend the
funeral because the latter has just given birth allegedly to Rosario (T.S.N. p. 8, Jan. 13, 1988).

At this point, we find the evidence regarding Rosario's age of doubtful value.

The father likewise testified that as far as he could remember, Rosario was born on December 22, 1975
(T.S.N., p. 4, Jan. 27, 1988) and he was certain that Rosario was more than one (1) year old when she was
baptized (T.S.N., p. 45, Jan. 27, 1988).

The trial court justified the admissibility of the grandmother's testimony pursuant to the ruling laid down
in U.S. v. Bergantino, (3 Phil., 118 [1903]) where the Court accepted the testimony of the mother that her
daughter was 14 years old and 4 months old. The mother stated that she knew the age because the child was
born about the time of the cholera epidemic of 1889. This was not hearsay, but came from one who had direct
knowledge of the child's birth.

The trial court further added that their testimony is supported by the clinical record and the death certificate
indicating that she was 12 years old when she was admitted at the Olongapo City General Hospital for
treatment. The age was supplied by Rosario's alleged guardian, Gaspar Alcantara to the hospital's clinical

It is however, equally true that human memory on dates or days is frail and unless the day is an extraordinary
or unusual one for the witness, there is no reasonable assurance of its correctness. (People v. Dasig 93 Phil.
618, 632 [1953])
With respect to the grandmother's testimony, the date of the brother's death or funeral was never established,
which indicates that the day was rather insignificant to be remembered. The father's declaration is likewise not
entirely reliable. His testimony in court does not at all show that he had direct knowledge of his daughter's
birth. He was certain though that she was more than one (1) year old at the time she was baptized.

baptismal certificate different from the one presented in court. However, no other baptismal record was ever
presented to prove a date different from that brought by the official custodian. Since the baptismal certificate
states that Rosario was baptized on December 25, 1974, it is therefore highly improbable that Rosario could
have been born on December 22, 1975. She could not have been baptized before she was born. Exhibit "22"
may be proof only of baptism but it puts a lie to the declaration that Rosario was born in 1975. With the father's
assertion that Rosario was more than one (1) year old when she was baptized, we are then more inclined to
agree that Rosario was born in 1973 as stated in the Baptismal Registry.
In the case of People v. Rebancos (172 SCRA 425 [1989]), the Court stated:

The other witnesses are not at all competent to testify on the victim's age, nor was there any basis shown to
establish their competence for the purpose. The clinical records were based on Gaspar Alcantara's
incompetent information given when he brought the victim to the hospital. Alcantara came to know her only
about a year before her death. He had absolutely no knowledge about the circumstances of Rosario's birth.
The death certificate relied upon by the trial court was merely based on the clinical records. It is even less
reliable as a record of birth.
All the evidence presented by the prosecution showing that Rosario Baluyot was less than 12 years old at the
time of the alleged incident are not adequate to establish the exact date of birth, much less offset a
documentary record showing a different date.
The defense presented Rosario Baluyot's baptismal certificate which the trial court rejected as being hearsay
and of no value. As against the oral declarations made by interested witnesses establishing Rosario's age to
be less than 12 years old, the evidence on record is more convincing and worthy of belief. (See Filinvest Land,
Inc. v. Court of Appeals, 183 SCRA 664, 673 [1990]).
By virtue of a subpoena duces tecum and ad testificandum, issued by the lower court to the St. James Parish
Church, Subic, Zambales, Fr. Roque Villanueva a Roman Catholic priest testified and stated that he is the
head of said parish. He brought with him Baptismal Register No. 9 entitled "Liber Baptisnorum", a latin term for
baptismal book or record. On page 151, No. 3 of the said Registry Book, there appears the name of Rosario
Baluyot who was baptized on December 25, 1974, and born on December 26, 1973. Parents are Policarpio
Baluyot and Anita Burgos, residents of Subic, Zambales. Edita R. Milan appears as the only sponsor with
Olongapo City as her address.
In the case of Macadangdang v. Court of appeals (100 SCRA 73 [1980]), we held that:
xxx xxx xxx
In our jurisprudence, this Court has been more definite in its pronouncements on the
value of baptismal certificates. It thus ruled that while baptismal and marriage
certificates may be considered public documents, they are evidence only to prove the
administration of the sacraments on the dates therein specifiedbut not the veracity of
the status or declarations made therein with respect to his kinsfolk and/or citizenship
(Paa v. Chan, L-25945, Oct. 31, 1967). Again, in the case of Fortus v. Novero (L22378, 23 SCRA 1331 [1968]), this Court held that a baptismal certificate is conclusive
proof only of the baptism administered, in conformity with the rites of the Catholic
Church by the priest who baptized the child, but it does not prove the veracity of the
declarations and statements contained in the certificate that concern the relationship of
the person baptized. Such declarations and statements, in order that their truth may be
admitted, must indispensably be shown by proof recognized by law. (At pp. 84-85)
In the same light, the entries made in the Registry Book may be considered as entries made in the course of
business under Section 43 of Rule 130, which is an exception to the hearsay rule. The baptisms administered
by the church are one of its transactions in the exercise of ecclesiastical duties and recorded in a book of the
church during the course of its business. (U.S. v. de Vera, 28 Phil. 105 [1914] Hence, the certificate (Exhibit
"22") presented by the defense that Rosario Baluyot was baptized on December 25, 1974 may be admitted in
evidence as proof of baptism. Policarpio Baluyot, the victim's father testified that he had in his possession a

xxx xxx xxx

. . . Although no birth certificate was presented because her birth had allegedly not
been registered, her baptismal certificate, coupled by her mother's testimony, was
sufficient to establish that Mary Rose was below twelve years old when she was
violated by Rebancos. (At. p. 426)
Unfortunately, in the instant case, nobody could corroborate the date on a more reliable document as to
Rosario's birth which could serve as sufficient proof that she was born on December 26, 1973. Therefore, she
was more than 12 years old at the time of the alleged incident on October 10, 1986.
Moreover, it is not incumbent upon the defense to prove Rosario's age. The burden of proof lies on the
prosecution to prove that Rosario was less than 12 years old at the time of the alleged incident in a charge of
statutory rape. The prosecution failed in this respect.
Since Rosario was not established to have been under 12 years of age at the time of the alleged sexual
violation, it was necessary to prove that the usual elements of rape were present; i.e. that there was force of
intimidation or that she was deprived of reason or otherwise unconscious in accordance with Article 335 of the
Revised Penal Code.
We agree with the defense that there was no proof of such facts. On the contrary, the evidence shows that
Rosario submitted herself to the sexual advances of the appellant. In fact, she appears to have consented to
the act as she was paid P300.00 the next morning while her companion, Jessie Ramirez was paid P200.00
(T.S.N. p. 50, January 6, 1988). The environmental circumstances coupled with the testimonies and evidence
presented in court clearly give the impression that Rosario Baluyot, a poor street child, was a prostitute inspite
of her tender age. Circumstances in life may have forced her to submit to sex at such a young age but the
circumstances do not come under the purview of force or intimidation needed to convict for rape.
In view of these clear facts which the prosecution failed to refute, no rape was committed. But was Ritter guilty
of homicide?
The trial court justified its ruling by saying that the death of the victim was a consequence of the insertion of
the foreign object into the victim's vagina by the appellant.
We now ask "Was the appellant responsible for the sexual vibrator left inside Rosario's vagina which led to her
death?
The trial court convicted the accused based on circumstantial evidence. Unfortunately, the circumstances are
capable of varying interpretations and are not enough to justify conviction.
Jessie Ramirez, the principal witness did not actually see the object inserted in Rosario's vagina. Neither could
he identify the object (Exhibit "C-2") taken from Rosario as the same object which the appellant was holding at
that time of the alleged incident.

In his sworn statement given to the police investigator on September 4, 1987, he answered that:
xxx xxx xxx
T Habang kayo ay nasa loob ng kuwarto ng otel, mayroon ka
bang napansin na inilabas ng kano sa kanyang daladalahan
kung mayroon man?

Jessie Ramirez testified that Rosario was able to remove the object inserted in her vagina. We quote:
Q Now, you also stated on direct examination that later on
Rosario even categorically admitted to you that she was
already able to remove the object allegedly inserted inside her
vagina, is that correct?
A Yes, sir.

S Ang Amerikano ay may dala-dalang shoulder bag na kulay

itim, at napansin ko na may inilabas siya sa kanyang bag na
parang vicks inhaler, na kanyang inamoy-amoy habang nasa
otel kami at pagkatapos niya ay inilapag niya sa lamiseta.
T Ilarawan mo nga sa akin ang bagay na nakita mong inilabas
ng Amerikano?
S Ito ay may habang tatlong pulgada at ang takip nito ay may
habang dalawang pulgada. Iyong takip ay bilog na patulis at
may tabang mga kalahating pulgada. Hindi ko napansin ang
hugis ng dulo ng bagay na may takip dahil natatakpan ng
kamay at ilong ng Amerikano.
T Ipinakikita ko sa iyo ang isang larawan. Tignan mong mabuti
ang larawang ito at sabihin mo nga sa akin kung makikilala mo
ang mga bagay na nasa larawang ito, na may kinalaman sa
nakita mong kinuha ng Amerikano sa kanyang bag?
S Napansin ko na ang kulay asul na bagay sa larawan ay
katulad na katulad noong takip ng bagay na inilabas ng
Amerikano sa kanyang bag. Kaya lang ay bakit naging kulay
asul gayong ng makita ko ito ay kulay puti? (Exhibit "A", p. 2;
Emphasis Supplied)
Presumably, what Jessie Ramirez saw was merely the Vicks inhaler which the appellant does not deny having
possessed at that time. He was certain that the object was white. (T.S.N. p. 91, January 6, 1988)
Later, Ramirez retracted and corrected himself. He said that it was grayish in color with color blue (Medyo
kulay abo na may kulay na parang blue). (T.S.N. p. 92, January 6, 1988) The inconsistency of the witness'
testimony casts doubt as to the veracity of the statements made especially when he answered on additional
cross-examination that the reason why he concluded that Exhibit "C-2" was the same object being held by
Ritter was because it was the only one shown to him by the prosecution (T.S.N. pp. 109-110, January 6,
1988). Jessie Ramirez was not all certain about the sexual vibrator because he did not actually see it in the
possession of the appellant.
What he merely remembers is the revelation made by Rosario the next morning that the foreigner inserted
something inside her vagina. The trial court admitted such statement as part of the res gestae. In a strained
effort to accept such statement as part of res gestae, the trial court focused the test of admissibility on the
lapse of time between the event and the utterance. For the average 13 years old, the insertion of a mechanical
device or anything for that matter into the vagina of a young girl is undoubtedly startling. For Rosario and
Jessie, however, there must be more evidence to show that the statement, given after a night's sleep had
intervened, was given instinctively because the event was so startling Res gestae does not apply. (Section 42,
Rule 130, Rules of Court)
Even if it were established that the appellant did insert something inside Rosario's vagina, the evidence is still
not adequate to impute the death of Rosario to the appellant's alleged act.

xxx xxx xxx

ATTY. CARAAN:
Q Will you kindly tell to this Honorable Court the exact words
used by Rosario Baluyot later on when you met her when you
asked her and when she told you that she was already able to
remove that object from her vagina?
A "Oy, Jessie, natanggal na, "she told me that. I asked her,
"Was it already removed?" And she answered, "Yes, it was
removed." But the same night, she again complained of pain of
her stomach. She sent one of her friends to call for me. And as
a matter of fact, Tomboy was uttering defamatory words against
me as she was groaning in pain. (TSN, Jan. 6,1988, pp. 72-73)
This encounter happened on the night of the day following the day after both children were invited by the
foreigner to the hotel. (T.S.N. p. 73, January 6, 1988). Rosario was said to be groaning in pain so we can just
imagine the distress she was undergoing at this point in time. If the device inserted by the appellant caused
the pain, it is highly inconceivable how she was able to endure the pain and discomfort until May, 1987, seven
(7) months after the alleged incident. Evidence must not only proceed from the mouth of a credible witness but
it must be credible in itself such as the common experience and observation of mankind can approve as
probable under the circumstances. (People vs. Patog, 144 SCRA 429 [1986]).
At this juncture, we find Dr. Pedro Solis' testimony rather significant. Dr. Pedro Solis, a witness for the defense
is considered an expert witness. (A Doctor of Medicine and a graduate of the State University in 1940, a
degree of Bachelor of Laws and member of the Bar 1949, and a graduate of the Institute of Criminology
University. He was awarded Post Graduate Diploma in Criminology in 1963, and also a graduate of United
Nations Asia and Far East Asia Institute on the Prevention of Crimes in Tokyo Japan 1965. He was appointed
Medico Legal Officer of the National Bureau of Investigation in 1940 until 1944. He became Chief Medico
Legal Officer in 1970 and became the Deputy Director of the NBI up to 1984. He is at present a Professorial
Lecturer on Legal Medicine at the UP, FEU, UE, and Fatima College of Medicine; a Medico Legal Consultant
of the PGH Medical Center, Makati Medical Center, UERM Medical Center, MCU Medical Center. He has been
with the NBI for 43 years. He has attended no less than 13 conferences abroad. He is the author of the
textbooks entitled "Legal Medicine" and "Medical Jurisprudence".) With his impressive legal and medical
background, his testimony is too authoritative to ignore. We quote the pertinent portions of his testimony:
Q Now Dr. Solis, would you kindly go over this object marked
as Exh. "C-2" which object was described as a part of a sexual
vibrator battery operated. Now, given this kind of object, would
you kindly tell us what would be the probable effect upon a 12
years old girl when it is inserted into her vagina?
A Well, this vibrator must be considered a foreign body placed
into a human being and as such be considered a foreign object.
As a foreign object, the tendency of the body may be: No. 1
expel the foreign bodyNo. 2.The tendency of the body is to

react to that foreign body. One of the reactions that maybe

manifested by the person wherein such foreign body is
concerned is to cover the foreign body with human tissue, in a
way to avoid its further injury to the body.

A Infection and inflamatory changes will develop in a shorter

time. (TSN., Oct. 19,1988, p. 18)
xxx xxx xxx

Now, the second reaction is irritation thereby producing certain

manifest symptoms and changes in the area where the foreign
body is located.
In severe cases, the symptoms manifestation might not only be
localized but may be felt all over the body, we call it systemic
reaction. Now, considering the fact that this foreign body as
shown to me is already not complete, this shows exposure of its
different parts for the body to react. If there is mechanism to
cause the foreign body to vibrate, there must be some sort of
power from within and that power must be a dry cell battery.
[The] composition of the battery are, manganese dioxide
ammonium, salts, water and any substance that will cause
current flow. All of these substances are irritants including areas
of the container and as such, the primary reaction of the body is
to cause irritation on the tissues, thereby inflammatory changes
develop and in all likelihood, aside from those inflammatory
changes would be a supervening infection in a way that the
whole generative organ of the woman will suffer from diseased
process causing her the systemic reaction like fever, swelling of
the area, and other systemic symptoms. . . . . (TSN., pp. 13-15,
October 19,1988)
xxx xxx xxx
Q Now, given this object, how long would it take, Doctor before
any reaction such as an infection would set in, how many days
after the insertion of this object in the vagina of a 12 year old
girl?
A In the example given to me, considering that one of the ends
is exposed, in a way that vaginal secretion has more chance to
get in, well, liberation of this irritant chemicals would be
enhanced and therefore in a shorter period of time, there being
this vaginal reaction.
Q How many days or weeks would you say would that follow
after the insertion?
A As I said, with my experience at the NBI, insertion of any
foreign body in the vaginal canal usually developed within, a
period of two (2) weeks . . .

Q When you said shorter, how long would that be, Doctor?
A As I said, in my personal experience, hair pins, cottonballs
and even this lipstick of women usually, there are only about
two (2) weeks time that the patient suffer some abnormal
symptoms.
Q Now, considering that this is a bigger object to the object that
you mentioned, this object has a shorter time?
A Yes, Sir shorter time. (TSN., Oct. 19. 1988, p. 20)
The trial court, however, ruled that "there is no hard and fast rule as to the time frame wherein infection sets in
upon insertion of a foreign body in the vagina canal. For Dr. Solis, the time frame is not more than 10 months,
and this case is still within the said time frame."
A more generous time interval may be allowed in non-criminal cases. But where an accused is facing a
penalty of reclusion perpetua, the evidence against him cannot be based on probabilities which are less likely
than those probabilities which favor him.
It should be clarified that the time frame depends upon the kind of foreign body lodged inside the body. An
examination of the object gave the following results:
(1) Color: Blue
Size: (a) Circumference3.031
inches (b) Lengthapproximately
2.179 inches.
Composition: Showed the general
characteristics of a styrene-butadiene plastic.
(2) The specimen can be electrically operated by means of a battery as per certification
dated 01 June 1988, signed by Mr. Rodolfo D. Mercuric, Shipboard Electrical Systems
Mechanics, Foreman II, SRF Shop 51, Subic (see attached certification).
(3) No comparative examination was made on specimen #1 and vibrator depicted in
the catalog because no actual physical dimensions and/or mechanical characteristics
were shown in the catalog. (Exhibit "LL")
The vibrator end was further subjected to a macro-photographic examination on the open end portion which
revealed the following:

xxx xxx xxx

Result of Examination
Q . . . [T]he subject in this case was allegedly raped, and a
sexual vibrator was inserted in her vagina on October 10, 1986
and she was operated on, on May 19, 1987 the following year,
so it took more than 7 months before this was extracted, would
you say that it will take that long before any adverse infection
could set in inside the vagina?

Macro-photographic examination on the open end portion of specimen #1 shows the

following inscription:
MABUCHI MOTOR JAPAN RE 14 PAT (Exhibit "MM")

From the above results, the subject object is certainly not considered as inert and based on Dr. Solis'
testimony, it is more likely that infection should set in much earlier. Considering also that the object was
inserted inside the vagina which is part of the generative organ of a woman, an organ which is lined with a
very thin layer of membrane with plenty of blood supply, this part of the body is more susceptible to infection.
(T.S.N. p. 34, October 19, 1988)

Q All this time that you were examining the patient Rosario
Baluyot both in the first and second instance, Rosario Baluyot
was conscious and were you able to talk to her when you were
examining her?
A Yes, sir.

The truth of Dr. Solis' testimony is more probable under the circumstances of the case. We see no reason why
his opinions qualified by training and experience should not be controlling and binding upon the Court in the
determination of guilt beyond reasonable doubt. (People v. Tolentino, 166 SCRA 469 [1988]).
Dr. Barcinal, another witness for the defense also testified that he examined Rosario Baluyot on May 17, 1986
as a referral patient from the Department of Surgery to give an OB-GYN clearance to the patient prior to
operation. (T.S.N. p. 6, September 28, 1988)

Q And did you ask her why there is a foreign object lodge inside
her vagina?
A Yes, Sir I asked her.
Q And what did she tell you, if any?

Q And how many times did you examine this patient Rosario
Baluyot on that day?

A She said in her own words that "GINAMIT AKO NG NEGRO

AT SIYA ANG NAGLAGAY NITO."

A I examined her twice on that day.

Q The first time that you examined her, what is the result of
your findings, if any?
A My first examination, I examined the patient inside the
delivery room. The patient was brought to the delivery room
wheel-chaired then from the wheel chair, the patient was
ambigatory (sic). She was able to walk from the door to the
examining table. On examination, the patient is conscious, she
was fairly nourished, fairly developed, she had fever, she was
uncooperative at that time and examination deals more on the
abdomen which shows slightly distended abdomen with muscle
guarding with tenderness all over, with maximum tenderness
over the hypogastric area. (T.S.N. p. 5, September 28, 1988)
xxx xxx xxx
Q What about your second examination to the patient, what
was your findings, if any?
A In my second examination, I repeated the internal
examination wherein I placed my index finger and middle finger
inside the vagina of the patient and was able to palpate a hard
object. After which, I made a speculum examination wherein I
was able to visualize the inner portion of the vaginal canal,
there I saw purulent foul smelling, blood tints, discharge in the
vaginal canal and a foreign body invaded on the posterior part
of the vaginal canal.
xxx xxx xxx
A I referred back to Dr. Fernandez about my findings and he
asked me to try to remove the said foreign object by the use of
forceps which I tried to do so also but I failed to extract the
same.

Q Did she also tell you when, this Negro who used her and who
inserted and placed the foreign object on her vagina?
A Yes, Sir I asked her and she said he used me three (3)
months ago from the time I examined her.
Q Now, you said that you referred the patient to the ward, what
happened next with your patient?
A To my knowledge, the patient is already scheduled on
operation on that date.
Q Meaning, May 17, 1987?
A Yes, Sir I was presuming that the patient would undergo
surgery after that?
(TSN, Sept. 28,1988, pp. 8-9; Emphasis supplied)
The trial court debunked Dr. Barcinals testimony considering Rosario's condition at that time. It ruled that it is
inconceivable that she would be striking a normal conversation with the doctors and would be sitting on the
examination table since Gaspar Alcantara stated that when he brought Rosario Baluyot to the hospital, she
was unconscious and writhing in pain.
It was not improbable for Rosario Baluyot to still be conscious and ambulant at that time because there were
several instances testified to by different witnesses that she was still able to talk prior to her operation:
(1) Fe Israel, a witness for the prosecution and a member of the Olongapo Catholic Charismatic Renewal
Movement testified that as a member of this group she visits indigent children in the hospital every Saturday
and after office hours on working days.
On the Saturday prior to Rosario's death which was May 17, she was still able to talk to Rosario Baluyot. In
fact, one of her groupmates helped Rosario go to the comfort room to urinate. (T.S.N., pp. 16-19, May 25,
1988)

(2) Angelita Amulong, a witness for the defense is another para social worker who worked at Pope John 23rd
Community Center under Sister Eva Palencia. In one of her hospital visits, she encountered Rosario Baluyot
in the month of May, 1987. She actually saw a child who happened to be Rosario Baluyot seated on the
cement floor and when she asked why she was seated there, she was told that it was too hot in the bed. She
saw Rosario Baluyot for about 2 or 3 days successively. (T.S.N. pp. 10-13, September 7, 1988)

(b) The facts from which the inferences are derived are proven; and

(3) Gaspar Alcantara, the person who brought Rosario to the hospital actually testified that she was conscious
(T.S.N. p. 36, September 14, 1988) but writhing in pain. He took pity on her so he brought her to the hospital
(T.S.N. p. 12, September 14, 1988)

For the well-entrenched rule in evidence is that "before conviction can be had upon circumstantial evidence,
the circumstances proved should constitute an unbroken chain which leads to one fair and reasonable
conclusion pointing to the defendant, to the exclusion of all others, as the author of the crime (People v.
Subano, 73 Phil. 692 [1942]; Emphasis supplied). It must fairly exclude every reasonable hypothesis of
innocence (Dorado v. Court of Appeals, 153 SCRA 420, 433 [1987]). In this case the circumstantial evidence
presented by the prosecution does not conclusively point to the liability of the appellant for the crime charged.
(People v. Tolentino, supra)

From the above testimonies, it is clear that Rosario was still conscious and could still answer questions asked
of her although she was complaining of stomach pains. Unfortunately, the medical attention given to her failed
to halt the aggravation of her condition. The operation on May 19 was too late.
Rosario died because of septicemia, which in layman's language is blood poisoning, and peritonitis, which is
massive infection, in the abdominal cavity caused by the foreign object or the cut sexual vibrator lodged in the
vagina of the victim. This led to the infection from the uterus to the fallopian tubes and into the peritoneum and
the abdominal cavity.
The trial court convicted the accused citing the rationale of Article 4 of the RPC
He who is the cause of the cause is the cause of the evil caused.
But before the conviction is affirmed, we must first follow the rule as stated in the case of Urbano
vs.Intermediate Appellate Court (157 SCRA 1 [1988]) to wit:
The rule is that the death of the victim must be the direct, natural and logical
consequence of the wounds inflicted upon him by the accused. And since we are
dealing with a criminal conviction, the proof that the accused caused the victim's death
must convince a rational mind beyond reasonable doubt. (Emphasis supplied)
In People v. Tempongko, Jr., (144 SCRA 583, 592 [1986]), we explained that:
xxx xxx xxx
The basic principle in every criminal prosecution is that accusation is not synonymous
with guilt. The accused is presumed innocent until the contrary is proved by the
prosecution. If the prosecution fails, it fails utterly, even if the defense is weak or,
indeed, even if there is no defense at all. The defendant faces the full panoply of state
authority with all "The People of the Philippines" arrayed against him. In a manner of
speaking, he goes to bat with all the bases loaded. The odds are heavily against him. It
is important, therefore, to equalize the positions of the prosecution and the defense by
presuming the innocence of the accused until the state is able to refute the
presumption by proof of guilt beyond reasonable doubt. (At. p. 592)
The evidence for the accused maybe numerically less as against the number of witnesses and preponderance
of evidence presented by the prosecution but there is no direct and convincing proof that the accused was
responsible for the vibrator left inside the victim's vagina which caused her death seven (7) months after its
insertion. What the prosecution managed to establish were mere circumstances which were not sufficient to
overcome the constitutional presumption of innocence. While circumstantial evidence may suffice to support a
conviction it is imperative, though, that the following requisites should concur:
(a) There is more than one circumstance;

(c) The combination of all the circumstances is such as to produce a conviction beyond reasonable doubt.
(Rule 133, Sec. 4 Revised Rules of Court)

We are aware of the wide publicity given to the plight of Rosario Baluyot and how her death exemplified starkly
the daily terrors that most street children encounter as they sell their bodies in order to survive. At an age
when innocence and youthful joys should preponderate in their lives, they experience life in its most heartless
and inhuman form. Instead of nothing more than gentle disappointments occupying their young minds, they
daily cope with tragedies that even adults should never be made to carry.
It is with distressing reluctance that we have to seemingly set back the efforts of Government to dramatize the
death of Rosario Baluyot as a means of galvanizing the nation to care for its street children. It would have
meant a lot to social workers and prosecutors alike if one pedophile-killer could be brought to justice so that
his example would arouse public concern, sufficient for the formulation and implementation of meaningful
remedies. However, we cannot convict on anything less than proof beyond reasonable doubt. The protections
of the Bill of Rights and our criminal justice system are as much, if not more so, for the perverts and outcasts
of society as they are for normal, decent, and law-abiding people.
The requirement of proof which produces in an unprejudiced mind moral certainty or conviction that the
accused did commit the offense has not been satisfied.
By way of emphasis, we reiterate some of the factors arousing reasonable doubt:
1. The evidence on Rosario Baluyot's baptism creates reasonable doubt about her being less than 12 years
old when the carnal knowledge took place. If the evidence for the prosecution is to be believed, she was not
yet born on the date she was baptized.
2. Since the proof of Rosario's being under 12 years of age is not satisfactory, the prosecution has to prove
force, intimidation, or deprivation of reason in order to convict for rape. There is no such proof. In fact, the
evidence shows a willingness to submit to the sexual act for monetary considerations.
3. The only witness to the fact of Ritter's placing a vibrator inside the vagina of Rosario was Jessie Ramirez.
This witness did not see Ritter insert the vibrator. The morning after the insertion, he was only told by Rosario
about it. Two days later, he allegedly met Rosario who informed him that she was able to remove the object.
And yet, Ramirez testified that on the night of that second encounter, he saw Rosario groaning because of
pain in her stomach. She was even hurling invectives. Ramirez' testimony is not only hearsay, it is also
contradictory.
4. It was improbable, according to expert medical testimony, for a foreign object with active properties to cause
pain, discomfort, and serious infection only after seven months inside a young girl's vaginal canal. Infection
would have set in much earlier. Jessie Ramirez recalled that the incident happened in December of 1986.
(TSN., January 6, 1988, pp. 15-17) The evidence, however shows that the appellant was not here in the
Philippines that December. As per the Commission on Immigration Arrival and Departure Report, Heinrich
Ritter arrived in the Philippines on October 7, 1986 and left on October 12, 1986. He never returned until
September 23, 1987 (Exhibits "DD" and "EE") The incident could have happened only in October, but then it
would have been highly improbable for the sexual vibrator to stay inside the vagina for seven (7) months with
the kind of serious complications it creates.

5. The gynecologist who attended to Rosario during her hospital confinement testified that she told him
"Ginamit ako ng Negro at siya ang naglagay nito." The accused is not a black.
Noteworthy is the fact that nothing was mentioned about Rosario's activities after the hotel incident.
Considering Dr. Barcinal's testimony indicating that she was "used" by a "Negro" three (3) months prior to
admission in the hospital and Rosario's unfortunate profession, there is always the possibility that she could
have allowed herself to be violated by this perverse kind of sexual behavior where a vibrator or vibrators were
inserted into her vagina between October, 1986 and May, 1987.
Moreover, the long delay of seven (7) months after the incident in reporting the alleged crime renders the
evidence for the prosecution insufficient to establish appellant's guilty connection with the requisite moral
certainty. (See People v. Mula Cruz, 129 SCRA 156 [1984]).
The established facts do not entirely rule out the possibility that the appellant could have inserted a foreign
object inside Rosario's vagina. This object may have caused her death. It is possible that the appellant could
be the guilty person. However, the Court cannot base an affirmance of conviction upon mere possibilities.
Suspicions and possibilities are not evidence and therefore should not be taken against the accused. (People
v. Tolentino, supra)
Well-established is the rule that every circumstance favorable to the accused should be duly taken into
account. This rule applies even to hardened criminals or those whose bizarre behaviour violates the mores of
civilized society. The evidence against the accused must survive the test of reason. The strongest suspicion
must not be allowed to sway judgment. (See Sacay v. Sandiganbayan, 142 SCRA 593 [1986]). As stated in the
case of People v. Ng (142 SCRA 615 [1986]):
. . . [F]rom the earliest years of this Court, it has emphasized the rule that reasonable
doubt in criminal cases must be resolved in favor of the accused. The requirement of
proof beyond reasonable doubt calls for moral certainty of guilt. It has been defined as
meaning such proof "to the satisfaction of the court, keeping in mind the presumption
of innocence, as precludes every reasonable hypothesis except that which it is given to
support. It is not sufficient for the proof to establish a probability, even though strong,
that the fact charged is more likely to be true than the contrary. It must establish the
truth of the fact to a reasonable and moral certaintya certainty that convinces and
satisfies the reason and the conscience of those who are to act upon it. (Moreno,
Philippine Law Dictionary, 1972 Edition, p. 379, citing U.S. v. Reyes, 3 Phil. 3). . . .
In the instant case, since there are circumstances which prevent our being morally certain of the guilt of the
appellant, he is, therefore, entitled to an acquittal.
This notwithstanding, the Court can not ignore the acts of the appellant on the children, Jessie Ramirez and
Rosario Baluyot in October, 1986 at the MGM Hotel. Inspite of his flat denials, we are convinced that he
comes to this country not to look at historical sights, enrich his intellect or indulge in legitimate pleasures but in
order to satisfy the urgings of a sick mind.
With the positive Identification and testimony by Jessie Ramirez that it was the appellant who picked him and
Rosario from among the children and invited them to the hotel; and that in the hotel he was shown pictures of
young boys like him and the two masturbated each other, such actuations clearly show that the appellant is a
pedophile. When apprehended in Ermita, he was sizing up young children. Dr. Solis defined pedophilia in his
book entitled Legal Medicine, 1987 edition, as follows:
PedophiliaA form of sexual perversion wherein a person has the compulsive desire
to have sexual intercourse with a child of either sex. Children of various ages
participate in sexual activities, like fellatio, cunnilingus, fondling with sex organs, or
anal sexual intercourse. Usually committed by a homosexual between a man and a
boy the latter being a passive partner.

Ritter was prosecuted for rape with homicide and not pedophilia, assuming this is a crime by itself. Pedophilia
is clearly a behavior offensive to public morals and violative of the declared policy of the state to promote and
protect the physical, moral, spiritual and social well-being of our youth. (Article II, Section 13, 1987
Constitution) (Harvey v. Defensor Santiago, 162 SCRA 840, 848 [1989]). Pedophiles, especially thrill seeking
aliens have no place in our country.
In this case, there is reasonable ground to believe that the appellant committed acts injurious not only to
Rosario Baluyot but also to the public good and domestic tranquility of the people. The state has expressly
committed itself to defend the right of children to assistance and special protection from all forms of neglect,
abuse, cruelty, exploitation and other conditions prejudicial to their development. (Art. XV, Section 3 [2] . . .
(Harvey v. Santiago, supra). The appellant has abused Filipino children, enticing them with money. The
appellant should be expelled from the country.
Furthermore, it does not necessarily follow that the appellant is also free from civil liability which is impliedly
instituted with the criminal action. (Rule III, Section 1) The well-settled doctrine is that a person while not
criminally liable, may still be civilly liable. We reiterate what has been stated in Urbano v. IAC, supra.
. . . While the guilt of the accused in a criminal prosecution must be established beyond
reasonable doubt, only a preponderance of evidence is required in a civil action for
damages. (Article 29, Civil Code). The judgment of acquittal extinguishes the civil
liability of the accused only when it includes a declaration that the facts from which the
civil liability might arise did not exist. (Padilla v. Court of Appeals, 129 SCRA 559).
The reason for the provisions of Article 29 of the Civil Code, which provides that the
acquittal of the accused on the ground that his guilt has not been proved beyond
reasonable doubt does not necessarily exempt him from civil liability for the same act
or omission, has been explained by the Code Commission as follows:
The old rule that the acquittal of the accused in a criminal case
also releases him from civil liability is one of the most serious
flaws in the Philippine legal system. It has given rise to
numberless instances of miscarriage of justice, where the
acquittal was due to a reasonable doubt in the mind of the court
as to the guilt of the accused. The reasoning followed is that
inasmuch as the civil responsibility is derived from the criminal
offense, when the latter is not proved, civil liability cannot be
demanded.
This is one of those causes where confused thinking leads to
unfortunate and deplorable consequences. Such reasoning fails
to draw a clear line of demarcation between criminal liability
and civil responsibility, and to determine the logical result of the
distinction. The two liabilities are separate and distinct from
each other. One affects the social order and the other, private
rights. One is for the punishment or correction of the offender
while the other is for the reparation of damages suffered by the
aggrieved party. The two responsibilities are so different from
each other that article 1813 of the present (Spanish) Civil Code
reads thus: "There may be a compromise upon the civil action
arising from a crime; but the public action for the imposition of
the legal penalty shall not thereby be extinguished." It is just
and proper that, for the purposes of the imprisonment of or fine
upon the accused, the offense should be proved beyond
reasonable doubt. But for the purpose of indemnifying the
complaining party, why should the offense also be proved
beyond reasonable doubt? Is not the invasion or violation of
every private right to be proved only by a preponderance of
evidence? Is the right of the aggrieved person any less private

because the wrongful act is also punishable by the criminal

law?
For these reasons, the Commission recommends the adoption
of the reform under discussion. It will correct a serious defect in
our law. It will close up an inexhaustible source of injusticea
cause for disillusionment on the part of the innumerable
persons injured or wronged.
Rosario Baluyot is a street child who ran away from her grandmother's house. Circumstances forced her to
succumb and enter this unfortunate profession. Nonetheless, she has left behind heirs who have certainly
suffered mental anguish, anxiety and moral shock by her sudden and incredulous death as reflected in the
records of the case. Though we are acquitting the appellant for the crime of rape with homicide, we emphasize
that we are not ruling that he is innocent or blameless. It is only the constitutional presumption of innocence
and the failure of the prosecution to build an airtight case for conviction which saved him, not that the facts of
unlawful conduct do not exist. As earlier stated, there is the likelihood that he did insert the vibrator whose end
was left inside Rosario's vaginal canal and that the vibrator may have caused her death. True, we cannot
convict on probabilities or possibilities but civil liability does not require proof beyond reasonable doubt. The
Court can order the payment of indemnity on the facts found in the records of this case.
The appellant certainly committed acts contrary to morals, good customs, public order or public policy
(see Article 21 Civil Code). As earlier mentioned, the appellant has abused Filipino children, enticing them with
money. We can not overstress the responsibility for proper behavior of all adults in the Philippines, including
the appellant towards young children. The sexual exploitation committed by the appellant should not and can
not be condoned. Thus, considering the circumstances of the case, we are awarding damages to the heirs of
Rosario Baluyot in the amount of P30,000.00.
And finally, the Court deplores the lack of criminal laws which will adequately protect street children from
exploitation by pedophiles, pimps, and, perhaps, their own parents or guardians who profit from the sale of
young bodies. The provisions on statutory rape and other related offenses were never intended for the
relatively recent influx of pedophiles taking advantage of rampant poverty among the forgotten segments of
our society. Newspaper and magazine articles, media exposes, college dissertations, and other studies deal at
length with this serious social problem but pedophiles like the appellant will continue to enter the Philippines
and foreign publications catering to them will continue to advertise the availability of Filipino street children
unless the Government acts and acts soon. We have to acquit the appellant because the Bill of Rights
commands us to do so. We, however, express the Court's concern about the problem of street children and
the evils committed against them. Something must be done about it.
WHEREFORE, the appealed judgment is REVERSED and SET ASIDE. Appellant HEINRICH STEFAN
RITTER is ACQUITTED on grounds of reasonable doubt. The appellant is ordered to pay the amount of
P30,000.00 by way of moral and exemplary damages to the heirs of Rosario Baluyot. The Commissioner of
Immigration and Deportation is hereby directed to institute proper deportation proceedings against the
appellant and to immediately expel him thereafter with prejudice to re-entry into the country.
SO ORDERED.

G.R. No. L-24033

February 22, 1968

PHOENIX ASSURANCE CO., LTD., plaintiff-appellant,

vs.
UNITED STATES LINES, defendant-appellee.
Quasha, Asperilla, Blanco & Associates for plaintiff-appellant.
Enriquez D. Perez for defendant-appellee.
BENGZON, J.P., J.:
The facts antecedent to this appeal from a decision dated October 31, 1964 of the Court of First
Instance of Manila, are as follows:
On June 29, 1962, General Motors shipped and consigned on a CIF basis to Davao Parts and Service,
Inc. at Davao City from New York aboard the United States Lines' vessel SS "Pioneer Moor" a cargo of truck
spare parts in 25 cases and 4 crates (2 pieces unboxed), for which United States Lines issues a short form bill
of lading No. T-1 (Annex "A" and Exh. "1"), and which shipment was insured against loss and damage with
Phoenix Assurance Co., Ltd. The short form bill of lading No. T-1 indicated Manila as the port of discharge and
Davao City as the place where the goods were to be transshipped, and expressly incorporated by reference
the provisions contained in the carrier's regular long form bill of lading (Annex "B" and Exh. "2").
The SS "Pioneer Moor" on July 28, 1962 discharged at Manila to the custody of the Manila Port Service
which was then the operator of the arrastre service at the Port of Manila, the above described cargo, complete
but with the exception of two crates, namely, Crates Nos. 3139 and 3148 valued at P1,498.25.
On July 30, 1962, the Luzon Brokerage Corporation, Customs broker hired by the United States Lines,
filed in behalf of the latter a provisional claim against the Manila Port Service for short landed, short-delivered
and/or landed in bad order cargo ex-United States Lines' vessel.

On August 30, 1962, the afore-described cargo, with the exception of Crates Nos. 3139 and 3148 which
were not discharged at the Manila Port, and Crates Nos. 3648 and 3649 which were discharged at the Manila
Port but were lost in the custody of the Manila Port Service, was transshipped by United States Lines to Davao
through a vessel of its Davao agent, Columbian Rope Company, and duly received in good order by the
Davao Parts and Service, Inc.
Davao Parts and Service, Inc. filed on December 26, 1962 a formal claim with the United States Lines
through the latter's agent, Columbian Rope Company, for the value of Crates Nos. 3139, 3148, 3648 and 3649
in the total sum of P2,010.37.
The United States Lines, after proper verification, paid Davao Parts and Service, Inc. the sum of
P1,458.25, representing the value of Crates Nos. 3139 and 3148, when it was discovered that these two
crates had been overlanded in Honolulu, but refused to pay for the value of Crates Nos. 3648 and 3649 for the
reason that these crates had been lost while in the custody of the Manila Port Service.
The two crates (Nos. 3139 and 3148) which were overlanded in Honolulu and for which United States
Lines paid Davao Parts and Service, Inc. the sum of P1,458.25, were later recovered and returned to Davao
Parts and Service, Inc. and the latter refunded United States Lines for the sum it paid.
In view of United States Lines' refusal to pay for the two crates (Nos. 3648 and 3649) which were lost
while in the custody of the Manila Port Service, Ker & Company, Ltd., agent of Phoenix Assurance Co., Ltd., in
the Philippines, and insurer of Davao Parts and Service, Inc., paid to the latter the value of said crates in the
sum of P552.12.
On March 25, 1963, the United States Lines, through the Columbian Rope Company, by letter informed
the Davao Parts and Service, Inc. that it was filing a claim for the undelivered crates with the Manila Port
Service. And true to its word, it filed on March 30, 1963 a formal claim with the Manila Port Service for the
value of Crates Nos. 3648 and 3649, but the latter declined to honor the same.
On June 26, 1963, United States Lines, through Columbian Rope Company, its Davao agent, informed
the Davao Parts and Service, Inc., inter alia, that the Manila Port Service had not yet settled its claim, and that
the one-year period provided by law within which to bring action against the Manila Port Service for the two
crates (Nos. 3648 and 3649) would expire on July 28, 1963.
Phoenix Assurance Co., Ltd., through Ker & Company Ltd., its agent in the Philippines, wrote on July
24, 1963 the United States Lines expressing its appreciation to the latter for taking action against the Manila
Port Service. In the same letter it requested for an extension of time to file suit against the United States Lines
(the prescriptive period for doing so being set to expire on July 28, 1963), explaining that it could not file suit
against any entity (including the Manila Port Service) except the United States Lines with whom its subrogee
the Davao Parts and Service, Inc., was in contract.
No reply having been received by it from the United States Lines, the Phoenix Assurance Co., Ltd. on
July 29, 1963 filed a suit praying that judgment be rendered against the former for the sum of P552.12, with
interest at the legal rate, plus attorney's fees and expenses of litigation. 1
On August 16, 1963, the United States Lines filed its answer with counterclaim, 2 while Phoenix
Assurance Co., Ltd. filed its answer to said counterclaim on August 26, 1963.
On March 9, 1964, the parties submitted a Partial Stipulation of Facts.

It must be stated at the outset that a bill of lading operates both as a receipt and as a contract. It is a
receipt for the goods shipped and a contract to transport and deliver the same as therein stipulated. As a
receipt, it recites the date and place of shipment, describes the goods as to quantity, weight, dimensions,
identification marks and condition, quality, and value. As a contract, it names the contracting parties, which
include the consignee, fixes the route, destination, and freight rate or charges, and stipulates the rights and
obligations assumed by the parties. 5
In this jurisdiction, it is a statutory and decisional rule of law that a contract is the law between the
contracting parties, 6 and where there is nothing in it which is contrary to law, morals, good customs, public
policy, or public order, the validity of the contract must be sustained. 7
The Bill of Lading (short form) No. T-1 dated June 29, 1962 (Annex "A" and Exh. 1) provides under
Section 1 thereof (Exh. that, "It is agreed that the receipt, custody carriage, delivery and transshipping of the
goods are subject to the norms appearing on the face and back hereof and also to the terms contained in the
carrier's regular long form, bill of lading, used in this service, including any clauses presently being stamped or
endorsed thereon which shall be deemed to be incorporated in this bill of lading, which shall govern the
relations whatsoever they may be between shipper, consignee, carrier and ship in every contingency,
wheresoever and whensoever occurring and whether the carrier be acting as such or as bailee, . . . .
(Emphasis supplied.)
On the other hand, the regular long form Bill of Lading (Annex "B" and Exh. "2") provides, inter alia,
that:1wph1.t
The carrier shall not be liable in any capacity whatsoever for any loss or damage to the
goods while the goods are not in its actual custody. (Par. 2, last subpar. Emphasis supplied.)
The carrier or master, in the exercise of its or his discretion and altho' transshipment or
forwarding of the goods may have been contemplated or provided for herein, may at port of
discharge or any other place whatsoever transship or forward the goods or any part thereof by any
means at the risk and expense of the goods and at any time, whether before or after loading on
the ship named and by any route, whether within or outside the scope of the voyage or beyond the
port of discharge or destination of the goods and without notice to the shipper or consignee. The
carrier or master may delay such transshipping or forwarding for any reason, including but not
limited to awaiting a vessel or other means of transportation whether by the carrier or others.
The carrier or master in making arrangements with any person for or in connection with all
transshipping or forwarding of the goods or the use of any means of transportation not used or
operated by the carrier shall be considered solely the agent of the shipper and consignee and
without any other responsibility whatsoever or for the cost thereof . The receipt, custody, carriage
and delivery of the goods by any such person or on carrier and all transshipping and forwarding
shall be subject to all the provisions whatsoever of such person's or on carrier's form of bill of
lading or agreement then in use, whether or not issued and even though such provisions may be
less favorable to the shipper or consignee in any respect than the provisions of this bill of lading.
The shipper and consignee authorize the carrier or master to arrange with any such person or oncarrier that the lowest valuation or limitation of liability contained in the bill of lading or other
agreement of such person or on-carrier shall apply.
All responsibility of the carrier in any capacity shall altogether cease and the goods shall be
deemed delivered by it and this contract of carriage shall be deemed fully performed on actual or
constructive delivery of the goods to itself as such agent of the shipper and consignee or to any
such person or on carrier at port of discharge from ship or elsewhere in case of an earlier
transshipment.

After trial, the lower court on October 31, 1964 rendered a decision dismissing plaintiff's complaint. 4
Thus this appeal, raising the sole issue of whether or not the lower court erred in dismissing the
complaint and in exonerating defendant-appellee from liability for the value of the two undelivered crates Nos.
3648 and 3649.

The shipper and consignee shall be liable to this carrier for and shall indemnify it against all
expense of forwarding and transshipping, including any increase in or additional freight or other
charges whatsoever.

Pending or during forwarding or transshipping this carrier or the master may store the goods
ashore or afloat solely as agent of the shipper and at the risk and expense of the goods and this
carrier shall not be responsible for the acts, neglect, delay or failure to act of anyone to whom the
goods are entrusted or delivered for storage, handling, or any service incidental thereto.

the eyes of the law. Since either appellant nor appellee alleges that any provision therein is contrary to law,
morals, good customs, public policy, or public order, and indeed We found none the validity of the Bill of
Lading must be sustained and the provisions therein properly applied to resolve the conflict between the
parties.

In case the carrier issues a bill of lading covering transportation by a local or other carrier
prior to the goods being delivered to and put into the physical custody of the carrier, it shall not be
under any responsibility or liability whatsoever for any loss or damage to the goods occurring prior
to or until the actual receipt or custody of the goods by it at the port or place of transportation to
such port or place where the goods are put in its physical custody, it acts solely as the agent of the
shipper. (Par. 16, emphasis supplied.)

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the appellant. So
ordered.

It is admitted by both parties that the crates subject matter of this action were lost while in the
possession and custody of the Manila Port Service. Since the long form of Bill of Lading (Annex "B" and Exh.
"2") provides that "The carrier shall not be liable in any capacity whatsoever for any loss or damage to the
goods while the goods are not in its actual custody," appellee cannot be held responsible for the loss of said
crates. For as correctly observed by the lower court, it is hardly fair to make appellee accountable for a loss
not due to its acts or omissions or over which it had no control. 8
Contrary to appellant's stand, the appellee did not undertake to carry and deliver safely the cargo to the
consignee in Davao City. The short form Bill of Lading (Annex "A" and Exh. "1") states in no uncertain terms
that the port of discharge of the cargo is Manila, but that the same was to be transshipped beyond the port of
discharge to Davao City. Pursuant to the terms of the long form Bill of Lading (Annex "B" and Exh. "2"),
appellee's responsibility as a common carrier ceased the moment the goods were unloaded in Manila; and in
the matter of transshipment, appellee acted merely as an agent of the shipper and consignee. Contrary
likewise to appellant's contention, the cargo was not transshipped with the use of transportation used or
operated by appellee. It is true that the vessel used for transshipment is owned and operated by appellee's
Davao agent, the Columbian Rope Company, but there is no proof that said vessel is owned or operated by
appellee. The vessels of appellee's agent are being erroneously presumed by appellant to be owned and
operated by appellee.
Appellant argues that the provisions of the Bill of Lading exculpating the appellee from liability for cargo
losses, do not apply where full cargo freight is paid up to and beyond the point of stipulated discharge, and
here defendant-appellee agreed to absorb all costs of forwarding and transshipment freight having been
prepaid up to Davao City. But the receipt of full cargo freight up to Davao City cannot render inoperative the
provisions of the Bill of Lading relied upon by appellee inasmuch as such a situation is not provided therein as
an exception. In fact, one searches the Bills of Lading (short and long forms) in vain for such an exception.
Besides, it is for the convenience of both parties that full freight up to Davao City had been prepaid, otherwise
there would have been need to make further arrangements regarding the transshipment of the cargo to Davao
City. After all, the long form Bill of Lading provides that, "The shipper and consignee shall be liable to this
carrier for and shall indemnify it against all expense of forwarding and transshipping, including any increase in
or additional freight or other charge whatsoever." (Annex "B" and Exh. "2", par. 6, subpar. 4)
The filing of a claim by defendant-appellee with the Manila Port Service for the value of the losses
cannot be considered as an indication that it is answerable for cargo losses up to Davao City. On the contrary,
it is a convincing proof that said party was not remiss in its duties as agent of the consignee. That appellee
captioned its claim against the Manila Port Service as "SS 'Pioneer Moor' Voy. 25, Reb. 1067 New York/Davao
via Manila B/L T-1 31 Packages Truck Spare Parts Cons: Davao Parts and Service," likewise, is no proof that
appellee knowingly assumed liability for cargo losses up to Davao City. It merely showed that the goods would
have to be, as indeed they were, first unloaded in Manila and thereafter transshipped to Davao City.
Through the short form Bill of Lading (Annex "A" and Exh. "1"), incorporating by reference the terms of
the regular long form bill of lading (Annex "B" and Exh. "2"), the United States Lines acknowledged the receipt
of the cargo of truck spare parts that it carried, and stated the conditions under which it was to carry the cargo,
the place where it was to be transshipped, the entity to which delivery is to be made, and the rate of
compensation for the carriage. This it delivered to the Davao Parts and Service, Inc. as evidence of a contract
between them. By receiving the bill of lading, Davao Parts and Service, Inc. assented to the terms of the
consignment contained therein, and became bound thereby, so far as the conditions named are reasonable in

G.R. No. L-36902 January 30, 1982

LUIS PICHEL, petitioner,
vs.
PRUDENCIO ALONZO, respondent.

GUERRERO, J.:
This is a petition to review on certiorari the decision of the Court of First Instance of Basilan City dated January
5, 1973 in Civil Case No. 820 entitled "Prudencio Alonzo, plaintiff, vs. Luis Pichel, defendant."
This case originated in the lower Court as an action for the annulment of a "Deed of Sale" dated August 14,
1968 and executed by Prudencio Alonzo, as vendor, in favor of Luis Pichel, as vendee, involving property
awarded to the former by the Philippine Government under Republic Act No. 477. Pertinent portions of the
document sued upon read as follows:
That the VENDOR for and in consideration of the sum of FOUR THOUSAND TWO
HUNDRED PESOS (P4,200.00), Philippine Currency, in hand paid by the VENDEE to
the entire satisfaction of the VENDOR, the VENDOR hereby sells transfers, and
conveys, by way of absolute sale, all the coconut fruits of his coconut land, designated

as Lot No. 21 - Subdivision Plan No. Psd- 32465, situated at Balactasan Plantation,
Lamitan, Basilan City, Philippines;

case submitted for summary judgment on the basis of the pleadings of the parties, and the admission of facts
and documentary evidence presented at the pre-trial conference.

That for the herein sale of the coconut fruits are for all the fruits on the aforementioned
parcel of land presently found therein as well as for future fruits to be produced on the
said parcel of land during the years period; which shag commence to run as of
SEPTEMBER 15,1968; up to JANUARY 1, 1976 (sic);

The lower court rendered its decision now under review, holding that although the agreement in question is
denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor's land, it
actually is, for all legal intents and purposes, a contract of lease of the land itself. According to the Court:

That the delivery of the subject matter of the Deed of Sale shall be from time to time
and at the expense of the VENDEE who shall do the harvesting and gathering of the
fruits;
That the Vendor's right, title, interest and participation herein conveyed is of his own
exclusive and absolute property, free from any liens and encumbrances and he
warrants to the Vendee good title thereto and to defend the same against any and all
claims of all persons whomsoever. 1
After the pre-trial conference, the Court a quo issued an Order dated November 9, 1972 which in part read
thus:
The following facts are admitted by the parties:
Plaintiff Prudencio Alonzo was awarded by the Government that parcel of land
designated as Lot No. 21 of Subdivision Plan Psd 32465 of Balactasan, Lamitan,
Basilan City in accordance with Republic Act No. 477. The award was cancelled by the
Board of Liquidators on January 27, 1965 on the ground that, previous thereto, plaintiff
was proved to have alienated the land to another, in violation of law. In 197 2, plaintiff's
rights to the land were reinstated.
On August 14, 1968, plaintiff and his wife sold to defendant an the fruits of the coconut
trees which may be harvested in the land in question for the period, September 15,
1968 to January 1, 1976, in consideration of P4,200.00. Even as of the date of sale,
however, the land was still under lease to one, Ramon Sua, and it was the agreement
that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by
defendant directly to Ramon Sua so as to release the land from the clutches of the
latter. Pending said payment plaintiff refused to snow the defendant to make any
harvest.
In July 1972, defendant for the first time since the execution of the deed of sale in his
favor, caused the harvest of the fruit of the coconut trees in the land.
xxx xxx xxx
Considering the foregoing, two issues appear posed by the complaint and the answer
which must needs be tested in the crucible of a trial on the merits, and they are:
First. Whether or nor defendant actually paid to plaintiff the full sum of P4,200.00
upon execution of the deed of sale.
Second. Is the deed of sale, Exhibit 'A', the prohibited encumbrance contemplated in
Section 8 of Republic Act No. 477? 2
Anent the first issue, counsel for plaintiff Alonzo subsequently 'stipulated and agreed that his client ... admits
fun payment thereof by defendant. 3 The remaining issue being one of law, the Court below considered the

... the sale aforestated has given defendant complete control and enjoyment of the
improvements of the land. That the contract is consensual; that its purpose is to allow
the enjoyment or use of a thing; that it is onerous because rent or price certain is
stipulated; and that the enjoyment or use of the thing certain is stipulated to be for a
certain and definite period of time, are characteristics which admit of no other
conclusion. ... The provisions of the contract itself and its characteristics govern its
nature. 4
The Court, therefore, concluded that the deed of sale in question is an encumbrance prohibited by Republic
Act No. 477 which provides thus:
Sec. 8. Except in favor of the Government or any of its branches, units, or institutions,
land acquired under the provisions of this Act or any permanent improvements thereon
shall not be thereon and for a term of ten years from and after the date of issuance of
the certificate of title, nor shall they become liable to the satisfaction of any debt
contracted prior to the expiration of such period.
Any occupant or applicant of lands under this Act who transfers whatever rights he has
acquired on said lands and/or on the improvements thereon before the date of the
award or signature of the contract of sale, shall not be entitled to apply for another
piece of agricultural land or urban, homesite or residential lot, as the case may be, from
the National Abaca and Other Fibers Corporation; and such transfer shall be
considered null and void. 5
The dispositive portion of the lower Court's decision states:
WHEREFORE, it is the judgment of this Court that the deed of sale, Exhibit 'A', should
be, as it is, hereby declared nun and void; that plaintiff be, as he is, ordered to pay
back to defendant the consideration of the sale in the sum of P4,200.00 the same to
bear legal interest from the date of the filing of the complaint until paid; that defendant
shall pay to the plaintiff the sum of P500.00 as attorney's fees.
Costs against the defendant. 6
Before going into the issues raised by the instant Petition, the matter of whether, under the admitted facts of
this case, the respondent had the right or authority to execute the "Deed of Sale" in 1968, his award over Lot
No. 21 having been cancelled previously by the Board of Liquidators on January 27, 1965, must be clarified.
The case in point is Ras vs. Sua 7 wherein it was categorically stated by this Court that a cancellation of an
award granted pursuant to the provisions of Republic Act No. 477 does not automatically divest the awardee of
his rights to the land. Such cancellation does not result in the immediate reversion of the property subject of
the award, to the State. Speaking through Mr. Justice J.B.L. Reyes, this Court ruled that "until and unless an
appropriate proceeding for reversion is instituted by the State, and its reacquisition of the ownership and
possession of the land decreed by a competent court, the grantee cannot be said to have been divested of
whatever right that he may have over the same property." 8
There is nothing in the record to show that at any time after the supposed cancellation of herein respondent's
award on January 27, 1965, reversion proceedings against Lot No. 21 were instituted by the State. Instead,
the admitted fact is that the award was reinstated in 1972. Applying the doctrine announced in the above-cited
Ras case, therefore, herein respondent is not deemed to have lost any of his rights as grantee of Lot No. 21

under Republic Act No. 477 during the period material to the case at bar, i.e., from the cancellation of the
award in 1965 to its reinstatement in 1972. Within said period, respondent could exercise all the rights
pertaining to a grantee with respect to Lot No. 21.

Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.

This brings Us to the issues raised by the instant Petition. In his Brief, petitioner contends that the lower Court
erred:

A contract of sale may be absolute or conditional.

1. In resorting to construction and interpretation of the deed of sale in question where

the terms thereof are clear and unambiguous and leave no doubt as to the intention of
the parties;
2. In declaring granting without admitting that an interpretation is necessary the
deed of sale in question to be a contract of lease over the land itself where the
respondent himself waived and abandoned his claim that said deed did not express the
true agreement of the parties, and on the contrary, respondent admitted at the pre-trial
that his agreement with petitioner was one of sale of the fruits of the coconut trees on
the land;
3. In deciding a question which was not in issue when it declared the deed of sale in
question to be a contract of lease over Lot 21;
4. In declaring furthermore the deed of sale in question to be a contract of lease over
the land itself on the basis of facts which were not proved in evidence;
5. In not holding that the deed of sale, Exhibit "A" and "2", expresses a valid contract of
sale;
6. In not deciding squarely and to the point the issue as to whether or not the deed of
sale in question is an encumbrance on the land and its improvements prohibited by
Section 8 of Republic Act 477; and
7. In awarding respondent attorney's fees even granting, without admitting, that the
deed of sale in question is violative of Section 8 of Republic Act 477.
The first five assigned errors are interrelated, hence, We shall consider them together. To begin with, We
agree with petitioner that construction or interpretation of the document in question is not called for. A perusal
of the deed fails to disclose any ambiguity or obscurity in its provisions, nor is there doubt as to the real
intention of the contracting parties. The terms of the agreement are clear and unequivocal, hence the literal
and plain meaning thereof should be observed. Such is the mandate of the Civil Code of the Philippines which
provides that:
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulation shall control ... .
Pursuant to the afore-quoted legal provision, the first and fundamental duty of the courts is the application of
the contract according to its express terms, interpretation being resorted to only when such literal application is
impossible. 9
Simply and directly stated, the "Deed of Sale dated August 14, 1968 is precisely what it purports to be. It is a
document evidencing the agreement of herein parties for the sale of coconut fruits of Lot No. 21, and not for
thelease of the land itself as found by the lower Court. In clear and express terms, the document defines the
object of the contract thus: "the herein sale of the coconut fruits are for an the fruits on the aforementioned
parcel of land during the years ...(from) SEPTEMBER 15, 1968; up to JANUARY 1, 1976." Moreover, as
petitioner correctly asserts, the document in question expresses a valid contract of sale. It has the essential
elements of a contract of sale as defined under Article 1485 of the New Civil Code which provides thus:

The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the
years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under
Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of
sale. And inSibal vs. Valdez, 50 Phil. 512, pending crops which have potential existence may be the subject
matter of the sale. Here, the Supreme Court, citing Mechem on Sales and American cases said which have
potential existence may be the subject matter of sale. Here, the Supreme Court, citing Mechem on Sales and
American cases said:
Mr. Mechem says that a valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural
increment or usual incident of something already in existence, and then belonging to
the vendor, and the title will vest in the buyer the moment the thing comes into
existence. (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep. 63) Things of this nature are said to have a potential
existence. A man may sell property of which he is potentially and not actually possess.
He may make a valid sale of the wine that a vineyard is expected to produce; or the
grain a field may grow in a given time; or the milk a cow may yield during the coming
year; or the wool that shall thereafter grow upon sheep; or what may be taken at the
next case of a fisherman's net; or fruits to grow; or young animals not yet in existence;
or the goodwill of a trade and the like. The thing sold, however, must be specific and
Identified. They must be also owned at the time by the vendor. (Hull vs. Hull 48 Conn.
250 (40 Am. Rep., 165) (pp. 522-523).
We do not agree with the trial court that the contract executed by and between the parties is "actually a
contract of lease of the land and the coconut trees there." (CFI Decision, p. 62, Records). The Court's holding
that the contract in question fits the definition of a lease of things wherein one of the parties binds himself to
give to another the enjoyment or use of a thing for a price certain and for a period which may be definite or
indefinite (Art. 1643, Civil Code of the Philippines) is erroneous. The essential difference between a contract of
sale and a lease of things is that the delivery of the thing sold transfers ownership, while in lease no such
transfer of ownership results as the rights of the lessee are limited to the use and enjoyment of the thing
leased.
In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:
Since according to article 1543 of the same Code the contract of lease is defined as
the giving or the concession of the enjoyment or use of a thing for a specified time and
fixed price, and since such contract is a form of enjoyment of the property, it is evident
that it must be regarded as one of the means of enjoyment referred to in said article
398, inasmuch as the terms enjoyment, use, and benefit involve the same and
analogous meaning relative to the general utility of which a given thing is capable. (104
Jurisprudencia Civil, 443)
In concluding that the possession and enjoyment of the coconut trees can therefore be said to be the
possession and enjoyment of the land itself because the defendant-lessee in order to enjoy his right under the
contract, he actually takes possession of the land, at least during harvest time, gather all of the fruits of the
coconut trees in the land, and gain exclusive use thereof without the interference or intervention of the plaintifflessor such that said plaintiff-lessor is excluded in fact from the land during the period aforesaid, the trial court
erred. The contract was clearly a "sale of the coconut fruits." The vendor sold, transferred and conveyed "by
way of absolute sale, all the coconut fruits of his land," thereby divesting himself of all ownership or dominion
over the fruits during the seven-year period. The possession and enjoyment of the coconut trees cannot be
said to be the possession and enjoyment of the land itself because these rights are distinct and separate from
each other, the first pertaining to the accessory or improvements (coconut trees) while the second, to the

principal (the land). A transfer of the accessory or improvement is not a transfer of the principal. It is the other
way around, the accessory follows the principal. Hence, the sale of the nuts cannot be interpreted nor
construed to be a lease of the trees, much less extended further to include the lease of the land itself.

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;

The real and pivotal issue of this case which is taken up in petitioner's sixth assignment of error and as
already stated above, refers to the validity of the "Deed of Sale", as such contract of sale, vis-a-vis the
provisions of Sec. 8, R.A. No. 477. The lower Court did not rule on this question, having reached the
conclusion that the contract at bar was one of lease. It was from the context of a lease contract that the Court
below determined the applicability of Sec. 8, R.A. No. 477, to the instant case.

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;

Resolving now this principal issue, We find after a close and careful examination of the terms of the first
paragraph of Section 8 hereinabove quoted, that the grantee of a parcel of land under R.A. No. 477 is not
prohibited from alienating or disposing of the natural and/or industrial fruits of the land awarded to him. What
the law expressly disallows is the encumbrance or alienation of the land itself or any of the permanent
improvements thereon. Permanent improvements on a parcel of land are things incorporated or attached to
the property in a fixed manner, naturally or artificially. They include whatever is built, planted or sown on the
land which is characterized by fixity, immutability or immovability. Houses, buildings, machinery, animal
houses, trees and plants would fall under the category of permanent improvements, the alienation or
encumbrance of which is prohibited by R.A. No. 477. While coconut trees are permanent improvements of a
land, their nuts are natural or industrial fruits which are meant to be gathered or severed from the trees, to be
used, enjoyed, sold or otherwise disposed of by the owner of the land. Herein respondents, as the grantee of
Lot No. 21 from the Government, had the right and prerogative to sell the coconut fruits of the trees growing
on the property.

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmen's compensation and employer's liability
laws;

By virtue of R.A. No. 477, bona fide occupants, veterans, members of guerilla organizations and other
qualified persons were given the opportunity to acquire government lands by purchase, taking into account
their limited means. It was intended for these persons to make good and productive use of the lands awarded
to them, not only to enable them to improve their standard of living, but likewise to help provide for the annual
payments to the Government of the purchase price of the lots awarded to them. Section 8 was included, as
stated by the Court a quo, to protect the grantees from themselves and the incursions of opportunists who
prey on their misery and poverty." It is there to insure that the grantees themselves benefit from their
respective lots, to the exclusion of other persons.
The purpose of the law is not violated when a grantee sells the produce or fruits of his land. On the contrary,
the aim of the law is thereby achieved, for the grantee is encouraged and induced to be more industrious and
productive, thus making it possible for him and his family to be economically self-sufficient and to lead a
respectable life. At the same time, the Government is assured of payment on the annual installments on the
land. We agree with herein petitioner that it could not have been the intention of the legislature to prohibit the
grantee from selling the natural and industrial fruits of his land, for otherwise, it would lead to an absurd
situation wherein the grantee would not be able to receive and enjoy the fruits of the property in the real and
complete sense.
Respondent through counsel, in his Answer to the Petition contends that even granting arguendo that he
executed a deed of sale of the coconut fruits, he has the "privilege to change his mind and claim it as (an)
implied lease," and he has the "legitimate right" to file an action for annulment "which no law can stop." He
claims it is his "sole construction of the meaning of the transaction that should prevail and not petitioner.
(sic). 10 Respondent's counsel either misapplies the law or is trying too hard and going too far to defend his
client's hopeless cause. Suffice it to say that respondent-grantee, after having received the consideration for
the sale of his coconut fruits, cannot be allowed to impugn the validity of the contracts he entered into, to the
prejudice of petitioner who contracted in good faith and for a consideration.
The issue raised by the seventh assignment of error as to the propriety of the award of attorney's fees made
by the lower Court need not be passed upon, such award having been apparently based on the erroneous
finding and conclusion that the contract at bar is one of lease. We shall limit Ourselves to the question of
whether or not in accordance with Our ruling in this case, respondent is entitled to an award of attorney's fees.
The Civil Code provides that:

(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
We find that none of the legal grounds enumerated above exists to justify or warrant the grant of attorney's
fees to herein respondent.
IN VIEW OF THE FOREGOING, the judgment of the lower Court is hereby set aside and another one is
entered dismissing the Complaint. Without costs.
SO ORDERED.

G.R. No. L-17133

December 31, 1965

U.S.T. COOPERATIVE STORE, petitioner-appellee,

vs.
THE CITY OF MANILA and MARCELINO SARMIENTO, as Treasurer of the City of Manila, respondentsappellants.

Herras Law Office for petitioner-appellee.

City Fiscal H. Concepcion, Jr. and Assistant City Fiscal Manuel T. Reyes for respondents-appellants.

On principle, a recovery should be allowed where money is paid under a mistake of fact although
such mistake of fact may be induced by a mistake of laws, or where there is both a mistake of fact
and a mistake of law. (40 Am. Jur. 846)

MAKALINTAL, J.:
This is an appeal by respondents from the decision of the Court of First Instance of Manila ordering them to
refund to appellee the sums it had paid to the City of Manila as municipal taxes and license fees for the period
beginning July 1957 up to December 1958. The total amount involved is P12,345.10.
The material facts were stipulated by the parties. Appellee is a duly organized cooperative association
registered with the Securities and Exchange Commission on March 18, 1947 in accordance with
Commonwealth Act No. 5165 as amended. Its net assets never exceeded P500,000 during, the years 1957,
1958 and 1959. From the time of its registration it was under the jurisdiction of the Cooperative Administration
Office.
On June 22, 1957 Republic Act No. 2023, otherwise known as the Philippine Non-Agricultural Cooperative Act,
was approved by Congress, amending and consolidating existing laws on non-agricultural cooperatives in the
Philippines. The two provisions of said Act which bear on the present case are sections 4 (1) and 66 (1), which
read as follows:

When money is paid to another under the influence of a mistake of fact that on the mistaken
supposition of the existence of a specific fact which would entitle the other to the money and it
would not have been known that the fact making the payment was otherwise, it may be recovered.
The ground upon which the right of recovery rests is that money paid through misapprehension of
facts belongs, in equity , and in good conscience, to the person who paid it. (4 Am. Jur. 514)
We find no reason to attribute negligence to appellee in making the payments in question, especially
considering that the new law involved a change in its status from a taxable to a tax-exempt institution; and if it
continued to pay for a time after the exemption became effective it did so in a desire to abide by what it
believed to be the law. No undue disadvantage should be visited upon it as a consequence thereof.
The decision appealed from is affirmed, without pronouncement as to costs.

SEC. 4 (1) Every cooperative under the jurisdiction of the Cooperatives Administration Office
existing at the time of the approval of this Act which has been registered under existing
cooperative laws (Commonwealth Act five hundred sixty-five, Act Twenty five hundred eight and
Act Thirty-four hundred twenty-five, all as amended) shall be deemed to be registered under this
Act, and its by-laws shall so far as they are not inconsistent with the provisions of this Act, continue
in force , and be deemed to be registered under this Act.
SEC. 66 (1) Cooperatives with net assets of not more than five hundred thousand pesos shall be
exempt from all taxes and government fees of whatever name, and nature except those provided
for under this Act: ... .
Unaware of the exemption provided for in section 66 (1) appellee paid to respondent City of Manila municipal
taxes and license fees in the total amount and for the period already stated. In May 1959 appellee requested a
refund of said amount from the City Treasurer, but the request was denied. Hence the present suit.
Appellants contend that the exemption under section 66 (1) does not apply to appellee because the latter was
trying business not only with its members but also with the general public. It may be noted that this fact is not
ground for non-exemption from taxes and license fees. What the law imposes and that under another
section (Sec. 58) is a restriction to the effect that a cooperative shall not transact business with nonmembers to exceed that done with members. There is no proof that this restriction has been violated; and in
any case, the law does not provide that the penalty for such violation is the non-exemption of the cooperative
concerned. All that is required for purposes of exemption is that the cooperative be registered under Republic
Act 2023 and that its net assets be not more than P500,000. On the question of registration, section 4 is clear
that every cooperative under the jurisdiction of the Cooperatives Administration Office existing at the time of
the approval of this Act which has been registered under existing cooperative laws (as is the case of appellee
here) shall be deemed to be registered under this Act.
Appellant next argues that since the taxes and license fees in question were voluntarily paid they can no
longer be recovered, as appellee was presumed to know the law concerning its exemption and hence must be
considered as having waived the benefit thereof. That the payment was erroneously made there can be no
doubt. The error consisted in appellee's not knowing of the enactment of Republic Act No. 2023, which
although passed in Julie 1957 was published only in the issue of the Official Gazette for December of the
same year. The following authorities cited by appellee appear to us to be of persuasive force:
G.R. No. 72964 January 7, 1988
A payment of taxes under a mistake of fact has been held not to be voluntary, and is therefore recoverable.
(51 Am. Jur. 1023)

FILOMENO URBANO, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT AND PEOPLE OF THE PHILIPPINES, respondents.

accompanied by Solis appeared before the San Fabian Police to formalize their amicable settlement.
Patrolman Torio recorded the event in the police blotter (Exhibit A), to wit:
xxx xxx xxx

GUTIERREZ, JR., J.:

This is a petition to review the decision of the then Intermediate Appellate Court which affirmed the decision of
the then Circuit Criminal Court of Dagupan City finding petitioner Filomeno Urban guilty beyond reasonable
doubt of the crime of homicide.
The records disclose the following facts of the case.
At about 8:00 o'clock in the morning of October 23, 1980, petitioner Filomeno Urbano went to his ricefield at
Barangay Anonang, San Fabian, Pangasinan located at about 100 meters from the tobacco seedbed of
Marcelo Javier. He found the place where he stored his palay flooded with water coming from the irrigation
canal nearby which had overflowed. Urbano went to the elevated portion of the canal to see what happened
and there he saw Marcelo Javier and Emilio Erfe cutting grass. He asked them who was responsible for the
opening of the irrigation canal and Javier admitted that he was the one. Urbano then got angry and demanded
that Javier pay for his soaked palay. A quarrel between them ensued. Urbano unsheathed his bolo (about 2
feet long, including the handle, by 2 inches wide) and hacked Javier hitting him on the right palm of his hand,
which was used in parrying the bolo hack. Javier who was then unarmed ran away from Urbano but was
overtaken by Urbano who hacked him again hitting Javier on the left leg with the back portion of said bolo,
causing a swelling on said leg. When Urbano tried to hack and inflict further injury, his daughter embraced and
prevented him from hacking Javier.
Immediately thereafter, Antonio Erfe, Emilio Erfe, and Felipe Erfe brought Javier to his house about 50 meters
away from where the incident happened. Emilio then went to the house of Barangay Captain Menardo Soliven
but not finding him there, Emilio looked for barrio councilman Felipe Solis instead. Upon the advice of Solis,
the Erfes together with Javier went to the police station of San Fabian to report the incident. As suggested by
Corporal Torio, Javier was brought to a physician. The group went to Dr. Guillermo Padilla, rural health
physician of San Fabian, who did not attend to Javier but instead suggested that they go to Dr. Mario Meneses
because Padilla had no available medicine.
After Javier was treated by Dr. Meneses, he and his companions returned to Dr. Guillermo Padilla who
conducted a medico-legal examination. Dr. Padilla issued a medico-legal certificate (Exhibit "C" dated
September 28, 1981) which reads:
TO WHOM IT MAY CONCERN:
This is to certify that I have examined the wound of Marcelo Javier, 20 years of age,
married, residing at Barangay Anonang, San Fabian, Pangasinan on October 23, 1980
and found the following:

Entry Nr 599/27 Oct '80/103OH/ Re entry Nr 592 on page 257 both parties appeared
before this Station accompanied by brgy. councilman Felipe Solis and settled their
case amicably, for they are neighbors and close relatives to each other. Marcelo Javier
accepted and granted forgiveness to Filomeno Urbano who shoulder (sic) all the
expenses in his medical treatment, and promising to him and to this Office that this will
never be repeated anymore and not to harbour any grudge against each other. (p. 87,
Original Records.)
Urbano advanced P400.00 to Javier at the police station. On November 3, 1980, the additional P300.00 was
given to Javier at Urbano's house in the presence of barangay captain Soliven.
At about 1:30 a.m. on November 14, 1980, Javier was rushed to the Nazareth General Hospital in a very
serious condition. When admitted to the hospital, Javier had lockjaw and was having convulsions. Dr.
Edmundo Exconde who personally attended to Javier found that the latter's serious condition was caused by
tetanus toxin. He noticed the presence of a healing wound in Javier's palm which could have been infected by
tetanus.
On November 15, 1980 at exactly 4:18 p.m., Javier died in the hospital. The medical findings of Dr. Exconde
are as follows:
Date Diagnosis
11-14-80 ADMITTED due to trismus
adm. at DX TETANUS
1:30 AM Still having frequent muscle spasm. With diffi#35, 421 culty opening his mouth. Restless at times. Febrile
11-15-80 Referred. Novaldin 1 amp. inj. IM. Sudden cessation of respiration
and HR after
muscular spasm.

1 -Incised wound 2 inches in length at the upper portion of the lesser palmar
prominence, right.

02 inhalation
administered.
Ambo bag
resuscita-

As to my observation the incapacitation is from (7-9) days period. This wound was
presented to me only for medico-legal examination, as it was already treated by the
other doctor. (p. 88, Original Records)

tion and cardiac

massage done
but to no avail.

Upon the intercession of Councilman Solis, Urbano and Javier agreed to settle their differences. Urbano
promised to pay P700.00 for the medical expenses of Javier. Hence, on October 27, 1980, the two

Pronounced
dead by Dra.

Cabugao at 4:18
P.M.

The motion was denied. Hence, this petition.

In a resolution dated July 16, 1986, we gave due course to the petition.

PMC done and

cadaver brought
home by relatives. (p. 100,
Original
Records)
In an information dated April 10, 1981, Filomeno Urbano was charged with the crime of homicide before the
then Circuit Criminal Court of Dagupan City, Third Judicial District.
Upon arraignment, Urbano pleaded "not guilty." After trial, the trial court found Urbano guilty as charged. He
was sentenced to suffer an indeterminate prison term of from TWELVE (12) YEARS of prision mayor, as
minimum to SEVENTEEN (17) years, FOUR (4) MONTHS and ONE (1) DAY of reclusion temporal, as
maximum, together with the accessories of the law, to indemnify the heirs of the victim, Marcelo Javier, in the
amount of P12,000.00 without subsidiary imprisonment in case of insolvency, and to pay the costs. He was
ordered confined at the New Bilibid Prison, in Muntinlupa, Rizal upon finality of the decision, in view of the
nature of his penalty.
The then Intermediate Appellate Court affirmed the conviction of Urbano on appeal but raised the award of
indemnity to the heirs of the deceased to P30,000.00 with costs against the appellant.
The appellant filed a motion for reconsideration and/or new trial. The motion for new trial was based on an
affidavit of Barangay Captain Menardo Soliven (Annex "A") which states:
That in 1980, I was the barrio captain of Barrio Anonang, San Fabian, Pangasinan, and
up to the present having been re-elected to such position in the last barangay elections
on May 17, 1982;
That sometime in the first week of November, 1980, there was a typhoon that swept
Pangasinan and other places of Central Luzon including San Fabian, a town of said
province;
That during the typhoon, the sluice or control gates of the Bued irrigation dam which
irrigates the ricefields of San Fabian were closed and/or controlled so much so that
water and its flow to the canals and ditches were regulated and reduced;
That due to the locking of the sluice or control gates of the dam leading to the canals
and ditches which will bring water to the ricefields, the water in said canals and ditches
became shallow which was suitable for catching mudfishes;
That after the storm, I conducted a personal survey in the area affected, with my
secretary Perfecto Jaravata;
That on November 5, 1980, while I was conducting survey, I saw the late Marcelo
Javier catching fish in the shallow irrigation canals with some companions;
That few days there after,or on November l5, l980, I came to know that said Marcelo
Javier died of tetanus. (p. 33, Rollo)

The case involves the application of Article 4 of the Revised Penal Code which provides that "Criminal liability
shall be incurred: (1) By any person committing a felony (delito) although the wrongful act done be different
from that which he intended ..." Pursuant to this provision "an accused is criminally responsible for acts
committed by him in violation of law and for all the natural and logical consequences resulting therefrom."
(People v. Cardenas, 56 SCRA 631).
The record is clear that Marcelo Javier was hacked by the petitioner who used a bolo as a result of which
Javier suffered a 2-inch incised wound on his right palm; that on November 14, 1981 which was the 22nd day
after the incident, Javier was rushed to the hospital in a very serious condition and that on the following day,
November 15, 1981, he died from tetanus.
Under these circumstances, the lower courts ruled that Javier's death was the natural and logical
consequence of Urbano's unlawful act. Hence, he was declared responsible for Javier's death. Thus, the
appellate court said:
The claim of appellant that there was an efficient cause which supervened from the
time the deceased was wounded to the time of his death, which covers a period of 23
days does not deserve serious consideration. True, that the deceased did not die right
away from his wound, but the cause of his death was due to said wound which was
inflicted by the appellant. Said wound which was in the process of healing got infected
with tetanus which ultimately caused his death.
Dr. Edmundo Exconde of the Nazareth General Hospital testified that the victim
suffered lockjaw because of the infection of the wound with tetanus. And there is no
other way by which he could be infected with tetanus except through the wound in his
palm (tsn., p. 78, Oct. 5, 1981). Consequently, the proximate cause of the victim's
death was the wound which got infected with tetanus. And the settled rule in this
jurisdiction is that an accused is liable for all the consequences of his unlawful act.
(Article 4, par. 1, R.P.C. People v. Red, CA 43 O.G. 5072; People v. Cornel 78 Phil.
418).
Appellant's allegation that the proximate cause of the victim's death was due to his own
negligence in going back to work without his wound being properly healed, and lately,
that he went to catch fish in dirty irrigation canals in the first week of November, 1980,
is an afterthought, and a desperate attempt by appellant to wiggle out of the
predicament he found himself in. If the wound had not yet healed, it is impossible to
conceive that the deceased would be reckless enough to work with a disabled hand.
(pp. 20-21, Rollo)
The petitioner reiterates his position that the proximate cause of the death of Marcelo Javier was due to his
own negligence, that Dr. Mario Meneses found no tetanus in the injury, and that Javier got infected with
tetanus when after two weeks he returned to his farm and tended his tobacco plants with his bare hands
exposing the wound to harmful elements like tetanus germs.
The evidence on record does not clearly show that the wound inflicted by Urbano was infected with tetanus at
the time of the infliction of the wound. The evidence merely confirms that the wound, which was already
healing at the time Javier suffered the symptoms of the fatal ailment, somehow got infected with tetanus
However, as to when the wound was infected is not clear from the record.
In Vda. de Bataclan, et al. v. Medina (102 Phil. 1181), we adopted the following definition of proximate cause:

xxx xxx xxx

... A satisfactory definition of proximate cause is found in Volume 38, pages 695-696 of
American Jurisprudence, cited by plaintiffs-appellants in their brief. It is as follows:
... "that cause, which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury, and without which the result would not have
occurred."And more comprehensively, "the proximate legal cause is that acting first
and producing the injury, either immediately or by setting other events in motion, all
constituting a natural and continuous chain of events, each having a close causal
connection with its immediate predecessor, the final event in the chain immediately
effecting the injury as a natural and probable result of the cause which first acted,
under such circumstances that the person responsible for the first event should, as an
ordinarily prudent and intelligent person, have reasonable ground to expect at the
moment of his act or default that an injury to some person might probably result
therefrom." (at pp. 185-186)
The issue, therefore, hinges on whether or not there was an efficient intervening cause from the time Javier
was wounded until his death which would exculpate Urbano from any liability for Javier's death.
We look into the nature of tetanusThe incubation period of tetanus, i.e., the time between injury and the appearance of
unmistakable symptoms, ranges from 2 to 56 days. However, over 80 percent of
patients become symptomatic within 14 days. A short incubation period indicates
severe disease, and when symptoms occur within 2 or 3 days of injury the mortality
rate approaches 100 percent.
Non-specific premonitory symptoms such as restlessness, irritability, and headache are
encountered occasionally, but the commonest presenting complaints are pain and
stiffness in the jaw, abdomen, or back and difficulty swallowing. As the progresses,
stiffness gives way to rigidity, and patients often complain of difficulty opening their
mouths. In fact, trismus in the commonest manifestation of tetanus and is responsible
for the familiar descriptive name of lockjaw. As more muscles are involved, rigidity
becomes generalized, and sustained contractions called risus sardonicus. The intensity
and sequence of muscle involvement is quite variable. In a small proportion of patients,
only local signs and symptoms develop in the region of the injury. In the vast majority,
however, most muscles are involved to some degree, and the signs and symptoms
encountered depend upon the major muscle groups affected.
Reflex spasm usually occur within 24 to 72 hours of the first symptom, an interval
referred to as the onset time. As in the case of the incubation period, a short onset time
is associated with a poor prognosis. Spasms are caused by sudden intensification of
afferent stimuli arising in the periphery, which increases rigidity and causes
simultaneous and excessive contraction of muscles and their antagonists. Spasms
may be both painful and dangerous. As the disease progresses, minimal or inapparent
stimuli produce more intense and longer lasting spasms with increasing frequency.
Respiration may be impaired by laryngospasm or tonic contraction of respiratory
muscles which prevent adequate ventilation. Hypoxia may then lead to irreversible
central nervous system damage and death.
Mild tetanus is characterized by an incubation period of at least 14 days and an onset
time of more than 6 days. Trismus is usually present, but dysphagia is absent and
generalized spasms are brief and mild. Moderately severe tetanus has a somewhat
shorter incubation period and onset time; trismus is marked, dysphagia and
generalized rigidity are present, but ventilation remains adequate even during spasms.
The criteria for severe tetanus include a short incubation time, and an onset time of 72

hrs., or less, severe trismus, dysphagia and rigidity and frequent prolonged,
generalized convulsive spasms. (Harrison's Principle of Internal Medicine, 1983
Edition, pp. 1004-1005; Emphasis supplied)
Therefore, medically speaking, the reaction to tetanus found inside a man's body depends on the incubation
period of the disease.
In the case at bar, Javier suffered a 2-inch incised wound on his right palm when he parried the bolo which
Urbano used in hacking him. This incident took place on October 23, 1980. After 22 days, or on November 14,
1980, he suffered the symptoms of tetanus, like lockjaw and muscle spasms. The following day, November 15,
1980, he died.
If, therefore, the wound of Javier inflicted by the appellant was already infected by tetanus germs at the time, it
is more medically probable that Javier should have been infected with only a mild cause of tetanus because
the symptoms of tetanus appeared on the 22nd day after the hacking incident or more than 14 days after the
infliction of the wound. Therefore, the onset time should have been more than six days. Javier, however, died
on the second day from the onset time. The more credible conclusion is that at the time Javier's wound was
inflicted by the appellant, the severe form of tetanus that killed him was not yet present. Consequently, Javier's
wound could have been infected with tetanus after the hacking incident. Considering the circumstance
surrounding Javier's death, his wound could have been infected by tetanus 2 or 3 or a few but not 20 to 22
days before he died.
The rule is that the death of the victim must be the direct, natural, and logical consequence of the wounds
inflicted upon him by the accused. (People v. Cardenas, supra) And since we are dealing with a criminal
conviction, the proof that the accused caused the victim's death must convince a rational mind beyond
reasonable doubt. The medical findings, however, lead us to a distinct possibility that the infection of the
wound by tetanus was an efficient intervening cause later or between the time Javier was wounded to the time
of his death. The infection was, therefore, distinct and foreign to the crime. (People v. Rellin, 77 Phil. 1038).
Doubts are present. There is a likelihood that the wound was but the remote cause and its subsequent
infection, for failure to take necessary precautions, with tetanus may have been the proximate cause of
Javier's death with which the petitioner had nothing to do. As we ruled in Manila Electric Co. v. Remoquillo, et
al. (99 Phil. 118).
"A prior and remote cause cannot be made the be of an action if such remote cause
did nothing more than furnish the condition or give rise to the occasion by which the
injury was made possible, if there intervened between such prior or remote cause and
the injury a distinct, successive, unrelated, and efficient cause of the injury, even
though such injury would not have happened but for such condition or occasion. If no
danger existed in the condition except because of the independent cause, such
condition was not the proximate cause. And if an independent negligent act or
defective condition sets into operation the instances which result in injury because of
the prior defective condition, such subsequent act or condition is the proximate cause."
(45 C.J. pp. 931-932). (at p. 125)
It strains the judicial mind to allow a clear aggressor to go scot free of criminal liability. At the very least, the
records show he is guilty of inflicting slight physical injuries. However, the petitioner's criminal liability in this
respect was wiped out by the victim's own act. After the hacking incident, Urbano and Javier used the facilities
of barangay mediators to effect a compromise agreement where Javier forgave Urbano while Urbano defrayed
the medical expenses of Javier. This settlement of minor offenses is allowed under the express provisions of
Presidential Decree G.R. No. 1508, Section 2(3). (See also People v. Caruncho, 127 SCRA 16).
We must stress, however, that our discussion of proximate cause and remote cause is limited to the criminal
aspects of this rather unusual case. It does not necessarily follow that the petitioner is also free of civil liability.
The well-settled doctrine is that a person, while not criminally liable, may still be civilly liable. Thus, in the
recent case of People v. Rogelio Ligon y Tria, et al. (G.R. No. 74041, July 29, 1987), we said:

xxx xxx xxx

... While the guilt of the accused in a criminal prosecution must be established beyond
reasonable doubt, only a preponderance of evidence is required in a civil action for
damages. (Article 29, Civil Code). The judgment of acquittal extinguishes the civil
liability of the accused only when it includes a declaration that the facts from which the
civil liability might arise did not exist. (Padilla v. Court of Appeals, 129 SCRA 559).

WHEREFORE, the instant petition is hereby GRANTED. The questioned decision of the then Intermediate
Appellate Court, now Court of Appeals, is REVERSED and SET ASIDE. The petitioner is ACQUITTED of the
crime of homicide. Costs de oficio.
SO ORDERED.

The reason for the provisions of article 29 of the Civil Code, which provides that the
acquittal of the accused on the ground that his guilt has not been proved beyond
reasonable doubt does not necessarily exempt him from civil liability for the same act
or omission, has been explained by the Code Commission as follows:
The old rule that the acquittal of the accused in a criminal case
also releases him from civil liability is one of the most serious
flaws in the Philippine legal system. It has given use to
numberless instances of miscarriage of justice, where the
acquittal was due to a reasonable doubt in the mind of the court
as to the guilt of the accused. The reasoning followed is that
inasmuch as the civil responsibility is derived from the criminal
offense, when the latter is not proved, civil liability cannot be
demanded.
This is one of those causes where confused thinking leads to
unfortunate and deplorable consequences. Such reasoning fails
to draw a clear line of demarcation between criminal liability
and civil responsibility, and to determine the logical result of the
distinction. The two liabilities are separate and distinct from
each other. One affects the social order and the other, private
rights. One is for the punishment or correction of the offender
while the other is for reparation of damages suffered by the
aggrieved party. The two responsibilities are so different from
each other that article 1813 of the present (Spanish) Civil Code
reads thus: "There may be a compromise upon the civil action
arising from a crime; but the public action for the imposition of
the legal penalty shall not thereby be extinguished." It is just
and proper that, for the purposes of the imprisonment of or fine
upon the accused, the offense should be proved beyond
reasonable doubt. But for the purpose of indemnity the
complaining party, why should the offense also be proved
beyond reasonable doubt? Is not the invasion or violation of
every private right to be proved only by a preponderance of
evidence? Is the right of the aggrieved person any less private
because the wrongful act is also punishable by the criminal
law?
"For these reasons, the Commission recommends the adoption
of the reform under discussion. It will correct a serious defect in
our law. It will close up an inexhaustible source of injustice-a
cause for disillusionment on the part of the innumerable
persons injured or wronged."
The respondent court increased the P12,000.00 indemnification imposed by the trial court to P30,000.00.
However, since the indemnification was based solely on the finding of guilt beyond reasonable doubt in the
homicide case, the civil liability of the petitioner was not thoroughly examined. This aspect of the case calls for
fuller development if the heirs of the victim are so minded.

G.R. No. L-24803 May 26, 1977

PEDRO ELCANO and PATRICIA ELCANO, in their capacity as Ascendants of Agapito Elcano,
deceased,plaintiffs-appellants,
vs.
REGINALD HILL, minor, and MARVIN HILL, as father and Natural Guardian of said minor, defendantsappellees.
Cruz & Avecilla for appellants.
Marvin R. Hill & Associates for appellees.

BARREDO, J.:
Appeal from the order of the Court of First Instance of Quezon City dated January 29, 1965 in Civil Case No.
Q-8102, Pedro Elcano et al. vs. Reginald Hill et al. dismissing, upon motion to dismiss of defendants, the
complaint of plaintiffs for recovery of damages from defendant Reginald Hill, a minor, married at the time of the
occurrence, and his father, the defendant Marvin Hill, with whom he was living and getting subsistence, for the
killing by Reginald of the son of the plaintiffs, named Agapito Elcano, of which, when criminally prosecuted, the
said accused was acquitted on the ground that his act was not criminal, because of "lack of intent to kill,
coupled with mistake."
Actually, the motion to dismiss based on the following grounds:
1. The present action is not only against but a violation of section 1, Rule 107, which is
now Rule III, of the Revised Rules of Court;
2. The action is barred by a prior judgment which is now final and or in res-adjudicata;
3. The complaint had no cause of action against defendant Marvin Hill, because he
was relieved as guardian of the other defendant through emancipation by marriage.
(P. 23, Record [p. 4, Record on Appeal.])

was first denied by the trial court. It was only upon motion for reconsideration of the defendants of such denial,
reiterating the above grounds that the following order was issued:

1. Is the present civil action for damages barred by the acquittal of Reginald in the criminal case wherein the
action for civil liability, was not reversed?

Considering the motion for reconsideration filed by the defendants on January 14, 1965
and after thoroughly examining the arguments therein contained, the Court finds the
same to be meritorious and well-founded.

2. May Article 2180 (2nd and last paragraphs) of the Civil Code he applied against Atty. Hill, notwithstanding
the undisputed fact that at the time of the occurrence complained of. Reginald, though a minor, living with and
getting subsistenee from his father, was already legally married?

WHEREFORE, the Order of this Court on December 8, 1964 is hereby reconsidered by

ordering the dismissal of the above entitled case.

The first issue presents no more problem than the need for a reiteration and further clarification of the dual
character, criminal and civil, of fault or negligence as a source of obligation which was firmly established in this
jurisdiction in Barredo vs. Garcia, 73 Phil. 607. In that case, this Court postulated, on the basis of a scholarly
dissertation by Justice Bocobo on the nature of culpa aquiliana in relation to culpa criminal or delito and
mereculpa or fault, with pertinent citation of decisions of the Supreme Court of Spain, the works of recognized
civilians, and earlier jurisprudence of our own, that the same given act can result in civil liability not only under
the Penal Code but also under the Civil Code. Thus, the opinion holds:

SO ORDERED.
Quezon City, Philippines, January 29, 1965. (p. 40, Record [p. 21, Record on Appeal.)
Hence, this appeal where plaintiffs-appellants, the spouses Elcano, are presenting for Our resolution the
following assignment of errors:
THE LOWER COURT ERRED IN DISMISSING THE CASE BY UPHOLDING THE
CLAIM OF DEFENDANTS THAT I
THE PRESENT ACTION IS NOT ONLY AGAINST BUT ALSO A VIOLATION OF
SECTION 1, RULE 107, NOW RULE 111, OF THE REVISED RULES OF COURT,
AND THAT SECTION 3(c) OF RULE 111, RULES OF COURT IS APPLICABLE;
II
THE ACTION IS BARRED BY A PRIOR JUDGMENT WHICH IS NOW FINAL OR RESADJUDICTA;
III
THE PRINCIPLES OF QUASI-DELICTS, ARTICLES 2176 TO 2194 OF THE CIVIL
CODE, ARE INAPPLICABLE IN THE INSTANT CASE; and
IV
THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST DEFENDANT
MARVIN HILL BECAUSE HE WAS RELIEVED AS GUARDIAN OF THE OTHER
DEFENDANT THROUGH EMANCIPATION BY MARRIAGE. (page 4, Record.)
It appears that for the killing of the son, Agapito, of plaintiffs-appellants, defendant- appellee Reginald Hill was
prosecuted criminally in Criminal Case No. 5102 of the Court of First Instance of Quezon City. After due trial,
he was acquitted on the ground that his act was not criminal because of "lack of intent to kill, coupled with
mistake." Parenthetically, none of the parties has favored Us with a copy of the decision of acquittal,
presumably because appellants do not dispute that such indeed was the basis stated in the court's decision.
And so, when appellants filed their complaint against appellees Reginald and his father, Atty. Marvin Hill, on
account of the death of their son, the appellees filed the motion to dismiss above-referred to.
As We view the foregoing background of this case, the two decisive issues presented for Our resolution are:

The, above case is pertinent because it shows that the same act machinist. come
under both the Penal Code and the Civil Code. In that case, the action of the agent
killeth unjustified and fraudulent and therefore could have been the subject of a
criminal action. And yet, it was held to be also a proper subject of a civil action under
article 1902 of the Civil Code. It is also to be noted that it was the employer and not the
employee who was being sued. (pp. 615-616, 73 Phil.). 1
It will be noticed that the defendant in the above case could have been prosecuted in a
criminal case because his negligence causing the death of the child was punishable by
the Penal Code. Here is therefore a clear instance of the same act of negligence being
a proper subject matter either of a criminal action with its consequent civil liability
arising from a crime or of an entirely separate and independent civil action for fault or
negligence under article 1902 of the Civil Code. Thus, in this jurisdiction, the separate
individuality of a cuasi-delito or culpa aquiliana, under the Civil Code has been fully
and clearly recognized, even with regard to a negligent act for which the wrongdoer
could have been prosecuted and convicted in a criminal case and for which, after such
a conviction, he could have been sued for this civil liability arising from his crime. (p.
617, 73 Phil.) 2
It is most significant that in the case just cited, this Court specifically applied article
1902 of the Civil Code. It is thus that although J. V. House could have been criminally
prosecuted for reckless or simple negligence and not only punished but also made
civilly liable because of his criminal negligence, nevertheless this Court awarded
damages in an independent civil action for fault or negligence under article 1902 of the
Civil Code. (p. 618, 73 Phil.) 3
The legal provisions, authors, and cases already invoked should ordinarily be sufficient
to dispose of this case. But inasmuch as we are announcing doctrines that have been
little understood, in the past, it might not he inappropriate to indicate their foundations.
Firstly, the Revised Penal Code in articles 365 punishes not only reckless but also
simple negligence. If we were to hold that articles 1902 to 1910 of the Civil Code refer
only to fault or negligence not punished by law, accordingly to the literal import of
article 1093 of the Civil Code, the legal institution of culpa aquiliana would have very
little scope and application in actual life. Death or injury to persons and damage to
property- through any degree of negligence - even the slightest - would have to be
Idemnified only through the principle of civil liability arising from a crime. In such a state
of affairs, what sphere would remain for cuasi-delito or culpa aquiliana? We are loath to
impute to the lawmaker any intention to bring about a situation so absurd and
anomalous. Nor are we, in the interpretation of the laws, disposed to uphold the letter
that killeth rather than the spirit that giveth life. We will not use the literal meaning of
the law to smother and render almost lifeless a principle of such ancient origin and

such full-grown development as culpa aquiliana or cuasi-delito, which is conserved and

made enduring in articles 1902 to 1910 of the Spanish Civil Code.
Secondary, to find the accused guilty in a criminal case, proof of guilt beyond
reasonable doubt is required, while in a civil case, preponderance of evidence is
sufficient to make the defendant pay in damages. There are numerous cases of
criminal negligence which can not be shown beyond reasonable doubt, but can be
proved by a preponderance of evidence. In such cases, the defendant can and should
be made responsible in a civil action under articles 1902 to 1910 of the Civil Code.
Otherwise. there would be many instances of unvindicated civil wrongs. "Ubi jus
Idemnified remedium." (p. 620,73 Phil.)
Fourthly, because of the broad sweep of the provisions of both the Penal Code and the
Civil Code on this subject, which has given rise to the overlapping or concurrence of
spheres already discussed, and for lack of understanding of the character and efficacy
of the action for culpa aquiliana, there has grown up a common practice to seek
damages only by virtue of the civil responsibility arising from a crime, forgetting that
there is another remedy, which is by invoking articles 1902-1910 of the Civil Code.
Although this habitual method is allowed by, our laws, it has nevertheless rendered
practically useless and nugatory the more expeditious and effective remedy based
on culpa aquiliana or culpa extra-contractual. In the present case, we are asked to help
perpetuate this usual course. But we believe it is high time we pointed out to the harms
done by such practice and to restore the principle of responsibility for fault or
negligence under articles 1902 et seq. of the Civil Code to its full rigor. It is high time
we caused the stream of quasi-delict or culpa aquiliana to flow on its own natural
channel, so that its waters may no longer be diverted into that of a crime under the
Penal Code. This will, it is believed, make for the better safeguarding or private rights
because it realtor, an ancient and additional remedy, and for the further reason that an
independent civil action, not depending on the issues, limitations and results of a
criminal prosecution, and entirely directed by the party wronged or his counsel, is more
likely to secure adequate and efficacious redress. (p. 621, 73 Phil.)
Contrary to an immediate impression one might get upon a reading of the foregoing excerpts from the opinion
in Garcia that the concurrence of the Penal Code and the Civil Code therein referred to contemplate only acts
of negligence and not intentional voluntary acts - deeper reflection would reveal that the thrust of the
pronouncements therein is not so limited, but that in fact it actually extends to fault or culpa. This can be seen
in the reference made therein to the Sentence of the Supreme Court of Spain of February 14, 1919, supra,
which involved a case of fraud or estafa, not a negligent act. Indeed, Article 1093 of the Civil Code of Spain, in
force here at the time of Garcia, provided textually that obligations "which are derived from acts or omissions
in which fault or negligence, not punishable by law, intervene shall be the subject of Chapter II, Title XV of this
book (which refers to quasi-delicts.)" And it is precisely the underline qualification, "not punishable by law", that
Justice Bocobo emphasized could lead to an ultimo construction or interpretation of the letter of the law that
"killeth, rather than the spirit that giveth lift- hence, the ruling that "(W)e will not use the literal meaning of the
law to smother and render almost lifeless a principle of such ancient origin and such full-grown development
as culpa aquiliana orquasi-delito, which is conserved and made enduring in articles 1902 to 1910 of the
Spanish Civil Code." And so, because Justice Bacobo was Chairman of the Code Commission that drafted the
original text of the new Civil Code, it is to be noted that the said Code, which was enacted after the Garcia
doctrine, no longer uses the term, 11 not punishable by law," thereby making it clear that the concept of culpa
aquiliana includes acts which are criminal in character or in violation of the penal law, whether voluntary or
matter. Thus, the corresponding provisions to said Article 1093 in the new code, which is Article 1162, simply
says, "Obligations derived fromquasi-delicto shall be governed by the provisions of Chapter 2, Title XVII of this
Book, (on quasi-delicts) and by special laws." More precisely, a new provision, Article 2177 of the new code
provides:
ART. 2177. Responsibility for fault or negligence under the preceding article is entirely
separate and distinct from the civil liability arising from negligence under the Penal
Code. But the plaintiff cannot recover damages twice for the same act or omission of
the defendant.

According to the Code Commission: "The foregoing provision (Article 2177) through at first sight startling, is
not so novel or extraordinary when we consider the exact nature of criminal and civil negligence. The former is
a violation of the criminal law, while the latter is a "culpa aquiliana" or quasi-delict, of ancient origin, having
always had its own foundation and individuality, separate from criminal negligence. Such distinction between
criminal negligence and "culpa extracontractual" or "cuasi-delito" has been sustained by decision of the
Supreme Court of Spain and maintained as clear, sound and perfectly tenable by Maura, an outstanding
Spanish jurist. Therefore, under the proposed Article 2177, acquittal from an accusation of criminal negligence,
whether on reasonable doubt or not, shall not be a bar to a subsequent civil action, not for civil liability arising
from criminal negligence, but for damages due to a quasi-delict or 'culpa aquiliana'. But said article forestalls a
double recovery.", (Report of the Code) Commission, p. 162.)
Although, again, this Article 2177 does seem to literally refer to only acts of negligence, the same argument of
Justice Bacobo about construction that upholds "the spirit that giveth lift- rather than that which is literal that
killeth the intent of the lawmaker should be observed in applying the same. And considering that the
preliminary chapter on human relations of the new Civil Code definitely establishes the separability and
independence of liability in a civil action for acts criminal in character (under Articles 29 to 32) from the civil
responsibility arising from crime fixed by Article 100 of the Revised Penal Code, and, in a sense, the Rules of
Court, under Sections 2 and 3 (c), Rule 111, contemplate also the same separability, it is "more congruent with
the spirit of law, equity and justice, and more in harmony with modern progress"- to borrow the felicitous
relevant language in Rakes vs. Atlantic. Gulf and Pacific Co., 7 Phil. 359, to hold, as We do hold, that Article
2176, where it refers to "fault or negligencia covers not only acts "not punishable by law" but also acts criminal
in character, whether intentional and voluntary or negligent. Consequently, a separate civil action lies against
the offender in a criminal act, whether or not he is criminally prosecuted and found guilty or acquitted, provided
that the offended party is not allowed, if he is actually charged also criminally, to recover damages on both
scores, and would be entitled in such eventuality only to the bigger award of the two, assuming the awards
made in the two cases vary. In other words, the extinction of civil liability referred to in Par. (e) of Section 3,
Rule 111, refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil
liability for the same act considered as a quasi-delict only and not as a crime is not estinguished even by a
declaration in the criminal case that the criminal act charged has not happened or has not been committed by
the accused. Briefly stated, We here hold, in reiteration of Garcia, thatculpa aquiliana includes voluntary and
negligent acts which may be punishable by law.4
It results, therefore, that the acquittal of Reginal Hill in the criminal case has not extinguished his liability
for quasi-delict, hence that acquittal is not a bar to the instant action against him.
Coming now to the second issue about the effect of Reginald's emancipation by marriage on the possible civil
liability of Atty. Hill, his father, it is also Our considered opinion that the conclusion of appellees that Atty. Hill is
already free from responsibility cannot be upheld.
While it is true that parental authority is terminated upon emancipation of the child (Article 327, Civil Code),
and under Article 397, emancipation takes place "by the marriage of the minor (child)", it is, however, also
clear that pursuant to Article 399, emancipation by marriage of the minor is not really full or absolute. Thus
"(E)mancipation by marriage or by voluntary concession shall terminate parental authority over the child's
person. It shall enable the minor to administer his property as though he were of age, but he cannot borrow
money or alienate or encumber real property without the consent of his father or mother, or guardian. He can
sue and be sued in court only with the assistance of his father, mother or guardian."
Now under Article 2180, "(T)he obligation imposed by article 2176 is demandable not only for one's own acts
or omissions, but also for those of persons for whom one is responsible. The father and, in case of his death
or incapacity, the mother, are responsible. The father and, in case of his death or incapacity, the mother, are
responsible for the damages caused by the minor children who live in their company." In the instant case, it is
not controverted that Reginald, although married, was living with his father and getting subsistence from him at
the time of the occurrence in question. Factually, therefore, Reginald was still subservient to and dependent on
his father, a situation which is not unusual.
It must be borne in mind that, according to Manresa, the reason behind the joint and solidary liability of
presuncion with their offending child under Article 2180 is that is the obligation of the parent to supervise their
minor children in order to prevent them from causing damage to third persons. 5 On the other hand, the clear

implication of Article 399, in providing that a minor emancipated by marriage may not, nevertheless, sue or be
sued without the assistance of the parents, is that such emancipation does not carry with it freedom to enter
into transactions or do any act that can give rise to judicial litigation. (See Manresa, Id., Vol. II, pp. 766-767,
776.) And surely, killing someone else invites judicial action. Otherwise stated, the marriage of a minor child
does not relieve the parents of the duty to see to it that the child, while still a minor, does not give answerable
for the borrowings of money and alienation or encumbering of real property which cannot be done by their
minor married child without their consent. (Art. 399; Manresa, supra.)
Accordingly, in Our considered view, Article 2180 applies to Atty. Hill notwithstanding the emancipation by
marriage of Reginald. However, inasmuch as it is evident that Reginald is now of age, as a matter of equity,
the liability of Atty. Hill has become milling, subsidiary to that of his son.
WHEREFORE, the order appealed from is reversed and the trial court is ordered to proceed in accordance
with the foregoing opinion. Costs against appellees.
Fernando (Chairman), Antonio, and Martin, JJ., concur.
Concepcion Jr., J, is on leave.
Martin, J, was designated to sit in the Second Division.

Respondents.
Promulgated:
September 18, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules of
Court, filed by petitioner Office of the Solicitor General (OSG), seeking the reversal and setting aside of the
Decision[2] dated 25 January 2007 of the Court of Appeals in CA-G.R. CV No. 76298, which affirmed in toto the
Joint Decision[3] dated 29 May 2002 of the Regional Trial Court (RTC) of Makati City, Branch 138, in Civil
Cases No. 00-1208 and No. 00-1210; and (2) the Resolution [4] dated 14 March 2007 of the appellate court in
the same case which denied the Motion for Reconsideration of the OSG. The RTC adjudged that respondents
Ayala Land Incorporated (Ayala Land), Robinsons Land Corporation (Robinsons), Shangri-la Plaza
Corporation (Shangri-la), and SM Prime Holdings, Inc. (SM Prime) could not be obliged to provide free parking
spaces in their malls to their patrons and the general public.
Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls in
various locations in Metro Manila. Respondent SM Prime constructs, operates, and leases out commercial
buildings and other structures, among which, are SM City, Manila; SM Centerpoint, Sta. Mesa, Manila; SM
City, North Avenue, Quezon City; and SM Southmall, Las Pias.

Separate Opinions
AQUINO, J, concurring:
Article 2176 of the Civil Code comprehends any culpable act, which is blameworthy, when judged by accepted
legal standards. "The Idea thus expressed is undoubtedly board enough to include any rational conception of
liability for the tortious acts likely to be developed in any society." (Street, J. in Daywalt vs. Corporacion de PP.
Agustinos Recoletos, 39 Phil. 587, 600). See article 38, Civil Code and the ruling that "the infant tortfeasor is
liable in a civil action to the injured person in the same manner and to the same extent as an adult" (27 Am.
Jur. 812 cited by Bocobo, J., in Magtibay vs. Tiangco, 74 Phil. 576, 579).
Separate Opinions

The shopping malls operated or leased out by respondents have parking facilities for all kinds of
motor vehicles, either by way of parking spaces inside the mall buildings or in separate buildings and/or
adjacent lots that are solely devoted for use as parking spaces. Respondents Ayala Land, Robinsons, and
SM Prime spent for the construction of their own parking facilities. Respondent Shangri-la is renting its
parking facilities, consisting of land and building specifically used as parking spaces, which were constructed
for the lessors account.
Respondents expend for the maintenance and administration of their respective parking
facilities. They provide security personnel to protect the vehicles parked in their parking facilities and maintain
order within the area. In turn, they collect the following parking fees from the persons making use of their
parking facilities, regardless of whether said persons are mall patrons or not:
Respondent

AQUINO, J, concurring:
Article 2176 of the Civil Code comprehends any culpable act, which is blameworthy, when judged by accepted
legal standards. "The Idea thus expressed is undoubtedly board enough to include any rational conception of
liability for the tortious acts likely to be developed in any society." (Street, J. in Daywalt vs. Corporacion de PP.
Agustinos Recoletos, 39 Phil. 587, 600). See article 38, Civil Code and the ruling that "the infant tortfeasor is
liable in a civil action to the injured person in the same manner and to the same extent as an adult" (27 Am.
Jur. 812 cited by Bocobo, J., in Magtibay vs. Tiangco, 74 Phil. 576, 579).

THE OFFICE OF THE SOLICITOR GENERAL,

Petitioner,

G.R. No. 177056

Present:

- versus AYALA
LAND
INCORPORATED,
ROBINSONS
LAND
CORPORATION, SHANGRI-LA PLAZA CORPORATION and SM
PRIME HOLDINGS, INC.,

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Parking Fees

Ayala Land

On weekdays, P25.00 for the first four hours andP10.00 for every succ
hour; on weekends, flat rate of P25.00 per day

Robinsons

P20.00 for the first three hours and P10.00 for every succeeding hour

Shangri-la

Flat rate of P30.00 per day

SM Prime

P10.00 to P20.00 (depending on whether the parking space is outdo

indoors) for the first three hours and 59 minutes, and P10.00 for
succeeding hour or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that respondents
shall not be responsible for any loss or damage to the vehicles parked in respondents parking facilities.
In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights
conducted a joint investigation for the following purposes: (1) to inquire into the legality of the prevalent
practice of shopping malls of charging parking fees; (2) assuming arguendo that the collection of parking fees
was legally authorized, to find out the basis and reasonableness of the parking rates charged by shopping
malls; and (3) to determine the legality of the policy of shopping malls of denying liability in cases of theft,
robbery, or carnapping, by invoking the waiver clause at the back of the parking tickets. Said Senate
Committees invited the top executives of respondents, who operate the major malls in the country; the officials
from the Department of Trade and Industry (DTI), Department of Public Works and Highways (DPWH), Metro

Manila Development Authority (MMDA), and other local government officials; and the Philippine Motorists
Association (PMA) as representative of the consumers group.
After three public hearings held on 30 September, 3 November, and 1 December 1999, the aforementioned Senate Committees jointly issued Senate Committee Report No. 225 [5] on 2 May 2000, in which
they concluded:
In view of the foregoing, the Committees find that the collection of parking
fees by shopping malls is contrary to the National Building Code and is therefor [ sic]
illegal. While it is true that the Code merely requires malls to provide parking spaces,
without specifying whether it is free or not, both Committees believe that the
reasonable and logical interpretation of the Code is that the parking spaces are for
free. This interpretation is not only reasonable and logical but finds support in the
actual practice in other countries like the United States of America where parking
spaces owned and operated by mall owners are free of charge.
Figuratively speaking, the Code has expropriated the land for parking
something similar to the subdivision law which require developers to devote so much of
the land area for parks.
Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines)
provides that it is the policy of the State to protect the interest of the consumers,
promote the general welfare and establish standards of conduct for business and
industry. Obviously, a contrary interpretation (i.e., justifying the collection of parking
fees) would be going against the declared policy of R.A. 7394.
Section 201 of the National Building Code gives the responsibility for the
administration and enforcement of the provisions of the Code, including the imposition
of penalties for administrative violations thereof to the Secretary of Public Works. This
set up, however, is not being carried out in reality.
In the position paper submitted by the Metropolitan Manila Development
Authority (MMDA), its chairman, Jejomar C. Binay, accurately pointed out that the
Secretary of the DPWH is responsible for the implementation/enforcement of the
National Building Code. After the enactment of the Local Government Code of 1991,
the local government units (LGUs) were tasked to discharge the regulatory powers of
the DPWH. Hence, in the local level, the Building Officials enforce all rules/ regulations
formulated by the DPWH relative to all building plans, specifications and designs
including parking space requirements. There is, however, no single national
department or agency directly tasked to supervise the enforcement of the provisions of
the Code on parking, notwithstanding the national character of the law.[6]

Respondent SM Prime thereafter received information that, pursuant to Senate Committee Report
No. 225, the DPWH Secretary and the local building officials of Manila, Quezon City, and Las Pias intended
to institute, through the OSG, an action to enjoin respondent SM Prime and similar establishments from
collecting parking fees, and to impose upon said establishments penal sanctions under Presidential Decree
No. 1096, otherwise known as the National Building Code of the Philippines (National Building Code), and its
Implementing Rules and Regulations (IRR). With the threatened action against it, respondent SM Prime filed,
on 3 October 2000, a Petition for Declaratory Relief [8] under Rule 63 of the Revised Rules of Court, against the
DPWH Secretary and local building officials of Manila, Quezon City, and Las Pias. Said Petition was
docketed as Civil Case No. 00-1208 and assigned to the RTC of Makati City, Branch 138, presided over by
Judge Sixto Marella, Jr. (Judge Marella). In its Petition, respondent SM Prime prayed for judgment:
a)
Declaring Rule XIX of the Implementing Rules and Regulations of
the National Building Code as ultra vires, hence, unconstitutional and void;
b)
Declaring [herein respondent SM Prime]s clear legal right to lease
parking spaces appurtenant to its department stores, malls, shopping centers and
other commercial establishments; and
c)
Declaring the National Building Code of the Philippines
Implementing Rules and Regulations as ineffective, not having been published once a
week for three (3) consecutive weeks in a newspaper of general circulation, as
prescribed by Section 211 of Presidential Decree No. 1096.
[Respondent SM Prime] further prays for such other reliefs as may be
deemed just and equitable under the premises.[9]
The very next day, 4 October 2000, the OSG filed a Petition for Declaratory Relief and Injunction
(with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction) [10]against respondents. This
Petition was docketed as Civil Case No. 00-1210 and raffled to the RTC of Makati, Branch 135, presided over
by Judge Francisco B. Ibay (Judge Ibay). Petitioner prayed that the RTC:
1.
After summary hearing, a temporary restraining order and a writ of
preliminary injunction be issued restraining respondents from collecting parking fees
from their customers; and
2.
After hearing, judgment be rendered declaring that the practice of
respondents in charging parking fees is violative of the National Building Code and its
Implementing Rules and Regulations and is therefore invalid, and making permanent
any injunctive writ issued in this case.
Other reliefs just and equitable under the premises are likewise prayed for.

Senate Committee Report No. 225, thus, contained the following recommendations:
In light of the foregoing, the Committees on Trade and Commerce and
Justice and Human Rights hereby recommend the following:
1.

2.

3.

The Office of the Solicitor General should institute the necessary action to
enjoin the collection of parking fees as well as to enforce the penal sanction
provisions of the National Building Code. The Office of the Solicitor
General should likewise study how refund can be exacted from mall owners
who continue to collect parking fees.
The Department of Trade and Industry pursuant to the provisions of R.A. No.
7394, otherwise known as the Consumer Act of the Philippines should
enforce the provisions of the Code relative to parking. Towards this end,
the DTI should formulate the necessary implementing rules and regulations
on parking in shopping malls, with prior consultations with the local
government units where these are located. Furthermore, the DTI, in
coordination with the DPWH, should be empowered to regulate and
supervise the construction and maintenance of parking establishments.
Finally, Congress should amend and update the National Building Code to
expressly prohibit shopping malls from collecting parking fees by at the
same time, prohibit them from invoking the waiver of liability.[7]

[11]

On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order
consolidating Civil Case No. 00-1210 with Civil Case No. 00-1208 pending before Judge Marella of RTC of
Makati, Branch 138.
As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued a PreTrial Order[12] of even date which limited the issues to be resolved in Civil Cases No. 00-1208 and No. 00-1210
to the following:
1.
Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute
the present proceedings and relative thereto whether the controversy in the collection
of parking fees by mall owners is a matter of public welfare.
2.

Whether declaratory relief is proper.

3.
Whether respondent Ayala Land, Robinsons, Shangri-La and
SM Prime are obligated to provide parking spaces in their malls for the use of their
patrons or the public in general, free of charge.
4.

Entitlement of the parties of [sic] award of damages. [13]

On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 001210.
The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil Case
No. 00-1210 under Presidential Decree No. 478 and the Administrative Code of 1987. [14] It also found that all
the requisites for an action for declaratory relief were present, to wit:

FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc.,
Robinsons Land Corporation, Shangri-la Plaza Corporation and SM Prime Holdings[,]
Inc. are not obligated to provide parking spaces in their malls for the use of their
patrons or public in general, free of charge.
All counterclaims in Civil Case No. 00-1210 are dismissed.

The requisites for an action for declaratory relief are: (a) there is a justiciable
controversy; (b) the controversy is between persons whose interests are adverse; (c)
the party seeking the relief has a legal interest in the controversy; and (d) the issue
involved is ripe for judicial determination.
SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who
stands to be affected directly by the position taken by the government officials sued
namely the Secretary of Public Highways and the Building Officials of the local
government units where it operates shopping malls. The OSG on the other hand acts
on a matter of public interest and has taken a position adverse to that of the mall
owners whom it sued. The construction of new and bigger malls has been announced,
a matter which the Court can take judicial notice and the unsettled issue of whether
mall operators should provide parking facilities, free of charge needs to be resolved. [15]

No pronouncement as to costs.[17]
CA-G.R. CV No. 76298 involved the separate appeals of the OSG [18] and respondent SM Prime [19] filed
with the Court of Appeals. The sole assignment of error of the OSG in its Appellants Brief was:
THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE
DID NOT INTEND MALL PARKING SPACES TO BE FREE OF CHARGE[;] [20]
while the four errors assigned by respondent SM Prime in its Appellants Brief were:
I

As to the third and most contentious issue, the RTC pronounced that:
The Building Code, which is the enabling law and the Implementing Rules
and Regulations do not impose that parking spaces shall be provided by the mall
owners free of charge. Absent such directive[,] Ayala Land, Robinsons, Shangri-la and
SM [Prime] are under no obligation to provide them for free. Article 1158 of the Civil
Code is clear:
Obligations
derived
from
law
are
not
presumed. Only those expressly determined in this Code or in
special laws are demandable and shall be regulated by the
precepts of the law which establishes them; and as to what has
not been foreseen, by the provisions of this Book (1090).[]

THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE

IMPLEMENTING RULES AS HAVING BEEN ENACTED ULTRA VIRES, HENCE,
UNCONSTITUTIONAL AND VOID.
II
THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES
INEFFECTIVE FOR NOT HAVING BEEN PUBLISHED AS REQUIRED BY LAW.
III
THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSGS PETITION FOR
DECLARATORY RELIEF AND INJUNCTION FOR FAILURE TO EXHAUST
ADMINISTRATIVE REMEDIES.

xxxx
IV
The provision on ratios of parking slots to several variables, like shopping
floor area or customer area found in Rule XIX of the Implementing Rules and
Regulations cannot be construed as a directive to provide free parking spaces,
because the enabling law, the Building Code does not so provide. x x x.
To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide
parking spaces for free can be considered as an unlawful taking of property right
without just compensation.
Parking spaces in shopping malls are privately owned and for their use,
the mall operators collect fees. The legal relationship could be either lease or
deposit. In either case[,] the mall owners have the right to collect money which
translates into income. Should parking spaces be made free, this right of mall owners
shall be gone. This, without just compensation. Further, loss of effective control over
their property will ensue which is frowned upon by law.
The presence of parking spaces can be viewed in another light. They can
be looked at as necessary facilities to entice the public to increase patronage of their
malls because without parking spaces, going to their malls will be inconvenient. These
are[,] however[,] business considerations which mall operators will have to decide for
themselves. They are not sufficient to justify a legal conclusion, as the OSG would like
the Court to adopt that it is the obligation of the mall owners to provide parking spaces
for free.[16]

THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO
LEGAL CAPACITY TO SUE AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST
IN THE INSTANT CASE.[21]
Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the lone issue
raised therein involved a pure question of law, not reviewable by the Court of Appeals.
The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January 2007. The
appellate court agreed with respondent Robinsons that the appeal of the OSG should suffer the fate of
dismissal, since the issue on whether or not the National Building Code and its implementing rules require
shopping mall operators to provide parking facilities to the public for free was evidently a question of
law. Even so, since CA-G.R. CV No. 76298 also included the appeal of respondent SM Prime, which raised
issues worthy of consideration, and in order to satisfy the demands of substantial justice, the Court of Appeals
proceeded to rule on the merits of the case.
In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case No. 00-1210
before the RTC as the legal representative of the government, [22] and as the one deputized by the Senate of
the Republic of the Philippines through Senate Committee Report No. 225.
The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to
exhaust administrative remedies. The appellate court explained that an administrative review is not a
condition precedent to judicial relief where the question in dispute is purely a legal one, and nothing of an
administrative nature is to be or can be done.

The RTC then held that there was no sufficient evidence to justify any award for damages.
The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No. 00-1210
that:

The Court of Appeals likewise refused to rule on the validity of the IRR of the National Building
Code, as such issue was not among those the parties had agreed to be resolved by the RTC during the pretrial conference for Civil Cases No. 00-1208 and No. 00-1210. Issues cannot be raised for the first time on

appeal. Furthermore, the appellate court found that the controversy could be settled on other grounds, without
touching on the issue of the validity of the IRR. It referred to the settled rule that courts should refrain from
passing upon the constitutionality of a law or implementing rules, because of the principle that bars judicial
inquiry into a constitutional question, unless the resolution thereof is indispensable to the determination of the
case.
Lastly, the Court of Appeals declared that Section 803 of the National Building Code and Rule XIX
of the IRR were clear and needed no further construction. Said provisions were only intended to control the
occupancy or congestion of areas and structures. In the absence of any express and clear provision of law,
respondents could not be obliged and expected to provide parking slots free of charge.
The fallo of the 25 January 2007 Decision of the Court of Appeals reads:
WHEREFORE,
premises
considered,
the
instant
are DENIED. Accordingly, appealed Decision is hereby AFFIRMED in toto.[23]

appeals

In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for Reconsideration
of the OSG, finding that the grounds relied upon by the latter had already been carefully considered,
evaluated, and passed upon by the appellate court, and there was no strong and cogent reason to modify
much less reverse the assailed judgment.
The OSG now comes before this Court, via the instant Petition for Review, with a single
assignment of error:
THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF
THELOWER COURT THAT RESPONDENTS ARE NOT OBLIGED TO PROVIDE
FREE PARKING SPACES TO THEIR CUSTOMERS OR THE PUBLIC.[24]
The OSG argues that respondents are mandated to provide free parking by Section 803 of the
National Building Code and Rule XIX of the IRR.
According to Section 803 of the National Building Code:

xxxx
1.7

Neighborhood shopping center 1 slot/100 sq. m. of

shopping floor area

The OSG avers that the aforequoted provisions should be read together with Section 102 of the
National Building Code, which declares:
SECTION 102. Declaration of Policy
It is hereby declared to be the policy of the State to safeguard life, health,
property, and public welfare, consistent with the principles of sound environmental
management and control; and to this end, make it the purpose of this Code to provide
for all buildings and structures, a framework of minimum standards and requirements
to regulate and control their location, site, design, quality of materials, construction,
use, occupancy, and maintenance.
The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of safeguarding
life, health, property, and public welfare, consistent with the principles of sound environmental management
and control. Adequate parking spaces would contribute greatly to alleviating traffic congestion when
complemented by quick and easy access thereto because of free-charge parking. Moreover, the power to
regulate and control the use, occupancy, and maintenance of buildings and structures carries with it the power
to impose fees and, conversely, to control -- partially or, as in this case, absolutely -- the imposition of such
fees.
The Court finds no merit in the present Petition.
The explicit directive of the afore-quoted statutory and regulatory provisions, garnered from a plain
reading thereof, is that respondents, as operators/lessors of neighborhood shopping centers, should provide
parking and loading spaces, in accordance with the minimum ratio of one slot per 100 square meters of
shopping floor area. There is nothing therein pertaining to the collection (or non-collection) of parking fees by
respondents. In fact, the term parking fees cannot even be found at all in the entire National Building Code
and its IRR.

SECTION 803. Percentage of Site Occupancy

(a) Maximum site occupancy shall be governed by the use, type of
construction, and height of the building and the use, area, nature, and location of the
site; and subject to the provisions of the local zoning requirements and in accordance
with the rules and regulations promulgated by the Secretary.
In connection therewith, Rule XIX of the old IRR, [25] provides:
RULE XIX PARKING AND LOADING SPACE REQUIREMENTS
Pursuant to Section 803 of the National Building Code (PD 1096) providing
for maximum site occupancy, the following provisions on parking and loading space
requirements shall be observed:
1.

The parking space ratings listed below are minimum off-street

requirements
for
specific
uses/occupancies
for
buildings/structures:
1.1

The size of an average automobile parking slot shall be

computed as 2.4 meters by 5.00 meters for
perpendicular or diagonal parking, 2.00 meters by
6.00 meters for parallel parking. A truck or bus
parking/loading slot shall be computed at a minimum
of 3.60 meters by 12.00 meters. The parking slot
shall be drawn to scale and the total number of which
shall be indicated on the plans and specified whether
or not parking accommodations, are attendantmanaged. (See Section 2 for computation of parking
requirements).

Statutory construction has it that if a statute is clear and unequivocal, it must be given its literal
meaning and applied without any attempt at interpretation. [26] Since Section 803 of the National Building Code
and Rule XIX of its IRR do not mention parking fees, then simply, said provisions do not regulate the collection
of the same. The RTC and the Court of Appeals correctly applied Article 1158 of the New Civil Code, which
states:
Art. 1158. Obligations derived from law are not presumed. Only
those expressly determined in this Code or in special laws are demandable, and shall
be regulated by the precepts of the law which establishes them; and as to what has not
been foreseen, by the provisions of this Book. (Emphasis ours.)
Hence, in order to bring the matter of parking fees within the ambit of the National Building Code
and its IRR, the OSG had to resort to specious and feeble argumentation, in which the Court cannot concur.
The OSG cannot rely on Section 102 of the National Building Code to expand the coverage of
Section 803 of the same Code and Rule XIX of the IRR, so as to include the regulation of parking fees. The
OSG limits its citation to the first part of Section 102 of the National Building Code declaring the policy of the
State to safeguard life, health, property, and public welfare, consistent with the principles of sound
environmental management and control; but totally ignores the second part of said provision, which reads,
and to this end, make it the purpose of this Code to provide for all buildings and structures, a framework of
minimum standards and requirements to regulate and control their location, site, design, quality of materials,
construction, use, occupancy, and maintenance. While the first part of Section 102 of the National Building
Code lays down the State policy, it is the second part thereof that explains how said policy shall be carried out
in the Code. Section 102 of the National Building Code is not an all-encompassing grant of regulatory power to
the DPWH Secretary and local building officials in the name of life, health, property, and public welfare. On
the contrary, it limits the regulatory power of said officials to ensuring that the minimum standards and
requirements for all buildings and structures, as set forth in the National Building Code, are complied with.
Consequently, the OSG cannot claim that in addition to fixing the minimum requirements for
parking spaces for buildings, Rule XIX of the IRR also mandates that such parking spaces be provided by

building owners free of charge. If Rule XIX is not covered by the enabling law, then it cannot be added to or
included in the implementing rules. The rule-making power of administrative agencies must be confined to
details for regulating the mode or proceedings to carry into effect the law as it has been enacted, and it cannot
be extended to amend or expand the statutory requirements or to embrace matters not covered by the
statute. Administrative regulations must always be in harmony with the provisions of the law because any
resulting discrepancy between the two will always be resolved in favor of the basic law. [27]
From the RTC all the way to this Court, the OSG repeatedly referred to Republic v.
Gonzales[28] and City of Ozamis v. Lumapas [29] to support its position that the State has the power to regulate
parking spaces to promote the health, safety, and welfare of the public; and it is by virtue of said power that
respondents may be required to provide free parking facilities. The OSG, though, failed to consider the
substantial differences in the factual and legal backgrounds of these two cases from those of the Petition at
bar.
In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of land of the
public domain to give way to a road-widening project. It was in this context that the Court pronounced:
Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was
prevalent; this, of course, caused the build up of traffic in the surrounding area to the
great discomfort and inconvenience of the public who use the streets. Traffic
congestion constitutes a threat to the health, welfare, safety and convenience of the
people and it can only be substantially relieved by widening streets and providing
adequate parking areas.
The Court, in City of Ozamis, declared that the City had been clothed with full power to control and
regulate its streets for the purpose of promoting public health, safety and welfare. The City can regulate the
time, place, and manner of parking in the streets and public places; and charge minimal fees for the street
parking to cover the expenses for supervision, inspection and control, to ensure the smooth flow of traffic in
the environs of the public market, and for the safety and convenience of the public.
Republic and City of Ozamis involved parking in the local streets; in contrast, the present case
deals with privately owned parking facilities available for use by the general public. In Republicand City of
Ozamis, the concerned local governments regulated parking pursuant to their power to control and regulate
their streets; in the instant case, the DPWH Secretary and local building officials regulate parking pursuant to
their authority to ensure compliance with the minimum standards and requirements under the National
Building Code and its IRR. With the difference in subject matters and the bases for the regulatory powers
being invoked, Republic and City of Ozamisdo not constitute precedents for this case.
Indeed, Republic and City of Ozamis both contain pronouncements that weaken the position of
the OSG in the case at bar. In Republic, the Court, instead of placing the burden on private persons to provide
parking facilities to the general public, mentioned the trend in other jurisdictions wherein the municipal
governments themselves took the initiative to make more parking spaces available so as to alleviate the traffic
problems, thus:
Under the Land Transportation and Traffic Code, parking in designated
areas along public streets or highways is allowed which clearly indicates that provision
for parking spaces serves a useful purpose. In other jurisdictions where traffic is at
least as voluminous as here, the provision by municipal governments of parking space
is not limited to parking along public streets or highways. There has been a marked
trend to build off-street parking facilities with the view to removing parked cars from the
streets. While the provision of off-street parking facilities or carparks has been
commonly undertaken by private enterprise, municipal governments have been
constrained to put up carparks in response to public necessity where private enterprise
had failed to keep up with the growing public demand. American courts have upheld
the right of municipal governments to construct off-street parking facilities as clearly
redounding to the public benefit.[30]
In City of Ozamis, the Court authorized the collection by the City of minimal fees for the parking of
vehicles along the streets: so why then should the Court now preclude respondents from collecting from the
public a fee for the use of the mall parking facilities? Undoubtedly, respondents also incur expenses in the
maintenance and operation of the mall parking facilities, such as electric consumption, compensation for
parking attendants and security, and upkeep of the physical structures.
It is not sufficient for the OSG to claim that the power to regulate and control the use, occupancy,
and maintenance of buildings and structures carries with it the power to impose fees and, conversely, to

control, partially or, as in this case, absolutely, the imposition of such fees. Firstly, the fees within the power
of regulatory agencies to impose are regulatory fees. It has been settled law in this jurisdiction that this broad
and all-compassing governmental competence to restrict rights of liberty and property carries with it the
undeniable power to collect a regulatory fee. It looks to the enactment of specific measures that govern the
relations not only as between individuals but also as between private parties and the political society. [31] True,
if the regulatory agencies have the power to impose regulatory fees, then conversely, they also have the
power to remove the same. Even so, it is worthy to note that the present case does not involve the imposition
by the DPWH Secretary and local building officials of regulatory fees upon respondents; but the collection by
respondents ofparking fees from persons who use the mall parking facilities. Secondly,
assuming arguendo that the DPWH Secretary and local building officials do have regulatory powers over the
collection of parking fees for the use of privately owned parking facilities, they cannot allow or prohibit such
collection arbitrarily or whimsically. Whether allowing or prohibiting the collection of such parking fees, the
action of the DPWH Secretary and local building officials must pass the test of classic reasonableness and
propriety of the measures or means in the promotion of the ends sought to be accomplished. [32]
Keeping in mind the aforementioned test of reasonableness and propriety of measures or means,
the Court notes that Section 803 of the National Building Code falls under Chapter 8 on Light and
Ventilation. Evidently, the Code deems it necessary to regulate site occupancy to ensure that there is proper
lighting and ventilation in every building. Pursuant thereto, Rule XIX of the IRR requires that a building,
depending on its specific use and/or floor area, should provide a minimum number of parking spaces. The
Court, however, fails to see the connection between regulating site occupancy to ensure proper light and
ventilation in every building vis--vis regulating the collection by building owners of fees for the use of their
parking spaces. Contrary to the averment of the OSG, the former does not necessarily include or imply the
latter. It totally escapes this Court how lighting and ventilation conditions at the malls could be affected by the
fact that parking facilities thereat are free or paid for.
The OSG attempts to provide the missing link by arguing that:
Under Section 803 of the National Building Code, complimentary parking
spaces are required to enhance light and ventilation, that is, to avoid traffic congestion
in areas surrounding the building, which certainly affects the ventilation within the
building itself, which otherwise, the annexed parking spaces would have served. Freeof-charge parking avoids traffic congestion by ensuring quick and easy access of
legitimate shoppers to off-street parking spaces annexed to the malls, and thereby
removing the vehicles of these legitimate shoppers off the busy streets near the
commercial establishments.[33]
The Court is unconvinced. The National Building Code regulates buildings, by setting the
minimum specifications and requirements for the same. It does not concern itself with traffic congestion in
areas surrounding the building. It is already a stretch to say that the National Building Code and its IRR also
intend to solve the problem of traffic congestion around the buildings so as to ensure that the said buildings
shall have adequate lighting and ventilation. Moreover, the Court cannot simply assume, as the OSG has
apparently done, that the traffic congestion in areas around the malls is due to the fact that respondents
charge for their parking facilities, thus, forcing vehicle owners to just park in the streets. The Court notes that
despite the fees charged by respondents, vehicle owners still use the mall parking facilities, which are even
fully occupied on some days. Vehicle owners may be parking in the streets only because there are not enough
parking spaces in the malls, and not because they are deterred by the parking fees charged by
respondents. Free parking spaces at the malls may even have the opposite effect from what the OSG
envisioned: more people may be encouraged by the free parking to bring their own vehicles, instead of taking
public transport, to the malls; as a result, the parking facilities would become full sooner, leaving more vehicles
without parking spaces in the malls and parked in the streets instead, causing even more traffic congestion.
Without using the term outright, the OSG is actually invoking police power to justify the regulation
by the State, through the DPWH Secretary and local building officials, of privately owned parking facilities,
including the collection by the owners/operators of such facilities of parking fees from the public for the use
thereof. The Court finds, however, that in totally prohibiting respondents from collecting parking fees from the
public for the use of the mall parking facilities, the State would be acting beyond the bounds of police power.
Police power is the power of promoting the public welfare by restraining and regulating the use of
liberty and property. It is usually exerted in order to merely regulate the use and enjoyment of the property of
the owner. The power to regulate, however, does not include the power to prohibit. A fortiori, the power to
regulate does not include the power to confiscate. Police power does not involve the taking or confiscation of
property, with the exception of a few cases where there is a necessity to confiscate private property in order to
destroy it for the purpose of protecting peace and order and of promoting the general welfare; for instance, the
confiscation of an illegally possessed article, such as opium and firearms. [34]

When there is a taking or confiscation of private property for public use, the State is no longer
exercising police power, but another of its inherent powers, namely, eminent domain. Eminent domain
enables the State to forcibly acquire private lands intended for public use upon payment of just compensation
to the owner.[35]
Normally, of course, the power of eminent domain results in the taking or appropriation of title to,
and possession of, the expropriated property; but no cogent reason appears why the said power may not be
availed of only to impose a burden upon the owner of condemned property, without loss of title and
possession.[36] It is a settled rule that neither acquisition of title nor total destruction of value is essential to
taking. It is usually in cases where title remains with the private owner that inquiry should be made to
determine whether the impairment of a property is merely regulated or amounts to a compensable taking. A
regulation that deprives any person of the profitable use of his property constitutes a taking and entitles him to
compensation, unless the invasion of rights is so slight as to permit the regulation to be justified under the
police power. Similarly, a police regulation that unreasonably restricts the right to use business property for
business purposes amounts to a taking of private property, and the owner may recover therefor. [37]

1210, agreed to submit for resolution of the RTC. It is likewise axiomatic that the constitutionality of a law, a
regulation, an ordinance or an act will not be resolved by courts if the controversy can be, as in this case it has
been, settled on other grounds. [39]
WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The Decision
dated 25 January 2007 and Resolution dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No.
76298, affirming in toto the Joint Decision dated 29 May 2002 of the Regional Trial Court of Makati City,
Branch 138, in Civil Cases No. 00-1208 and No. 00-1210 are herebyAFFIRMED. No costs.
SO ORDERED.

Although in the present case, title to and/or possession of the parking facilities remain/s with
respondents, the prohibition against their collection of parking fees from the public, for the use of said facilities,
is already tantamount to a taking or confiscation of their properties. The State is not only requiring that
respondents devote a portion of the latters properties for use as parking spaces, but is also mandating that
they give the public access to said parking spaces for free. Such is already an excessive intrusion into the
property rights of respondents. Not only are they being deprived of the right to use a portion of their properties
as they wish, they are further prohibited from profiting from its use or even just recovering therefrom the
expenses for the maintenance and operation of the required parking facilities.
The ruling of this Court in City Government of Quezon City v. Judge Ericta [38] is edifying. Therein,
the City Government of Quezon City passed an ordinance obliging private cemeteries within its jurisdiction to
set aside at least six percent of their total area for charity, that is, for burial grounds of deceased
paupers. According to the Court, the ordinance in question was null and void, for it authorized the taking of
private property without just compensation:
There is no reasonable relation between the setting aside of at least six (6)
percent of the total area of all private cemeteries for charity burial grounds of deceased
paupers and the promotion of' health, morals, good order, safety, or the general welfare
of the people. The ordinance is actually a taking without compensation of a certain
area from a private cemetery to benefit paupers who are charges of the municipal
corporation. Instead of' building or maintaining a public cemetery for this purpose, the
city passes the burden to private cemeteries.
'The expropriation without compensation of a portion of private cemeteries
is not covered by Section 12(t) of Republic Act 537, the Revised Charter of Quezon
City which empowers the city council to prohibit the burial of the dead within the center
of population of the city and to provide for their burial in a proper place subject to the
provisions of general law regulating burial grounds and cemeteries. When the Local
Government Code, Batas Pambansa Blg. 337 provides in Section 177(q) that a
sangguniang panlungsod may "provide for the burial of the dead in such place and in
such manner as prescribed by law or ordinance" it simply authorizes the city to provide
its own city owned land or to buy or expropriate private properties to construct public
cemeteries. This has been the law, and practise in the past. It continues to the present.
Expropriation, however, requires payment of just compensation. The questioned
ordinance is different from laws and regulations requiring owners of subdivisions to set
aside certain areas for streets, parks, playgrounds, and other public facilities from the
land they sell to buyers of subdivision lots. The necessities of public safety, health, and
convenience are very clear from said requirements which are intended to insure the
development of communities with salubrious and wholesome environments. The
beneficiaries of the regulation, in turn, are made to pay by the subdivision developer
when individual lots are sold to homeowners.
In conclusion, the total prohibition against the collection by respondents of parking fees from persons
who use the mall parking facilities has no basis in the National Building Code or its IRR. The State also cannot
impose the same prohibition by generally invoking police power, since said prohibition amounts to a taking of
respondents property without payment of just compensation.
Given the foregoing, the Court finds no more need to address the issue persistently raised by
respondent SM Prime concerning the unconstitutionality of Rule XIX of the IRR. In addition, the said issue
was not among those that the parties, during the pre-trial conference for Civil Cases No. 12-08 and No. 00-

G.R. No. L-11028

April 17, 1959

LAO CHIT, plaintiff-appellee,

vs.
SECURITY BANK and TRUST CO. and CONSOLIDATED INVESTMENT, INC., defendants-appellants.
Nicetas A. Suanes for appellee.
Augusto S. Francisco for appellant Security Bank and Trust Co.
Jesus S. Nava for appellant Consolidated Investments, Inc.
CONCEPCION, J.:
In May, 1949, the consolidated Investments, Inc., hereafter referred to as the lessor, leased to Domingo T.
Dikit part of the lobby, on the ground floor of the Consolidated Building, at Plaza Goiti, Manila, to be used as
offices of the proposed Bank of Manila, then being organized by said Dikit and Jose Silva. Pursuant to the
lease contract between the parties (Exhibits 2, 2-A and 2-B), the lessee undertook to construct, at the expense
thereof, such walls, partitions and other improvements as may be necessary to make the leased premises
suitable for banking purposes, and such partitions and improvements "shall become the property" of the lessor
"upon the termination and/or rescission" of said contract. It appears that, pursuant to another contract. It
appears that, pursuant to another entered into June, 1949, between Dikit and Silva on the one hand, and
plaintiff Lao Chit, on the other (Exhibit A-1, and A-2 and A-3), the latter furnished the materials and the work for
said walls, partitions and improvements, at a total cost of P59,365, payable "as soon as the Bank of Manila
opens for business, and is given a permit by the Central Bank." This permit however, was never issued. The
proposed Bank of Manila did not open for business, and rentals due under said lease contract, at the rate of

P5,000 a month, beginning from October, 1949, were not paid. On December 3, 1949, the lessor instituted
Civil Case No. 9708 of the Municipal Court of Manila against Dikit, for unlawful detainer. After appropriate
proceedings, said court rendered judgement on March 27, 1950, sentencing Dikit.
. . . to vacate the premises described in the complaint, and to pay the plaintiff the sum of
P10,000.00, under the first cause of action, corresponding rentals due from October to November,
1949, plus the sum of P227.80, under the second cause of action, for electric consumption up to
November 30, 1949; plus the rents that will become due from December 1, 1949, at the rate
P5,000.00 per month until the date said defendant finally vacates and surrenders possession to
the plaintiff and costs of this suit. (Exhibit 3.)
Dikit appealed from this decision to the Court of First Instance of Manila, where the case was docketed as Civil
Case No. 11214 of said court. He likewise, applied, in the Supreme Court in Case G.R. No. L-3621, entitled
"Domingo Dikit vs. Hon Ramon Icasiano" for a writ of certiorari against the municipal judge who had
rendered the aforementioned decision in the ejectment case. Said cases No. 11214 and L-3621 were soon
dismissed, however, upon agreement of the parties, dated May 22, 1951, whereby Dikit, among other things,
relinquished whatever rights have to the possession of the leased premises and disclaimed all rights to and
over any and all improvements introduced therein while he was in possession thereof.
Prior to said decision, but after the commencement of the said Case No. 9708 Lao Chit had filed Civil Case
No. 10178 of the Court of First Instance of Manila, against Dikit and Silva, for the recovery of what was due
from them by reason of the aforementioned improvements introduced by Lao Chit. On June 30, 1953,
judgement was rendered in said Case No. 10178 the dispositive part of which reads as follows:
WHEREFORE, judgement is hereby rendered in favor of the plaintiff and against the defendants,
sentencing the latter to pay the former, jointly and severally, the sum of P59,365.00, which is the
total of the claim under the second, third and fourth causes of action, the same to be paid within 15
days from notice, with legal interest from the date of the filing of the complaint until its full payment;
and in the event the defendants fail to pay within the period of grace herein fixed, the fixtures
herein referred to (which by express agreement of the parties shall remain the plaintiff's property
until they are fully paid for) shall be returned to the plaintiff. The defendants shall also pay jointly
and severally the plaintiff by way of damages an amount equivalent to 12% of the aforementioned
sum of P59,365.00. The defendants shall likewise pay the plaintiff, jointly and severally, another
sum equivalent to 25% of the amounts claimed in the first and sixth causes of action, besides
amount claimed in the first and sixth causes of action, besides an amount equivalent to six (6%) of
the sums due and payable under the second and third causes of action as attorney's fees, with
costs against them. (Exhibit A.)
In due course, the corresponding writ of execution (Exhibits D-1 and D-3) of this judgment was subsequently
issued. Later on it was returned by the sheriff unsatisfied, with the statement that neither Dikit nor Silva had
any property registered in their respective names, and that the whereabouts of Silva was unknown (Exhibits D2 and D-4). Meanwhile, or on September 10, 1953, Lao Chit brought the present action against the Security
Bank and Trust Company (Hereafter referred to as the Bank), to which the lessor had, since July 1, 1951,
leased the premises in question (after it had been vacated by Silva), together with the fixtures and
improvements introduced therein by Lao Chit. In its complaint, Lao Chit demanded payment of P1,000 a
month, by way of rental for the use of said fixtures and improvements by the Bank, in addition to expenses of
litigation, attorney's fees and costs. In its answer, the Bank alleged that it held and used said improvements
pursuant to its contract of lease with the lessor and that it had paid the rentals due and complied with its other
obligations under said contract, and set up a counterclaim for damages. Soon thereafter, or on November 5,
1953, Lao Chit demanded payment of the aforementioned sum of P59,365, plus P1,000 a month from June,
1951, from the lessor, which did not heed the demand, whereupon the complaint herein was, on December 18,
1953, amended to include said lessor as one of the defendants. The latter alleged, in its answer, that the
improvements in question were introduced at the initiative and expense of Dikit and Silva, as lessees of the
premises above referred to, and that, as permanent fixtures, said improvements form an integral part of the
Consolidated Investments Building, and belong to the lessor and owner thereof, not to plaintiff herein, who has
no contractual or juridical relation with the lessor. The lessor, likewise, sought to recover, by way of
counterclaim, the sum of P50,000, as damages for its inclusion as defendant herein, aside from attorney's
fees and costs. In due course, the Court of First Instance of Manila rendered judgment on December 28, 1955,
the dispositive part of which reads:

WHEREFORE, judgment is hereby rendered, sentencing the defendant, Consolidated

Investments, Inc., to pay to the plaintiff the value of the permanent improvements in the sum of
P59,365.00, and, together with the defendant, Security Bank and Trust Company, to pay, jointly
and severally, for the use of the permanent improvements, at the rate of P1,000.00 monthly from
June, 1951 to July 31, 1954, and thereafter, until January, 1955, by the defendant, Consolidated
Investments, Inc., alone, at the same rate, and in both instances, plus legal interest until full
payment thereof; in addition, the defendant, Consolidated Investments, Inc., is further ordered to
pay to the plaintiff the amount equivalent to 80% of whatever amount is due from it, as
reimbursement for plaintiff's litigation expenses, including attorney's contingent fees, aside from
moral, nominal, moderate and exemplary damages in the amount of P2,000.00, and the costs of
suit.
Defendants' counterclaim are hereby both dismissed for lack of merits and in view of the above
conclusion of the Court.
Their respective motions for reconsideration and new trial having been denied, the defendants have appealed
from this decision.
It is apparent to us that the lower court erred in rendering judgment against the Bank. This defendant had
occupied and used the premises in question, including the partitions, fixtures and other improvements made
therein by Lao Chit, pursuant to a contract of lease entered into with lessor, the right of which to enter into said
contract is not disputed. Moreover, the Bank had paid the rentals and fulfilled its other obligations under said
contract. Again, it cannot be denied that the improvements introduced by Lao Chit became property of the
lessor, not only because such improvements are permanent in nature and cannot be removed without
impairing the building to which they were attached, but, also, because the contract of lease between Dikit and
Silva on the hand, and the lessor, on the other hand, provided explicitly that the latter shall own those
improvements "upon the expiration and/or rescission" of said contract, and the same has already been
resolved. Although Lao Chit was not a party to said contract, this stipulation is binding upon him, he having
introduced said improvements pursuant to his contract with Dikit, from whom he derived, therefore, his right to
enter the building and make the improvements. In short, insofar as the construction thereof, Lao Chit was, visa-vis the lessor, a mere agent or representative of Dikit and, as such, was privy to the undertakings of Dikit
under his contract of lease with the lessor.
The lower court held the latter liable to Lao Chit upon the ground that Lao Chit was a builder in good faith,
under the provisions of the Old Civil Code, and under the theory of undue enrichment.
As regards the first ground, Article 361 of the Civil Code of Spain, on which the lower court relied, provides:
The owner of land on which anything has been built, sown, or planted, in good faith, shall be
entitled to appropriate the thing so built, sown, or planted, upon paying the compensation
mentioned in Articles 453 and 454, or to compel the person who has built or planted to pay him the
value of the land, and the person who sowed thereon to pay the proper rent thereof.
It is well settled, however, that this provisions refers to one who builds upon a land which he believes to
be hisproperty (Alburo vs. Villanueva, 7 Phil., 277; Cortes vs. Ramon, 46 Phil., 184; Rivera vs. Trinidad, 48
Phil., 396; Fojas vs. Velasco, 51 Phil., 520; Montinola vs. Bantug, 71 Phil., 449-450; Lopez Inc. vs. Philippines
& Eastern Trading Co., Inc., 98 Phil., 348; 52 Off. Gaz., 1452). Neither Lao Chit, nor Dikit, claimed the
Consolidated Investments Building as his own. Dikit was a mere lessee and Lao Chit was his agent, as such,
in the construction of the improvements under consideration. In any event, the Spanish text of said Article 361,
which is the original, reads:
El dueo del terreno en que se edificare, sembrare o plantare de buena fe, tendra derecho a hacer
suya la obra, siembra o plantacion, previa la indemnizacion establecida en los articulos 453 y 454,
o a obligar al que edifico o planto a pagar el precio del terreno, y al que sembro, la renta
correspondiente. (Emphasis supplied.)

Clearly this provision is limited in its application to "buildings" constructed on another's land or "terreno", not to
partitions, railings, counters, shelves and other fixtures made in a building belonging to the owner of the land.
Although the verb "edificar" in Spanish is roughly synonymous with "build" in English, the latter is broader in its
connotation than the former. Literally, "edificar" is to undertake the construction of an edifice, such as a fort,
castle, house, church, market, tower, stadium, barrack, stable or other similar structure. Upon the other hand,
one may build a house, as well as a fence, partition, window, door, or even a desk or chair. It is apparent,
therefore, that Lao Chit is not entitled to the benefit of said Article 361.
The lower court, moreover, said:
. . . convincing evidence abounds, to wit: that the improvements were made in the presence of,
and with the knowledge and consent, and even under the personal supervision, on the part of the
duly authorized representative of the defendant, Consolidated Investments, Inc., which owns the
building. Thus, it may even be said that it was the defendant, Consolidated Investments Inc., which
had acted in bad faith. (Record on Appeal of Consolidated Investments, Inc., p. 56.)
and quoted, in support thereof, the second paragraph of Article 364 of the Spanish Civil Code, reading:
Bad faith on the part of the owner is deemed to exist whenever the act has been done in his
presence, with his knowledge and tolerance, and without opposition on his part.
The foregoing view is, likewise, untenable. To begin with, this Article 364, involves a person who builds, plants
or sows upon a land not knowing that it belongs to another. Inasmuch as, there is no contractual relation
between them, their rights are governed by law, not by contract.
Secondly, under his contract of lease with the lessor, Dikit had a legal right to make the improvements in
question and the lessor was legally bound to permit Dikit and his agent Lao Chit to enter the leased premises
and construct said improvements. Surely, compliance with this valid contractual obligation does not, and
cannot, constitute bad faith on the part of the lessor. Upon the other hand, the lessor could not legally object
to, or obstruct, the work done by Lao Chit, without being chargeable with bad faith in the performance of said
contractual obligation with Dikit.
In order to justify the application of the principle that no one should be permitted to unjustly enrich himself at
the expense of another, His Honor the Trial Judge cited Article 356 of the Civil Code of Spain, which provides:
He who receives fruits is obliged to pay any expenses which may have been incurred by another in
the production, gathering, and preservation thereof.
We agree with the lessor that this Article is not in point, for:
(a) Said provision is part of Section I, Chapter II, Title II, Book II, of the Spanish Civil Code, which section
regulates the "right of accession with respect to the products of property," and the work done and the
improvements introduced by Lao Chit are not "products" of the lessor's property.
(b) Said Article 356 refers to "expenses" of production, gathering and preservation" of fruits received by the
owner of the property, not to improvements, whereas the claim of Lao Chit is based upon "improvements"
introduced, not "expenses" incurred by him for the "production, gathering and preservation" of fruits. In the
language of Manresa:
. . . el Codigo exige el propietario pague al tercer poseedor que fue de la cosa los gastos de
produccion, y en su caso los de recoleccion y conservacion. El propietario no puede excusarse
alegando la mala fe del tercero, porque sea de buena o de mala fe, lo cierto es que este ha hecho
un gasto, no solo util para el propietario, sino necesario, y sin el cual el propietario no hubiera
obtenido frutos de su fundo, resultando ademas que, de no mediar indemnizacion, se consagraria
el injusto principio de que uno puede enriquecerse a costa y con dao de otro. Para afirmarse por

completo en esta opinion debe concordarse el articulo que comentamos con los 452 a 456,
relativos a los efectos de la posesion de buena y mala fe, y que no examinamos ahora porque el
asunto se trata luego con mas detalles.
Los gastos de produccion y demas, para que puedan conceptuarse reembolsables por el
propietario en el caso que suponemos, deben tener dos caracteres: primero, que esten dedicados
a la produccion anual; es decir, que no se trata en este supuesto de las bonificaciones generales
del fundo. Semejantes bonificaciones entran en la categoria de las mejoras, que se regulan en
otro lugar del Codigo (al tratar de la posesion), y segundo, que no sean superfluos, excesivos o de
puro lujo, sino que deben ser hechos en aquella medida natural que la condicion del cultivo o
trabajo de que se trata exige. (3 Manresa [6th ed.], 196; Emphasis supplied.)
(c) The right to recover under the principle of undue enrichment is justifiable under Article 1887 of the Spanish
Civil Code, reading:
Quasi contracts are licit and purely voluntary acts which create an obligation on the part of the
actor in favor of a third person, and, at times, a reciprocal obligation between the parties
concerned.
Its counterpart in the Civil Code of the Philippines is Article 2142, which we quote:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at the expense of another.
The former is part of Title XVI, Book IV of the Spanish Civil Code, entitled "obligations
incurred without contract", whereas the latter is included in Title XVII, Book IV of the Civil Code of the
Philippines, regulating "extra-contractual obligations" or obligations beyond, outside of, or outside the scope
of, a contract. The construction of the improvements in question was not a "purely voluntary act" or "unilateral
act" of Lao Chit. He introduced them in a compliance with a bilateral "obligation" he undertook under his
contract with Dikit. The right of Dikit to enter into such contract, in turn, sprang from his lease contract with the
lessor. As a privy to Dikit's rights under this contract, insofar as said improvements are concerned, Lao Chit's
title thereto, as against the lessor, is governed, therefore, by such contract of lease, not by any quasi-contract,
or by the principles of equity, as distinguished from law, contracts or quasi-contracts.
(d) For the principle of undue enrichment to apply, there must be "enrichment" and the same must be "undue"
or "unjust".
In the case at bar, Dikit failed to pay the agreed monthly rental of P5,000 from October, 1949. Up to July 1,
1951, when the premises in question were leased to the Bank, the rentals due from Dikit aggregated,
therefore, P105,000. Thus, despite the fact that the lessor had become the owner of the improvements in
question, worth P59,365.00, is still suffered a loss of over P45,000.00. Such "loss" negates the idea of
"enrichment". Neither may the latter be deemed to have taken place in the sense that said improvements had
increased the productive capacity of the leased premises, for, despite said improvements, the Bank agreed to
pay, beginning from July 1, 1951, only P4,000 a month, or P1,000 a month less than the rental stipulated with
Dikit.
Regardless of the foregoing, Lao Chit had no reason to believe and he does not claim to have acted under
the belief that Dikit owned the leased premises. In fact, the circumstances surrounding the case are such
as to leave the room for doubt that Lao Chit knew that Dikit was not the owner of said property and that the
same belonged to the lessor. Besides, Lao Chit should have known that, as Dikit's agent, in the construction of
the improvements, he (Lao Chit) was subject to the limitations imposed upon Dikit by his contract with the
lessor and that the improvements in question became property of the owner of the building, not only by
operation of law, as accessions to said building, but, also, for specific stipulation in the contract of lease
between Dikit and the lessor. Inasmuch as the acquisition of said improvements by the owner of the building
and lessor is ordained by law and provided for by said contract, which is admittedly valid, the resulting
enrichment if any by said owner and lessor, is neither "undue" nor "unjustly".

Upon the other hand, he had been reasonably vigilant, Lao Chit could have demanded from Dikit a mortgage,
or a bond, or some other security, for the protection of his rights, yet he (Lao Chit) did not do so. Should the
lessor be required to pay Lao Chit what he is entitled to recover from Dikit, but which he (Lao Chit) cannot
due to his oversight, carelessness or negligence collect from Dikit, the effect would be to relieve Lao Chit of
the consequences of his own inadvertence or negligence, and hold the lessor responsible therefor. This would
be neither fair, nor just, nor equitable.
Lastly, the lower court declared that the improvements in question belong to Lao Chit, because it had been so
held in Case No. 10718 instituted by him against Dikit and Silva. Obviously, however, the proceedings in that
case and the decision therein rendered are not binding upon the lessor, the same being neither a party in said
case, nor a successor to the interest of the defendants therein. Besides, the aforementioned finding is not
borne out by Lao Chit's contract with Dikit and Silva (Exhibits A-1, A-2, A-2-a and A-3). Indeed, even if Dikit
and Silva had agreed with Lao Chit and they had no such agreement that he would own the
improvements until payment of the price thereof, the stipulation would be, neither valid, nor binding upon the
lessor, for Dikit and Silva had no authority whatsoever to waive the statutory right of accession of the lessor to
and over said improvements (Arts. 353 and 358, Civil Code of Spain; Arts. 440 and 445, Civil Code of the
Philippines).
Wherefore, the decision appealed from is hereby reversed and another one shall be entered dismissing the
complaint, with costs against plaintiff-appellee Lao Chit. It is so ordered.

ROMERO, J.:
Rarely is this Court confronted with a case calling for the delineation in broad strokes of the distinctions
between such closely allied concepts as the quasi-contract called "solutio indebiti" under the venerable
Spanish Civil Code and the species of implied trust denominated "constructive trusts," commonly regarded as
of Anglo-American origin. Such a case is the one presented to us now which has highlighted more of the
affinity and less of the dissimilarity between the two concepts as to lead the legal scholar into the error of
interchanging the two. Presented below are the factual circumstances that brought into juxtaposition the twin
institutions of the Civil Law quasi-contract and the Anglo-American trust.
Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing goods and
services to shipping companies. Since 1966, it has acted as a manning or crewing agent for several foreign
firms, one of which is Star Kist Foods, Inc., USA (Star Kist). As part of their agreement, Mata makes advances
for the crew's medical expenses, National Seaman's Board fees, Seaman's Welfare fund, and standby fees
and for the crew's basic personal needs. Subsequently, Mata sends monthly billings to its foreign principal Star
Kist, which in turn reimburses Mata by sending a telegraphic transfer through banks for credit to the latter's
account.
Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los Angeles which
had an agency arrangement with Philippine National Bank (PNB), transmitted a cable message to the
International Department of PNB to pay the amount of US$14,000 to Mata by crediting the latter's account with
the Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon receipt of this cabled message on
February 24, 1975, PNB's International Department noticed an error and sent a service message to SEPAC
Bank. The latter replied with instructions that the amount of US$14,000 should only be for US$1,400.
On the basis of the cable message dated February 24, 1975 Cashier's Check No. 269522 in the amount of
US$1,400 (P9,772.95) representing reimbursement from Star Kist, was issued by the Star Kist for the account
of Mata on February 25, 1975 through the Insular Bank of Asia and America (IBAA).
However, fourteen days after or on March 11, 1975, PNB effected another payment through Cashier's Check
No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another transmittal of reimbursement
from Star Kist, private respondent's foreign principal.
Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of US$14,000
(P97,878.60) after it discovered its error in effecting the second payment.
On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata arguing that
based on a constructive trust under Article 1456 of the Civil Code, it has a right to recover the said amount it
erroneously credited to respondent Mata. 1

G.R. No. 97995 January 21, 1993

PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS AND B.P. MATA AND CO., INC., respondents.
Roland A. Niedo for petitioner.
Benjamin C. Santos Law Office for respondent.

After trial, the Regional Trial Court of Manila rendered judgment dismissing the complaint ruling that the instant
case falls squarely under Article 2154 on solutio indebiti and not under Article 1456 on constructive trust. The
lower court ruled out constructive trust, applying strictly the technical definition of a trust as "a right of property,
real or personal, held by one party for the benefit of another; that there is a fiduciary relation between a trustee
and a cestui que trust as regards certain property, real, personal, money or choses in action." 2
In affirming the lower court, the appellate court added in its opinion that under Article 2154 on solutio indebiti,
the person who makes the payment is the one who commits the mistake vis-a-vis the recipient who is
unaware of such a mistake. 3 Consequently, recipient is duty bound to return the amount paid by mistake. But
the appellate court concluded that petitioner's demand for the return of US$14,000 cannot prosper because its
cause of action had already prescribed under Article 1145, paragraph 2 of the Civil Code which states:
The following actions must be commenced within six years:

xxx xxx xxx

(2) Upon a quasi-contract.
This is because petitioner's complaint was filed only on February 4, 1982, almost seven years after
March 11, 1975 when petitioner mistakenly made payment to private respondent.
Hence, the instant petition for certiorari proceeding seeking to annul the decision of the appellate court on the
basis that Mata's obligation to return US$14,000 is governed, in the alternative, by either Article 1456 on
constructive trust or Article 2154 of the Civil Code on quasi-contract. 4
Article 1456 of the Civil Code provides:
If property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person from whom
the property comes.
On the other hand, Article 2154 states:
If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
Petitioner naturally opts for an interpretation under constructive trust as its action filed on February 4, 1982
can still prosper, as it is well within the prescriptive period of ten (10) years as provided by Article 1144,
paragraph 2 of the Civil Code. 5
If it is to be construed as a case of payment by mistake or solutio indebiti, then the prescriptive period for
quasi-contracts of six years applies, as provided by Article 1145. As pointed out by the appellate court,
petitioner's cause of action thereunder shall have prescribed, having been brought almost seven years after
the cause of action accrued. However, even assuming that the instant case constitutes a constructive trust and
prescription has not set in, the present action has already been barred by laches.
To recall, trusts are either express or implied. While express trusts are created by the intention of the trustor or
of the parties, implied trusts come into being by operation of law. 6 Implied trusts are those which, without
being expressed, are deducible from the nature of the transaction as matters of intent or which are
superinduced on the transaction by operation of law as matters of equity, independently of the particular
intention of the parties. 7
In turn, implied trusts are subdivided into resulting and constructive trusts. 8 A resulting trust is a trust raised by
implication of law and presumed always to have been contemplated by the parties, the intention of which is
found in the nature of the transaction, but not expressed in the deed or instrument of conveyance. 9 Examples
of resulting trusts are found in Articles 1448 to 1455 of the Civil Code. 10 On the other hand, a constructive trust
is one not created by words either expressly or impliedly, but by construction of equity in order to satisfy the
demands of justice. An example of a constructive trust is Article 1456 quoted above. 11
A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense 12 for in a typical trust,
confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui
que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. 13 A
constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an
express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust,
there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any
trust nor intends holding the property for the beneficiary. 14

In the case at bar, Mata, in receiving the US$14,000 in its account through IBAA, had no intent of holding the
same for a supposed beneficiary or cestui que trust, namely PNB. But under Article 1456, the law construes a
trust, namely a constructive trust, for the benefit of the person from whom the property comes, in this case
PNB, for reasons of justice and equity.
At this juncture, a historical note on the codal provisions on trust and quasi-contracts is in order.
Originally, under the Spanish Civil Code, there were only two kinds of quasi contracts: negotiorum
gestio andsolutio indebiti. But the Code Commission, mindful of the position of the eminent Spanish jurist,
Manresa, that "the number of quasi contracts may be indefinite," added Section 3 entitled "Other QuasiContracts." 15
Moreover, even as Article 2142 of the Civil Code defines a quasi-contract, the succeeding article provides that:
"The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come
within the purview of the preceding article." 16
Indubitably, the Civil Code does not confine itself exclusively to the quasi-contracts enumerated from Articles
2144 to 2175 but is open to the possibility that, absent a pre-existing relationship, there being neither crime
nor quasi-delict, a quasi-contractual relation may be forced upon the parties to avoid a case of unjust
enrichment. 17 There being no express consent, in the sense of a meeting of minds between the parties, there
is no contract to speak of. However, in view of the peculiar circumstances or factual environment, consent is
presumed to the end that a recipient of benefits or favors resulting from lawful, voluntary and unilateral acts of
another may not be unjustly enriched at the expense of another.
Undoubtedly, the instant case fulfills the indispensable requisites of solutio indebiti as defined in Article 2154
that something (in this case money) has been received when there was no right to demand it and (2) the same
was unduly delivered through mistake. There is a presumption that there was a mistake in the payment "if
something which had never been due or had already been paid was delivered; but he from whom the return is
claimed may prove that the delivery was made out of liberality or for any other just cause." 18
In the case at bar, a payment in the corrected amount of US$1,400 through Cashier's Check No. 269522 had
already been made by PNB for the account of Mata on February 25, 1975. Strangely, however, fourteen days
later, PNB effected another payment through Cashier's Check No. 270271 in the amount of US$14,000, this
time purporting to be another transmittal of reimbursement from Star Kist, private respondent's foreign
principal.
While the principle of undue enrichment or solutio indebiti, is not new, having been incorporated in the subject
on quasi-contracts in Title XVI of Book IV of the Spanish Civil Code entitled "Obligations incurred without
contract," 19the chapter on Trusts is fairly recent, having been introduced by the Code Commission in 1949.
Although the concept of trusts is nowhere to be found in the Spanish Civil Code, the framers of our present
Civil Code incorporated implied trusts, which includes constructive trusts, on top of quasi-contracts, both of
which embody the principle of equity above strict legalism. 20
In analyzing the law on trusts, it would be instructive to refer to Anglo-American jurisprudence on the subject.
Under American Law, a court of equity does not consider a constructive trustee for all purposes as though he
were in reality a trustee; although it will force him to return the property, it will not impose upon him the
numerous fiduciary obligations ordinarily demanded from a trustee of an express trust. 21 It must be borne in
mind that in an express trust, the trustee has active duties of management while in a constructive trust, the
duty is merely to surrender the property.
Still applying American case law, quasi-contractual obligations give rise to a personal liability ordinarily
enforceable by an action at law, while constructive trusts are enforceable by a proceeding in equity to compel
the defendant to surrender specific property. To be sure, the distinction is more procedural than substantive. 22
Further reflection on these concepts reveals that a constructive "trust" is as much a misnomer as a "quasicontract," so far removed are they from trusts and contracts proper, respectively. In the case of a constructive

trust, as in the case of quasi-contract, a relationship is "forced" by operation of law upon the parties, not
because of any intention on their part but in order to prevent unjust enrichment, thus giving rise to certain
obligations not within the contemplation of the parties. 23

PADCOM CONDOMINIUM CORPORATION, petitioner,

vs.
ORTIGAS CENTER ASSOCIATION, INC., respondent.

Although we are not quite in accord with the opinion that "the trusts known to American and English equity
jurisprudence are derived from the fidei commissa of the Roman Law," 24 it is safe to state that their roots are
firmly grounded on such Civil Law principles are expressed in the Latin maxim, "Nemo cum alterius detrimento
locupletari potest,"25 particularly the concept of constructive trust.

DAVIDE, JR., C.J.:

Returning to the instant case, while petitioner may indeed opt to avail of an action to enforce a constructive
trust or the quasi-contract of solutio indebiti, it has been deprived of a choice, for prescription has effectively
blocked quasi-contract as an alternative, leaving only constructive trust as the feasible option.
Petitioner argues that the lower and appellate courts cannot indulge in semantics by holding that in Article
1456 the recipient commits the mistake while in Article 2154, the recipient commits no mistake. 26 On the other
hand, private respondent, invoking the appellate court's reasoning, would impress upon us that under Article
1456, there can be no mutual mistake. Consequently, private respondent contends that the case at bar is one
of solutio indebiti and not a constructive trust.
We agree with petitioner's stand that under Article 1456, the law does not make any distinction since mutual
mistake is a possibility on either side on the side of either the grantor or the grantee. 27 Thus, it was error to
conclude that in a constructive trust, only the person obtaining the property commits a mistake. This is
because it is also possible that a grantor, like PNB in the case at hand, may commit the mistake.
Proceeding now to the issue of whether or not petitioner may still claim the US$14,000 it erroneously paid
private respondent under a constructive trust, we rule in the negative. Although we are aware that only seven
(7) years lapsed after petitioner erroneously credited private respondent with the said amount and that under
Article 1144, petitioner is well within the prescriptive period for the enforcement of a constructive or implied
trust, we rule that petitioner's claim cannot prosper since it is already barred by laches. It is a well-settled rule
now that an action to enforce an implied trust, whether resulting or constructive, may be barred not only by
prescription but also by laches. 28
While prescription is concerned with the fact of delay, laches deals with the effect of unreasonable delay. 29 It is
amazing that it took petitioner almost seven years before it discovered that it had erroneously paid private
respondent. Petitioner would attribute its mistake to the heavy volume of international transactions handled by
the Cable and Remittance Division of the International Department of PNB. Such specious reasoning is not
persuasive. It is unbelievable for a bank, and a government bank at that, which regularly publishes its
balanced financial statements annually or more frequently, by the quarter, to notice its error only seven years
later. As a universal bank with worldwide operations, PNB cannot afford to commit such costly mistakes.
Moreover, as between parties where negligence is imputable to one and not to the other, the former must
perforce bear the consequences of its neglect. Hence, petitioner should bear the cost of its own negligence.

Challenged in this case is the 30 June 2000 decision 1 of the Court of Appeals in CA-G.R. CV No. 60099,
reversing and setting aside the 1 September 1997 decision 2 of the Regional Trial Court of Pasig City, Branch
264, in Civil Case No. 63801.3
Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the Padilla Office
Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas Center, Pasig City. The land
on which the building stands was originally acquired from the Ortigas & Company, Limited Partnership
(OCLP), by Tierra Development Corporation (TDC) under a Deed of Sale dated 4 September 1974. Among the
terms and conditions in the deed of sale was the requirement that the transferee and its successor-in-interest
must become members of an association for realty owners and long-term lessees in the area later known as
the Ortigas Center. Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in
favor of PADCOM in a Deed of Transfer dated 25 February 1975. 4
In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized to advance the
interests and promote the general welfare of the real estate owners and long-term lessees of lots in the
Ortigas Center. It sought the collection of membership dues in the amount of two thousand seven hundred
twenty-four pesos and forty centavos (P2,724.40) per month from PADCOM. The corporate books showed
that PADCOM owed the Association P639,961.47, representing membership dues, interests and penalty
charges from April 1983 to June 1993.5 The letters exchanged between the parties through the years showed
repeated demands for payment, requests for extensions of payment, and even a settlement scheme proposed
by PADCOM in September 1990.
In view of PADCOMs failure and refusal to pay its arrears in monthly dues, including interests and penalties
thereon, the Association filed a complaint for collection of sum of money before the trial court below, which
was docketed as Civil Case No. 63801. The Association averred that purchasers of lands within the Ortigas
Center complex from OCLP are obligated under their contracts of sale to become members of the Association.
This obligation was allegedly passed on to PADCOM when it bought the lot from TDC, its predecessor-ininterest.6
In its answer, PADCOM contended that it is a non-stock, non-profit association, and for it to become a special
member of the Association, it should first apply for and be accepted for membership by the latters Board of
Directors. No automatic membership was apparently contemplated in the Associations By-laws. PADCOM
added that it could not be compelled to become a member without violating its right to freedom of association.
And since it was not a member of the Association, it was not liable for membership dues, interests and
penalties.7

WHEREFORE, the decision of the Court of Appeals dismissing petitioner's claim against private respondent is
AFFIRMED.

During the trial, the Association presented its accountant as lone witness to prove that PADCOM was, indeed,
one of its members and, as such, did not pay its membership dues.1wphi1.nt

Costs against petitioner.

PADCOM, on the other hand, did not present its evidence; instead it filed a motion to dismiss by way of
demurrer to evidence. It alleged that the facts established by the Association showed no right to the relief
prayed for. It claimed that the provisions of the Associations By-laws and the Deed of Transfer did not
contemplate automatic membership. Rather, the owner or long-term lessee becomes a member of the
Association only after applying with and being accepted by its Board of Directors. Assuming further that
PADCOM was a member of the Association, the latter failed to show that the collection of monthly dues was a
valid corporate act duly authorized by a proper resolution of the Associations Board of Directors. 8

SO ORDERED.

G.R. No. 146807

May 9, 2002

After due consideration of the issues raised in the motion to dismiss, the trial court rendered a decision
dismissing the complaint.9

The Association appealed the case to the Court of Appeals, which docketed the appeal as CA-G.R. CV No.
60099. In its decision10 of 30 June 2000, the Court of Appeals reversed and set aside the trial courts dismissal
of Civil Case No. 63801, and decreed as follows:
WHEREFORE, the appealed decision dated September 1, 1997
is REVERSED and SET ASIDE and, in lieu thereof, a new one is entered ordering the appellee
(PADCOM) to pay the appellant (the Association) the following:

The Association likewise asserts that membership therein requires the payment of certain amounts for its
operations and activities, as may be authorized by its Board of Directors. The membership dues are for the
common expenses of the homeowners for necessary services.
After a careful examination of the records of this case, the Court sees no reason to disturb the assailed
decision. The petition should be denied.
Section 44 of Presidential Decree No. 152911 mandates that:

1) P639,961.47 as and for membership dues in arrears inclusive of earned interests and penalties;
and
2) P25,000.00 as and for attorneys fees.
Costs against the appellees.
SO ORDERED.
The Court of Appeals justified its ruling by declaring that PADCOM automatically became a member of the
Association when the land was sold to TDC. The intent to pass the obligation to prospective transferees was
evident from the annotation of the same clause at the back of the Transfer Certificate of Title covering the lot.
Despite disavowal of membership, PADCOMs membership in the Association was evident from these facts:
(1) PADCOM was included in the Associations list of bona fide members as of 30 March 1995; (2) Narciso
Padilla, PADCOMs President, was one of the Associations incorporators; and (3) having received the
demands for payment, PADCOM not only acknowledged them, but asked for and was granted repeated
extensions, and even proposed a scheme for the settlement of its obligation. The Court of Appeals also ruled
that PADCOM cannot evade payment of its obligation to the Association without violating equitable principles
underlying quasi-contracts. Being covered by the Associations avowed purpose to promote the interests and
welfare of its members, PADCOM cannot be allowed to expediently deny and avoid the obligation arising from
such membership.
Dissatisfied with the adverse judgment of the Court of Appeals, PADCOM filed the petition for review in this
case. It raises the sole issue of whether it can be compelled to join the association pursuant to the provision
onautomatic membership appearing as a condition in the Deed of Sale of 04 September 1974 and the
annotation thereof on Transfer Certificate of Title No. 457308.
PADCOM contends that it cannot be compelled to be a member of the Association solely by virtue of the
"automatic membership" clause that appears on the title of the property and the Deed of Transfer. In 1975,
when it bought the land, the Association was still inexistent. Therefore, the provision on automatic membership
was anticipatory in nature, subject to the actual formation of the Association and the subsequent formulation of
its implementing rules.
PADCOM likewise maintains that the Associations By-laws requires an application for membership. Since it
never sought membership, the Court of Appeals erred in concluding that it was a member of the Association
by implication. Aside from the lack of evidence proving such membership, the Association has no basis to
collect monthly dues since there is no board resolution defining and prescribing how much should be paid.
For its part, the Association claims that the Deed of Sale between OCLP and TDC clearly stipulates automatic
membership for the owners of lots in the Ortigas Center, including their successors-in-interest. The filing of
applications and acceptance thereof by the Board of Directors of the Association are, therefore, mere
formalities that can be dispensed with or waived. The provisions of the Associations By-laws cannot in any
manner alter or modify the automatic membership clause imposed on a property owner by virtue of an
annotation of encumbrance on his title.

SEC. 44. Statutory liens affecting title. Every registered owner receiving a certificate of title in
pursuance of a decree of registration, and every subsequent purchaser of registered land taking a
certificate of title for value and in good faith, shall hold the same free from all encumbrances
except those noted on said certificate and any of the following encumbrances which may be
subsisting, namely: xxx
Under the Torrens system of registration, claims and liens of whatever character, except those mentioned by
law, existing against the land binds the holder of the title and the whole world. 12
It is undisputed that when the land in question was bought by PADCOMs predecessor-in-interest, TDC, from
OCLP, the sale bound TDC to comply with paragraph (G) of the covenants, conditions and restrictions of the
Deed of Sale, which reads as follows: 13
G. AUTOMATIC MEMBERSHIP WITH THE ASSOCIATION:
The owner of this lot, its successor-in-interest hereby binds himself to become a member of the
ASSOCIATION which will be formed by and among purchasers, fully paid up Lot BUYERS,
Building Owners and the COMPANY in respect to COMPANY OWNED LOTS.
The OWNER of this lot shall abide by such rules and regulations that shall be laid down by the
ASSOCIATION in the interest of security, maintenance, beautification and general welfare of the
OFFICE BUILDING zone. The ASSOCIATION when organized shall also, among others, provide
for and collect assessments which shall constitute a lien on the property, junior only to liens of the
Government for taxes.
Evidently, it was agreed by the parties that dues shall be collected from an automatic member and such fees
or assessments shall be a lien on the property.
This stipulation was likewise annotated at the back of Transfer Certificate of Title No. 457308 issued to
TDC.14And when the latter sold the lot to PADCOM on 25 February 1975, the Deed of Transfer expressly
stated:15
NOW, THEREFORE, for and in consideration of the foregoing premises, the DEVELOPER, by
these presents, cedes, transfers and conveys unto the CORPORATION the above-described
parcel of land evidenced by Transfer Certificate of Title No. 457308, as well as the Common and
Limited Common Areas of the Condominium project mentioned and described in the Master Deed
with Declaration of Restrictions (Annex "A" hereof), free from all liens and encumbrances, except
those already annotated at the back of said Transfer Certificate of Title No. 457308, xxx
This is so because any lien annotated on previous certificates of title should be incorporated in or carried over
to the new transfer certificates of title. Such lien is inseparable from the property as it is a right in rem, a
burden on the property whoever its owner may be. It subsists notwithstanding a change in ownership; in short,
the personality of the owner is disregarded. 16 As emphasized earlier, the provision on automatic membership
was annotated in the Certificate of Title and made a condition in the Deed of Transfer in favor of PADCOM.
Consequently, it is bound by and must comply with the covenant.1wphi1.nt

Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties, their assigns
and heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the stipulation on automatic
membership with the Association is also binding on the former.
We are not persuaded by PADCOMs contention that the By-laws of the Association requires application for
membership and acceptance thereof by the Board of Directors. Section 2 of the By-laws 17 reads:

another; or (3) one must do unto others what he would want others to do unto him under the same
circumstances.19
As resident and lot owner in the Ortigas area, PADCOM was definitely benefited by the Associations acts and
activities to promote the interests and welfare of those who acquire property therein or benefit from the acts or
activities of the Association.1wphi1.nt

Section 2. Regular Members. Upon acceptance by the Board of Directors of Ortigas Center
Association, Inc., all real estate owners, or long-term lessees of lots within the boundaries of the
Association as defined in the Articles of Incorporation become regular members, provided,
however that the long-term lessees of a lot or lots in said area shall be considered as the regular
members in lieu of the owners of the same. Likewise, regular membership in the Association
automatically ceases upon the cessation of a member to be an owner or long-term lessee of real
estate in the area.

Finally, PADCOMs argument that the collection of monthly dues has no basis since there was no board
resolution defining how much fees are to be imposed deserves scant consideration. Suffice it is to say that
PADCOM never protested upon receipt of the earlier demands for payment of membership dues. In fact, by
proposing a scheme to pay its obligation, PADCOM cannot belatedly question the Associations authority to
assess and collect the fees in accordance with the total land area owned or occupied by the members, which
finds support in a resolution dated 6 November 1982 of the Associations incorporating directors 20 and Section
2 of its By-laws.21

A lessee shall be considered a long-term lessee if his lease is in writing and for a period of two (2)
years or more. Membership of a long-term lessee in the Association shall be co-terminus with his
legal possession (or his lease) of the lot/s in the area. Upon the lessees cessation of membership
in the Association, the owner shall automatically succeed the lessee as member thereat.

WHEREFORE, the petition is hereby DENIED for lack of merit.

As lot owner, PADCOM is a regular member of the Association. No application for membership is necessary. If
at all, acceptance by the Board of Directors is a ministerial function considering that PADCOM is deemed to be
a regular member upon the acquisition of the lot pursuant to the automatic membership clause annotated in
the Certificate of Title of the property and the Deed of Transfer.
Neither are we convinced by PADCOMs contention that the automatic membership clause is a violation of its
freedom of association. PADCOM was never forced to join the association. It could have avoided such
membership by not buying the land from TDC. Nobody forced it to buy the land when it bought the building
with the annotation of the condition or lien on the Certificate of Title thereof and accepted the Deed. PADCOM
voluntarily agreed to be bound by and respect the condition, and thus to join the Association.
In addition, under the principle of estoppel, PADCOM is barred from disclaiming membership in the
Association. In estoppel, a person, who by his act or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby causes
loss or injury to another.18
We agree with the Court of Appeals conclusion from the facts or circumstances it enumerated in its decision
and enumerated above that PADCOM is, indeed, a regular member of the Association. These facts and
circumstances are sufficient grounds to apply the doctrine of estoppel against PADCOM.
Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues incidental thereto.
Article 1159 of the Civil Code mandates:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.
Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade payment
without violating the equitable principles underlying quasi-contracts. Article 2142 of the Civil Code provides:
Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasicontract to the end that no one shall be unjustly enriched or benefited at the expense of another.
Generally, it may be said that a quasi-contract is based on the presumed will or intent of the obligor dictated by
equity and by the principles of absolute justice. Examples of these principles are: (1) it is presumed that a
person agrees to that which will benefit him; (2) nobody wants to enrich himself unjustly at the expense of

Costs against petitioner.

SO ORDERED.
G.R. No. 82670 September 15, 1989
DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL,"petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.
Roque A. Tamayo for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the
doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV, Quezon City by
deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers
was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time remitted certain
amounts of money to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter
referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation
to effect the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB
with private respondent. Although private respondent was able to send a telex to PNB to pay petitioner

$10,000.00 through the Pilipinas Bank, where petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was only "Wearing Apparel." Upon query by PNB,
private respondent sent PNB another telex dated August 27, 1980 stating that the payment was to be made to
"Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through
Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the delay and at the same time amended
its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the remittance
of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.

Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable.
This legal provision, which determines the quasi-contract of solution indebiti, is one of
the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et injuria
fieri locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Such axiom has grown through the centuries in
legislation, in the science of law and in court decisions. The lawmaker has found it one
of the helpful guides in framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464, 647,
648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This timehonored aphorism has also been adopted by jurists in their study of the conflict of
rights. It has been accepted by the courts, which have not hesitated to apply it when
the exigencies of right and equity demanded its assertion. It is a part of that affluent
reservoir of justice upon which judicial discretion draws whenever the statutory laws
are inadequate because they do not speak or do so with a confused voice. [at p. 632.]

Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through PCIB.
However, when FNSB discovered that private respondent had made a duplication of the remittance, it asked
for a recredit of its account in the amount of $10,000.00. Private respondent complied with the request.

For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to
do so; and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110
Phil. 558, 563 (1960)].

Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter refused
to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV, Quezon City which
was decided in favor of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance was made not by mistake but by negligence and
petitioner was not unjustly enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held
that Art. 2154 is applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals'
decision reads as follows:

It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner
contends that the doctrine of solutio indebiti, does not apply because its requisites are absent.

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and
another one entered in favor of plaintiff-appellant and against defendant-appellee
Domelita (sic) M. Andres, doing business under the name and style "Irene's Wearing
Apparel" to reimburse and/or return to plaintiff-appellant the amount of $10,000.00, its
equivalent in Philippine currency, with interests at the legal rate from the filing of the
complaint on May 12, 1982 until the whole amount is fully paid, plus twenty percent
(20%) of the amount due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the
right to recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue
would hinge on the applicability of Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through
an error, has been unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature
of this article thus:

First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00
remittance. It is alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables
from FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last
$10,000.00 remittance being in payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was
the latter and not private respondent which was indebted to petitioner. On the other hand, the contract for the
transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB.
Petitioner, although named as the payee was not privy to the contract of remittance of dollars. Neither was
private respondent a party to the contract of sale between petitioner and FACETS. There being no contractual
relation between them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake
by private respondent to the outstanding account of FACETS.
Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not
made by mistake but was the result of negligence of its employees. In connection with this the Court of
Appeals made the following finding of facts:
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the
written interrogatories sent to the First National State Bank of New Jersey through the
Consulate General of the Philippines in New York, Adelaide C. Schachel, the
investigation and reconciliation clerk in the said bank testified that a request to remit a
payment for Facet Funwear Inc. was made in August, 1980. The total amount which
the First National State Bank of New Jersey actually requested the plaintiff-appellant
Manufacturers Hanover & Trust Corporation to remit to Irene's Wearing Apparel was
US $10,000.00. Only one remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is borne out by
the fact that both remittances have the same reference invoice number which is 263
80. (Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr.
Stanley Panasow").

Plaintiff-appellant made the second remittance on the wrong assumption that

defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo, pp.
26-27.]

SO ORDERED.

It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner
would have this Court review. The Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial evidence, is final and conclusive.
The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA
138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for
certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and
revising the errors of law imputed to it, its findings of fact being conclusive" [Chan v.
Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long
line of decisions]. This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court"
[Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court
of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore,
a showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such
findings must stand, for this Court is not expected or required to examine or contrast
the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. v.
Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the
loss.
The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a
case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v.
Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the
Court in the case of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129,
citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:
... The common law principle that where one of two innocent persons must suffer by a
fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a
case which is covered by an express provision of the new Civil Code, specifically
Article 559. Between a common law principle and a statutory provision, the latter must
prevail in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the
case at bar, the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the time
the second $10,000.00 remittance was made, five hundred and ten days had elapsed before private
respondent demanded the return thereof. Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.

TITAN-IKEDA CONSTRUCTION
& DEVELOPMENT
CORPORATION,
Petitioner,

G.R. No. 158768

Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and

-v e r s u s-

LEONARDO-DE CASTRO, JJ.

PRIMETOWN PROPERTY
GROUP, INC.,
Respondent.

Promulgated:
February 12, 2008

x--------------------------------------------------x
DECISION
CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision of the Court of Appeals (CA) in CAG.R. CV No. 61353[2] and its resolution[3] denying reconsideration.
In 1992, respondent Primetown Property Group, Inc. awarded the contract for the structural works [4] of
its 32-storey Makati Prime Tower (MPT) to petitioner Titan-Ikeda Construction and Development Corporation.
[5]
The parties formalized their agreement in a construction contract [6]dated February 4, 1993.[7]
Upon the completion of MPT's structural works, respondent awarded the P130,000,000 contract for the
tower's architectural works[8] (project) to petitioner. Thus, on January 31, 1994, the parties executed a
supplemental agreement.[9] The salient portions thereof were:
1.

2.

the [project] shall cover the scope of work of the detailed construction bid
plans and specifications and bid documents dated 28 September 1993,
attached and forming an integral part hereof as Annex A.
the contract price for the said works shall be P130 million.

3.

the payment terms shall be full swapping or full payment in

condominium units. The condominium units earmarked for the [petitioner]
are shown in the attached Annex B.

4.

the [respondent] shall transfer and surrender to [petitioner] the

condominium units abovestated in accordance with the following schedule:

5.

(a)

80% of units upon posting and acceptance by [respondent]

of the performance bond [and]

(b)

20% or remaining balance upon completion of the project as

provided in the construction contract and simultaneous with the
posting by [petitioner] of the reglementary guarantee bond.

On February 19, 1996, petitioner sent a second letter to respondent demanding P2,023,876.25. This
new figure included the cost of materials (P244,331.40) petitioner advanced from December 5, 1995 to
January 26, 1996.[26]
On November 22, 1996, petitioner demanded from respondent the delivery of MPT's management
certificate[27] and the keys to the condominium units and the payment of its (respondent's) balance. [28]
Because respondent ignored petitioner's demand, petitioner, on December 9, 1996, filed a complaint for
specific performance[29] in the Housing and Land Use Regulatory Board (HLURB).

the contract period shall be fifteen (15) months reckoned from the release
of the condominium certificates of title (CCTs) covering eighty percent
(80%) of the units transferable to [petitioner] as aforesaid[.]

While the complaint for specific performance was pending in the HLURB, respondent sent a demand
letter to petitioner asking it to reimburse the actual costs incurred in finishing the project (or P69,785,923.47).
[30]
In view of the pendency of the HLURB case, petitioner did not heed respondent's demands.

Significantly, the supplemental agreement adopted those provisions of the construction contract which it
did not specifically discuss or provide for.[10] Among those carried over was the designation of GEMM
Construction Corporation (GEMM) as the project's construction manager.[11]
Petitioner started working on the project in February 1994.
On June 30, 1994, respondent executed a deed of sale [12] (covering 114 condominium units and 20
parking slots of the MPT collectively valued by the parties at P112,416,716.88)[13] in favor of petitioner pursuant
to the full-swapping payment provision of the supplemental agreement.
Shortly thereafter, petitioner sold some of its units to third persons. [14]
In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an engineering
consultancy firm, to evaluate the progress of the project. [15] In its September 7, 1995 report, [16]ITI informed
respondent that petitioner, at that point, had only accomplished 31.89% of the project (or was 11 months and
six days behind schedule).[17]
Meanwhile, petitioner and respondent were discussing the possibility of the latters take over of the
projects supervision. Despite ongoing negotiations, respondent did not obtain petitioners consent in hiring ITI
as the projects construction manager. Neither did it inform petitioner of ITIs September 7, 1995 report.
On October 12, 1995, petitioner sought to confirm respondent's plan to take over the project.
stated:

[18]

Its letter

The mutual agreement arrived at sometime in the last week of August

1995 for [respondent] to take over the construction supervision of the balance of the
[project] from [petitioner's] [e]ngineering staff and complete [the] same by December
31, 1995 as promised by [petitioner's] engineer.

On April 29, 1997, the HLURB rendered a decision in favor of petitioner. [31] It ruled that the instrument
executed on June 30, 1994 was a deed of absolute sale because the conveyance of the condominium units
and parking slots was not subject to any condition. [32] Thus, it ordered respondent to issue MPTs
management certificate and to deliver the keys to the condominium units to petitioner. [33] Respondent did not
appeal this decision. Consequently, a writ of execution was issued upon its finality. [34]
Undaunted by the finality of the HLURB decision, respondent filed a complaint for collection of sum
of money[35] against petitioner in the Regional Trial Court (RTC) of Makati City, Branch 58 on July 2, 1997. It
prayed for the reimbursement of the value of the projects unfinished portion amounting to P66,677,000.[36]
During trial, the RTC found that because respondent modified the MPT's architectural design, petitioner
had to adjust the scope of work. [37] Moreover, respondent belatedly informed petitioner of those modifications.
It also failed to deliver the concrete mix and rebars according to schedule. For this reason, petitioner was not
responsible for the project's delay.[38] The trial court thus allowed petitioner to set-off respondent's other
outstanding liabilities with respondents excess payment in the project. [39] It concluded that respondent owed
petitioner P2,023,876.25.[40] In addition, because respondent refused to deliver the keys to the condominium
units and the management certificate to petitioner, the RTC found that petitioner lost rental income amounting
to US$1,665,260.[41] The dispositive portion of the RTC decision stated:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
dismissing [respondent's] [c]omplaint for lack of merit. On the other hand, finding
preponderance of evidence to sustain [petitioner's] counterclaim, judgment is hereby
rendered in favor of [petitioner] ordering [respondent] to pay the former:
1.

The unpaid balance of the consideration for [petitioner's] services in [the

project] in the amount of P2,023,867.25 with legal interest from the date of
demand until fully paid;

2.

Compensatory damages in the amount of US$1,665,260 or its peso

equivalent at the current foreign exchange rate representing lost rental
income due only as of July 1997 and the accrued lost earnings from then
on until the date of actual payment, with legal interest from the date of
demand until fully paid; and

3.

Attorney's fees in the amount of P100,000 as acceptance fee, P1,000

appearance fee per hearing and 25% of the total amount awarded to
[petitioner].

The [petitioner's] accomplished works as of this date of [t]ake over is of

acceptable quality in materials and workmanship.
This mutual agreement on the take over should not be misconstrued in any
other way except that the take over is part of the long range plan of [respondent] that
[petitioner], in the spirit of cooperation, agreed to hand over the construction
supervision to [respondent] as requested. (emphasis supplied)[19]
Engineers Antonio Co, general construction manager of respondent, and Luzon Y. Tablante, project manager
of petitioner, signed the letter.

With costs against the [respondent].

SO ORDERED.[42]

INTEGRATECHS (ITIS) REPORT

In its September 7, 1995 report, ITI estimated that petitioner should have accomplished 48.71% of
the project as of the October 12, 1995 takeover date. [20] Petitioner repudiated this figure[21] but qualifiedly
admitted that it did not finish the project. [22] Records showed that respondent did not merely take over the
supervision of the project but took full control thereof. [23]
Petitioner consequently conducted an inventory.[24] On the basis thereof, petitioner demanded from
respondent the payment of its balance amounting to P1,779,744.85.[25]

Respondent appealed the RTC decision to the CA. [43] The appellate court found that respondent fully
performed its obligation when it executed the June 30, 1994 deed of absolute sale in favor of petitioner.
[44]
Moreover, ITI's report clearly established that petitioner had completed only 48.71% of the project as of
October 12, 1995, the takeover date. Not only did it incur delay in the performance of its obligation but
petitioner also failed to finish the project. The CA ruled that respondent was entitled to recover the value of the
unfinished portion of the project under the principle of unjust enrichment. [45] Thus:
WHEREFORE, the appealed decision is REVERSED and a new one entered
dismissing [petitioner's] counterclaims of P2,023,867.25 representing unpaid balance
for [its] services in [the project]; US$1,665,260 as accrued lost earnings, and
attorney's fees. [Petitioner] is hereby ordered to return to [respondent] the amount
of P66,677,000 representing the value of unfinished [portion of the project], plus legal

interest thereon until fully paid. Upon payment by [petitioner] of the aforementioned
amount, [respondent] is hereby ordered to deliver the keys and [m]anagement
[c]ertificate of the [Makati Prime Tower] paid to [petitioner] as consideration for the
[project].[46]

Article 2154. If something is received when there is no right to demand it and it was
unduly delivered through mistake, the obligation to return it arises.

Petitioner moved for reconsideration but it was denied. Hence, this petition.

For the extra-contractual obligation of solutio indebiti to arise, the following requisites must be
proven:

Petitioner contends that the CA erred in giving weight to ITI's report because the project evaluation was
commissioned only by respondent,[47] in disregard of industry practice. Project evaluations are agreed upon by
the parties and conducted by a disinterested third party.[48]

1.

the absence of a right to collect the excess sums and

2.

the payment was made by mistake.[57]

We grant the petition.

REVIEW OF CONFLICTING
FACTUAL FINDINGS

With regard to the first requisite, because the supplemental agreement had been extinguished by the
mutual agreement of the parties, petitioner became entitled only to the cost of services it actually rendered
(i.e., that fraction of the project cost in proportion to the percentage of its actual accomplishment in the
project). It was not entitled to the excess (or extent of overpayment).
On the second requisite, Article 2163 of the Civil Code provides:

As a general rule, only questions of law may be raised in a petition for review on certiorari. Factual
issues are entertained only in exceptional cases such as where the findings of fact of the CA and the trial court
are conflicting.[49]
Here, a glaring contradiction exists between the factual findings of the RTC and the CA. The trial court
found that respondent contributed to the project's delay because it belatedly communicated the modifications
and failed to deliver the necessary materials on time. The CA, however, found that petitioner incurred delay in
the performance of its obligation. It relied on ITI's report which stated that petitioner had accomplished only
48.71% of the project as of October 12, 1995.

JANUARY 31, 1994

SUPPLEMENTAL
AGREEMENT WAS
EXTINGUISHED
A contract is a meeting of the minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service. [50] This case involved two contracts entered into by the
parties with regard to the project.
The parties first entered into a contract for a piece of work [51] when they executed the supplemental
agreement. Petitioner as contractor bound itself to execute the project for respondent, the owner/developer, in
consideration of a price certain (P130,000,000). The supplemental agreement was reciprocal in nature
because the obligation of respondent to pay the entire contract price depended on the obligation of petitioner
to complete the project (and vice versa).
Thereafter, the parties entered into a second contract. They agreed to extinguish the supplemental
agreement as evidenced by the October 12, 1995 letter-agreement which was dulyacknowledged by their
respective representatives.[52]
While the October 12, 1995 letter-agreement stated that respondent was to take over merely the
supervision of the project, it actually took over the whole project itself. In fact, respondent subsequently hired
two contractors in petitioner's stead.[53] Moreover, petitioner's project engineer at site only monitored the
progress of architectural works undertaken in its condominium units. [54]Petitioner never objected to this
arrangement; hence, it voluntarily surrendered its participation in the project. Moreover, it judicially admitted in
its answer that respondent took over the entire project, not merely its supervision, pursuant to its
(respondents) long-range plans.[55]
Because the parties agreed to extinguish the supplemental agreement, they were no longer required to
fully perform their respective obligations. Petitioner was relieved of its obligation to complete the project while
respondent was freed of its obligation to pay the entire contract price. However, respondent, by executing the
June 30, 1994 deed of absolute sale, was deemed to have paid P112,416,716.88. Nevertheless, because
petitioner applied part of what it received to respondents outstanding liabilities, [56] it admitted overpayment.
Because petitioner acknowledged that it had been overpaid, it was obliged to return the excess to
respondent. Embodying the principle of solutio indebiti, Article 2154 of the Civil Code provides:

Article 2163. It is presumed that there was a mistake in the payment if something
which had never been due or had already been paid was delivered; but, he from
whom the return is claimed may prove that the delivery was made out of liberality or
for any other just cause. (emphasis supplied)
In this instance, respondent paid part of the contract price under the assumption that petitioner
would complete the project within the stipulated period. However, after the supplemental agreement was
extinguished, petitioner ceased working on the project. Therefore, the compensation petitioner received in
excess of the cost of its actual accomplishment as of October 12, 1995 was never due. The condominium
units and parking slots corresponding to the said excess were mistakenly delivered by respondent and were
therefore not due to petitioner.
Stated simply, respondent erroneously delivered excess units to petitioner and the latter, pursuant to
Article 2154, was obliged to the return them to respondent. [58] Article 2160 of the Civil Code provides:
Article 2160. He who in good faith accepts an undue payment of a thing
certain and determinate shall only be responsible for the impairment or loss of the
same or its accessories and accessions insofar as he has thereby been benefited. If
he has alienated it, he shall return the price or assign the action to collect the sum.
One who receives payment by mistake in good faith is, as a general rule, only liable to return the
thing delivered.[59] If he benefited therefrom, he is also liable for the impairment or loss of the thing delivered
and its accessories and accessions. [60] If he sold the thing delivered, he should either deliver the proceeds of
the sale or assign the action to collect to the other party.[61]
The situation is, however, complicated by the following facts:
a)
the basis of the valuation (P112,416,716.99) of the condominium units and parking slots
covered by the June 30, 1994 deed of sale is unknown;
b)

the percentage of petitioner's actual accomplishment in the project has not been determined
and

c)

the records of this case do not show the actual number of condominium units and parking
slots sold by petitioners.

Because this Court is not a trier of facts, the determination of these matters should be remanded to
the RTC for reception of further evidence.
The RTC must first determine the percentage of the project petitioner actually completed and its
proportionate cost.[62] This will be the amount due to petitioner. Thereafter, based on the stipulated valuation
in the June 30, 1994 deed of sale, the RTC shall determine how many condominium units and parking slots
correspond to the amount due to petitioner. It will only be the management certificate and the keys to these
units that petitioner will be entitled to. The remaining units, having been mistakenly delivered by
respondent, will therefore be the subject of solutio indebiti.
What exactly must petitioner give back to respondent? Under Article 2160 in relation to Article 2154, it
should return to respondent the condominium units and parking slots in excess of the value of its actual

accomplishment (i.e., the amount due to it) as of October 12, 1995. If theseproperties include units and/or
slots already sold to third persons, petitioner shall deliver the proceeds of the sale thereof or assign the
actions for collection to respondent as required by Article 2160.
DELAY
IN
THE
COMPLETION
OF
THE PROJECT

2.
Furthermore:

Compliance with the two requisites of Article 1724, a specific provision governing
additional works, is a condition precedent of the recovery. The absence of one or the
other bars the recovery of additional costs. Neither the authority for the changes
made nor the additional price to be paid therefor may be proved by any other
evidence for purposes of recovery.[71] (emphasis supplied)

Mora or delay is the failure to perform the obligation in due time because of dolo (malice)
orculpa (negligence).[63] A debtor is deemed to have violated his obligation to the creditor from the time the
latter makes a demand. Once the creditor makes a demand, the debtor incurs mora or delay.[64]
The construction contract[65] provided a procedure for protesting delay:
Article XIV
DELAYS AND ABANDONMENT
15.1. If at any time during the effectivity of this contract, [PETITIONER] shall incur
unreasonable delay or slippages of more than fifteen percent (15%) of the scheduled
work program, [RESPONDENT] should notify [PETITIONER] in writing to accelerate
the work and reduce, if not erase, slippage. If after the lapse of sixty (60) days from
receipt of such notice, [PETITIONER] fails to rectify the delay or slippage,
[RESPONDENT] shall have the right to terminate this contract except in cases where
the same was caused by force majeure. FORCE MAJEURE as contemplated
herein, and in determination of delay includes, but is not limited to, typhoon, flood,
earthquake, coup d'etat, rebellion, sedition, transport strike, stoppage of work, mass
public action that prevents workers from reporting for work, and such other causes
beyond [PETITIONER'S] control.[66] (emphasis supplied)
xxx

xxx

xxx

Respondent never sent petitioner a written demand asking it to accelerate work on the project and
reduce, if not eliminate, slippage. If delay had truly been the reason why respondent took over the project, it
would have sent a written demand as required by the construction contract. Moreover, according to the
October 12, 1995 letter-agreement, respondent took over the project for the sole reason that such move was
part of its (respondent's) long-term plan.
Respondent, on the other hand, relied on ITI's September 7, 1995 report. The construction contract
named GEMM, not ITI, as construction manager.[67] Because petitioner did not consent to the change of the
designated construction manager, ITI's September 7, 1995 report could not bind it.
In view of the foregoing, we hold that petitioner did not incur delay in the performance of its obligation.
RECOVERY OF ADDITIONAL
COSTS RESULTING FROM
CHANGES
[68]

The supplemental agreement was a contract for a stipulated price. In such contracts, the recovery of
additional costs (incurred due to changes in plans or specifications) is governed by Article 1724 of the Civil
Code.
Article 1724. The contractor who undertakes to build a structure or any other
work for a stipulated price, in conformity with plans and specifications agreed upon
with the landowner, can neither withdraw from the contract nor demand an increase in
the price on account of higher cost of labor or materials, save when there has been a
change in plans and specifications, provided:

written agreement of parties with regard to the increase in cost (or price) due to
the change in work or design modification. [70]

Petitioner submitted neither one. In addition, petitioners project coordinator Estellita Garcia testified
that respondent never approved any change order. [72] Thus, under Article 1724 and pursuant to our ruling
in Powton Conglomerate, Inc., petitioner cannot recover the cost it incurred in effecting the design
modifications. A contractor who fails to secure the owner or developer's written authority to changes in the
work or written assent to the additional cost to be incurred cannot invoke the principle of unjust enrichment. [73]
RECOVERY OF
COMPENSATORY
DAMAGES
Indemnification for damages comprehends not only the loss suffered (actual damages ordamnum
emergens) but also the claimant's lost profits (compensatory damages or lucrum cessans). For compensatory
damages to be awarded, it is necessary to prove the actual amount of the alleged loss by preponderance of
evidence.[74]
The RTC awarded compensatory damages based on the rental pool rates submitted by petitioner [75] and
on the premise that all those units would have been leased had respondent only finished the project by
December 31, 1995.[76] However, other than bare assertions, petitioner submitted no proof that the rental pool
was in fact able to lease out the units. We thus hold that the losses sustained by petitioner were merely
speculative and there was no basis for the award.
REMAND OF OTHER
CLAIMS
Since respondent did not repudiate petitioner's other claims stated in the inventory [77] in the RTC and
CA, it is estopped from questioning the validity thereof. [78] However, because some of petitioner's claims have
been disallowed, we remand the records of this case to the RTC for the computation of respondent's liability.
[79]

WHEREFORE, the petition is hereby GRANTED.

The March 15, 2002 decision and May 29, 2003 resolution of the Court of Appeals in CA-G.R. CV No.
61353 and the August 5, 1998 decision of the Regional Trial Court, Branch 58, Makati City in Civil Case No.
97-1501 are hereby SET ASIDE. New judgment is entered:
1.

2.

ordering petitioner Titan-Ikeda Construction and Development Corporation to return to respondent

Primetown Property Group, Inc. the condominium units and parking slots corresponding to the
payment made in excess of the proportionate (project) cost of its actual accomplishment as of
October 12, 1995, subject to its (petitioners) allowable claims as stated in the inventory and
dismissing petitioner Titan-Ikeda Construction and Development Corporations claims for the cost of
additional work (or change order) and damages.

The records of this case are remanded to the Regional Trial Court of Makati City, Branch 58 for:
1.

such change has been authorized by the proprietor in writing; and

2.

the additional price to be paid to the contractor has been determined in writing
by both parties.

1.

the reception of additional evidence to determine

(a)
the percentage of the architectural work actually completed by petitioner TitanIkeda Construction and Development Corporation as of October 12, 1995
on the Makati Prime Tower and
(b) the number of condominium units and parking slots sold by petitioner Titan-Ikeda
Construction and Development Corporation to third persons;

2.

the computation of petitioner Titan-Ikeda Construction and Development Corporation's

actual liability to respondent Primetown Property Group, Inc. or vice-versa, and the
determination of imposable interests and/or penalties, if any.

In Powton Conglomerate, Inc. v. Agcolicol, [69] we reiterated that a claim for the cost of additional work
arising from changes in the scope of work can only be allowed upon the:
1.

written authority from the developer/owner ordering/allowing the changes in

work; and

SO ORDERED.

that a depositary be named by the court for the purpose of caring for and administering said amount during the
pendency of the case.
On the same date, October 17, a depositary was named, such depositary taking in charge the said $785 on
that date, the said sum of money being at this time in the possession of said depositary.
On October 26, 1904, H.D. Terrell filed a complaint as intervenor in the case, alleging that on September 3, of
the same year, the defendant Wilson had ceded and transferred to the said Terrell all of his, the said Wilson's
rights in and to the said $785 in payment on account of a larger sum then owed by said Wilson to the said
H.D. Terrell for professional services already rendered and to be rendered as attorney for said Wilson, under
agreement with the same; that Treasurer Branagan was duly notified on the 17th day of October, 1904, of this
transfer, at which time the Treasurer had said sum in his care, and this before the notifications of the
appointment of said depositary in the principal case. Basing his claim on these facts, Terrell claims the right of
ownership in and to the said sum and asks that the same be delivered to him as the legitimate owner to the
exclusion of the other parties in the case.

March 15, 1907

G.R. No. 2684
THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND, plaintiff-appellant,
vs.
WILLIAM A. WILSON, ET AL., defendants-appellees.
Hartigan, Marple, Rohde & Gutierrez for appellant.
F.G. Waite and H.D. Terrell for appellees.

In this case of intervention The Fidelity and Deposit Company of Maryland, the plaintiff in the principal cause,
and The American Surety Company of New York together in cooperation and against the claim of the
intervenor Terrell, both of them, alleging on their part, better right that the intervenor to receive the sum in
question, asked that the said sum be delivered to them in equal shares and portions as part payment and on
account of the amounts which they had paid respectively to the Government as sureties on the bond of
Wilson. In this way the first pretension or claim of preference as alleged by The Fidelity and Deposit Company
in its complaint was modified with respect to and as against The American Surety Company of New York. It is
asserted by these companies, as a basis of their right and claim, that the funds in question are a portion of the
money taken from the Government by Wilson and therefore the property of the said Government and that they
became subrogated to rights of the Government in and to the said sum by reason of the payment by them as
sureties on the bond of Wilson.

MAPA, J.:
The defendant Wilson was, on the 1st of October, 1902, an employee of the Government of the Philippine
Islands, as disbursing officer of the Bureau of Coast Guard and Transportation. For the security of the
Government the plaintiff company and another company. The American Surety Company of New York,
became sureties on the official bond of Wilson for the sum of $ 15,000, United State currency. Wilson
defaulted in the sum of $ 8,931.80, United States currency, and the said two surety companies, after demand
duly made upon them by the Government, were compelled to pay and, as a matter of fact, did pay to said
Government, in accordance with said bond, the sum of $ 4,465.90, United States currency, each.
Wilson, who had left the Philippine Islands, was captured in the city of Montreal, Canada, for the purpose of
being tried before the courts of the Philippine Islands for the defalcation of said sum. When apprehended
Wilson had on his person the sum of $ 785 in gold, consisting of the following:
1 bill of $5, No. 333,448, on the Bank of Montreal.
1 United States bill, silver certificate, $10, series of 1891.
3 United States $10 notes, series of 1882.
5 United States $10 notes, series of 1891.
24 United States $10 notes, series of 1880.
45 United States $10 notes, series of 1901.
This sum and amount was turned over to the custody of Mr. Branagan, the Insular Treasurer.
The facts of this case, among others, are the following: On October 17, 1904, the plaintiff filed a complaint
against Wilson and The American Surety Company asking, first, that judgment be rendered against Wilson for
the sum of $4,464.90, that amount having been paid by plaintiff to the Government under plaintiff's surety
bond; second, that there be applied to the payment of said judgment the said sum of $785 found in possession
of Wilson and that said plaintiff be preferred in its right to the said money and to receive the same; and third,

Judgment was rendered against Wilson by default, the latter not having answered to the complaint of Terrell
were true, in this way coming into the case in cooperation with said Terrell in his pretension.
After due trial of the cause a judgment was rendered by the court declaring proven, among others, the facts as
stated in the first part of his decision and found as a conclusion of law that the said intervenor Terrell "became
the owner and with the right to the possession of said funds before the commencement of this action and still
has the right to the possession of the same."
In accordance with this conclusion and the facts as set out in the judgment, the following order was made by
the court: "Let judgment be entered in favor of the party plaintiff, The Fidelity and Deposit Company of
Maryland, and against the defendant Wilson, for the sum of $4,465.90, United States currency, the equivalent
of P8,931.80, Philippine currency, together with interest on the same at the rate of 6 per cent per annum from
the 22nd day of October, 1903, and for the costs of this action, and in favor of the intervenor H.D. Terrell and
against all the other parties of this action, plaintiff and defendant, for the possession of the funds now in the
hands of the depositary appointed by this court, ... amounting in value to the sum of $785, United States
currency, and in the event that the identical money can not be delivered, then its equivalent of the total of the
same that is to say, 1,570 pesos, Philippine currency without cost. . . ."
The plaintiff only in the principal suit that is to say, The Fidelity and Deposit Company filed its exception
to the judgment. The American Surety Company of New York failing to appeal, the judgment with respect to
that company became final, hence this court can not decide with regard to that. The same should be said with
regard to that part of the judgment against Wilson for the payment to The Fidelity and Deposit Company of the
sum $4,465.90, no appeal from said judgment having been made by Wilson.
There was no new trial asked for and the parties in this instance expressly admit, as proven, the facts as set
out in the decision rendered.

The only assignment of error alleged by the appellant in its brief, is in the following terms: "The court erred" its
says, "in rendering judgment in favor of the intervenor H.D. Terrell for the $785 in the hands of the depositary."
Therefore, that part of the judgment of the lower court that refers to this point is the only thing, in fact,
submitted to us for review.
According to our point of view, the only question here is to deduce and determine the true legal effects of the
transfer made by Wilson in favor of Terrell.
This transfer is made literally in the following terms:
MANILA, P.I., September 3, 1904.
To whom it concerns:
For value received, I hereby transfer and cede to Judge H. D. Terrell all my rights, title, and interest in the
following-described property belonging to me and now in the hands of Frank A. Branagan, Treasurer of the
Philippine Archipelago, under the attachment of the court of Manila. (Here appears the description of the bank
bills transferred, hereinabove described.)
(Signed) W.A. WILSON.
As is seen, this transfer was made before the filing of the complaint of the appellant, and in addition thereto, it
is said that the Insular Treasurer, Mr. Branagan, was also notified before the filing of said complaint. The last
does not appear to be clear in the record for the reason that the said notification served on Branagan was so
served on October 17, 1904, precisely the same date upon which the complaint was filed and appointment of
the depositary was made by the court in virtue of the same, and upon which said date the depositary took
possession of the said funds, the subject matter of this suit. There is no data at hand to show in a precise
manner which of the said acts took place before the other. It is true that the judgment of the lower court states
that Terrell became the owner of the funds before the commencement of the action, but we consider this rather
as a conclusion of law than of fact; that is to say, that fact that the notification of the said transfer had been
served on Treasurer Branagan before the filing of the complaint. However, it may be, this may be admitted as
true and so taken into consideration in this decision.
Terrell claims, and the court below so holds in its judgment, that in virtue of said transfer the ownership of
Wilson in and to the funds was transferred to Terrell in fact and in law. If this had been the case, the judgment
would have been just and legal and would, therefore, be affirmed herein.
But our opinion is contrary to that sustained by the trial court in regard to this point. We are of the opinion that
the transfer by itself, and afterwards the notification of the same of Treasurer Branagan, did not produce nor
could it produce the effect of transfer to Terrell of the ownership of the funds so transferred and which were
then in the possession of the said Treasurer. To have this effect, it would have been necessary that the
delivery of the funds had been made directly Terrell, which fact has not been proved at any time. There is no
question as to this last point. The funds were in the possession of Branagan and afterwards were transferred
to the possession of the depositary appointed, by the court where such funds now are, and this without their
ever having been taken possession of the intervenor Terrell. It is not alleged, nor it is claimed by Terrell, that
the delivery of the funds was ever made in any manner recognized by the law. He claims the right of
ownership from the mere fact of having derived the same, not from the fact of any delivery, but from the very
fact of the transfer and of his subsequent notification to Treasurer Branagan, it being, in addition, very clear
that such notification does not constitute, in any manner, the fact of delivery as established by articles 1462,
1463, and 1464 of the Civil Code, all of which cover, in full this subject-matter.
Therefore, in our Civil Code it is a fundamental principle in all matters of contracts and a well-known doctrine
of law that "non mudis pactis, sed traditione dominia rerum transferuntur." In conformity with said doctrine as
established in paragraph 2 of article 609 of said code, that "the ownership and other property rights are
acquired and transmitted by law, by gift, by testate or intestate succession, and, in consequence of certain
contracts, by tradition." And as the logical application of this disposition article 1095 prescribes the following:

"A creditor has the rights to the fruits of a thing from the time the obligation to deliver it arises. However, he
shall not acquire a real right." (and the ownership is surely such) "until the property has been delivered to him."
In accordance with such disposition and provisions the delivery of a thing constitutes a necessary and
indispensable requisite for the purpose of acquiring the ownership of the same by virtue for a contract. As
Manresa states in his Commentaries on the Civil Code, volume 10, pages 339 and 340: "Our law does not
admit the doctrine of the transfer of property by mere consent but limits the effect of the agreement to the due
execution of the contract. ... The ownership, the property right, is only deprived from the delivery of a
thing . . . ."
Applying this doctrine concretely to the contract of transfer set up by Terrell as the basis of his complaint in
intervention, the author says, at page 341 of the volume and work above cited: "The transfer of the ownership
in the contract of such transfer, does not produce the effect by the fact of the mere consent, but is acquired by
tradition and in the due observance of general precepts." Therefore, by reason of the non-delivery Terrell did
not acquire the ownership of the property transferred to him by Wilson. It is only the jus ad rem, and not
the jus in re, that was acquired by Terrell by virtue of the transfer, made by the consent of the transferor and
the transferee but not consummated by the delivery which never came to pass and which delivery was the
object of such transfer.
But if Terrell could not be considered as the owner of said funds in question, it is undeniable that he had rights
with regard to the same as a creditor by virtue of that transfer. The same right, that of a creditor, and no other
is the right of the appellant in that it has not been contradicted that the rights of the Government, in its judicial
relation to Wilson, had not been subrogated to the appellant. The allegation of the appellant that the bank bills
taken from the person of Wilson are the property of the Government, in order to be taken into consideration, is
to conclude that they belong to the appellant as owner of the same by reason of said subrogation of right, as
aforesaid. This has no fundamental basis for the reason that such bank bills have never been duly identified.
Without any proof of identification it is not possible to know if said bank bills are really a part of the funds of the
Government appropriated by Wilson. The Government under such circumstances could not allege specifically
the right of ownership of said bank bills.
Now, the creditors, the appellant and the appellee are both claiming at the same time the delivery of the funds
in question for the payment of their respective credits and it becomes a question of preference of creditors,
since the sum, the object of the suit, is not sufficient to satisfy the claims of both parties.
According to our view, neither of the two creditors should enjoy preference with regard to the other. Preference
is determined by the nature of the credit in some cases and by the priority of date in others. The first, when it
deals with privileged credits, which different kinds of privileged credits are enumerated in articles 1922, 1923,
and 1924 of the Civil Code; and the second, when such credits are without special privilege, but are set forth
in a public document or a final judgment. (Par. 3, article 1924.) In neither of these two classes do we find the
credit of the appellant or that of the appellee. The credit of the appellee is only shown in a private document,
and the right, or credit, of the appellant is that derived by reason of the payment made by appellant to the
Government as a surety on the bond of Wilson, and nothing more than this appears in the allegations and
admissions of the parties during the trial of the case. It does not appear by the bill of exceptions in this case
that any document was ever presented in justification of such payment. Neither does the decision refer to any
document as showing, as proven, said payment. These two credits not coming under any of the articles herein
cited, the same pertain to a general class, and therefore do not enjoy any preference, in accordance with
provisions of article 1925 of the Civil Code. This being so, the two creditors should be paid of pro rata from the
funds in question and without consideration of the dates. (Rule 3, of article 1929.)
The judgment appealed from is, therefore, reversed with respect to the order of the trial court ordering the
delivery of said funds, in their total amount, to the intervenor, H.D. Terrell, and in place of said order of said
trial court we order that the payment and delivery of said funds be made to said Terrell and to the appellant,
The Fidelity and Deposit Company of Maryland, pro rata, with respect to their respective credits, without
special provision as to days from the notification hereof let judgment be entered in accordance herewith, and
ten days thereafter let the case be remanded to the court from whence it came for proper action. So ordered.
November 21, 1913

G.R. No. 6913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea, defendantappellant.

no law which changed his responsibility by reason of the deposit. While it may be true that one who is under
obligation to do or give a thing is in duty bound, when he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the
effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal,
he is culpably negligent in selecting one whereas he would not have been if he had selected the other.

J. Lopez Vito, for appellant.

Arroyo and Horrilleno, for appellee.

The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money
was forcibly taken from the bank by the armed forces of the United States during the war of the insurrection;
and that said Father De la Pea was not responsible for its loss.

MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the
plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.

The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his complaint.
Arellano, C.J., Torres and Carson, JJ., concur.

It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of
a leper hospital and that father Agustin de la Pea was the duly authorized representative of the plaintiff to
receive the legacy. The defendant is the administrator of the estate of Father De la Pea.

Separate Opinion
TRENT, J., dissenting:

In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such trustee the
sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited in his
personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war
of the revolution, Father De la Pea was arrested by the military authorities as a political prisoner, and while
thus detained made an order on said bank in favor of the United States Army officer under whose charge he
then was for the sum thus deposited in said bank. The arrest of Father De la Pea and the confiscation of the
funds in the bank were the result of the claim of the military authorities that he was an insurgent and that the
funds thus deposited had been collected by him for revolutionary purposes. The money was taken from the
bank by the military authorities by virtue of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds was
included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us to
the conclusion that said trust funds were a part of the funds deposited and which were removed and
confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact counterpart in the
Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Pea's liability is
determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the
diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the
Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events
which could not be foreseen, or which having been foreseen were inevitable, with the exception of the cases
expressly mentioned in the law or those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby assume an
obligation different from that under which he would have lain if such deposit had not been made, nor did he
thereby make himself liable to repay the money at all hazards. If the money had been forcibly taken from his
pocket or from his house by the military forces of one of the combatants during a state of war, it is clear that
under the provisions of the Civil Code he would have been exempt from responsibility. The fact that he placed
the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not make
him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by
depositing the money in the bank than he would if he had left it in his home; or whether he was more or less
negligent by depositing the money in his personal account than he would have been if he had deposited it in a
separate account as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise
question is not one of negligence. There was no law prohibiting him from depositing it as he did and there was

I dissent. Technically speaking, whether Father De la Pea was a trustee or an agent of the plaintiff his books
showed that in 1898 he had in his possession as trustee or agent the sum of P6,641 belonging to the plaintiff
as the head of the church. This money was then clothed with all the immunities and protection with which the
law seeks to invest trust funds. But when De la Pea mixed this trust fund with his own and deposited the
whole in the bank to his personal account or credit, he by this act stamped on the said fund his own private
marks and unclothed it of all the protection it had. If this money had been deposited in the name of De la Pea
as trustee or agent of the plaintiff, I think that it may be presumed that the military authorities would not have
confiscated it for the reason that they were looking for insurgent funds only. Again, the plaintiff had no reason
to suppose that De la Pea would attempt to strip the fund of its identity, nor had he said or done anything
which tended to relieve De la Pea from the legal reponsibility which pertains to the care and custody of trust
funds.
The Supreme Court of the United States in the United States vs. Thomas (82 U. S., 337), at page 343, said:
"Trustees are only bound to exercise the same care and solicitude with regard to the trust property which they
would exercise with regard to their own. Equity will not exact more of them. They are not liable for a loss by
theft without their fault. But this exemption ceases when they mix the trust-money with their own, whereby it
loses its identity, and they become mere debtors."
If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no doubt on this
point, the liability of the estate of De la Pea cannot be doubted. But this court in the majority opinion says:
"The fact that he (Agustin de la Pea) placed the trust fund in the bank in his personal account does not add to
his responsibility. Such deposit did not make him a debtor who must respond at all hazards. . . . There was no
law prohibiting him from depositing it as he did, and there was no law which changed his responsibility, by
reason of the deposit."
I assume that the court in using the language which appears in the latter part of the above quotation meant to
say that there was no statutory law regulating the question. Questions of this character are not usually
governed by statutory law. The law is to be found in the very nature of the trust itself, and, as a general rule,
the courts say what facts are necessary to hold the trustee as a debtor.
If De la Pea, after depositing the trust fund in his personal account, had used this money for speculative
purposes, such as the buying and selling of sugar or other products of the country, thereby becoming a debtor,
there would have been no doubt as to the liability of his estate. Whether he used this money for that purpose
the record is silent, but it will be noted that a considerable length of time intervened from the time of the
deposit until the funds were confiscated by the military authorities. In fact the record shows that De la Pea
deposited on June 27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of the same year
P6,000. The record also shows that these funds were withdrawn and again deposited all together on the 29th

of May, 1900, this last deposit amounting to P18,970. These facts strongly indicate that De la Pea had as a
matter of fact been using the money in violation of the trust imposed in him.
If the doctrine announced in the majority opinion be followed in cases hereafter arising in this jurisdiction trust
funds will be placed in precarious condition. The position of the trustee will cease to be one of trust.

purchased the land in question from Estefania Bustos, widow of Dizon, without ever having had any notice of
any defect in the vendor's title; that plaintiff had knowledge of the contract of sale of the land in question yet
did nothing to oppose its purchase by the defendant Escaler, wherefore the latter, in acquiring the property, did
so under the belief that the plaintiff Santiago Cruzado had no right or interest therein. He therefore prayed that
the complaint be dismissed, with the costs against plaintiff, and that an injunction issue to restrain the latter
from interfering with the defendant Escaler in the enjoyment of his property and rights and from performing any
act prejudicial to his interests.

February 29, 1916

G.R. No. 10244
SANTIAGO CRUZADO, plaintiff-appellant,
vs.
ESTEFANIA BUSTOS and MANUEL ESCALER, defendants-appellees.
Felix Ferrer for appellant.
Augusto Gonzalez for appellees.
TORRES, J.:
This appeal, by bill of exceptions, was taken from the judgment of June 17, 1914, in which the trial judge
absolved defendants from the complaint and plaintiff from the cross-complaint, without express finding as to
costs. Counsel for plaintiff appealed from this judgment and moved for a new trial. This motion was denied,
exception was taken by appellant, and, on the filing of the proper bill of exceptions, the same was approved,
certified, and transmitted to the clerk of this court, together with a transcript of the evidence introduced at the
trial.
Counsel for the plaintiff Santiago Cruzado filed a written complaint on October 8, 1910, amended on
September 25, 1913, in which he alleged that plaintiff was the owner of certain rural property situated in the
barrio of Dolores, formerly San Isidro, of the municipality of Bacolor, Pampanga, containing an area of
65 balitas and bounded as set forth in the complaint; that Estafania Bustos, during her lifetime, and now the
administrator of her estate, together with the other defendant, Manuel Escaler, had, since the year 1906 up to
the present, been detaining the said parcel of land, and had refused to deliver the possession thereof to
plaintiff and to recognize his ownership of the same, notwithstanding the repeated demands made upon them;
that by such detention, the plaintiff had suffered losses and damages to the amount of P3,500. He therefore
asked for judgment declaring plaintiff to be the owner of the said parcel of land and ordering defendants to
return it to plaintiff and to pay the latter P3,500 for losses and damages, and the costs.
The demurrer filed by the defendant Bustos having been overruled, in her answer she made a general denial
of each and all of the allegations of the complaint, and of each and all of the paragraphs thereof, and, as a
special defense, alleged that the title to the said land, produced by the plaintiff, was not a lawful one, for the
reason that only a simulated sale of the land was made by the between herself and the deceased Agapito
Geronimo Cruzado, plaintiff's father, and that for more than thirty years preceding the present time she had
been the sole, exclusive, and lawful owner of the said parcel of land in question; that she had been holding it
quietly, peaceably, publicly and in good faith; that it formed an integral part of another larger parcel of land,
both parcels aggregating a total area of 100 balitas, 9 loanes, and 41 square brazas; that in September, 1891,
with plaintiff's knowledge, the defendant Bustos sold and conveyed all the said property to the other defendant
Manuel Escaler who then acquired the possession and ownership of the said parcel of land, and had retained
such ownership and possession up to the present time; that at no time and on no account whatever had
plaintiff or any other person except defendants acquired possession of the said parcel of land or any part
thereof, nor any right or title therein. She therefore prayed to be absolved from the complaint, with the costs
against plaintiff.
The other defendant, Manuel Escaler, in an amended answer to the aforementioned complaint, denied each
and all of the allegations therein contained and each and all of its clauses, and, as a special defense, alleged
that plaintiff's title to the said land was illegal as only a simulated sale was made by and between Agapito
Geronimo Cruzado, plaintiff's predecessor in interest, and Bernardino Dizon; that defendants had been in
possession of the said parcel of land for more than thirty years; that the defendant Escaler in good faith

On the case coming to trial, both parties adduced evidence, among which was included the deposition of
Inocencio Rosete.
Counsel for defendants, in a cross-complaint set forth: that as shown by the evidence, the defendant Escaler
acquired in good faith from Estefania Bustos the land in question at a time when there was no record whatever
in the property registry to show that this land belonged to a third person or any other than the vendor; that, on
entering into possession of the property, Escaler spent P4,000 in-improvements and in the repair of a long
dike to prevent the erosion of the land by the frequent overflows of the adjoining estuary; that of this sum
P2,000 was paid by Escaler and the remaining P2,000 by Estafania Bustos, in her capacity as lessee of the
land; and that in case the judgment of the court should be adverse to defendants, these latter, as owners in
good faith, were entitled to be indemnified by plaintiff for the said expenses. He therefore asked that plaintiff
be ordered to reimburse half of the said P4,000 to each of the defendants in case judgment should be
rendered favorable to plaintiff.
The latter's counsel, in answer to the said cross-complaint, specifically denied each and all of the allegations
thereof and, in special defense, reproduced plaintiff's amended complaint in all its parts and alleged that the
facts set forth in the cross-complaint did not constitute a cause of action. He therefore prayed that plaintiff be
absolved from the cross-complaint and that judgment be rendered against defendants, in conformity with the
prayer of his complaint.
After the evidence was all in, counsel for the defendant Escaler moved that the deposition of the witness
Inocencio Espanol Rosete be admitted into the record, and in support of his motion stated that with the
authorization of the court the said deposition had been taken on November 21, 1913, in the municipality of
Arayat in the presence of plaintiff's attorney; that the said declaration of the deponent was duly forwarded to
the clerk of the court, and there attached to the record, but through an unintentional oversight of defendant's
attorney, it was not presented in evidence at the trial; that this deposition was very important for the
defendants' defense; and that the deponent was and continued to be unable to appear before the court on
account of a threatened attack of brain fever which might develop during the journey from Arayat to San
Fernando.
Plaintiff's counsel asked that the foregoing motion be overruled and that the deposition of the witness Rosete
be stricken from the record, because defendants' motion was made out of time and was contrary to the rules
of procedure, and there was no reason for altering the order of procedure, as requested by defendants, for,
when the period for the reception of the evidence of both parties is closed, an alteration in the order of
procedure such as asked by defendants would be improper and illegal, counsel citing the decision of this court
in the case of Garcia vs. Reyes.[[1]] He alleged, moreover, that the said deposition necessarily affected the
main issue in controversy and that to allow the motion would be in contravention of the provisions of section
364 of the Code of Civil Procedure . He therefore asked that the said motion be overruled. The court, however,
ordered that the deposition of the witness Inocencio Rosete be admitted in evidence, and that plaintiff's
exception be noted. In view of the foregoing, the judgment aforementioned was rendered.
The questions herein submitted for the decision of this court are:
1. Is it or is it not true that the deed of sale, Exhibit A, (p. 40 of the record) of 65 balitas of land situated in the
municipality of Bacolor, Pampanga, executed by Estefania Bustos, with the assistance of her husband
Bernardino Dizon, in favor of Agapito Geronimo Cruzado, for the sum of P2,200, was simulated, not with intent
to defraud any third person, but for the sole purpose of making it appear that the vendee, Cruzado, then a
candidate for the position of procurador on the date of the said deed, September 7,1875, possessed real
estate to the value of P2,200 with which to guarantee the faithful discharge of the duties of the office
of procurador?

2. It is or is it not true that, notwithstanding such apparent alienation of the 65 balitas of land, the supposed
vendee continued in possession thereof, without the supposed purchaser having taken possession of the
property until September 10, 1891, when its owner Bustos sold to Escaler, not only the said 65 balitas of land,
but also all the remainder of a large tract of agricultural land of which the portion appearing as sold to Agapito
G. Cruzado formed and forms a part, and that Escaler was then and, until the date of plaintiff's claim,
continued to be in peaceable, uninterrupted possession of the said whole tract of land, including the
aforementioned portion of 65 balitas?
3. Has the right of ownership prescribed which Manuel Escaler is and has been enjoying in the land which
Estefania Bustos had sold to him and which includes the parcel of 65 balitas claimed by plaintiff, Santiago
Cruzado, or has the right of any real or personal action he might exercise by reason of the sale to Cruzado
prescribed on account of the lapse of the respective periods fixed by law, between the 7th of September, 1875,
the date of said sale, and the 8th of October, 1910, that of the filing of the complaint?
To judge from the evidence adduced in this case, there is ample ground for holding that the said deed of sale
of a parcel of 65 balitas of land was simulated, not to defraud any creditor or other person interested in the
land nor for the purpose of eluding any lawful obligation on the part of its owner, Estafania Bustos, but for the
sole purpose of doing a favor, of rendering a special service to Agapito Geronimo Cruzado, father of the
plaintiff Santiago Cruzado.
During his lifetime Agapito G. Cruzado aspired to hold the office of procurador in the Court of First Instance of
Pampanga, but notwithstanding that he possessed the required ability for the discharge of the duties of that
position, he was unable to give the required bond, an indispensable condition for his appointment, as he was
possessed of no means or real property wherewith to guarantee the proper discharge of his duties in the
manner prescribed by the laws then in force.
In the certified copy of the record of the case tried in the Secretaria de Gobierno of the abolished Real
Audiencia de Manila, issued by the Assistant Executive Secretary and chief of the division of archives, there
appears on page 178 a decree by the presidencia of this latter tribunal, issued by virtue of the resolution
passed by the sala de gobierno on November 24, 1875, whereby it was ordered that Agapito Geronimo
Cruzado should be noticed that within the period of 30 days he must show proof of having furnished a bond of
P700 in cash or of P2,100 in real property as security for the position of procurador to which he had been
appointed, with the understanding that should be fail to furnish such bond he would not be issued the
certificate entitling him to practice the profession of procurador.
After complying with the requirements of the said court and executing the mortgage deed of the land
purchased by the procurador elect Cruzado from Estefania Bustos, on March 18, 1876, the mortgage was
recorded in the old mortgage registry then kept in the office of the Ayuntamiento of Manila during the former
sovereignty, and thereafter Agapito G. Cruzado received his appointment and commenced to discharge the
duties of his position.
The above-related facts conclusively prove that Estefania Bustos executed the deed of sale Exhibit A in favor
of the deceased Cruzado in order to enable the latter, by showing that he was a property owner, to hold the
office of procurador. This position he held for many years, thanks to the liberality of the pretended vendor,
who, notwithstanding the statements contained in the deed of sale, does not appear to have been paid
anything as a result of the sham sale, a sale which was affected, not in prejudice or fraud of any person, nor
those who were entitled to hold Cruzado liable for the proper discharge of the duties of his office, because,
had the need arisen, any liability of his could have been covered by the value of the land, the sale of which
was fictitiously set forth in that deed as lawfully belonging to Cruzado, and then Estefania Bustos would have
had no right either to object to or escape the consequences of that alienation, although simulated.
The simulation of the said sale was effected by making a pretended contract which bore the appearance of
truth, when really and truly there was no contract, because the contracting parties did not in fact intend to
execute one, but only to formulate a sale in such a manner that, for the particular purposes sought by Bustos
and Cruzado, it would appear to have been celebrated solely that Cruzado might hold his office of procurador
on the strength of the security afforded by the value of the land feignedly sold.

The record does not show when the procurador Cruzado died, but it is unquestionable that he was still living
during the last months of 1882, judging from the certificate which he himself issued to Norberto Decena
(Exhibit 3). He must have died sometime between the years 1882 and 1890, to judge from the contents of the
letters plaintiff addressed to Natalio Dizon, one of the children of Estefania Bustos, on July 7, 1891, and July 4,
1896, and from the fact that in the said year 1890 Agapito G. Cruzado was no longer a practicing procurador in
the Court of First Instance of Pampanga..
It is true that even after the death of the aforesaid procurador, any liability he might have incurred in
connection with the exercise of his office could have been, upon presentation of the proper claim, collected out
of the value of the land apparently sold by Estafania Bustos and pledged as security for the proper discharge
of the duties of his office. On October 8, 1910, when his son Santiago Cruzado filed his complaint, already
more than twenty years had elapsed since 1889, if plaintiff's father died in 1889 and not between 1883 and
1889; therefore, any right of action to foreclose the mortgage, or any personal action with regard to the value
of the encumbered land, as the result of any liability incurred in the performance of his duties as procurador,
has more than prescribed. (Art. 1964, Civil Code, and secs. 38, 39 and 43, Act. No. 190.).
On the termination of the sovereignty of Spain over this Archipelago, the Spanish courts here established went
out of existence on January 31, 1899, the Pampanga court indeed being abolished about the middle of 1897
as a result of the revolution against the former sovereignty. The personnel of those courts also ceased to
render service as such. It may therefore be affirmed that, if the said lien on the land in question has not
terminated by its no longer having any object, it is at least undeniable that prescription has already run with
respect to any action that might have been brought against the pledged land to recover for any liability which
might have been incurred by the procurador Cruzado during his lifetime in connection with his office, so that
this real estate may now be considered as free from that hypothecary encumbrance.
At the present time we have only to explain what rights Agapito G. Cruzado transmitted at his death to his son,
the herein plaintiff, by virtue of the deed of sale of the land in litigation, executed by its owner Estefania
Bustos.
It is unquestionable that the contract of sale of the 65 balitas of land was perfect and binding upon both
contracting parties, since they both appear in that instrument to have agreed upon the thing sold, to wit, the
65 balitas of land, and upon the price, P2,200; but it is also undeniable that the said contract was not
consummated, inasmuch as, notwithstanding that the deed of sale Exhibit A was accomplished and this
document was kept by the pretended purchaser, it is positively certain that the latter did not pay the purchase
price of P2,200, and never took possession of the land apparently sold in the said deed. All that this vendee
afterwards did was to pledge the land on March 14, 1876, that is, six months and some days after the 7th of
September, 1875, the date when he purchased it as security for the faithful discharge of the duties of his
office of procurador of the Court of First Instance of Pampanga.
The plaintiff, Santiago Cruzado, a son of the vendee, claiming that the said land was being detained by the
vendor, or by the administrator of the latter's estate or her death after the commencement of these
proceedings, and by the other defendant Manuel Escaler, prayed the court to declare him to be the owner
thereof, to order the defendants to return it to him and to pay him for losses and damages, and the costs.
The action brought by the plaintiff is evidently one for recovery of possession, founded on the right transmitted
to him by his father at his death, a right arising from the said simulated deed of sale of the land in question.
This action is of course improper, not only because the sale was simulated, but also because it was not
consummated. The price of the land was not paid nor did the vendee take possession of the property from the
7th of September, 1875, when the said sale was feigned, until the time of his death; nor did any of his
successors, nor the plaintiff himself until the date of his claim, enter into possession of the land.
It is indeed true that it is not necessary that the thing sold or its price should have been delivered in order that
the contract of purchase and sale be deemed perfect on account of its being consensual, and from it
reciprocal obligations arise mutually to compel the parties to effect its fulfillment; but there is no transmission
of ownership until the thing, as in the case at bar, the land, has been delivered, and the moment such delivery
is made the contract of purchase and sale is regarded as consummated. Article 1450 of the Civil Code, relied
upon in this connection by the appellant, refers solely to the perfection of the contract and not to its
consummation.

The purchaser is also a creditor with respect to the products of the thing sold, and article 1095 of the Civil
Code prescribes as follows:

This principle is in harmony with those set up by the same high tribunal in its decision of January 19, 1898,
and March 8, 1901.

A creditor has a right to the fruits of a thing from the time the obligation to deliver it arises. However, he shall
not acquire a property right thereto until it has been delivered to him.

In this last decision, also rendered on an appeal in cassation, the doctrine enunciated in the excerpt copied
here below was established:

The provisions of this article are in agreement with that of the second paragraph of article 609 of the same
Code, which is of the following tenor:

That the contract of purchase and sale, as consensual, is perfected by consent as to the price and the thing
and is consummated by the reciprocal delivery of the one and the other, the full ownership of the thing sold
being conveyed to the vendee, from which moment the rights of action derived from this right may be
exercised.

Ownership is acquired by retention.

Ownership and other property rights are required and transmitted by law, by gift, by testate or intestate
succession, and, in consequence of certain contracts, by tradition.
They can also be acquired by prescription.
The provisions of the said article 1095 are also in accord with those of article 1462 which reads:
A thing sold shall be considered as delivered, when it is placed in the hands and possession of the vendee.
When the sale should be made by means of a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if in said instrument the contrary does not appear or
may be clearly inferred.
It is true that the deed of sale Exhibit A remained in possession of the vendee Cruzado, but the sale is not to
be considered as consummated by this because the said vendee never entered into possession of the land
and neither did his son the plaintiff. The latter, moreover, was unable to prove that at any time as owner of the
land he collected the fruits harvested thereon, or that any other person cultivated the said land in the name
and representation of his deceased father or of the plaintiff himself. The fiction created by means of the
execution and delivery of a public instrument produces no effect if the person acquiring it never takes
possession of the thing sold or acquired, as happened in the case at bar.
If, as prescribed by the preinserted article 1095, the creditor, and in the present case the vendee, does not
acquire a property right in the land purchased until the property has been delivered to him or he has taken
possession of it, it is unquestionable that, as neither the plaintiff nor his predecessor in interest took
possession of the land in litigation, neither of them acquired any property right therein and, consequently,
could not and cannot now bring an action for recovery of possession which arises out of a property right in a
thing which belongs to them and not a mere right productive of a personal obligation. The plaintiff Santiago
Cruzado could only, in a proper case, exercise the personal right of action flowing from the right possessed by
his father to compel the vendor to fulfill the contract made in a public instrument to deliver the land sold or to
give him possession of it, in consequence of the said contract, though simulated and executed for the sole
purpose that the deceased Cruzado in default of P700 in cash might appear to own real estate with which to
insure the proper performance of his duties as procurador, an office he then desired to hold.
The supreme court of Spain in a decision of cassation of June 1, 1990, established the following doctrine:
That articles 1258 and 1450 of the Civil Code and the decisions of cassation of June 30, 1854, April 13 and
December 13, 1861, June 30, 1864, and April 19 and December 15, 1865, do not warrant the conclusion that
whoever purchases personal or real property may exercise with respect thereto all rights of action inherent in
its ownership, without it having, in some way or another, been placed at his disposal. On the contrary, the
distinction between the perfecting and the consummation of a contract marks the diversity of relations of the
contracting parties among themselves and of the owner with respect to what constitutes this property.

It is, then, of the utmost importance to examine whether in the said sale the purchase price was paid and
whether the vendee took possession of the land supposed to have been sold.
The record discloses that Cruzado during his lifetime was, before he became a procurador, an
official escribiente or clerk charged with the duty of coursing records and proceedings in the Court of
Pampanga; that his salary was hardly sufficient to maintain him and his family; that on account of the
insufficiency of his monthly stipend, he was frequently obliged to borrow money from his friends,
notwithstanding that he with his family lodged in the house of Bernardino Dizon, the husband of the vendor
Bustos, situated in the municipality of Bacolor, with whom Cruzado maintained intimate relations of friendship,
and on this account the said couple were content to live in a country house they owned on one of their rice
fields. Such was the testimony of several witnesses who lived in that municipality, and who knew and had
considerable dealings with the plaintiff's father for many years. It was the opinion of these witnesses that the
deceased Agapito G. Cruzado was a poor man, for the reason that his monthly salary scarcely provided for the
needs of himself and his family, and they therefore believed that he could not have furnished the sum of
P2,200 to purchase the land in question, and, furthermore, if the plaintiff's father had possessed this sum, he
would have made the deposit of the sum of P700, the amount of security required by the Presidencia of the
former Real Audiencia de Manila for his appointment as procurador, since, having the means, he would have
preferred to deposit this smaller sum rather than to have used P2,200 in acquiring a piece of land from which
he would derive no benefit whatever, as in fact he never did, as he must have known that in spite of the
simulated sale of the property its owner would continue in its possession and would cultivate it, as she did do
until her death. It is, therefore, unquestionable that the price of the sale was not paid, an omission which would
indicate that it was in effect simulated.
Aside from the fact that the spouses Estafania Bustos and Bernardino Dizon had no need to sell the said
65 balitas of land, or of fencing or separating this parcel from the large tract of land that belonged to them and
of which it formed a part, for the reason that they were rich and at that time were not in need of money to
cultivate their extensive landholdings, it is also to be noted that the portion of land sold was worth very much
more than the P2,200 which, in the said instrument, purported to be its price.
In addition to the foregoing, the proceedings in the case at bar furnish ample proof that Agapito Geronimo
Cruzado during his lifetime stated to various persons that he succeeded in giving bond for his appointment as
procurador by means of the said instrument of simulated sale, executed in his favor by the spouses Dizon and
Bustos, as he did not have the money to make the deposit required for his appointment. So close were the
relations that then existed between the Cruzado family and that of Dizon and Bustos, that later on the plaintiff
married a daughter of these latter; hence, plaintiff, in the beginning of his letters Exhibits 8 and 9 addressed to
Natalio Dizon, a son of the vendor Estefania Bustos, calls his correspondent his "dear and esteemed brotherin-law." It is therefore not stranger that these spouses should have wished to help plaintiff's predecessor in
interest by assisting him to obtain the office of procurador, even to the extent of making a feigned sale.
However, years afterwards, prompted by an intuition of possible future difficulties, Dizon and his wife Bustos
went to the office of Agapito G. Cruzado and required him to cancel the said deed of sale, in order to avoid any
lawsuit after their death. Cruzado promised to look for money wherewith to substitute the mortgage bond. This
demand had to be repeated several times, because Cruzado did not cancel the deed as he promised.
Furthermore, it is shown that the instrument Exhibit A is merely a second copy obtained by the plaintiff from
the chief of division of archives, without prior summons or notification of the vendor Estefania Bustos, who was

still living, in conformity with the provisions contained in article 18 of the Notarial Law of February 15, 1889,
and without the plaintiff's having explained what became of the first copy. Besides, the clerk and notary who
certified that instrument did not attest therein that in his presence the vendee Cruzado paid over the sum of
P2,200, the price of the land sold, and as the vendor denied having received this sum, the obligation devolved
upon plaintiff to prove that his deceased father had paid the price stated in that instrument. By this not having
done so, his omission constitutes additional proof that the sale of the land, the recovery of possession of which
plaintiff now seeks, was really simulated.
The supreme court of Spain, in a decision dated February 20, 1899, rendered on an appeal in cassation, laid
down the doctrine that, in accordance with the provisions of article 40 of the Mortgage Law, in the alienation of
real property it is understood that no price has been paid if the notary does not attest its delivery or the
contracting parties do not prove that it was previously paid.
The courts are allowed full latitude to accept the presumption that the purchase price has not been paid when
the notary before whom the instrument was executed does not attest the delivery of the money, and when,
such delivery being denied by one of the contracting parties, the other does not adduce proof of its payment,
especially when such presumption is corroborated by other circumstantial evidence which, all together,
undoubtedly prove that the sale was feigned and simulated for certain purposes sought to be attained by the
parties, though, as in the case at bar, the simulation was not effected in fraud of creditors.
Besides the failure to pay the purchase price, the record discloses another very important fact, to wit, that
neither the vendee nor his heirs, among these latter, the plaintiff, had at any time taken possession of the land
which in the said instrument Exhibit A appeared to have been sold, for, by the testimony of seven competent
witnesses examined at the trial it is decisively and conclusively proven that the alleged vendor, Estefania
Bustos, and her husband while he was living, notwithstanding the said alienation, continued to possess the
said land supposedly sold to plaintiff's father, and cultivated it, as she had done long before the sale of
September, 1875, and continued to do so up to the date of the complaint filed by Santiago Cruzado; in the first
period, until September 10, 1891, as the owner of the land, and from this date, when the whole of the large
tract of land of which the said portion apparently sold forms a part was sold to the other defendant Manuel
Escaler, the original owner Estefania Bustos continued in the material possession of the land, but now as the
lessee of the new owner, until 1908, when she was substituted by Marcelo Rodriguez as the new lessee of the
property. The plaintiff at no time after his father's death occupied the land in litigation, notwithstanding his
allegation that he has been collecting rentals from Estefania Bustos, his mother-in-law, by reason of his having
leased the land to her.
The plaintiff endeavored to prove that during the years 1882 and 1883 he personally took charge of and tilled
the disputed land on shares through his tenants named Florentino de los Reyes, Lino Cortes, Macario de los
Reyes and Regino de los Reyes, all of whom corroborated plaintiff's testimony in this regard. However, six of
the defendants' witnesses positively stated that they never were aware that the said tenants had worked on
the land in question during either the said two years or in any other, for these latter were working on the
adjacent lands belonging to other owners. Pablo Angeles, one of the defendants' witnesses, testified that
Regino and Florentino de los Reyes were his tenants on shares and were employed on his land adjoining that
in question. He was positively certain that they never worked on the disputed land during or about the years
aforementioned, because the carabaos used by his said two tenants belonged to him and he never would
have permitted them to use these animals in working land that did not belong to him. He added that Regino's
children, Macario and Basilio, were at that time so young, being about eight years of age, that they were not
yet able to work in the fields.
The plaintiff must have been well convinced that he had no right whatever in the land supposedly purchased
by his father. The latter never demanded its possession from its owner Estefania Bustos and never thought of
declaring the property as belonging to him, for the purposes of the land tax, from the time this tax was
established in this country, notwithstanding that the plaintiff, knowing his obligation, filed a sworn declaration
relative to a lot he owned in the municipality of Bacolor. This procedure of plaintiff's proves that he did not
believe himself to be the owner of the land he claims and which its present owner Manuel Escaler has
constantly declared for the purpose of assessment.
Moreover, about the middle of the year 1891, the plaintiff Santiago Cruzado begged his brother-in-law Natalio
Dizon to tell the latter's mother, plaintiff's mother-in-law, that Cruzado desired the lease four balitas of the land

in question, and some days afterwards, possibly because he received no reply from his said brother-in-law, he
addressed a letter to Dizon (Exhibit 9, page 152 of the record, translated on page 154) in which he repeated
his request and asked for a reply; but notwithstanding that his brother-in-law Dizon told him that he could not
dispose of any part of the said land for the reason that his mother Estefania Bustos was negotiating for the
sale of all the land she possessed in the sitio of Sicat to Manuel Escaler, plaintiff went to Dizon's house on an
occasion when Paulino de la Cruz was there. Cruz was a representative of Escaler and had been charged to
inform himself of the situation, condition and quality of the land which Bustos was about to sell to his principal
and was at the said house for the purpose of being shown the land offered for sale. On this occasion plaintiff
learned that negotiations were being made for the sale of all the land owned by Estefania Bustos of which the
65 balitas in litigation formed a part. Plaintiff did not then or afterwards make any statement or objection
whatever in defense of his rights and interest, if he really believed that he was entitled to the land shown in the
instrument Exhibit A to have been purchased by his father.
Plaintiff made no protest whatsoever, because he well knew that the said sale was simulated and that his
father had acquired no right whatever in the property; he was therefore anxious to lease fourbalitas of the
same land, a purpose in which he was unsuccessful because a deal was then already going forward for the
sale of the said land to its present owner, Manuel Escaler, who in fact did but it on September 10, 1891. If
plaintiff were convinced that he was the owner of the land, as he rashly asserted that he was in his complaint
for recovery of possession, it is not understood why about the middle of the year 1891 he wished to lease, not
all the 65 balitas, but only four of them, as stated in his said letter, Exhibit 9.
From that time the new owner Manuel Escaler took possession of all the land sold by Estefania Bustos,
including the 65 balitas in litigation, and continued in its possession as the owner thereof until October 8, 1910,
when plaintiff filed his claim. Thus, more than the ten years required by law for ordinary prescription had
already elapsed, as Escaler purchased the land and was holding it in good faith under a lawful title and was
not disturbed in his continuous and peaceable possession, one that was adverse to the whole world. It is
therefore unquestionable that he has absolutely acquired by prescription the ownership of the disputed land,
and the action brought by plaintiff, founded solely on a simulated sale executed by the original owner of the
land, not to the prejudice, but to the benefit, of the pretended vendee, cannot prevail against Escaler's rights.
The registration obtained by the plaintiff in the property registry of the second copy of the said instrument
Exhibit A, about two months before filing his action for recovery, to wit, on August 23, 1910, has not improved
the deed of sale nor made it more effective, nor could it affect the rights held by the original owner and the
present proprietor of the land in question, inasmuch as their predecessor in interest, by default of payment of
the price of the sale and on account of his never having taken possession of the land sold, was not the owner
thereof, nor did he acquire any property right whatever therein. Consequently at his death he could not have
transmitted to the plaintiff as his successor any greater right than a personal right to exact the fulfillment of a
contract, and as plaintiff was not the owner of the land, he could not validly register it.
Article 1473 of the Civil Code prescribes:
If the same thing should have been sold to different vendees, the ownership shall be transferred to the person
who may have first taken possession thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the person who first took possession of it in good faith,
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
On the sale of the land to the defendant Escaler, neither he nor the plaintiff had had it entered in the property
registry, but the said new owner, Escaler, took possession of the land on the date of its acquisition, September
10,1891, and has retained possession thereof up to the present time. So that when plaintiff registered the land
he was not in possession thereof and no longer had any right whatever therein, because it already belonged to
the defendant Escaler, its lawful owner.

However, even though it were proper for plaintiff to bring the real action for recovery derived, though we do not
admit that it could be, from the simulated sale before mentioned, both this action as well as the personal action
the only one available in a proper case, as before demonstrated, pursuant to the provisions of article 1095
of the Civil Code have both certainly prescribed, for the reason that the periods fixed by law for filing such
actions have much more than elapsed.

For failure of petitioner to comply with the demand, private respondent filed a complaint for ejectment (Civil
Case No. 048908) with the Metropolitan Trial Court of Manila, Branch XII against the petitioner citing as
ground therefor the provisions of Batas Pambansa Blg. 25, Section 5, which is the unauthorized sub-leasing of
part of the leased premises to third persons without securing the consent of the lessor within the required sixty
(60)-day period from the promulgation of the new law (B.P. 25). (Rollo, Petition, p. 8).

Article 1939 of the Civil Code says:

After trial, the court a quo rendered its decision ordering petitioner and all persons claiming possession under
her (a) to vacate the premises alluded to in the complaint; (b) to remove whatever improvement she
introduced on the property; (c) to pay private respondent the amount of P2,000.00 as attorney's fees; and (d)
to pay the costs (Rollo, Annex "A", p. 19).

Prescription, which began to run before the publication of this code, shall be governed by the prior laws; but if,
after this code became operative, all the time required in the same for prescription has elapsed, it shall be
effectual, even if according to said prior laws a longer period of time may be required.
Personal actions prescribe after ten years; and the same with the writ of execution therein issued, after twenty
years; while real actions prescribe after thirty years: according to Law 5, Title 8, Book 1 of the Novisima
Recopilacion, and Law 21, Title 29, Partida 3, which were those in force on the date of the execution of the
deed of sale, Exhibit A.
From September 7, 1875, to October 8, 1910, when the complaint was filed, thirty-five years have elapsed.
Therefore, not only in accordance with the laws aforecited, but also pursuant to the provisions of articles 1963
and 1964 of the Civil Code, the periods fixed for the prescription of the personal action which could, in a
proper case, have been exercised, as well as for the real action for recovery of possession brought by the
plaintiff without right so to do, have more than prescribed.

Petitioner appealed the decision to the Regional Trial Court and on November 24, 1980, presiding judge of the
RTC, the Hon. Samilo Barlongay, affirmed in toto the decision of the Metropolitan Trial Court (Rollo, Annex "A",
p. 19).
The decision of the Regional Trial Court was appealed to the Court of Appeals for review. The respondent
Court of Appeals rendered its decision dated January 28, 1987, the dispositive portion of which reads as
follows:
PREMISES CONSIDERED, the petition not being prima facie meritorious, the same is
outright dismissed.
SO ORDERED. (Rollo, Annex "A", p. 21)

For all the foregoing reasons, whereby the errors assigned to the judgment appealed from have been duly
refuted, the said judgment should be, as it is hereby, affirmed, with the costs against the appellant. So
ordered.
G.R. No. 77365 April 7, 1992
RITA CALEON, petitioner,
vs.
AGUS DEVELOPMENT CORPORATION and COURT OF APPEALS, respondents.

Hence, the petition for review on certiorari.

The principal issue in this case is whether or not the lease of an apartment includes a sublease of the lot on
which it is constructed, as would constitute a ground for ejectment under Batas Pambansa BLg. 25.
Petitioner is of the view that Batas Pambansa Blg. 25 is not applicable because what she leased was her own
apartment house which does not include a sublease of the lot she leased from private respondent on which
the apartment is constructed.
Petitioner's contention is untenable.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the January 28, 1987 decision of the Court of
Appeals in CA-G.R. SP No. 10990 entitled "Rita Caleon V. Hon. Samilo Barlongay, et al." dismissing the
petition for review of the decision of the Regional Trial Court of Manila, Branch 34, which affirmed the decision
of the Metropolitan Trial Court of Manila, Branch XII, ejecting the petitioner.
The undisputed facts of the case are as follows:
Private respondent Agus Development Corporation is the owner of a parcel of land denominated as Lot 39,
Block 28, situated at 1611-1619 Lealtad, Sampaloc, Manila, which it leased to petitioner Rita Caleon for a
monthly rental of P180.00. Petitioner constructed on the lot leased a 4-door apartment building.
Without the consent of the private respondent, the petitioner sub-leased two of the four doors of the apartment
to Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00 each. Upon learning of the sublease, private respondent through counsel demanded in writing that the petitioner vacate the leased premises
(Rollo, Annex "A", p. 20).

This issue has already been laid to rest in the case of Duellome v. Gotico (7 SCRA 841 [1963]) where this
Court ruled that the lease of a building naturally includes the lease of the lot, and the rentals of the building
includes those of the lot. Thus:
. . . the lease of a building would naturally include the lease of the lot and that the
rentals of the building include the rentals of the lot.
xxx xxx xxx
Furthermore, under our Civil Code, the occupancy of a building or house not only
suggests but implies the tenancy or possession in fact of the land on which they are
constructed. This is not a new pronouncement. An extensive elaboration of this rule
was discussed by this Court in the case ofBaquiran, et al., v. Baquiran, et al., 53 O.G.
p. 1130.
. . . the Court of Appeals should have found the herein
appellees lessees of the house, and for all legal purposes, of
the lot on which it was built as well.

But petitioner insists that the ruling in the aforecited case is not applicable to the case at bar because the
former is a damage suit while the latter is an ejectment case.
Be that as it may, this Court has categorically answered in the affirmative, the principal question, common to
both cases and on which rests the resolution of the issues involved therein. Under the above ruling it is
beyond dispute that petitioner in leasing her apartment has also subleased the lot on which it is constructed
which lot belongs to private respondent. Consequently, she has violated the provisions of Section 5, Batas
Pambansa Blg. 25 which is a ground for Ejectment.
Section 5 of Batas Pambansa Blg. 25 enumerates the grounds for judicial ejectment, among which is the
subleasing of residential units without the written consent of the owner/lessor, to wit:
Se. 5 Grounds for judicial ejectment. Ejectment shall be allowed on the following
grounds:
a) Subleasing or assignment of lease of residential units in whole or in part, with the
written consent of the owner/lessor: Provided that in the case of subleases or
assignments executed prior to the approval of this Act, the sublessor/assignor shall
have sixty days from the effectivity of this Act within which to obtain the written
approval of the owner/lessor or terminate the sublease or assignment.

existing legal order. This power can be activated at anytime to change the provisions of the contract, or even
abrogate it entirely, for the promotion or protection of the general welfare. Such an act will not militate against
the impairment clause, which is subject to and limited by the paramount police power (Villanueva v.
Castaeda, 154 SCRA 142 [1987]).
Batas Pambansa Blg. 25, "An Act Regulating Rentals of Dwelling Units or of Land On Which Another's
Dwelling is Located and For Other Purposes" shows that the subject matter of the law is the regulation of
rentals and is intended only for dwelling units with specified monthly rentals constructed before the law
became effective (Baens v. Court of Appeals, 125 SCRA 634 [1983]).
Batas Pambansa Blg. 25 is derived from P.D. No. 20 which has been declared by this Court as a police power
legislation, applicable to leases entered into prior to July 14, 1971 (effectivity date of RA 6539), so that the
applicability thereof to existing contracts cannot be denied (Gutierrez v. Cantada, 90 SCRA 1 [1979]).
Finally, petitioner invokes, among others, the promotion of social justice policy of the New Constitution. Like
P.D. No. 20, the objective of Batas Pambansa Blg. 25 is to remedy the plight of lessees, but such objective is
not subject to exploitation by the lessees for whose benefit the law was enacted. Thus, the
prohibition provided for in the law against the sublease of the premises without the consent of the owner. As
enunciated by this Court, it must be remembered that social justice cannot be invoked to trample on the rights
of property owners, who under our Constitution and laws are also entitled to protection. The social justice
consecrated in our Constitution was not intended to take away rights from a person and give them to another
who is not entitled thereto (Salonga v. Farrales, 105 SCRA 360 [1981]).

Section 2(b) of Batas Pambansa Blg. 25 defines the term residential unit as follows:
Sec. 2. Definition of Terms Unless otherwise indicated wherever in this Act, the
following shall have the following meaning:

WHEREFORE, the Petition is Denied for lack of merit and the assailed decision of the Court of Appeals is
Affirmed.
SO ORDERED.

xxx xxx xxx

b. A residential unit refers to an apartment, house and/or land on which another's
dwelling is located used for residential purposes and shall include not only buildings,
parts or units thereof used solely as dwelling places, except motels, motel rooms,
hotels, hotel rooms, boarding houses, dormitories, rooms and bedspaces for rent, but
also those used for home industries, retail stores, or other business purposes if the
owner thereof and his family actually live therein and use it principally for dwelling
purposes: . . .
Petitioner argued further that Batas Pambansa Blg. 25 cannot be applied in this case because there is a
perfected contract of lease without any express prohibition on subleasing which had been in effect between
petitioner and private respondent long before the enactment of Batas Pambansa Blg. 25. Therefore, the
application of said law to the case at bar is unconstitutional as an impairment of the obligation of contracts.
It is well settled that all presumptions are indulged in favor of constitutionality; one who attacks a statute,
alleging unconstitutionality must prove its invalidity beyond a reasonable doubt (Victoriano v. Elizalde Rope
Workers' Union, 59 SCRA 54 [1974]). In fact, this Court does not decide questions of a constitutional nature
unless that question is properly raised and presented in appropriate cases and is necessary to a determination
of the case,i.e., the issue of constitutionality must be the very lis mota presented (Tropical Homes, Inc. v.
National Housing Authority, 152 SCRA 540 [1987]).
In any event, it is now beyond question that the constitutional guaranty of non-impairment of obligations of
contract is limited by and subject to the exercise of police power of the state in the interest of public health,
safety, morals and general welfare (Kabiling, et al. v. National Housing Authority, 156 SCRA 623 [1987]). In
spite of the constitutional prohibition, the State continues to possess authority to safeguard the vital interests
of its people. Legislation appropriate to safeguarding said interest may modify or abrogate contracts already in
effect (Victoriano v. Elizalde Rope Workers' Union, et al., supra). In fact, every contract affecting public interest
suffers a congenital infirmity in that it contains an implied reservation of the police power as a postulate of the

Republic of the Philippines

SUPREME COURT Manila
EN BANC
October 26, 1907 G.R. No. 3676 PONS Y COMPANIA, plaintiff-appellee, vs. LA COMPANIA
MARITIMA, defendant-appellant. Rosado, Sanz and Opisso, for appellant. W. A. Kincaid, for
appellee. JOHNSON, J.: On or about 19th day of February, 1906, the plaintiff turned over to the defendant
certain goods, wares, and merchandise to be transported from the city of Manila to the pueblo of Tobaco.
These goods were put on board the steamship Venus, which ship belonged to and was under the control of
the defendant. The said ship left Manila with the goods, wares, and merchandise on board on or about the
said 19th day of February and arrived at the pueblo of Tobaco some days later. Upon the arrival of the ship at
the pueblo of Tobaco, and in fact some days before, the captain in charge of the vessel discovered that a
portion of the said goods, wares, and merchandise were submerged in water in the hold of the ship and were
practically destroyed. The plaintiff claims that the damages done to his goods amounted to the sum of
P738.45, and no question is raised as to the amount of damage done. On the 26th day of April, 1906, the
plaintiff commenced an action in the Court of First Instance of the city of Manila against the defendant, for the
purpose of recovering the sum of P738.45, the amount of damage alleged to have been done to said goods,
wares, and merchandise. To the complaint of the plaintiff the defendant filed a general and special answer,
alleging for his special defense that the damages occasioned to said merchandise were not caused by his
negligence, but by circumstances over which he had no control. The issue thus formed was finally brought on
for trial on the 11th day of October, 1906. The judge of the Court of First Instance of the city of Manila, after
hearing the evidence adduced during the trial of the cause, made the following finding of facts:
1. That the plaintiff is a regular company registered and doing business in the city of Manila. 2. That the
defendant is a corporation authorized and registered in the city of Manila. 3. That the defendant is the owner
and does business in vessel for the transportation of passengers and merchandise between the city of Manila
and other points in the Philippine Islands. 4. That on or about the 20th or 22d of February, 1906, the plaintiff

delivered certain merchandise to the defendant, under an agreement to transport the same from the city of
Manila to the pueblo of Tobaco in the steamshipVenus of the property of the defendant. 5. That among the
merchandise so delivered there was a box of shoes; that when the said box of shoes had arrived at the pueblo
of Tobaco it was found to have been immersed in water during the voyage, while it was deposited in
the bodega (hold) of the ship, and that the contents of said box were entirely destroyed; that the value of the
shoes contained in said box was P738.45.

Inevitable accident or casualty; an accident produced by any physical cause which is irresistible; such as
lightning, tempest, perils of the sea, inundation, or earthquake; the sudden illness or death of a person. (2
Blackstone's Commentaries, 122; Story on Bailments, sec. 25.)

Upon these facts the judge of the lower court concluded that there was nothing in the proof adduced during
the trial of the cause which was sufficient to relieve the defendant of the responsibility occasioned by the
damage done to said merchandise, and therefore rendered a judgment against the defendant and in favor of
the plaintiff for the sum of P738.45, with interest at the rate of 6 per cent from the 26th day of April, 1906, and
costs. From this judgment the defendant appealed to this court and made the following assignment of errors:

The event which we could neither foresee nor resist; as, for example, the lightning stroke, hail, inundation,
hurricane, public enemy, attack by robbers; Vis mayor est, says Cayo, ea qu consilio humano neque
provideri neque vitari potest. - Accident and mitigating circumstances.

1. In making the defendant-appellant responsible for damages caused by force majeure. 2. In declaring that
the third person, to whom the damaged merchandise appears to have been sold by the plaintiff, refused to
pay the said plaintiff for the value thereof. 3. In not declaring the plaintiff's lack of right to bring this action.

Any accident due to natural causes, directly, exclusively without human intervention, such as could not have
been prevented by any kind of oversight, pains, and care reasonably to have been expected. (Law Reports, 1
Common Pleas Division, 432; Law Reports, 10 Exchequer, 255.)

In the lower court practically the only defense that was offered by the defendant was to the effect that a pipe or
tube running from one of the tanks in the stern of the vessel, for the purpose of allowing air to escape, had
become rusted and punctured full of holes, so that when the tank was filled with water on that side of the
vessel, owing to the list of the ship, the water ran up into this tube or pipe and escape through the holes into
the bodega of the vessel and thus some of the merchandise in transportation became wet and was damaged.
This was the defense relied upon by the defendant and the one relied upon in the above first assignment of
error. The defendant and appellant claims that the injuries occasioned to the merchandise in question were
caused by fuerza mayor. If it is true that the injuries were the result of fuerza mayor, then the defendant is
entirely relieved from responsibility and liability. (Art. 620, Commercial Code.) Upon the question of the cause
of the injury the chief engineer, in charge during the voyage when the said damage was done, testified as
follows:

Cockburn, chief justice, in a well-considered English case (1 Common Pleas Division, 34, 432), said that
where a captain -

Q. After the damage did you see the pipe? - A. After the damage took place the inspector was informed when
we arrived in Manila. Q. Did you see the pipe at that time? - A. Yes, sir; after the wooden covering was
opened. Q. In what condition was the pipe? - A. It was broken. Q. How was it broken? - A. There were porous
holes in the pipe and the water came out. Q. Will you explain what you mean by porous? - A. The pipe was
made of cast iron and I believe the pipe, on account of being old, had rusted through. Q. Do you mean on
account of the age of the pipe it had rusted and eaten through? - A. Yes, sir. Q. So the damage caused was
on account of the pipe having been old? - A. I am unable to tell you. Q. So owing to the rust you have seen,
you believe that the holes that you found in that pipe were on account of the pipe being old? - A. I suppose so.
Q. What was the thickness of that pipe? - A. One-half inch.
xxxxxxxxx
Q. Was that pipe unfit for use? - A. Yes, sir. Carlos Pombo, ship inspector, testified relating to the cause of the
injury as follows: Q. To what do you attribute the breaking of that pipe? - A. It could be attributed to many
causes; it was probably more or less to the amount of water in the bilge keel; it might be through some
accident; it might have been caused by the filling up of the tank; very likely the loading of some heavy stuff on
board and it falling on the board covering of the pipe might have caused the breaking of it.
We are satisfied from an examination of the record brought to this court that the damages occasioned were
not of such a character as to be characterized as force majeure. Where the officers of a vessel fail to make
such frequent inspection of their ship as to discover the existence of rusted parts, from which injuries to cargo
result, we are of the opinion that such injuries can not be attributed to force majeure, but rather to the
negligence of the officials of such ship. An examination of the Spanish and American authorities concerning
the meaning of force majeure shows that the jurisprudence of these two countries practically agree upon the
meaning of this phrase. Blackstone, in his Commentaries on English Law, defines it as -

Escriche, in his Diccionario de Legislacion y Jurisprudencia, defines fuerza mayor as follows:

Bouvier defines the same as -

Uses all the known means to which prudent and experienced captains ordinarily have recourse, he does all
that can be reasonably require of him; and if, under such circumstances, he is overpowered by storm or other
natural agency, he is within the rule which gives immunity from the effects of such vis major.
The term generally applies, broadly speaking, to natural accidents, such as those caused by lightning,
earthquake, tempests, public enemy, etc. Article 618 of the Commercial Code provides, among other things,
that The captain shall be civilly liable to the agent and the latter to the third persons, who may have made
contracts with the former, for all the damages suffered by the vessel and its cargo by reason of want of skill or
negligence on his part.
In the present case the captain admits that the injury was occasioned by reason of a rusted pipe. The rust, of
course, was occasioned by natural causes, but the failure to discover the unsafe condition of the pipe was due
to the negligence of the persons in charge of the vessel and for this negligence the owner of the boat is liable
to the persons injured. Upon the second assignment of error above noted, the plaintiff contends that the
merchandise in question was by him to be delivered to the purchaser of the same at Tabaco, and that he was
under obligation to deliver the same in good condition. If this be true, then whatever damages were done to
the said merchandise prior to delivery were damages done to the plaintiff. This contention of the plaintiff is
supported by the fact that the purchaser of the merchandise, immediately upon discovering the damaged
condition of the same, presented a claim against the plaintiff concerning the said damages. Upon the question
the lower court, in its decision, said: The evidence is rather meager upon this question, but I find that the
person to whom the merchandise was sold immediately reclaimed from the plaintiff the loss thereof, and
refused to pay for the merchandise, and that the plaintiff suffered the loss of the merchandise and the
damages arising therefrom. We are of the opinion, therefore, and so hold, that the plaintiff herein was the
proper party to bring said action. This conclusion, in our opinion, also disposes of the third assignment of error
above noted. For all of the foregoing reasons, we are of the opinion, and so hold, that the judgment of the
lower court should be affirmed, with costs. After the expiration of twenty days let judgment be entered against
the defendant and in favor of the plaintiff for the sum of P738.45, with interest at the rate of 6 per cent from the
26th day of April, 1906, with costs. So ordered. Arellano, C.J., Torres, Willard and Tracey, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

September 18, 1915

G.R. No. 10006
YAP KIM CHUAN, plaintiff-appellee,
vs.
ALFONSO M. TIAOQUI, defendant-appellant.
Alfredo Chicote and Agustin Alvarez Salazar for appellant.
D.R. Williams and Albino Z. Sycip for appellee.
TORRES, J.:
This is an appeal filed through a bill of exceptions by counsel for the defendant from the judgment of March
20, 1914, whereby the Honorable A.S. Crossfield, judge, sentenced him to pay to the plaintiff the sum of
P1,019 with legal interest at the rate of 6 per cent a year, from August 4, 1903, and the costs.
Under the rate of August 4, 1913, counsel for the plaintiff filed a written complaint in the Court of First Instance
of Manila, alleging as his first cause of action that on March 15, 1913, plaintiff leased the building at No. 218
Calle Rosario, owned by the defendant, up to December 31 of the same year, undertaking to pay therefor the
sum of P310 from said March 15 to June 30, 1913, and P315 from the subsequent first of July until the
termination of the lease; and that on April 14, 1913, because of the leaks in the roof of the storeroom of said
building, without fault or negligence on the plaintiff's part, some of his merchandise stored in said storeroom
was so wet and damaged as to cause him a loss amounting to P1,169. He set forth as his second cause of
action that subsequent to this occurrence, to wit, on April 15, 1913, a list of the damaged goods was made out
in the presence of the plaintiff, the defendant and a notary public; that afterwards the defendant expressly
authorized the plaintiff to sell he damaged goods at any price, promising to pay the difference between the
selling price and the regular price of the articles in good condition; that by virtue of said authorization and
promise, plaintiff accordingly disposed of all the damaged goods that could be sold, at a loss of P1,169; and
that notwithstanding the repeated demands made upon him to pay this amount, according to promise, said
defendant had refused and refuses to pay. Therefore, judgment is prayed against the defendant, sentencing
him to pay to the plaintiff the sum of P1,169 with legal interest, and the costs.
On September 3, 1913, defendant filed his answer in writing, admitting certain paragraphs of the foregoing
complaint but specifically denying the rest, and alleging as a special defense that the building the plaintiff
occupies had been recently finished, the construction thereof having been under the direction and inspection
of an engineer, after approval of the plans and specifications by the engineering and sanitation departments of
the city of Manila; that it was opened for use after acceptation of the work by the city engineer and approval by
the said departments of engineering and sanitation; that about 5 o'clock in the afternoon of April 14, 1913,
there fell over the city of Manila a torrential rain the heaviest from the month of January of that year; that
because of the large amount of water and the extraordinary violence of the downpour many buildings in the
Escolta and adjacent business sections, not only many buildings of wood merely, but even those of reinforced
concrete, were flooded by the overflowing of the drains, gutters, and by filtrations, because the gutters of the
eaves and roofs were inadequate for holding the extraordinarily excessive rainfall on that occasion; that the
wetting the plaintiff's merchandise sustained from that rainfall was not caused wholly by the leaks and drips
but was in large part due to the improper situation or location of said merchandise inside the building; that in
neither case was there fault of negligence on defendant's part, said occurrence having been unforeseen, or,
even being foreseen, unavoidable; that it is true an inventory of the plaintiff's damaged goods was made in the
presence of the interested parties before a notary public; that said plaintiff presented to the defendant his
claim for the damages sustained, asking the latter to pay them; that the truth is that the defendant never
authorized plaintiff to sell the said merchandise inventoried, as set forth in the complaint; that it is not the truth
the defendant promised, either expressly or tacitly, to make good to the plaintiff any loss sustained through the
difference between the price of the articles in good condition and the price thereof after being damaged, for, as
recorded in the document drawn up on April 15, 1913, signed by the plaintiff, the defendant's intervention
therein did not signify a tacit acceptance of any liability for the alleged loss sustained by the plaintiff, but was
merely to determine the cause thereof and the manner in which the water got into the building. As another
special defense he alleged that on August 2, 1913, defendant transferred all his own rights, claims, and
obligations in the lease, as well as the absolute ownership of the building occupied by plaintiff's store, to
Seoras Romana, Cecilia, Luisa, and Maria, of the surname Tantungco y Guepangco who, by agreement set

down in the instrument of transfer, took over all the premises covered by the lease made by the defendant to
the plaintiff from the date thereof, to wit, March 15, 1913, and subsequently they were parties directly
interested in the present suit.
After trial and introduction of the evidence by both parties, the court rendered the judgment that has been set
forth, whereupon defendant saved his exception and filed a written motion for reopening of the case and a
new trial. This motion was denied, with exception on appellant's part and presentation of the corresponding bill
of exceptions, which was approved and forwarded to the clerk of this court.
The question raised in this case No. 10006, and in two others of the same nature, Nos. 10007 and 10008, is
whether the owner of a tenement occupied by each of the defendants in the three cases cited, each in his
respective rooms or apartment, is responsible for the deterioration through the wetting of the cloth and other
goods that said plaintiffs as tenants had in same and its storerooms, as a result of the torrential and
extraordinary rain which fell upon the city for nearly an hour in the afternoon of April 14, 1913.
Defendant's building, composed of four apartments, had just been finished and a few months ago was
inspected by the city engineer and approved for the use for which it was intended. There is no record that said
building presented any indication or sign of having defects in its roof such as might cause leaks and damage
to the merchandise placed therein, to enable the Chinese contractor Machuca to hand over the same, as
finished, the work was previously approved by the architect who superintended the construction and finally by
the city engineer, who authorized the use and occupancy of the building for leasing, therefore it is to be
presumed, in the absence of proof to the contrary, that the owner who invested many thousands of pesos in
the construction would not have approved or accepted the work on his building unless he had been convinced
that the building, finished by the contractor, and approved by his architect who superintended the work and by
the city engineer, had been properly construed, and therefore that in leasing it to the plaintiff-tenants he acted
in the greatest good faith; that they on their part, in taking over and occupying the leased premises, did so
satisfied and persuaded that the building was adequate and would serve for the use they had for it and that it
had no defect which would cause any injury or loss to their interests.
The principal rights and obligations of lessor and lessee are comprised in the two following articles of the Civil
Code ."ART. 1554. The lessee is obliged: 1. To deliver to the lessee the thing which is the object of the
contract. 2. To make thereon, during the lease, all the necessary repairs in order to preserve it in condition to
serve for the purpose to which it was destined. 3. To maintain the lessee in the peaceful enjoyment of the
lease during all the time of the contract. ART. 1555. The lessee is obliged: 1. To pay the price of the lease in
the manner agreed upon. 2. To use the thing leased as a diligent father of a family would, applying the same to
the use agreed upon; and, in the absence of an agreement, to the use which may be inferred from the nature
of the thing leased according to the custom of the land. 3. To pay the expenses arising from the instrument
constituting the contract. ART. 1556. If the lessor or lessee should not comply with the obligations mentioned
in the preceding articles, they may request the rescission of the contract and indemnity for losses and
damages, or only the latter, leaving the contract in force."
Did the defendant owner of the building in question fail to carry out any obligation imposed by the law in the
foregoing articles, or at least some obligation imposed in the lease? There is no evidence in the case that he
failed in the performance of the obligations he assumed in executing the lease, nor does there appear to have
been stipulated therein the liability now imputed to him.
Article 1562 of the same code reads: "If, at the time of the lease of the estate, the condition of the same was
not mentioned, the law presumes that the lessee received it in good condition, unless there be proof to the
contrary."
Have the plaintiffs proven that when they accepted defendant's building it was uninhabitable and inadequate
for the use for which they leased it? There is no evidence in the case to prove such a circumstance.
Nor have the plaintiffs themselves even in the least way proven that the three of them, or any one of them,
notified the defendant after they had occupied the premises that repairs were necessary thereon for keeping
the same in condition suitable for the use intended, and never did they notify the defendant that the roof was
defective or had holes or cracks that might cause leakage and the wetting of the merchandise within the

building. The fact is that neither the lessor no the lessees knew that the roof was defective and was going to
leak when it rained, for they only became aware of the leaks during the rainstorm on the afternoon of the day
mentioned, April 14; and therefore only on the hypothesis that the lessor had known of such defect and had
concealed it from the plaintiffs could he be held responsible for the consequences thereof on account of the
leakages that occurred, especially when it has not been duly proven that the defendant lessor failed to perform
any of the obligations imposed by the law in the article quoted, 1554, by which he might be held responsible to
the plaintiffs for damages and losses for which indemnity is unwarrantedly sought.
Besides the articles quoted therein is nothing in the Civil Code by virtue whereof the lessor may be declared
responsible for the damages and losses the lessees may have sustained as a consequence of the leaks in the
roof of the building leased and for the other troubles they have encountered.
If a a consequence of the torrential rainfall mentioned, which in scarcely an hour filled the squares, streets and
lots of the city of Manila, and if as a result of the large quantity of water that fell the yard of the premises in
question was flooded and the roof leaked, there being no outlet for the water through the drain-pipes, by
reason whereof the plaintiffs had to break open four bell traps in the yard so that the water would quickly and
swiftly flow away thus preventing a greater inundation of the yard of the premises, the occurrence was
undoubtedly due to force majeure, being a fortuitous event which could not have been foreseen by the owner
or the plaintiffs-tenants, or many other proprietors of stores whose interiors were flooded as a result of that
heavy rainfall, and consequently the damages and losses the water inflicted upon the plaintiffs could not be
ascribed to the owner of the premises so as to hold him liable for the indemnity.
Article 1105 of the same Code prescribes: "No one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with the exception of the cases expressly mentioned in the law or
those in which the obligation so declares."
The wetting sustained by the goods and merchandise of the plaintiffs as a consequence of the heavy torrential
rainfall on the afternoon mentioned, which caused leaks in the building and flooded the yard, is not a case
expressly mentioned by the law for which the owner of the premises is responsible, and further it does not
appear to have been provided against in the lease to be seen in folio 15, letter A, by virtue whereof the lessor
would be liable to an indemnity for the damages and losses cause his tenants by that rainfall; and so, in
accordance with the provisions of the article quoted above, the defendant is not responsible for the results of
the torrential rainfall that has been described.
A fortuitous event is an accident independent of the obligor's will to carry out some stipulation and it is plain
that for him to escape the imputation of not performing his obligation he must be placed in a situation arising
from an unforeseen event, or in one where, even if he had foreseen it, still he could not have avoided it, by
reason of the fact that its unexpectedness and inevitability places it beyond human control.
It was not stipulated in the lease executed between the defendant and the plaintiffs that, if the goods and
merchandise the defendant-tenants might have on the premises should get wet, the defendant would as lessor
thereof be liable to indemnity , nor have the plaintiffs been able to allege such liability in their claim; and we do
not know of any article of the Civil Code included in the chapter which deals with leasing of urban property that
makes any provision for such liability on the part of the owner of the property.
If, on the said afternoon of April 14, it rained so heavily and so abundantly that the proof of the building
occupied by the plaintiffs, even though in good condition, according to the municipal architect's certificate,
leaked, and if as a consequence of that torrential rainfall said merchandise of the plaintiffs got wet, the
occurrence is not imputable to the lessor owner of the building, nor according to any evidence in the case to
the lessor's fault. Being evidently a fortuitous event, unforeseeable by any of the litigating parties, inevitable on
account of force majeure, the case discloses no proof of any kind that the defendant Tiaoqui knew that the roof
of the building leased to the plaintiffs had cracks or defects in it that would cause leakages, just as the plaintifftenants did not know that fact themselves, for otherwise they would have notified the defendant-lessor in due
season and demanded repair thereof so as to avoid injury to their interests.
Nobody, neither the defendant nor the plaintiffs, could have been foreseen that on the said afternoon of April
14 it was going to rain in torrents and in an extraordinary manner, wherefore it is neither right nor proper to

ascribe the wetting of the merchandise of the plaintiff-tenants to negligence, carelessness, or fault on the
defendant's part. It was a case of accident and force majeure which could not have been foreseen and which
nobody could have prevented, and the fact that the defendant repaired and fixed the leaks in the roof the next
day cannot be taken as proof of his liability, for he did not know and could not have foreseen that it was going
to rain in torrents the said afternoon and that the roof of the building would leak and show defects.
It would be an absurdity which the law cannot authorize for said tenant to be entitled to claim damages from
the owner because the roof a building leaked and some of the tenant's good got wet, for no provision of the
law relating to leases of urban property places any such obligation on the owner to pay indemnity for
damages, when he himself did not know that there was any defect to accuse such damages.
Article 1553 of the Civil Code declares that the provisions relating to warranty contained in the title of purchase
and sale are applicable to leases.
In connection with a lease warranty is the obligation to repair or correct the error whereunder the lessee took
over the property leased, but when the law declares that the lessor must warrant the thing leased, but when
the law declares that the lessor must warrant the thing leased, it is not to be understood that he must also
indemnify the lessee. Liability for the warranty is not equivalent to liability in damages, as the latter is an
obligation distinct from the former.
For proper understanding of the provisions of articles 1484 and 1485 of the Civil Code dealing with warranty it
is necessary to remember that under their provisions the lessor is liable for the warranty of the thing leased
against any hidden defects this liability for warranty of the thing leased does not amount to an obligation to
indemnify the tenant for damages, which is only to be allowed when there is proof that the lessor acted with
fraud and in bad faith by concealing to the lessee.
Article 1486 of the Code reads:
In the cases of the two preceding articles (1484 and 1485) the vendee (sc. lessee) may choose between
withdrawing from the contract, the expenses which he may have incurred being returned to him, or demanding
a proportional reduction of the price, according to the judgment of experts.
If the vendor (sc. lessor) knew of the faults or hidden defects in the thing sold (sc. leased) and did not give
notice thereof to the vendee (sc. lessee), the latter shall have the same option, and furthermore, be
imdemnified for the lossess and damages should be choose the rescission.
It must be kept in mind that the foregoing article and the two previously quoted appear in the title on contracts
of purchase and sale and are in every way applicable, according to article 1553 of the same code, to leases.
Hence, while the lessor is obligated by the general rule to warranty of the thing leased, whether or not he may
know of the existence therein of defects that render it inadequate for the use the tenant intends, he is only
liable for an indemnity for damages in addition to the warranty when he knew of the defects in the thing leased
and had not revealed them to the lessee, a procedure which induces the presumption that he acted with fraud
and in bad faith; but in order to hold him responsible for the damages and losses caused by such defects there
must be the express condition that the lessee should choose rescission of the contract, according to the
prescription of the second paragraph of the article quoted above, whence it is inferred that, should the lessee
insist upon continuing the contract by occupying the property, he must be understood to have waived the
indemnity.
The plaintiffs, without choosing warranty of the property leased, supposing that they were entitled to require it,
set up a direct claim for indemnity for losses and damages from the lessor, without having proven that the
latter had knowledge of the defects in the roof of the building leased and in spite of such knowledge did not
reveal it to the plaintiff- tenants, thus acting with malice and bad faith; and yet they continued to occupy the
property without having sought or demanded rescission of the contract; wherefore, even supposing that the
lessor were liable under the law for losses and damages, the plaintiffs were not and are not entitled to claim
such, because they in fact waived the indemnity. Read the above-quoted article of the code carefully.

As for the rest, article 1101 of the Civil Code reads:

Those who in fulfilling their obligations are guilty of fraud, negligence, or delay, and those who in any manner
whatsoever act in contravention of the stipulations of the same, shall be subject to indemnity for the losses
and damages caused thereby.
It has not been demonstrated in the that the defendant lessor failed to fulfill the conditions of the lease or that
he acted with fraud, negligence or delay in the fulfillment of said conditions. (Arts. 1102-1104, Civil Code.).
In a judgment on appeal of October 29, 1887, the supreme court of Spain, in applying said article 1101 of the
civil code of that country, identical with the one in force in these Islands, laid down the principle that, according
to established jurisprudence, indemnity for losses and damages cannot be claimed when they are caused by a
fortuitous event.
As for the other facts alleged by the parties, which have been the subject of the evidence adduced by them,
the record contains a certificate from the Observatory in this city to the effect that the rain which fell over the
city of April 14, 1913, was the heaviest from January to the said month of April of that year, for 48.3 mm. of
water were registered in the rain-gauge, an amount of rainfall notably excessive and the greatest during that
period of four months.
Counsel for the plaintiffs has strongly insisted in his briefs that the defendant-lessor agreed and stipulated to
pay the amount of the deterioration or depreciation of the goods and merchandise that were wet.
It has not been duly proven in the case that the lessor Tiaoqui admitted, or agreed to pay, the amount of the
losses and damages sustained by the plaintiffs because they sold the merchandise, wet by the rainfall that
afternoon, for a lower price than it was really worth. The declarations of the three plaintiffs do not constitute
sufficient proof to offset the positive denial of the defendant Tiaoqui; and the witnesses called by said plaintiffs,
far from confirming their allegations, made affirmations contradictory among themselves and at variance with
the assertion of the plaintiffs interested, for the latter aver that two of them demanded of Tiaoqui and were
promised by him that he would pay a half of the difference caused by the lower price at the sale of the goods,
while the witnesses cited stated under oath that Tiaoqui agreed to pay the whole amount resulting from the
depreciation in the value of the merchandise.
In fact, the record reveals that the defendant Tiaoqui denied in a sworn statement (folios 25 and 28) that he
had agreed to pay damages to the plaintiffs and alleged that, not only did he make plain that his intervention in
the notarial instrument drawn up the day after the disaster did not signify that he tacitly accepted any
responsibility arising from the alleged losses in the merchandise, but furthermore, when demand was made by
two of them that he pay the amount averred as the extent of said respective losses, he replied that he could
not pay it; and he added that, when for the second time the plaintiffs saw him for the purpose he would
investigate whether there were defects in the roof of the building to cause leaks, in which case he would
collect from the contractor Machuca and that the sum the latter might pay he would deliver to the plaintiffs to
cover said losses and damages, but that if said contractor did not pay up or if the leaks had resulted from the
torrential rain which fell over Manila he would not pay them a cent. The promise contained in the first part of
the defendant's answer plainly has a condition attached to it, and there is no record that the plaintiffs accepted
it or that they agreed to the condition mentioned, and therefore it cannot serve as ground for an adverse
finding.
The contractor Rafael Machuca Gotauco testified that he constructed the defendant's building, located in Calle
Rosario, according to plans and specifications which were kept before him, and that after the work had been
finished the architect certified that said building was well constructed; and he added that he did not know why
the water penetrated at the junction of the roof of the building with the firewall, for that junction had been
carefully made, but thought it must have been due to that torrential rainfall.
The attorney, Vicente Miranda, testified in his sworn statement that on the afternoon in question he was in
Clarke's situated in the Escolta and that as a consequence of the rainfall the persons there had to put their
feet on the tables because the water rose so high that it overflowed the sidewalk. This the witness Aurelio

Acua corroborates in his testimony by saying that his store at No. 21 Calle Rosario was filled with water
flowing from the yard and the street, so that he sustained damages, and that he saw his neighbors had to bail
the water out of the interior of their stores or shops with pails and washbasins. Attorney Miranda added that
over a week after a occurrence he had interviews with Attorney O'Brien, counsel for the plaintiff Tan Tiap, and
they two talked about the liability of the defendant for the losses and damages sustained by the plaintiff Tan
Tiap, and he did not then hear that the defendant Tiaoqui had promised to pay the plaintiffs a part or all of the
amount of the losses and damages they may have sustained through the wetting of their goods and
merchandise.
Summing up, the record fully demonstrates that the defendant Alfonso M. Tiaoqui is not liable under the law to
pay indemnity for losses and damages because of the wetting of the goods and merchandise of Yap Kim
Chuan, plaintiff in case No. 10006; of Marciano Ong Qui Sing plaintiff in case No. 10007; and Tan Tiap, plaintiff
in case No. 10008; and that on the other hand these cases do not reveal satisfactory and conclusive evidence
that the defendant lessor Tiaoqui to make up all or part of the loss or depreciation on the sale of the goods and
merchandise that was wet.
It is be observed that as the three said cases are based on analogous facts, having the same origin, they were
tried together and the parol and documentary evidence adduced by the parties in each of said cases all taken
in No. 10006; and as the questions of fact and of law raised in all three cases are the same, the legal grounds
for the final decision in all three cases are set forth only in the decision of the first of them, in order to avoid
useless and unnecessary repetition.
Roman Tantungco and three others, represented by the same counsel for the defendant, as owners of the
building leased to the plaintiffs after August 2, 1913, through the transfer made by her defendant, prayed that
they be allowed to intervene in these three cases, that the said cases be finally dismissed and that they be
absolved from the complaints filed. These contentions were opposed by the plaintiffs, but the record does not
show that any action was taken on the motions presented by the parties.
For the foregoing reasons the judgment appealed from, as rendered in this case No. 10006, must be reversed,
and the defendant Alfonso M. Tiaoqui absolved, as we do absolve him, from the complaint filed by Yap Kim
Chuan, without special finding as to costs in both instances. So ordered.
Arellano, C.J., and Araullo, J., concur.
Johnson, J., concurs in the result.
Trent, J., concurs.
Separate Opinion
CARSON, J., dissenting:
The decision is apparently based upon two points.
1. That the rainfall was a fortuitous event and the lessor is therefore relieved from liability. According to the
report of the Weather Bureau, received in evidence at the trial and admitted to be correct, the rainfall in
question amounted to 46.5 millimeters, or 1.83 inches, all of which occurred in one hour. This court holds that
this amount of rain in one hour is a fortuitous event or an "act of God." In volume 1 of the Census of the
Philippine Islands (1903), at page 117, a table is given of the most abundant rainfalls which have occurred
within one hour or part thereof between 1885 and 1902. Nineteen such occurrences during this period are
chronicled, in all but four of which greater precipitation than 46.65 millimeters occurred, the highest being 60
millimeters and the lowest 42 millimeters. These rainfalls average more than one per year. In the year 1891
there were three one-hour periods in which rain fell to the amount of 55, 50.3 and 49.8 millimeters,
respectively. In 1889 there were two such periods in which the rainfall was 48 and 47.2 millimeters,
respectively. In 1888 there were three such periods in which the rainfall was 47, 47, and 42.8 millimeters,
respectively. It is now held that 46.5 millimeters of rain in one hour is a fortuitous event. This holding
automatically bars all actions seeking redress from builders or owners of buildings whose non-performance of
their contracts is caused by a precipitation equaling 46.5 millimeters in one hour. All they have to do to escape

liability is to plead the rainfall as a fortuitous even. Logically, the boon ought also to be extended to all other
obligations. In view of the frequency with which such rainfalls occur in this country, I cannot lend assent to
such doctrine. Owners and builders of buildings should be required to construct their buildings to withstand
much more than 46.5 millimeters of rain in one hour. It is well-known that he heavy rains, strong winds, and
earthquakes are to be expected in this country. These forces of nature are with more frequency and with
greater intensity visited upon us than in many other parts of the world. All persons entering into contracts
which require that the elements be reckoned with in the fulfillment thereof ought to be required to prepare for
all such occurrences as may be said to be within the experience of mankind in that particular portion of the
world where the contract is to be performed.
2. The judgment of the court seems also to rest upon the ground that a lessor is obliged to choose between
two alternatives; (a) the rescission of the contract of lease and an action for damages, or (b) performance of
the contract of lease and an action for the proportional reduction of the rent. Plaintiff has elected to abide by
the lease and has brought this action for damages. This, according to the court, cannot be done. It occurs to
me that under the circumstance, it would be extremely paradoxical for the plaintiff to now ask for a proportional
reduction of the rent, inasmuch as repairs to the building have been made by the lessor and it is now
presumably in a better condition to with stand rainfalls than it was before. What would be the view of this court
of a complaint asking for a proportional reduction of the rent on the ground that the building once leaked and
did considerable damage to the plaintiff's goods, although it is now in good repair? If a literal compliance with
the law as laid down by the court be required in this manner, it is a mere matter of computing the equitable
distribution of plaintiffs' damages over the remaining rent-payments of his lease. A simple mathematical
calculation stands in the way of granting the plaintiff the relief he asks. An immaterial amendment of the
complaint, which we are authorized to make (secs. 109, 110, C.C.P.), to make it conform with the law as
interpreted by the court would complete the technical upon the defendant's rights. It is true that article 1553
provides that provisions of the Code relating to warranty as a covenant of the contract of sale are applicable
also to contracts of lease. But I understand this to mean where they logically applicable and when there are no
specific provisions in that portion of the Code for the contract of lease. Aside from the inconvenience and the
difficulty of applying article 1486 to a contract of lease, as I have pointed out above, it appears to me that there
is a specific article of the code relating to lease contracts which provides for the case at bar. It is one of the
covenants of the lessor "to maintain the lessee in the peaceful enjoyment of the lease during all the time of the
contract." (Art .1554, no. 3.) The next article of the code enumerates the covenants of the lessee. Article 1556
then provides: "If the lessor or lessee should not comply with the obligations mentioned in the proceeding
articles, they may request the rescission of the contract and indemnity for losses and damages, or only the
latter, leaving the contract in force."
It is clear that this article allows a lessee, at his option, (a) to rescind the contract of lease and maintain an
action for damages, or (b) to adhere to the contract of the lease and maintain an action for damages, when the
covenant of peaceful enjoyment is broken. This latter course was that pursued by the plaintiff in the case at
bar.
3. On the issue of fact of whether the defendant promised to pay the damages suffered by the plaintiff upon
hearing thereof, there is a conflict of evidence. The trial court held that such a promise had been made by the
defendant, but this court finds otherwise from an examination of the record. I am compelled to dissent from
this portion of the opinion also.
July 25, 1916
G.R. No. 10283
LIMPANGCO SONS, plaintiff-appellant,
vs.
YANGCO STEAMSHIP CO., defendant-appellee.
Lawrence, Ross, and Block for appellant.
Haussermann, Cohn, and Fisher for appellee.
PER CURIAM:

The following grounds moved the court to a reversal in this case:

On the 3d day of August, 1913, plaintiff employed defendant to tow from Guagua to Manila two cascos loaded
with 2,041.80 piculs of sugar, property of the plaintiff, of the value of P11,229.90. On that date the cascos left
Guagua towed by the launches Tahimic and Matulin , belonging to the defendant. When the launches,
together with their tows, arrived off the Malabon River, the patron of the launch Matulin , whether of his own
motion, as contended by the casco men, or whether at the instance of the patrones of the cascos, as he
testified, decided to leave the cascos in the Malabon River. The launch Tahimic towed the cascos into the
Malabon River and the launch Matulin continued the trip to Manila. The reason why this was done, according
to the testimony of the patron of the Matulin , was that, at that time, the weather was threatening, and the
cascos, heavily loaded as they were, to continue the voyage to Manila.
On Friday following, August 8, 1913, the launch Matulin was in the Malabon River and the patron talked to the
men in charge of the two cascos, which were at that time tied up at Tansa, and told them that on the following
day, the 9th of August, at daybreak, he would await them off the mouth of the Malabon River, outside the bar,
and that, if the weather was then favorable, he would tow them to Manila. It was agreed between the patron of
the Matulin and the patrones of the cascos that the later should move out of the river by means of
their tikines or bamboo poles and, thus propelled, proceed to the place where the launch Matulin was to be
waiting for them. On the following day, 9th of August, 1913, at 6 a. m., the patron of the Matulin arrived with his
launch off the mouth of the Malabon River and anchored outside of the shallows, something like 1,500 meters
from the mouth of the river. In accordance with the agreement with the patron of the Matulin and under his
instructions, the crews poled their cascos out of the river following the channel. When they passed the shallow
water they were met with high seas and strong winds. The bamboo poles were unavailing, and , finding
themselves in danger of being washed ashore and destroyed, they claim they called to the Matulin , which
was in plain sight, for help. The patron of the Matulin, they allege, made no effect to assist them and, by
reason of the high seas and strong winds, they were driven ashore or on the shoals and their cargoes lost.
The patron of the Matulin e testified that he was unable to render assistance to cascos by reason of the
shallow water in which they were at the time they were caught by the winds and waves and washed ashore.
We are of the opinion that the judgment must be reversed on defendant's own statement of facts. Defendant,
in its brief, states the facts substantially as above, except that it denies that the crews of the cascos, in their
distress, called to the patron of the Matulin for assistance, or that the cascos were in deep water at the time
the wind and waves began to drive them toward the shore. We have no doubt, however, from the facts and
circumstances related that the crews of the cascos did call for help when they saw the dangerous position in
which they had been placed by the orders of the captain of the launch. It would be a natural thing for them to
do under the circumstances, and we have no doubt that they did. But whether they really did or not we regard
as of very little importance; and the same may be said with respect to the position of the cascos when they
first received the winds and waves. It was evident to the captain of the Matulin that the cascos were in
distress, in the open bay with winds and waves driving them ashore; and if he had had anything like a proper
conception of his duty he would have gone to their assistance. Nor does the argument avail that he could not
do so because his launch was of such draft that it would have been impossible to navigate the shallow water
in which the cascos were at the time the elements began to drive them toward the shoals. That fact does not
furnish a legal excuse. He came for the purpose of towing the cascos to Manila; he knew that it was the
reason when the southwest monsoon or other winds could be expected to blow at any moment; he knew that
two heavily loaded cascos with nothing to propel them but bamboo poles in the hands of their crews and
nothing to maintain their position in the water except anchors so small as to be of little avail even in a
moderate sea, would be at the mercy of wind and wave, if there should be any, the moment they emerged
from the mouth of the river. He must have known, if he had any reasonable conception of his duty, that the
cascos. propelled simply by bamboo poles, could make no headway against wind and sea, and that it would
be well night impossible, in view of the weather which at any moment might prevail, to traverse a distance of
1,500 meters in an open sea. Fifteen hundred meters is almost a mile; and that the captain of
theMatulin should have expected that the two cascos could successfully face the weather which would
naturally be expected at that time while the crews "poled" their heavily laden craft in the open bay for almost a
mile demonstrates that he had no proper conception of his obligation. It must be remembered that the
Malabon River opens into Manila Bay toward the southwest, almost directly in the teeth of the winds prevailing
at the time. Every wind across Manila Bay from the southwest blows almost squarely into the mouth of the
Malabon River; and every craft passing from the river in the bay in the monsoon season must be prepared to
meet that the obstacle to its progress. In view of this and the further fact that strong southwest winds were the
rule rather than the exception at that reason of the year, was the captain of the Matulin exercising reasonable
care when he asked the crews of two heavily loaded cascos carrying more than 2,000 piculs of sugar of the

value of more than P11,000 to attempt to cross a stretch of open water, nearly a mile in width, with nothing to
propel them but bamboo poles? And under the circumstances described, did the captain of theMatulin perform
his full duty when he ordered or even permitted the cascos to attempt such a journey when he himself was
without power or means to help them in case of need?
A vessel which undertakes a towage service is liable for reasonable care of the tow, and that reasonable care
is measured by the dangers and hazards to which the tow is or may be exposed, which it is the duty of the
master of the tug to know and to guard against not only by giving proper instructions for the management of
the tow, but by watching her when in a dangerous locality, to see that his directions are obeyed. The duty of
the tug to a tow is a continuous one from the time service commences until it is completed. Its responsibility
includes not only the proper and safe navigation of the tug on the journey, but to furnish safe, sound and
reasonable appliances and instrumentalities for the service to be performed, as well as the giving of proper
instructions as to the management of the tow; and if the locality in which the two finds itself at any given time is
more than ordinarily dangerous, the tug is held to a proportionately higher degree of care and skill. It is well
recognized that in towing a boat built only for the shallow water of an inland stream, as the cascos mentioned
in this case are, greater care must necessarily be used when venturing upon an ocean voyage than with a
vessel fitted for deep water; and this applies not only in the choice of routes, to select the one having the
smoothest water and affording shelter is stormy weather, but in the handling of the tow. (The Jane McCrea,
121 Fed., 932; The Printer, 164 Fed., 314; The Somers N. Smith, 120 Fed., 569; Ross vs. Erie R. Co., 120
Fed., 703; 38 Cyc., 564.)
In the case at bar the defendant failed to meet any of these requirements; it neglected to furnish suitable
appliances and instrumentalities; for the tug itself, as is demonstrated by the facts in this case, was unsuitable
for the purpose in hand. As we have said, it is negligence to leave two heavily loaded cascos in Manila Bay at
the mercy of weather likely to exist in the month of August for a distance of 1,500 meters with no other motive
power than bamboo poles. Also the captain of the Matulin failed to give proper instructions to the tow. If it was
negligence not to provide himself with appliances by which the cascos could be protected while passing from
the mouth of the river to the launch, it was negligence for him to ask the cascos to move out into the open sea
under such circumstances. It is clear, therefore, that the defendant directly or through the captain failed in
every duty laid upon it by the law, even though the law applicable under the facts and circumstances of this
case require the use of only ordinary diligence and care; but, as a matter of fact, the law required the exercise
of more than ordinary care under the circumstances existing at the time the cascos were lost. The fact of time
and season and of the probability that in coming out of the river they would be met with wind and wave and, in
their helpless condition, would in all probability, if so met, be driven on the shoals, made the situation of the
cascos one of more than ordinary danger; and the tug should be held to a proportionately higher degree of
care and skill.
While the captain of the Matulin would not have been responsible for an act of God by which the cascos were
lost, it was his duty to foresee what the weather was likely to be, and to take such precautions as were
necessary to protect his tow. It was not an act of God by which the cascos were lost; it was the direct result of
the failure of the captain of the Matulin to meet the responsibilities which the occasion placed on him. To be
exempt from liability because of an act of God the tug must be free from any previous negligence or
misconduct by which that loss or danger may have been occasioned. For, although the immediate or
proximate cause of the loss in any given instance may have been what is termed an act of God, yet, if the tug
unnecessarily exposed the two to such accident by any culpable act or omission of its own, it is not excluded.
(Manresa, vol. 8, pages 91 et seq.; art. 1105, Civil Code.)
These are the grounds upon which the decision in this case was rested. So ordered.
Torres, Moreland, and Araullo, JJ., concur.
Johnson, J., concurs in the result.
Trent, J., dissents.
DECISION ON MOTION FOR REHEARING
November 2, 1916

MORELAND, J.:
This is a motion for a rehearing in a case decided by this court in which we held that the plaintiff was entitled to
a judgment against the defendant. The action was one for negligence in towing two cascos from Guagua to
Manila whereby they and their cargoes were lost. Reference is made to the decision in the main case for a
statement of the facts.
On this motion the defendant contends that "the decision of this honorable court in the above entitled cause is
based upon the ground that it was negligence for the patron of the defendant's launch to permit the patrones
of the cascos to attempt to move their vessels from their mooring place in the Malabon River to the place
where the launch was waiting for them outside the bar."
While, says the defendant, "the case was tried below solely upon the theory that the negligence imputed to
defendant consisted in the failure of the launch to go to the assistance of the cascos when the roughness of
the sea made them unmanageable."
With this allegation as a basis the defendant says in its motion:
The decision of this honorable court is based upon the theory of the case which was not advanced by plaintiff
at the trial and is wholly at variance with the issues of law tendered at the trial. The case was tried on the
assumption that if it was in fact impossible for the launch to go to the aid of the cascos, no liability for the loss
would rest upon the defendant. It was never once contended in the course of the trial that it was negligence
per se for the defendant to permit the cascos to make their way from the mouth of the river to the bar.
We are of the opinion that the defendant limits too severely the theory on which the case was tried below. The
complaint alleges facts sufficient to state a cause of action against the defendant from several points of view.
As shown by the statement of facts in the decision in the main case, which was but a restatement of the facts
alleged in the complaint, the defendant was charged with negligence for everything done by him subsequent
to the time when he placed the cascos in the Malabon River instead of continuing with them to Manila. Indeed,
the complaint even alleges that the placing of the cascos in the mouth of the Malabon River was in itself an act
of negligence. To say the least, the theory of the plaintiff was that the negligence of the defendant began from
the placing of the cascos in the river. While the fact that the defendant's launch did not go to the assistance of
the cascos when they found themselves unable to navigate the waters of the bay was, perhaps, dwelt upon
with more emphasis than the other features of the case, there does not appear any intention on the part of the
plaintiff of relying solely on that theory and to renounce his rights against the defendant arising from other acts
of negligence and to stand alone upon the act on which particular emphasis was placed.
Moreover, the act of the patron of defendant's launch of calling the cascos out of the shelter of the Malabon
River into the dangers of the bay, while an act of negligence on the part of the defendant'spatron under the
circumstances, is so closely connected both in point of time and in nature with the inability of the patron to go
to their assistance after they were called out as to make the two inseparable to the extent that logically they
cannot be divided for the purpose of claiming that one of the acts or omissions was accepted as the theory of
the case to the exclusion of the other. We held in the main case that it was not only negligence for
the patron of the defendant's launch to order the cascos out of the shelter of the river into the dangers of the
bay; but we also held that the failure of the defendant to provide suitable means by which it could extend
assistance to the cascos after they had reached the waters of the bay was also negligence under all the
circumstances. Indeed, one of the principal grounds of our decision was that the defendant, after putting the
property of the plaintiff in a dangerous position, found itself without means of averting the catastrophe which its
own acts invited.
For these reasons we are of the opinion that the theory on which the case was tried below was not so narrow
as the defendant assumes. Nor was the decision of this court so circumscribes as counsel maintains. All of the
facts upon which our decision was based were proved in the trial and were discussed by the trial court. While
he may not have drawn conclusions from some of the facts, that was due more to the circumstance that he
found for the defendant than that he was simply following a particular theory in the trial of the cause.

Finally, the brief filed in the trial court by the plaintiff puts these questions:
First, Was there reasonable ground for the defendant leaving the cascos in the Malabon River? Second, Was
not the loss of the cascos and their cargoes due to the negligence of the patron of the launch 'Matulin '?
In arguing these questions counsel said: "The contract of towage is by its nature indivisible." Continuing the
argument he called attention to the fact that the patron of the Matulin summoned the cascos from the Malabon
River into the bay in the early morning and then left them to the mercy of the wind and waves. Counsel then
argued the legal responsibility of the defendant. He asserted that thepatron of the defendant's launch should
have known the hours of the ebb and flow of the tide and the condition of the bay and that he should not have
called the cascos from the mouth of the river until the conditions were such that they could navigate without
assistance or until, if they needed assistance, he was able to offer it.
It is undoubtedly the law that, where a cause has been tried upon the theory that the pleadings are at issue, or
that a particular issue is made by the pleadings, or where an issue is tacitly accepted by all parties as properly
presented for trial and as the only issue, the appellate court will proceed upon the same theory. (Lizarraga
Hermanos vs. Yap Tico, 24 Phil. Rep., 504; Molina vs. Somes, 24 Phil. Rep., 49.) It would be unjust and
oppressive for the appellate court to adopt a theory at variance with that on which the case was presented to
and tried by the lower court. It would surprise the parties, take them unaware and off their guard, and would, in
effect, deprive them of their day in court. There is a difference, however, between a change in the theory of the
case and a shifting of the incidence of the emphasis placed during the trial or in the briefs. The theory of the
case is primarily determined by the pleadings. But the parties may, by express or implied agreement during
the trial, adopt and follow some other theory, in which case the theory so adopted will control the case. Where,
however, the theory of the case as set out in the pleadings remains the theory throughout the progress of the
cause, the change of emphasis from one phase of the case as presented by one set of facts to another phase
made prominent by another set of facts, all of which facts were received in evidence without objection as
clearly pertinent to the issues framed by the parties in their pleadings, does not result in a change of theory,
and particularly not where the two sets of facts are so closely related both as to time and nature that they are
to all intents and purposes inseparable. In the case under discussion the action was based on the negligence
of defendant which resulted in the loss of plaintiff's cascos and their cargoes of sugar. The complaint contains
a complete history of the case and a statement of all of the defendant's acts from the time it received the
cascos in tow until they were lost. Those acts were proved in the trial. Plaintiff emphasized in particular those
facts which showed that defendant's patron refused or neglected to go to the assistance of the cascos after he
had summoned them from the safety of the river into the hazards to the bay and when he saw them drifting
helplessly on the shoals. But there was in the case the fact that the patron did call the cascos out of the river
into the bay knowing that he could not assist them should they need assistance before they reached the
deeper water where the launch could navigate, and knowing the state of the tide and that bad weather might
supervene at any moment at the season of the year. The court on appeal emphasized, perhaps, but not
intentionally, as it was unnecessary, the latter facts, holding that it was negligence, under all the conditions, for
the defendant to summon the cascos from the river into the bay while the defendant had so circumstanced
itself as to be unable to render assistance to the cascos if they should need it. These two sets of facts are so
closely related and inseparably connected in the theory of plaintiff's case as stated in the pleadings and as
tried that we do not believe it can reasonably be urged that there was a change of theory in the appellate
court. This court simply developed plaintiff's theory and its facts; it did not change them. The motion is denied.
So ordered.

September 16, 1925

G.R. No. 23769
SONG FO & COMPANY, plaintiff-appellee,
vs.
HAWAIIAN PHILIPPINE CO., defendant-appellant.

Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant.
Arroyo, Gurrea and Muller for appellee.
MALCOLM, J.:
In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of
action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for
P70,369.50, with legal interest, and costs. In an amended answer and cross-complaint, the defendant set up
the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the
defendant under the contract between the parties, the latter was compelled to cancel and rescind the said
contract. The case was submitted for decision on a stipulation of facts and the exhibits therein mentioned. The
judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35,317.93, with legal
interest from the date of the presentation of the complaint, and with costs.
From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made
the following assignment of errors: "I. The lower court erred in finding that appellant had agreed to sell to the
appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the
appellant rescinded without sufficient cause the contract for the sale of molasses executed by it and the
appellee. III. The lower court erred in rendering judgment in favor of the appellee and not in favor of the
appellant in accordance with the prayer of its answer and cross-complaint. IV. The lower court erred in denying
appellant's motion for a new trial." The specified errors raise three questions which we will consider in the
order suggested by the appellant.
1. Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of molasses?
The trial court found the former amount to be correct. The appellant contends that the smaller amount was the
basis of the agreement.
The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The First
mentioned exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. to Song Fo &
Company on December 13, 1922. It reads:
SILAY, OCC. NEGROS, P.I.
December 13, 1922
Messrs. SONG FO AND CO.
Iloilo, Iloilo.
DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this Central, we
wish to state as follows:
He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same
condition, and the same to start after the completion of our grinding season. He requested if possible to let you
have molasses during January, February and March or in other words, while we are grinding, and we agreed
with him that we would to the best of our ability, altho we are somewhat handicapped. But we believe we can
let you have 25,000 gallons during each of the milling months, altho it interfere with the shipping of our own
and planters sugars to Iloilo. Mr. Song Fo also asked if we could supply him with another 100,000 gallons of
molasses, and we stated we believe that this is possible and will do our best to let you have these extra
100,000 gallons during the next year the same to be taken by you before November 1st, 1923, along with the
300,000, making 400,000 gallons in all.
Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at the
end of each month for molasses delivered to you.
Hoping that this is satisfactory and awaiting your answer regarding this matter, we remain.

Yours very truly,

HAWAIIAN-PHILIPPINE COMPANY
BY R. C. PITCAIRN
Administrator.

2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Company?
The trial judge answers No, the appellant Yes.

December 16th, 1922.

Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr. Song
Heng) gave us to understand that you would pay us at the end of each month for molasses delivered to you."
In Exhibit G, we find Song Fo & Company stating that they understand the contents of Exhibit F, and that they
confirm all the arrangements you have stated, and in order to make the contract clear, we hereby quote below
our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the
central." In connection with the portion of the contract having reference to the payment for the molasses, the
parties have agree on a table showing the date of delivery of the molasses, the amount and date thereof, the
date of receipt of account by plaintiff, and date of payment. The table mentioned is as follows:

Messrs. HAWAIIAN-PHILIPPINE CO.,

Silay, Neg. Occ., P.I.

Date of delivery

DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th inst. and understood all their
contents.

1922

Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on December
16, 1922. This letter reads:

In connection to yours of the 13th inst. we regret to hear that you mentioned Mr. Song Fo the one who visited
your Central, but it was not for he was Mr. Song Heng, the representative and the manager of Messrs. Song
Fo & Co.
With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you have
stated and in order to make the contract clear, we hereby quote below our old contract as amended, as per
our new arrangements.
(a) Price, at 2 cents per gallon delivered at the central.

Date of receipt of account b

plaintiff

Account and date thereof

1923

Dec. 18

P206.16

Dec. 26/22

Jan. 5

Dec. 29

206.16

Jan. 3/23

Do

1923

(b) All handling charges and expenses at the central and at the dock at Mambaguid for our account.

Jan. 5

206.16

Jan. 9/23

Mar. 7 or 8

(c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the round trip
dock to central and central to dock. This service to be restricted to one trip for the six tanks.

Feb. 12

206.16

Mar. 12/23

Do

Feb. 27

206.16

do

Do

Mar. 5

206.16

do

Do

Mar. 16

206.16

Mar. 20/23

Apr. 2/23

Mar. 24

206.16

Mar. 31/23

Do

If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider itself
obliged to deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A, a letter written by the
manager of Song Fo & Company on October 17, 1922, expressly mentions an understanding between the
parties of a contract for P300,000 gallons of molasses.

Mar. 29

206.16

do

Do

We sustain appellant's point of view on the first question and rule that the contract between the parties
provided for the delivery by the Hawaiian-Philippine Co. to song Fo & Company of 300,000 gallons of
molasses.

Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses
delivered. Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point. Exhibit M,
a letter of March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-Philippine Co. to Song
Fo & Company, mentions "payment on presentation of bills for each delivery." Exhibit O, another letter from
Warner, Barnes & Co., Ltd. to Song Fo & Company dated April 2, 1923, is of a similar tenor. Exhibit P, a

Yours very truly,

SONG FO & COMPANY
By __________________________
Manager.
We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. The
Hawaiian-Philippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses. The
Hawaiian-Philippine Co. also believed it possible to accommodate Song Fo & Company by supplying the latter
company with an extra 100,000 gallons. But the language used with reference to the additional 100,000
gallons was not a definite promise. Still less did it constitute an obligation.

communication sent direct by the Hawaiian-Philippine Co. to Song Fo & Company on April 2, 1923, by which
the Hawaiian-Philippine Co. gave notice of the termination of the contract, gave as the reason for the
rescission, the breach by Song Fo & Company of this condition: "You will recall that under the arrangements
made for taking our molasses, you were to meet our accounts upon presentation and at each delivery." Not far
removed from this statement, is the allegation of plaintiff in its complaint that "plaintiff agreed to pay defendant,
at the end of each month upon presentation accounts."
Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction is
that Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the end of
each month. Under this hypothesis, Song Fo & Company should have paid for the molasses delivered in
December, 1922, and for which accounts were received by it on January 5, 1923, not later than January 31 of
that year. Instead, payment was not made until February 20, 1923. All the rest of the molasses was paid for
either on time or ahead of time.
The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract
should be treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could
easily be imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of
the breach of Song Fo & Company. But actually, there is here present no outstanding fact which would legally
sanction the rescission of the contract by the Hawaiian-Philippine Co.
The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for
such breaches as are so substantial and fundamental as to defeat the object of the parties in making the
agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of
an essential condition of the contract was warrants rescission for non-performance. Not only this, but the
Hawaiian-Philippine Co. waived this condition when it arose by accepting payment of the overdue accounts
and continuing with the contract. Thereafter, Song Fo & Company was not in default in payment so that the
Hawaiian-Philippine co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract.
(Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.)
We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo &
Company to pay for the molasses within the time agreed upon by the parties. We sustain the finding of the trial
judge in this respect.
3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently
breached by the Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as
agreed upon by the parties.
The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled
to secure molasses from other sources. Three hundred thousand gallons of molasses was the total of the
agreement, as we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were delivered by the
defendant to the plaintiff before the breach. This leaves 244,994 gallons of molasses undelivered which the
plaintiff had to purchase in the open market. As expressly conceded by the plaintiff at page 25 of its brief,
100,000 gallons of molasses were secured from the Central North Negros Sugar Co., Inc., at two centavos a
gallon. As this is the same price specified in the contract between the plaintiff and the defendant, the plaintiff
accordingly suffered no material loss in having to make this purchase. So 244,994 gallons minus the 100,000
gallons just mentioned leaves as a result 144,994 gallons. As to this amount, the plaintiff admits that it could
have secured it and more from the Central Victorias Milling Company, at three and one-half centavos per
gallon. In other words, the plaintiff had to pay the Central Victorias Milling company one and one-half centavos
a gallon more for the molasses than it would have had to pay the Hawaiian-Philippine Co. Translated into
pesos and centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions existing at
the central of the Hawaiian-Philippine Co. may have been different than those found at the Central North
Negros Sugar Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay but
through expenses of transportation and incidental expenses, the plaintiff may have been put to greater cost in
making the purchase of the molasses in the open market, we would concede under the first cause of action in
round figures P3,000.
The second cause of action relates to lost profits on account of the breach of the contract. The only evidence
in the record on this question is the stipulation of counsel to the effect that had Mr. Song Heng, the manager of

Song Fo & Company, been called as a witness, he would have testified that the plaintiff would have realized a
profit of P14,948.43, if the contract of December 13, 1922, had been fulfilled by the defendant. Indisputably,
this statement falls far short of presenting proof on which to make a finding as to damages.
In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the same
line of thought as found in the decision of the trial court, which we have found to be unsustainable. In the
second place, had Mr. Song Heng taken the witness-stand and made the statement attributed to him, it would
have been insufficient proof of the allegations of the complaint, and the fact that it is a part of the stipulation by
counsel does not change this result. And lastly, the testimony of the witness Song Heng, it we may dignify it as
such, is a mere conclusion, not a proven fact. As to what items up the more than P14,000 of alleged lost
profits, whether loss of sales or loss of customers, or what not, we have no means of knowing.
We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first
cause of action in the amount of P3,000 and on the second cause of action in no amount. Appellant's
assignments of error are accordingly found to be well taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and
recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until payment. Without
special finding as to costs in either instance, it is so ordered.
G.R. No. 108346

July 11, 2001

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,

vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the
contract, entitled the injured party to rescind the obligation. Rescission abrogates the contract from its
inception and requires a mutual restitution of benefits received.
The Case
Before us is a Petition for Review on Certiorari 1 questioning the Decision2 of the Court of Appeals (CA) in CAGR CV No. 32991 dated October 9, 1992, as well as its Resolution 3 dated December 29, 1992 denying
petitioner's motion for reconsideration. 4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the
Decision dated November 14, 1990 dismissing the [C]omplaint is RESINSTATED. The bonds
posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED." 5
The Facts
The factual antecedents of the case, as found by the CA, are as follows:
"x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a
parcel of land, together with the house and other improvements thereon, located at 1918 Kamias
St., Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George Raymundo
[herein private petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano
Velarde [herein petitioners] for the sale of said property, which was, however, under lease (Exh. '6',
p. 232, Record of Civil Case No. 15952).

"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-12,
Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina
Velarde, as vendee, with the following terms and conditions:
'x x x

xxx

xxx

'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS
(P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged by
the VENDOR from the VENDEE, to his entire and complete satisfaction, by these
presents the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND
DELIVERS, freely and voluntarily, with full warranty of a legal and valid title as provided
by law, unto the VENDEE, her heirs, successors and assigns, the parcel of land
mentioned and described above, together with the house and other improvements
thereon.
'That the aforesaid parcel of land, together with the house and other improvements
thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE
ISLANDS, Makati, Metro Manila to secure the payment of a loan of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, as
evidenced by a Real Estate Mortgage signed and executed by the VENDOR in favor of
the said Bank of the Philippine Islands, on _____ and which Real Estate Mortgage was
ratified before Notary Public for Makati, _____, as Doc. No. ______, Page No. _____,
Book No. ___, Series of 1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby assumes to pay the
mortgage obligations on the property herein sold in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor
of Bank of Philippine Islands, in the name of the VENDOR, and further agrees to
strictly and faithfully comply with all the terms and conditions appearing in the Real
Estate Mortgage signed and executed by the VENDOR in favor of BPI, including
interests and other charges for late payment levied by the Bank, as if the same were
originally signed and executed by the VENDEE.
'It is further agreed and understood by the parties herein that the capital gains tax and
documentary stamps on the sale shall be for the account of the VENDOR; whereas,
the registration fees and transfer tax thereon shall be the account of the VENDEE.'
(Exh. 'A', pp. 11-12, Record).'

'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for
purposes of attesting and confirming our private understanding concerning the said
mortgage obligations to be assumed.
'NOW, THEREFORE, for and in consideration of the foregoing premises, and the
assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, with the bank of the
Philippine Islands, I, Mrs, Avelina D, Velarde with the consent of my husband, Mariano
Z. Velardo, do hereby bind and obligate myself, my heirs, successors and assigns, to
strictly and faithfully comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage obligations on the property
purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, I
shall continue to pay the said loan in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Mr. David A. Raymundo, the original
Mortgagor.
'2. That, in the event I violate any of the terms and conditions of the said Deed of Real
Estate Mortgage, I hereby agree that my downpayment of P800,000.00, plus all
payments made with the Bank of the Philippine Islands on the mortgage loan, shall be
forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated damages,
without necessity of notice or any judicial declaration to that effect, and Mr. David A.
Raymundo shall resume total and complete ownership and possession of the property
sold by way of Deed of Sale with Assumption of Mortgage, and the same shall be
deemed automatically cancelled and be of no further force or effect, in the same
manner as it (the) same had never been executed or entered into.
'3. That I am executing the Undertaking for purposes of binding myself, my heirs,
successors and assigns, to strictly and faithfully comply with the terms and conditions
of the mortgage obligations with the Bank of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned and identified above,
[does] hereby confirm and agree to the undertakings of the Vendee pertinent to the
assumption of the mortgage obligations by the Vendee with the Bank of the Philippine
Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.

"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent
of her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x

xxx

xxx

'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A.
Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations on the property with the
Bank of the Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the
terms and conditions of the Deed of Real Estate Mortgage dated _____, signed and
executed by Mr. David A. Raymundo with the said Bank, acknowledged before Notary
Public for Makati, _____, as Doc. No. _____, Page No. _____, Book No. _____, Series
of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of the mortgage obligations on
the property is not yet approved by the mortgagee Bank, I have agreed to pay the
mortgage obligations on the property with the Bank in the name of Mr. David A.
Raymundo, in accordance with the terms and conditions of the said Deed of Real
Estate Mortgage, including all interests and other charges for late payment.

"It appears that the negotiated terms for the payment of the balance of P1.8 million was from the
proceeds of a loan that plaintiffs were to secure from a bank with defendant's help. Defendants
had a standing approved credit line with the Bank of the Philippine Islands (BPI). The parties
agreed to avail of this, subject to BPI's approval of an application for assumption of mortgage by
plaintiffs. Pending BPI's approval o[f] the application, plaintiffs were to continue paying the monthly
interests of the loan secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the
aforementioned mortgage for three (3) months as follows: September 19, 1986 at P27,225.00;
October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15,
17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage
with BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not to make any
further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their nonpayment to the mortgage bank constitute[d] non-performance of their obligation (Exh. '3', p. 220,
Record).

"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the balance in cash not
later than January 21, 1987 provided: (a) you deliver actual possession of the property
to her not later than January 15, 1987 for her immediate occupancy; (b) you cause the
re- lease of title and mortgage from the Bank of P.I. and make the title available and
free from any liens and encumbrances; and (c) you execute an absolute deed of sale in
her favor free from any liens or encumbrances not later than January 21, 1987.' (Exhs.
'k', '4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to the latter's failure to comply with the terms
and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking (Exh. '5', pp.
225-226, Record)."6
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession and damages. This was docketed as Civil Case No.
15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and heard by then Judge
Consuelo Ynares-Santiago (now an associate justice of this Court), who dismissed the Complaint in a
Decision dated November 14, 1990.7 Thereafter, petitioners filed a Motion for Reconsideration. 8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A.
Abad Santos was assigned to the sala she vacated. In an Order dated May 15, 1991, 9 Judge Abad Santos
granted petitioner's Motion for Reconsideration and directed the parties to proceed with the sale. He instructed
petitioners to pay the balance of P1.8 million to private respondents who, in turn, were ordered to execute a
deed of absolute sale and to surrender possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's earlier
Decision dismissing petitioners' Complaint. Upholding the validity of the rescission made by private
respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the
consideration of this sale, the VENDEE (Velarde)' would assume to pay the mortgage obligation on
the subject property in the amount of P 1.8 million in favor of BPI in the name of the Vendor
(Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of
P800,000.00 and the balance of Pl.8 million, and the balance of Pl.8 million cannot be paid in
cash, Vendee Velarde, as part of the consideration of the sale, had to assume the mortgage
obligation on the subject property. In other words, the assumption of the mortgage obligation is
part of the obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly
and faithfully comply with all the terms and conditions appearing in the Real Estate Mortgage
signed and executed by the VENDOR in favor of BPI x x x as if the same were originally signed
and executed by the Vendee. (p. 2, thereof, p. 12, Record). This was reiterated by Velarde in the
document entitled 'Undertaking' wherein the latter agreed to continue paying said loan in
accordance with the terms and conditions of the Deed of Real Estate Mortgage in the name of
Raymundo. Moreover, it was stipulated that in the event of violation by Velarde of any terms and
conditions of said deed of real estate mortgage, the downpayment of P800,000.00 plus all
payments made with BPI or the mortgage loan would be forfeited and the [D]eed of [S]ale with
[A]ssumption of [M]ortgage would thereby be Cancelled automatically and of no force and effect
(pars. 2 & 3, thereof, pp 13-14, Record).
"From these 2 documents, it is therefore clear that part of the consideration of the sale was the
assumption by Velarde of the mortgage obligation of Raymundo in the amount of Pl.8 million. This
would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal [E]state
[M]ortgage the name of Raymundo. The application with BPI for the approval of the assumption of
mortgage would mean that, in case of approval, payment of the mortgage obligation will now be in
the name of Velarde. And in the event said application is disapproved, Velarde had to pay in full.

This is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted
this fact during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp.
16-26, t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage obligation
would result in a violation of the contract. And, upon Velarde's failure to pay the agreed price,
the[n] Raymundo may choose either of two (2) actions - (1) demand fulfillment of the contract, or
(2) demand its rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of mortgage cannot be used as an
excuse for Velarde's non-payment of the balance of the purchase price. As borne out by the
evidence, Velarde had to pay in full in case of BPI's disapproval of the application for assumption
of mortgage. What Velarde should have done was to pay the balance of P1.8 million. Instead,
Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which was strongly given
weight by the lower court in reversing the decision rendered by then Judge Ynares-Santiago. In
said letter, Velarde registered their willingness to pay the balance in cash but enumerated 3 new
conditions which, to the mind of this Court, would constitute a new undertaking or new agreement
which is subject to the consent or approval of Raymundo. These 3 conditions were not among
those previously agreed upon by Velarde and Raymundo. These are mere offers or, at most, an
attempt to novate. But then again, there can be no novation because there was no agreement of
all the parties to the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with
Assumption of Mortgage would be deemed 'automatically cancelled and of no further force and
effect, as if the same had never been executed or entered into.' While it is true that even if the
contract expressly provided for automatic rescission upon failure to pay the price, the vendee may
still pay, he may do so only for as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act (Article 1592, Civil Code). In the case at bar,
Raymundo sent Velarde notarial notice dated January 8, 1987 of cancellation/rescission of the
contract due to the latter's failure to comply with their obligation. The rescission was justified in
view of Velarde's failure to pay the price (balance) which is substantial and fundamental as to
defeat the object of the parties in making the agreement. As adverted to above, the agreement of
the parties involved a reciprocal obligation wherein the obligation of one is a resolutory condition of
the obligation of the other, the non-fulfillment of which entitles the other party to rescind the
contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation by
appellees Velarde would create a right to demand payment or to rescind the contract, or to criminal
prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon
appellee's failure, therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC,
184 SCRA 720). Consequently, appellees Velarde having violated the contract, they have lost their
right to its enforcement and hence, cannot avail of the action for specific performance (Voysaw vs.
Interphil Promotions, Inc., 148 SCRA 635)." 10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum,12 interpose the following assignment of errors:
"I.
The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in
a breach of the contract.
"II
The Court of Appeals erred in holding that the rescission (resolution) of the contract by private
respondents was justified.
"III

The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new
conditions' constituting mere offers or an attempt to novate necessitating a new agreement
between the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private respondents' mortgage obligation did not constitute a breach
of contract, considering that their request to assume the obligation had been disapproved by the mortgagee
bank. Accordingly, payment of the monthly amortizations ceased to be their obligation and, instead, it devolved
upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance
of the purchase price. As admitted by both parties, their agreement mandated that petitioners should pay the
purchase price balance of P1.8 million to private respondents in case the request to assume the mortgage
would be disapproved. Thus, on December 15, 1986, when petitioners received notice of the bank's
disapproval of their application to assume respondents' mortgage, they should have paid the balance of the
P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon
the fulfillment of certain conditions not originally agreed upon in the contract of sale. Such conditional offer to
pay cannot take the place of actual payment as would discharge the obligation of a buyer under a contract of
sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate things,
and the buyer to pay therefor a price certain in money or its equivalent. 13
Private respondents had already performed their obligation through the execution of the Deed of Sale, which
effectively transferred ownership of the property to petitioner through constructive delivery. Prior physical
delivery or possession is not legally required, and the execution of the Deed of Sale is deemed equivalent to
delivery.14
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the
manner agreed upon. Worse, they wanted private respondents to perform obligations beyond those stipulated
in the contract before fulfilling their own obligation to pay the full purchase price.
Second Issue

of sale. Private respondents' right to rescind the contract finds basis in Article 1191 of the Civil Code, which
explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible."
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach
of faith by the other party who violates the reciprocity between them. 16 The breach contemplated in the said
provision is the obligor's failure to comply with an existing obligation. 17 When the obligor cannot comply with
what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court
to determine the period of compliance, the court shall decree the rescission. 18
In the present case, private respondents validly exercised their right to rescind the contract, because of the
failure of petitioners to comply with their obligation to pay the balance of the purchase price. Indubitably, the
latter violated the very essence of reciprocity in the contract of sale, a violation that consequently gave rise to
private respondent's right to rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it
became due; however, this was not equivalent to actual payment as would constitute a faithful compliance of
their reciprocal obligation. Moreover, the offer to pay was conditioned on the performance by private
respondents of additional burdens that had not been agreed upon in the original contract. Thus, it cannot be
said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of
the right to rescind.
Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances in those cases
are not analogous to those in the present one. In Song Fo there was, on the part of the buyer, only a delay of
twenty (20) days to pay for the goods delivered. Moreover, the buyer's offer to pay was unconditional and was
accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which was actually
paid.
In Tan, the alleged breach was private respondent's delay of only a few days, which was for the purpose of
clearing the title to the property; there was no reference whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity;
such breach would not normally defeat the intention of the parties to the contract. Here, petitioners not only
failed to pay the P1.8 million balance, but they also imposed upon private respondents new obligations as
preconditions to the performance of their own obligation. In effect, the qualified offer to pay was a repudiation
of an existing obligation, which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their own interest.

Validity of the Rescission

Mutual Restitution
Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch
as the former had signified their willingness to pay the balance of the purchase price only a little over a month
from the time they were notified of the disapproval of their application for assumption of mortgage. Petitioners
also aver that the breach of the contract was not substantial as would warrant a rescission. They cite several
cases15 in which this Court declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation in good faith, considering
that they have already made the initial payment of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage
obligations, as their nonperformance of their reciprocal obligation to pay the purchase price under the contract

Required in Rescission
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation,
not a violation of the terms and conditions of the mortgage contract. Therefore, the automatic rescission and
forfeiture of payment clauses stipulated in the contract does not apply. Instead, Civil Code provisions shall
govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original situation prior to the inception of the contract. Accordingly,

the initial payment of P800,000 and the corresponding mortgage payments in the amounts of P27,225,
P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners should be returned by private
respondents, lest the latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be carried out only when the one
who demands rescission can return whatever he may be obliged to restore. 20 To rescind is to declare a
contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and
release the parties from further obligations to each other, but to abrogate it from the beginning and restore the
parties to their relative positions as if no contract has been made. 21

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised
to pay the balance in monthly installments of P 41.20 until fully paid, the installments being due and payable
on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when
their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants
accepted and received delayed installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the
remittance of past due accounts.
On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees
failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said
cancellation was denied by the defendants-appellants.

Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by
petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987 letter of petitioners to
private respondents were not part of the original contract. By that time, it was already incumbent upon the
former to pay the balance of the sale price. They had no right to demand preconditions to the fulfillment of their
obligation, which had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents
are ordered to return to petitioners the amount of P874,150, which the latter paid as a consequence of the
rescinded contract, with legal interest thereon from January 8, 1987, the date of rescission. No
pronouncement as to costs.
SO ORDERED.1wphi1.nt
G.R. No. L-42283 March 18, 1985
BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,
vs.
URSULA TORRES CALASANZ, ET AL., defendants-appellants.

The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial
District, Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging
inter alia that after computing all subsequent payments for the land in question, they found out that they have
already paid the total amount of P4,533.38 including interests, realty taxes and incidental expenses for the
registration and transfer of the land.
The defendants-appellants alleged in their answer that the complaint states no cause of action and that the
plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or
offer to pay the monthly installments corresponding to the month of August, 1966 for more than five (5)
months, thereby constraining the defendants-appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision
reads:
WHEREFORE, based on the foregoing considerations, the Court hereby renders
judgment in favor of the plaintiffs and against the defendants declaring that the contract
subject matter of the instant case was NOT VALIDLY cancelled by the defendants.
Consequently, the defendants are ordered to execute a final Deed of Sale in favor of
the plaintiffs and to pay the sum of P500.00 by way of attorney's fees. Costs against
the defendants.
A motion for reconsideration filed by the defendants-appellants was denied.
As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure
questions of law.
The defendants-appellants assigned the following alleged errors of the lower court:

GUTIERREZ, JR., J.:

First Assignment of Error
This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X,
declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to
execute a final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorney's fees and costs.

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX
"A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED.

The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have
been raised for appellate review.

Second Assignment of Error

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffsappellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in
Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT
BEEN LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN
ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF
THE PLAINTIFF.

Third Assignment of Error

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS
THE SUM OF P500.00 AS ATTORNEY'S FEES.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
xxx xxx xxx

The main issue to be resolved is whether or not the contract to sell has been automatically and validly
cancelled by the defendants-appellants.
The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the
contract which provides:
xxx xxx xxx
SIXTH.In case the party of the SECOND PART fails to satisfy any monthly
installments, or any other payments herein agreed upon, he is granted a month of
grace within which to make the retarded payment, together with the one corresponding
to the said month of grace; it is understood, however, that should the month of grace
herein granted to the party of the SECOND PART expired; without the payments
corresponding to both months having been satisfied, an interest of 10% per annum will
be charged on the amounts he should have paid; it is understood further, that should a
period of 90 days elapse, to begin from the expiration of the month of grace herein
mentioned, and the party of SECOND PART has not paid all the amounts he should
have paid with the corresponding interest up to that date, the party of the FIRST PART
has the right to declare this contract cancelled and of no effect, and as consequence
thereof, the party of the FIRST PART may dispose of the parcel of land covered by this
contract in favor of other persons, as if this contract had never been entered into. In
case of such cancellation of the contract, all the amounts paid in accordance with this
agreement together with all the improvements made on the premises, shall be
considered as rents paid for the use and occupation of the above mentioned premises,
and as payment for the damages suffered by failure of the party of the SECOND PART
to fulfill his part of the agreement; and the party of the SECOND PART hereby
renounces all his right to demand or reclaim the return of the same and obliges himself
to peacefully vacate the premises and deliver the same to the party of the FIRST
PART. (Emphasis supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despite
demands for more than four (4) months. The defendants-appellants point to Jocson v. Capitol
Subdivision (G.R. No. L-6573, February 28, 1955) where this Court upheld the right of the subdivision owner
to automatically cancel a contract to sell on the strength of a provision or stipulation similar to paragraph 6 of
the contract in this case. The defendants-appellants also argue that even in the absence of the aforequoted
provision, they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the
Philippines.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that
paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of
its terms, the sellers have the right to declare the contract cancelled and of no effect, because it granted the
sellers an absolute and automatic right of rescission.
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of
the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the
parties from entering into an agreement that violation of the terms of the contract would cause its cancellation
even without court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)
Well settled is, however, the rule that a judicial action for the rescission of a contract is
not necessary where the contract provides that it may be revoked and cancelled for
violation of any of its terms and conditions' (Lopez v. Commissioner of Customs, 37
SCRA 327, and cases cited therein)
Resort to judicial action for rescission is obviously not contemplated . . . The validity of
the stipulation can not be seriously disputed. It is in the nature of a facultative
resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile
v. Court of Appeals, 29 SCRA 504).
The rule that it is not always necessary for the injured party to resort to court for rescission of the contract
when the contract itself provides that it may be rescinded for violation of its terms and conditions, was qualified
by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that:
Of course, it must be understood that the act of a party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party must be
made known to the other and is always provisional, being ever subject to scrutiny and
review by the proper court. If the other party denies that rescission is justified, it is free
to resort to judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages; in the contrary case,
the resolution will be affirmed, and the consequent indemnity awarded to the party
prejudiced.
In other words, the party who deems the contract violated many consider it resolved or
rescinded, and act accordingly, without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in law. ... .
We see no conflict between this ruling and the previous jurisprudence of this Court
invoked by respondent declaring that judicial action is necessary for the resolution of a
reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631;
Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case
where the extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was proper or not.
It is in this sense that judicial action will be necessary, as without it, the extrajudicial
resolution will remain contestable and subject to judicial invalidation, unless attack
thereon should become barred by acquiescence, estoppel or prescription.
The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute.
InUniversal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that
The general rule is that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would defeat
the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-

Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is
substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al.,
L-23707 & L-23720, Jan. 17, 1968). ... .
The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which
provides:
SECOND.That in consideration of the agreement of sale of the above described
property, the party of the SECOND PART obligates himself to pay to the party of the
FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY
(P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as follows:
(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract
is signed; and
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of
each month, from this date until the total payment of the price above stipulated,
including interest.

The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of
paragraph 6 not merely once, but for as many times as he wishes.
The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the
defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received
delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace
period mentioned in paragraph 6 of the contract, the defendants-appellants have waived and are now
estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long arrearages, neither they nor their
predecessor, Teodoro de Guzman, even took steps to cancel the option or to eject the
appellees from the home-lot in question. On the contrary, it is admitted that the delayed
payments were received without protest or qualification. ... Under these circumstances,
We cannot but agree with the lower court that at the time appellees exercised their
option, appellants had already forfeited their right to invoke the above-quoted provision
regarding the nullifying effect of the non-payment of six months rentals by appellees by
their having accepted without qualification on July 21, 1964 the full payment by
appellees of all their arrearages.

because they failed to pay the August installment, despite demand, for more than four (4) months.
The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider
that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly
installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation
would have been paid. Furthermore, although the principal obligation was only P 3,920.00 excluding the 7
percent interests, the plaintiffs- appellees had already paid an aggregate amount of P 4,533.38. To sanction
the rescission made by the defendants-appellants will work injustice to the plaintiffs- appellees. (See J.M.
Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by
the obligee.
also militates against the unilateral act of the defendants-appellants in cancelling the contract.
We agree with the observation of the lower court to the effect that:
Although the primary object of selling subdivided lots is business, yet, it cannot be
denied that this subdivision is likewise purposely done to afford those landless, low
income group people of realizing their dream of a little parcel of land which they can
really call their own.
The defendants-appellants cannot rely on paragraph 9 of the contract which provides:
NINTH.-That whatever consideration of the party of the FIRST PART may concede to
the party of the SECOND PART, as not exacting a strict compliance with the conditions
of paragraph 6 of this contract, as well as any other condonation that the party of the
FIRST PART may give to the party of the SECOND PART with regards to the
obligations of the latter, should not be interpreted as a renunciation on the part of the
party of the FIRST PART of any right granted it by this contract, in case of default or
non-compliance by the party of the SECOND PART.

The defendants-appellants contend in the second assignment of error that the ledger of payments show a
balance of P671,67 due from the plaintiffs-appellees. They submit that while it is true that the total monthly
installments paid by the plaintiffs-appellees may have exceeded P3,920.00, a substantial portion of the said
payments were applied to the interests since the contract specifically provides for a 7% interest per annum on
the remaining balance. The defendants-appellants rely on paragraph 2 of the contract which provides:
SECOND.That in consideration of the agreement of sale of the above described
property, the party of the SECOND PART obligates himself to pay to the party of the
FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P
3,920.00), Philippine Currency, plus interest at the rate of 7% per annum ... .
(Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the
defendants-appellants a total sum of P4,533.38, the defendants-appellants must now be compelled to execute
the final deed of sale pursuant to paragraph 12 of the contract which provides:
TWELFTH.That once the payment of the sum of P3,920.00, the total price of the sale
is completed, the party to the FIRST PART will execute in favor of the party of the
SECOND PART, the necessary deed or deeds to transfer to the latter the title of the
parcel of land sold, free from all hens and encumbrances other than those expressly
provided in this contract; it is understood, however, that au the expenses which may be
incurred in the said transfer of title shall be paid by the party of the SECOND PART, as
above stated.
Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract
herein is a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics
of a contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffsappellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to
the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of
the agreement. It was offered to them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA
36 1), we held that:
xxx xxx xxx

... (W)hile generally, stipulations in a contract come about after deliberate drafting by
the parties thereto. . . . there are certain contracts almost all the provisions of which
have been drafted only by one party, usually a corporation. Such contracts are called
contracts of adhesion, because the only participation of the party is the signing of his
signature or his "adhesion" thereto. Insurance contracts, bills of lading, contracts of
sale of lots on the installment plan fall into this category. (Paras, Civil Code of the
Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendantsappellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the
seller is obligated to transfer the title to the buyer upon payment of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree
with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted
against the party who drafted the same, especially where such interpretation will help effect justice to buyers
who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed
application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect
which, in essence, and in its entirety is most unfair to the buyers."
Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have
already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few
remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of
P671.67 without any interest thereon, the defendants-appellants must immediately execute the final deed of
sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in
paragraph 12 of the contract. The attorney's fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with
the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE
PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any interests. Costs against the defendantsappellants.
SO ORDERED.
G.R. No. L-55665 February 8, 1989
DELTA MOTOR CORPORATION, petitioner,
vs.
EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S.
GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS, respondents.
Alcasid, Villanueva & Associates for petitioner.
Luna, Puruganan, Sison & Ongkiko for respondents.

CORTES, J.:
Petitioner, through this petition for review by certiorari, appeals from the decision of respondent appellate court
in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et al. v. Delta Motor Corporation" promulgated
on October 27, 1980.
The facts are as follows:

Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized and
existing under Philippine laws.
On the other hand, private respondents are the owners of an iceplant and cold storage located at 1879 E.
Rodriguez Sr. Avenue, Quezon City doing business under the name "Espaa Extension Iceplant and Cold
Storage."
In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black iron pipes.
T
The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes schedule 40, 2" x
20' including delivery at P66,000.00 with the following terms of payment:
a. 20% of the net contract price or P13,200.00 will be due and payable upon signing of
the contract papers.
b. 20% of the net contract price or P13,200.00 will be due and payable before
commencement of delivery.
c. The balance of 60% of the net contract price or P39,600.00 with 8% financing
charge per annum will be covered by a Promissory Note bearing interest at the rate of
14% per annum and payable in TWELVE (12) equal monthly installment (sic), the first
of which will become due thirty (30) days after the completion of delivery. Additional
14% will be charged for all delayed payments. [Exh. "A"; Exh. 1.]
The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black iron pipes
schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the following terms of payment:
a. 50% of the net contract price or P 2,700.00 will be due and payable upon signing of
the contract papers.
b. 50% of the net contract price or P 2,700.00 will be due and payable before
commencement of delivery. [Exh. "C"; Exh. "2".]
Both letter-quotations also contain the following stipulations as to delivery and price offer:
DELIVERY
Ex-stock subject to prior sales.
xxx xxx xxx
Our price offer indicated herein shall remain firm within a period of thirty (30) days from
the date hereof. Any order placed after said period will be subject to our review and
confirmation. [Exh. "A" and "C"; Exhs. "l" and "2".]
Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by signing
his name in the space provided on July 17, 1972 and July 24, 1972 for the first and second letter-quotations,
respectively.

It is undisputed that private respondents made initial payments on both contracts for the first contract,
P13,200.00 and, for the second, P2,700.00 for a total sum of P15,900.00 on July 28, 1972 (Exhs. "B" and
"D"].
Likewise unquestionable are the following. the non-delivery of the iron pipes by Delta; the non-payment of the
subsequent installments by the Genuinos; and the non-execution by the Genuinos of the promissory note
called for by the first contract.
The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to deliver the
iron pipes but the Genuinos did not accept the offer because the construction of the ice plant building where
the pipes were to be installed was not yet finished.
Almost three years later, on April 15, 1975, Hector Genuino, in behalf of Espaa Extension Ice Plant and Cold
Storage, asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the request. At the same
time private respondents manifested their preparedness to pay the second installment on both contracts upon
notice of Delta's readiness to deliver.
Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972. The
company called the attention of the Genuinos to the stipulation in their two (2) contracts that the quoted prices
were good only within thirty (30) days from date of offer. Whereupon Delta sent new price quotations to the
Genuinos based on its current price of black iron pipes, as follows:
P241,800.00 for 1,200 lengths of black iron pjpes schedule 40, 2" x 20' [Exh. "G-1".]
P17,550.00 for 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' [Exh. "G-2".]
The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance with
damages seeking to compel Delta to deliver the pipes. Delta, in its answer prayed for rescission of the
contracts pursuant to Art. 1191 of the New Civil Code. The case was docketed as Civil Case No. Q-20120 of
the then Court of First Instance of Rizal, Branch XVIII, Quezon City.
After trial the Court of First Instance ruled in favor of Delta,the dispositive portion of its decision reading as
follows:
WHEREFORE, premises considered, judgment is rendered:
1. Declaring the contracts, Annexes "A" and "C" of the complaint rescinded;
2. Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the
latter as downpayments on the aforesaid contracts;

1. As Delta was the one who prepared the contracts and admittedly, it had knowledge
of the fact that the black iron pipes would be used by the Genuinos in their cold storage
plant which was then undergoing construction and therefore, would require sometime
before the Genuinos would require delivery, Delta should have included in said
contracts a deadline for delivery but it did not. As a matter of fact neither did it insist on
delivery when the Genuinos refused to accept its offer of delivery. [CA Decision, pp. 1617; Rollo, pp. 71-72.]
2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very much
higher than the prices it previously quoted would mean an amendment of the contracts.
It would be too unfair for the plaintiffs if they will be made to bear the increase in prices
of the black iron pipes when they had already paid quite an amount for said items and
defendant had made use of the advance payments. That would be unjust enrichment
on the part of the defendant at the expense of the plaintiffs and is considered an
abominable business practice. [CA Decision, pp. 18-19; Rollo, pp. 73-74.]
Respondent court denied Delta's motion for reconsideration hence this petition for review praying for the
reversal of the Court of Appeals decision and affirmance of that of the trial court.
Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions required
of private respondents as vendees. These conditions are: payment of 20% of the net contract price or
P13,200.00 and execution of a promissory note called for by the first contract; and payment of 50% of the net
contract price or P2,700.00 under the second contract. These, Delta posits, are suspensive conditions and
only upon their performance or compliance would its obligation to deliver the pipes arise [Petition, pp. 9-12;
Rollo, pp. 1720.] Thus, when private respondents did not perform their obligations; when they refused to
accept petitioner's offer to deliver the goods; and, when it took them three (3) long years before they
demanded delivery of the iron pipes that in the meantime, great and sudden fluctuation in market prices have
occurred; Delta is entitled to rescind the two (2) contracts.
Delta relies on the following provision of law on rescission:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

3. Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and,
4. To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.]
On appeal, the Court of Appeals reversed and ordered private respondents to make the payments specified in
"Terms of Payment (b)" of the contracts and to execute the promissory note required in the first contract
and thereafter, Delta should immediately commence delivery of the black iron pipes.* [CA Decision, p. 20;
Rollo, p. 75.]
The Court of Appeals cited two main reasons why it reversed the trial court, namely:

In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where the breach
complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be
granted where the breach is slight or casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L21876, September 29, 1967, 21 SCRA 284, 290.] Further, "[t]he question of whether a breach of a contract is
substantial depends upon the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G.
R. No. L-29155, May 13,1970,33 SCRA 1, 18].
In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of its obligations was not
a substantial breach, let alone a breach of contract, as would warrant rescission.

Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to deliver the
black iron pipes was rejected by the Genuinos who were "not ready to accept delivery because the cold
storage rooms have not been constructed yet. Plaintiffs (private respondents herein) were short-funded, and
did not have the space to accommodate the pipes they ordered" [CFI Decision, p. 9; Rollo, p. 49].

Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party must be made known to the
otherand is always provisional, being ever subject to scrutiny and review by the proper court." [University of
the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35 SCRA 102, 107; Emphasis supplied.]

Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager of the
Technical Service department of petitioner:

In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts with f-he
Genuinos. It only raised rescission as a defense when it was sued for specific performance by private
respondents.

Q You stated that you sent a certain Evangelista to the Espaa

Extension and Cold Storage to offer the delivery subject matter
of the contract and then you said that Mr. Evangelista reported
(sic) to you that plaintiff would not accept delivery, is that
correct, as a summary of your statement?

Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact
that not only does it have in its possession and ownership the black iron pipes, but also the P15,900.00 down
payments private respondents have paid. And if petitioner Delta claims the right to rescission, at the very least,
it should have offered to return the P15,900.00 down payments [See Art. 1385, Civil Code and Hodges v.
Granada, 59 Phil. 429 (1934)].

A A Yes, sir.
Q Now, what did you do in the premises (sic)?
A Yes, well, we take the word of Mr. Evangelista. We could not
deliver the said black iron pipes, because as per information the
Ice Plant is not yet finished.
Q Did you not report that fact to ... any other defendant-officials
of the Delta Motor Corporation?
A No.
Q And you did not do anything after that?
A Because taking the word of my Engineer we did not do
anything. [TSN, December 8, 1975, pp. 18-19.]
xxx xxx xxx

It is for these same reasons that while there is merit in Delta's claim that the sale is subject to suspensive
conditions, the Court finds that it has, nevertheless, waived performance of these conditions and opted to go
on with the contracts although at a much higher price. Art. 1545 of the Civil Code provides:
Art. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract or
he may waived performance of the condition. . . . [Emphasis supplied.]
Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and in the
increase in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced. Said stipulation
makes reference to Delta's price offer as remaining firm for thirty (30) days and thereafter, will be subject to its
review and confirmation. The offers of Delta, however, were accepted by the private respondents within the
thirty (30)-day period. And as stipulated in the two (2) letter-quotations, acceptance of the offer gives rise to a
contract between the parties:
In the event that this proposal is acceptable to you, please indicate your conformity by
signing the space provided herein below which also serves as a contract of this
proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".]
And as further provided by the Civil Code:

And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise any
argument but merely demanded that the quoted prices be increased. Thus, in its answer to private
respondents' request for delivery of the pipes, Delta countered:
Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron
pipes;.
We regret to say, however, that we cannot base our price on our proposals dated July
3 and July 18, 1972 as per the following paragraph quoted on said proposal:
Our price offer indicated herein shall remain firm within a period
of thirty (30) days from the date hereof. Any order placed after
said period will be subject to our review and confirmation.
We are, therefore, enclosing our re-quoted proposal based on our current price. [Exh.
"G".]

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon thing which is the object of the contract and upon the price.
Thus, the moment private respondents accepted the offer of Delta, the contract of sale between them was
perfected and neither party could change the terms thereof.
Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim for
rescission. As testified to by petitioner's Vice-President of Marketing for the Electronics, Airconditioning and
Refrigeration division, Marcelino Caja, the stipulation in the two (2) contracts as to delivery, ex-stock subject to
prior sales,means that "the goods have not been delivered and that there are no prior commitments other than
the sale covered by the contracts.. . once the offer is accepted, the company has no more option to change
the price." [CFI Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner cannot claim for higher prices
for the black iron pipes due to the increase in the cost of goods. Based on the foregoing, petitioner Delta and
private respondents Genuinos should comply with the original terms of their contracts.
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.
G.R. No. 101762 July 6, 1993
VERMEN REALTY DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and SENECA HARDWARE CO., INC., respondents.

5. That the FIRST PARTY shall pay the SECOND PARTY TWO HUNDRED SEVENTY
SIX THOUSAND (P276,000.00) PESOS in cash upon delivery of said construction
materials and the other TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00)
PESOS shall be paid in the form of two (2) residential condominium units, studio type,
with a total floor area of 76.22 square meter (sic) more or less also worth P276,000.00;
6. That, for every staggered delivery of construction materials, fifty percent (50%) shall
be paid by the FIRST PARTY to the SECOND PARTY C.O.D. and, fifty percent (50%)
shall be credited to the said condominium unit in favor of the SECOND PARTY;

Ramon P. Gutierrez for petitioner.

Adriano Velasco for private respondent.

7. That the SECOND PARTY shall deliver to the FIRST PARTY said construction
materials under the agreed price and conditions stated in the price quotation approved
by both parties and made an integral part of this document;
8. That the SECOND PARTY is obliged to start delivering to the FIRST PARTY all
items in the purchase order seven (7) days from receipt of said purchase order until
such time that the whole amount of P552,000.00 is settled;

BIDIN, J.:
Petitioner seeks a review of the decision of the Court of Appeals in CA-G.R. CV No. 15730, which set aside
the decision of the Regional Trial Court of Quezon City, Branch 92 in Civil Case No. Q-45232. The dispositive
portion of the assailed decision reads as follows:
WHEREFORE, the decision a quo is set aside. As prayed for by plaintiff-appellant, the
"Offsetting Agreement" (Exhibit "E" or "2") is hereby rescinded. Room 601 of Phase I of
the Vermen Pines Condominium should be returned by plaintiff-appellant to defendantappellee upon payment by the latter of the sum of P330,855.25 to the former, plus
damages in the sum of P5,000.00 and P50.00 for the furnishings of Phase I of Condo
(sic) Units Nos. 601 and 602, and three (3) day rental of Room 402 during the Holy
Week of 1982, respectively. In addition, defendant-appellee is hereby ordered to pay
plaintiff-appellant, who was compelled to litigate and hire the services of counsel to
protect its interests against defendant-appellee's violation of their Offsetting
Agreement, the sum of P10,000.00 as an award for attorney's fee (sic) and other
expenses of litigation. The claim for unrealized profits in a sum equivalent to 10% to
20% percent or P522,000.00 not having been duly proved, is therefore DENIED. No
costs. (Rollo, p. 31)
On March 2, 1981, petitioner Vermen Realty and Development Corporation, as First Party, and private
respondent Seneca Hardware Co., Inc., as Second Party, entered into a contract denominated as "Offsetting
Agreement". The said agreement contained the following stipulations:
1. That the FIRST PARTY is the owner/developer of VERMEN PINES CONDOMINIUM
located at Bakakeng Road, Baguio City;
2. That the SECOND PARTY is in business of construction materials and other
hardware items;
3. That the SECOND PARTY desires to buy from the FIRST PARTY two (2) residential
condominium units, studio type, with a total floor area of 76.22 square meter (sic) more
or less worth TWO HUNDRED SEVENTY SIX THOUSAND (P276,000.00) PESOS
only;
4. That the FIRST PARTY desires to but from the SECOND PARTY construction
materials mostly steel bars, electrical materials and other related items worth FIVE
HUNDRED FIFTY TWO THOUSAND (P552,000.00) PESOS only;

9. That the place of delivery shall be Vermen Pines Condominium at Bakakeng Road,
Baguio City;
10. That the freight cost of said materials shall be borne fifty percent (50%) by the
FIRST PARTY and fifty percent (50%) by the SECOND PARTY;
11. That the FIRST PARTY pending completion of the VERMEN PINES
CONDOMINIUM PHASE II which is the subject of this contract, shall deliver to the
SECOND PARTY the possession of residential condominium, Phase I, Unit Nos. 601
and 602, studio type with a total area of 76.22 square meters or less, worth
P276,000.00;
12. That after the completion of Vermen Pines Condominium Phase II, the SECOND
PARTY shall be given by the FIRST PARTY the first option to transfer from Phase I to
Phase II under the same price, terms and conditions. (Rollo, pp. 26-28).
As found by the appellate court and admitted by both parties, private respondent had paid petitioner the
amount of P110,151.75, and at the same time delivered construction materials worth P219,727.00. Pending
completion of Phase II of the Vermen Pines Condominiums, petitioner delivered to private respondent units
601 and 602 at Phase I of the Vermen Pines Condominiums (Rollo, p. 28). In 1982, the petitioner repossessed
unit 602. As a consequence of the repossession, the officers of the private respondent corporation had to rent
another unit for their use when they went to Baguio on April 8, 1982. On May 10, 1982, the officers of the
private respondent corporation requested for a clarification of the petitioner's action of preventing them and
their families from occupying condominium unit 602.
In its reply dated May 24, 1982, the petitioner corporation averred that Room 602 was leased to another
tenant because private respondent corporation had not paid anything for purchase of the condominium unit.
Petitioner corporation demanded payment of P27,848.25 representing the balance of the purchase price of
Room 601.
In 1983, the loan application for the construction of the Vermen Pines Condominium Phase II was denied.
Consequently, construction of the condominium project stopped and has not been resumed since then.
On June 21, 1985, private respondent filed a complaint with the Regional Trial Court of Quezon City (Branch
92) for rescission of the Offsetting Agreement with damages. In said complaint, private respondent alleged that
petitioner Vermen Realty Corporation had stopped issuing purchase orders of construction materials after

April, 1982, without valid reason, thus resulting in the stoppage of deliveries of construction materials on its
(Seneca Hardware) part, in violation of the Offsetting Agreement.

The issue presented before the Court is whether or not the circumstances of the case warrant rescission of the
Offsetting Agreement as prayed for by Private Respondent when he instituted the case before the trial court.

In its Answer filed on August 15, 1985, petitioner alleged that the fault lay with private respondent (plaintiff
therein): although petitioner issued purchase orders, it was private respondent who could not deliver the
supplies ordered, alleging that they were out of stock. (However, during a hearing on January 28, 1987, the
Treasurer of petitioner corporation, when asked where the purchase orders were, alleged that she was going
to produce the same in court, but the same was never produced (Rollo, p. 30). Moreover, private respondent
quoted higher prices for the construction materials which were available. Thus, petitioner had to resort to its
other suppliers. Anent the query as to why Unit 602 was leased to another tenant, petitioner averred that this
was done because private respondent had not paid anything for it.

We rule in favor of private respondent. There is no controversy that the provisions of the Offsetting Agreement
are reciprocal in nature. Reciprocal obligations are those created or established at the same time, out of the
same cause, and which results in a mutual relationship of creditor and debtor between parties. In reciprocal
obligations, the performance of one is conditioned on the simultaneous fulfillment of the other obligation
(Abaya vs. Standard Vacuum Oil Co., 101 Phil. 1262 [1957]). Under the agreement, private respondent shall
deliver to petitioner construction materials worth P552,000.00 under the conditions set forth in the Offsetting
Agreement. Petitioner's obligation under the agreement is three-fold: he shall pay private respondent
P276,000.00 in cash; he shall deliver possession of units 601 and 602, Phase I, Vermen Pines Condominiums
(with total value of P276,000.00) to private respondent; upon completion of Vermen Pines Condominiums
Phase II, private respondent shall be given option to transfer to similar units therein.

As of December 16, 1986, private respondent had paid petitioner P110,151.75 in cash, made deliveries of
construction materials worth P219,727.00, leaving a balance of P27,848.25 representing the purchase price of
unit 601 (Rollo, p. 28). The price of one condominium unit was P138,000.00.
After conducting hearings, the trial court rendered a decision dismissing the complaint and ordering the
plaintiff (private respondent in this petition) to pay defendant (petitioner in this petition) on its counterclaim in
the amount of P27,848.25 representing the balance due on the purchase price of condominium unit 601.
On appeal, respondent court reversed the trial court's decision as adverted to above.
Petitioner now comes before us with the following assignment of errors:
I
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS
REVIEWABLE BY THIS HONORABLE COURT, WHEN IT SUPPLANTED CONTRARY
TO THE EVIDENCE ON RECORD, THE TRIAL COURT'S CONCLUSIONS THAT
PETITIONER DID NOT VIOLATE THE "OFFSETTING AGREEMENT" IT ENTERED
INTO WITH THE SENECA HARDWARE CO., INC. WITH ITS TOTALLY BASELESS
"PERCEPTION" THAT IT WAS PETITIONER WHICH DISCONTINUED TO ISSUE
PURCHASE ORDERS DUE TO THE STOPPAGE OF THE CONSTRUCTION OF
PHASE II OF THE CONDOMINIUM PROJECT WHEN THE LOAN ON THE SAID
PROJECT WAS STOPPED.
II
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS
REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT
WAS PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT"
BECAUSE IT DID NOT SEND PURCHASE ORDERS TO PRIVATE RESPONDENT
AND DISCONTINUED THE CONSTRUCTION OF THE CONDOMINIUM PROJECT
DESPITE THE FACT THAT THE EXHIBITS ATTESTING TO THIS FACT WAS
FORMALLY OFFERED IN EVIDENCE IN COURT AND MENTIONED BY IT IN ITS
DECISION.
III
THE RESPONDENT COURT OF APPEALS ERRED, AND ITS ERROR IS
REVIEWABLE BY THIS HONORABLE COURT, WHEN IT CONCLUDED THAT IT
WAS PETITIONER WHICH BREACHED THE "OFFSETTING AGREEMENT"
DESPITE THE ADMISSION MADE BY PRIVATE RESPONDENT'S OWN WITNESS
THAT PETITIONER HAD THE DISCRETION TO ORDER OR NOT TO ORDER THE
CONSTRUCTION MATERIAL (SIC) FROM THE FORMER. (Rollo, p. )

Article 1191 of the Civil Code provides the remedy of rescission in (more appropriately, the term is "resolution")
in case of reciprocal obligations, where one of the obligors fails to comply with that is incumbent upon him.
The general rule is that rescission of a contract will not be permitted for a slight or causal breach, but only for
such substantial and fundamental breach as would defeat the very object of the parties in executing the
agreement. The question of whether a breach of contract is substantial depends upon the attendant
circumstances (Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, [1970]).
In the case at bar, petitioner argues that it was private respondent who failed to perform its obligation in the
Offsetting Agreement. It averred that contrary to the appellate court's ruling, the mere stoppage of the loan for
the construction of Phase II of the Vermen Pines Condominiums should not have had any effect on the
fulfillment of the obligations set forth in the Offsetting Agreement. Petitioner moreover stresses that contrary to
private respondent's averments, purchase orders were sent, but there was failure to deliver the materials
ordered because they were allegedly out of stock. Petitioner points out that, as admitted by private
respondent's witness, petitioner had the discretion to order or not to order constructions materials, and that it
was only after petitioner approved the price, after making a canvass from other suppliers, that the latter would
issue a purchase order. Petitioner argues that this was the agreement, and therefore the law between the
parties, hence, when no purchase orders were issued, no provision of the agreement was violated.
Private respondent, on the other hand, points out that the subject of the Offsetting Agreement is Phase II of
the Vermen Pines Condominiums. It alleges that since construction of Phase II of the Vermen Pines
Condominiums has failed to begin (Rollo, p. 104), it has reason to move for rescission of the Offsetting
Agreement, as it cannot forever wait for the delivery of the condominium units to it.
It is evident from the facts of the case that private respondent did not fail to fulfill its obligation in the Offsetting
Agreement. The discontinuance of delivery of construction materials to petitioner stemmed from the failure of
petitioner to send purchase orders to private respondent. The allegation that petitioner had been sending
purchase orders to private respondent, which the latter could not fill, cannot be given credence. Perhaps in the
beginning, it would send purchase orders to private respondent (as evidenced by the purchase orders
presented in court), and the latter would deliver the construction materials ordered. However, according to
private respondent, after April, 1982, petitioner stopped sending purchase orders. Petitioner failed to refute this
allegation. When petitioner's witness, Treasurer of the petitioner corporation, was asked to produce the
purchase orders in court, the latter promised to do so, but this was never complied with.
On the other hand, petitioner would never able to fulfill its obligation in allowing private respondent to exercise
the option to transfer from Phase I to Phase II, as the construction of Phase II has ceased and the subject
condominium units will never be available.
The impossibility of fulfillment of the obligation on the part of petitioner necessitates resolution of the contract
for indeed, the non-fulfillment of the obligation aforementioned constitutes substantial breach of the Offsetting
Agreement. The possibility of exercising the option of whether or not to transfer to condominium units in Phase
II was one of the factors which were considered by private respondent when it entered into the agreement.
Since the construction of the Vermen Pines Condominium Phase II has stopped, petitioner would be in no

position to perform its obligation to give private respondent the option to transfer to Phase II. It would be the
height of injustice to make private respondent wait for something that may never come.
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
July 31, 1953
G.R. No. L-4811
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
Taada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most
important provisions of which are (1) that they shall organize a partnership for the bottling and distribution of
Mision soft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing
the capital necessary therefor; (2) that the defendant was to decide matters of general policy regarding the
business, while the plaintiff was to attend to the operation and development of the bottling plant; (3) that the
plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4)
that the plaintiff was to receive 30 per cent of the net profits of the business. The above agreement was
arrived at after various conferences and consultations by and between them, with the assistance of their
respective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation
of Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its
name, that he had interested a prominent financier (defendant herein) in the business, who was willing to
invest half a million dollars in the bottling and distribution of the said beverages, and requested, in order that
he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under
the condition that it will finally be transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff
was given "a thirty-days" option on exclusive bottling and distribution rights for the Philippines" (Exhibit J).
Formal negotiations between plaintiff and defendant began at a meeting on November 27, 1947, at the Manila
Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the
agreement, Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to be
the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States
without the agreement being not first signed. On that day plaintiff and defendant went to the United States,
and on December 10, 1947, a franchise agreement (Exhibit V) was entered into the Mission Dry Corporation
and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant the exclusive right, license, and
authority to produce, bottle, distribute, and sell Mision beverages in the Philippines. The plaintiff and the
defendant thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations
were not begun until the first week of February, 1948. In January plaintiff was given as advance, on account of
profits, the sum of P2,000, besides the use of a car; in February, 1948, also P2,000, and in March only
P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers
be executed. At first defendant executed himself, saying there was no hurry. Then he promised to do so after
the sales of the product had been increased to P50,000. As nothing definite was forthcoming, after this
condition was attained, and as defendant refused to give further allowances to plaintiff, the latter caused his
attorneys to take up the matter with the defendant with a view to a possible settlement. as none could be
arrived at, the present action was instituted.

In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and
a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant
alleges by way of defense (1) that defendant's consent to the agreement, Exhibit A, was secured by the
representation of plaintiff that he was the owner, or was about to become owner of an exclusive bottling
franchise, which representation was false, and plaintiff did not secure the franchise, but was given to
defendant himself; (2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who
failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do
so. He also presented a counter-claim for P200,000 as damages. On these issues the parties went to trial, and
thereafter the Court of First Instance rendered judgment ordering defendant to render an accounting of the
profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 percent thereof. it
held that the execution of the contract of partnership could not be enforced upon the parties, but it also held
that the defense of fraud was not proved. Against this judgment both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely represented that he
had an exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it
existed, annuls the agreement to form the partnership. The trial court found that it is improbable that defendant
was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of the contract prior to the final one
can not be considered for the purpose of determining the issue, as they are presumed to have been already
integrated into the final agreement; that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would
not invalidate the agreement. On this appeal the defendant, as appellant, insists that plaintiff did represent to
the defendant that he had an exclusive franchise, when as a matter of fact, at the time of its execution, he no
longer had it as the same had expired, and that, therefore, the consent of the defendant to the contract was
vitiated by fraud and it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to believe that
defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented
himself as being the exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this
matter. I notice from the first draft of the document which I prepared which calls for the organization of a
corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first
paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission products and their sale to the public throughout the
Philippines; . . .
3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation
his exclusive right to bottle Mission products and to sell them throughout the Philippines. . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle
invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the
agreement, but to discover the intent of the parties thereto and the circumstances surrounding the execution of
the contract. The issue of fact is: Did plaintiff represent to defendant that he had an exclusive franchise?
Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of said
issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the
agreement, but to prove how he induced the defendant to enter into it to prove the representations or
inducements, or fraud, with which or by which he secured the other party's consent thereto. These are
expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil.,
209; Port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud

and false representation are an incident to the creation of a jural act, not to its integration, and are not
governed by the rules on integration. Were parties prohibited from proving said representations or
inducements, on the ground that the agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol evidence rule expressly allows the evidence to be
introduced when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123,
Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:
. . . He told me to come back to him when I was able to speak with authority so that we could come to terms as
far as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a
poor bargaining position. .
I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time,
during which I may consummate my plants. . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument with which to
bargain with defendant and close the deal with him, he must have used his said option for the above-indicated
purpose, especially as it appears that he was able to secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff
called on the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am
definitely interested in the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff
went to see the defendant (and at that time he had already the option), he must have exultantly told defendant
that he had the authority already. It is improbable and incredible for him to have disclosed the fact that he
had only an option to the exclusive franchise, which was to last thirty days only, and still more improbable for
him to have disclosed that, at the time of the signing of the formal agreement, his option had already expired.
Had he done so, he would have destroyed all his bargaining power and authority, and in all probability lost the
deal itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement
"to secure the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this
provision in the final agreement does not militate against plaintiff having represented that he had the exclusive
franchise; it rather strengthens belief that he did actually make the representation. How could plaintiff assure
defendant that he would get the franchise for the latter if he had not actually obtained it for himself? Defendant
would not have gone into the business unless the franchise was raised in his name, or at least in the name of
the partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared by
defendant's attorney, Exhibit HH, the above provision is inserted, with the difference that instead of securing
the franchise for the defendant, plaintiff was to secure it for the partnership. To show that the insertion of the
above provision does not eliminate the probability of plaintiff representing himself as the exclusive grantee of
the franchise, the final agreement contains in its third paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was
the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be
transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.

Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half
of that agreed upon. He could not have had such a feeling had not plaintiff actually made him believe that he
(plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract
made fraud improbable. Not necessarily, because the alleged representation took place before the
conferences were had, in other words, plaintiff had already represented to defendant, and the latter had
already believed in, the existence of plaintiff's exclusive franchise before the formal negotiations, and they
were assisted by their lawyers only when said formal negotiations actually took place. Furthermore, plaintiff's
attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's lawyer testified
that plaintiff explained to him, upon being asked for the franchise, that he had left the papers evidencing it.
(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of
the exclusive franchise. The defendant was made to believe, and he actually believed, that plaintiff had the
exclusive franchise. Defendant would not perhaps have gone to California and incurred expenses for the trip,
unless he believed that plaintiff did have that exclusive privilege, and that the latter would be able to get the
same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's)
exclusive franchise, as he induced him to that belief, and he may not be allowed to deny that defendant was
induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the
contract? It must be noted that fraud is manifested in illimitable number of degrees or gradations, from the
innocent praises of a salesman about the excellence of his wares to those malicious machinations and
representations that the law punishes as a crime. In consequence, article 1270 of the Spanish Civil Code
distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment of a
contract, and the incidental deceit, which only renders the party who employs it liable for damages. This Court
had held that in order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the
incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs.
Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff,
was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff obligated himself
to secure a franchise for the defendant. Correction appears in this same original draft, but the change is made
not as to the said obligation but as to the grantee. In the corrected draft the word "capitalist"(grantee) is
changed to "partnership." The contract in its final form retains the substituted term "partnership." The
defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to
be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the
option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when
the contract was entered into), the principal obligation that he assumed or undertook was to secure said
franchise for the partnership, as the bottler and distributor for the Mission Dry Corporation. We declare,
therefore, that if he was guilty of a false representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or
price plaintiff gave in exchange for the share of 30 percent granted him in the net profits of the partnership
business. Defendant agreed to give plaintiff 30 per cent share in the net profits because he was transferring
his exclusive franchise to the partnership. Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the
following provision exists:
3. That the MANAGER, upon the organization of the said corporation, shall forthwithtransfer to the said
corporation his exclusive right to bottle Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable
shares of the said corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par. 3,
Exhibit II; emphasis ours.)

Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant being built, all that he suggested was about the toilet
facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did not
vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent
of the net profits; in other words, by pretending that he had the exclusive franchise and promising to transfer it
to defendant, he obtained the consent of the latter to give him (plaintiff) a big slice in the net profits. This is
the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the other
party's consent to a big share in the profits, an incidental matter in the agreement.
El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que
concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el consentimiento ni en
la totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una accion
para reclamar indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question that next
comes before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff
that the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from
the very language of the agreement that the parties intended that the execution of the agreement to form a
partnership was to be carried out at a later date. They expressly agreed that they shall form a partnership.
(Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the Mission Dry Corporation
was obtained in California, plaintiff himself had been demanding that defendant comply with the agreement.
And plaintiff's present action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both
inconsistent with their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant has an
obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish commentators call a very
personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of
violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos
personalisimos, ya se hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas
esta regido por los preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar
el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romano nemo
potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que perciben la
posibilidad de la destruccion deeste principio, aaden que, aun cuando se pudiera obligar al deudor, no
deberia hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de cumplir las
obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que obligar por
la violencia seria infrigir la libertad eimponer una especie de esclavitud.
xxxxxxxxx
En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya
precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio Gomez,
sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo
sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la conciencia social el
empleo de la fuerza publica, mediante coaccion sobre las personas, en las relaciones puramente particulares;
porque la evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad

humana, y nose admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal, sino por
motivos que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando setrata
de las obligaciones que hemos llamado ex lege, que afectanal orden social y a la entidad de Estado, y
aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan
tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular,
como sucedeen las contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera
propia, entrado a dirimir, con apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19
Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of
defendant's refusal to form the partnership, and damages that defendant is also entitled to collect because of
the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish
Civil Code the measure of damages is the actual loss suffered and the profits reasonably expected to be
received, embraced in the terms dao emergente and lucro cesante. Plaintiff is entitled under the terms of the
agreement to 30 per cent of the net profits of the business. Against this amount of damages, we must set off
the damage defendant suffered by plaintiff's misrepresentation that he had obtained a very high percentage of
share in the profits. We can do no better than follow the appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended
he had and which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce
plaintiff's share form 30 per cent to 15 per cent only, to which reduction defendant appears to have readily
given his assent. It was under this understanding, which amounts to a virtual modification of the contract, that
the bottling plant was established and plaintiff worked as Manager for the first three months. If the contract
may not be considered modified as to plaintiff's share in the profits, by the decision of defendant to reduce the
same to one-half and the assent thereto of plaintiff, then we may consider the said amount as a fair estimate
of the damages plaintiff is entitled to under the principle enunciated in the case of Varadero de Manila vs.
Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto
amount to an admission on the part of each of the reasonableness of this amount as plaintiff's share. This
same amount was fixed by the trial court. The agreement contains the stipulation that upon the termination of
the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of
the trial court does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph
11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while
defendant uses the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.

an obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court, to which no opposition by the
latter appears on the record. This was granted by the court a quo 3 but the preliminary attachment was
subsequently lifted upon the filing by private respondent of a counterbond amounting to P990,000.00. 4
During the pendency of said civil case for damages, petitioner also filed other complaints before the
Department of Tourism in DOT Case No. 90-121 and the Securities and Exchange Commission in PED Case
No. 90-3738, 5wherein, according to petitioner, herein private respondent was meted out a fine of P10,000.00
by the Commission and P5,000.00 by the Department, 6 which facts are not disputed by private respondent in
its comment on the present petition.

G.R. No. 108253 February 23, 1994

LYDIA L. GERALDEZ, petitioner,
vs.
HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.
Natividad T. Perez for petitioner.
Bito, Lozada, Ortega & Castillo for private respondent.

REGALADO, J.:
Our tourism industry is not only big business; it is a revenue support of the nation's economy. It has become a
matter of public interest as to call for its promotion and regulation on a cabinet level. We have special laws and
policies for visiting tourists, but such protective concern has not been equally extended to Filipino tourists
going abroad. Thus, with the limited judicial relief available within the ambit of present laws, our tourists often
prefer who fail to deliver on their undertakings. This case illustrates the recourse of one such tourist who
refused to forget.
An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against
private respondent Kenstar Travel Corporation, docketed as Civil Case No. Q-90-4649 of the Regional Trial
Court of Quezon City, Branch 80. 1 After the parties failed to arrive at an amicable settlement, trial on the
merits ensued.
Culling from the records thereof, we find that sometime in October, 1989, Petitioner came to know about
private respondent from numerous advertisements in newspapers of general circulation regarding tours in
Europe. She then contacted private respondent by phone and the latter sent its representative, Alberto Vito
Cruz, who gave her the brochure for the tour and later discussed its highlights. The European tours offered
were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a 22day tour of Europe for $2,990.00. She paid the total equivalent amount of P190,000.00 charged by private
respondent for her and her sister, Dolores.
Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that,
contrary to what was stated in the brochure, there was no European tour manager for their group of tourists,
the hotels in which she and the group were bullited were not first-class, the UGC Leather Factory which was
specifically added as a highlight of the tour was not visited, and the Filipino lady tour guide by private
respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first
time. 2
In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the issuance of a
writ of preliminary attachment against private respondent on the ground that it committed fraud in contracting

On July 9, 1991, the court a quo rendered its decision 7 ordering private respondent to pay petitioner
P500.000.00 as moral damages, P200,000.00 as nominal damages, P300,000.00 as exemplary damages,
P50,000.00 as and for attorney's fees, and the costs of the suit. 8 On appeal, respondent court 9 deleted the
award for moral and exemplary damages, and reduced the awards for nominal damages and attorney's fees
to P30,000.00 and P10,000.00, respectively. 10
Hence, the instant petition from which, after sifting through the blades of contentions alternately thrust and
parried in the exchanges of the parties, the pivotal issue that emerges is whether or not private respondent
acted in bad faith or with gross negligence in discharging its obligations under the contract.
Both the respondent court and the court a quo agree that private respondent failed to comply faithfully with its
commitments under the Volare 3 tour program, more particularly in not providing the members of the tour
group with a European tour manger whose duty, inter alia, was to explain the points of interest of and
familiarize the tour group with the places they would visit in Europe, and in assigning instead a first timer
Filipino tour guide, in the person of Rowena Zapanta, 11 to perform that role which definitely requires
experience and knowledge of such places. It is likewise undisputed that while the group was able to pay a visit
to the site of the UGC Leather Factory, they were brought there at a very late hour such that the factory was
already closed and they were unable to make purchases at supposedly discounted prices. 12 As to the firstclass hotels, however, while the court a quo found that the hotels were not fist-class, respondent court
believed otherwise, or that, at least, there was substantial compliance with such a representation.
While clearly there was therefore a violation of the rights of petitioner under the aforementioned
circumstances, respondent court, contrary to the findings of the trial court, ruled that no malice or bad faith
could be imputed to private respondent, hence there is no justification for the award of moral and exemplary
damages. Furthermore, it held that while petitioner is entitled to nominal damages, the amount awarded by the
trial court was unconscionable since petitioner did not suffer actual or substantial damage from the breach of
contract, 13 hence its reduction of such award as hereinbefore stated.
After thorough and painstaking scrutiny of the case records of both the trial and appellate courts, we are
satisfactorily convinced, and so hold, that private respondent did commit fraudulent misrepresentations
amounting to bad faith, to the prejudice of petitioner and the members of the tour group.
By providing the Volare 3 tourist group, of which petitioner was a member, with an inexperienced and a first
timer tour escort, private respondent manifested its indifference to the convenience, satisfaction and peace of
mind of its clients during the trip, despite its express commitment to provide such facilities under the Volare 3
Tour Program which had the grandiose slogan "Let your heart sing. 14
Evidently, an inexperienced tour escort, who admittedly had not even theretofore been to Europe, 15 cannot
effectively acquaint the tourists with the interesting areas in the cities and places included in the program, or to
promptly render necessary assistance, especially where the latter are complete strangers thereto, like
witnesses Luz Sui Haw and her husband who went to Europe for their honeymoon. 16
We agree with petitioner that the selection of Zapanta as the group's tour guide was deliberate and conscious
choice on the part of private respondent in order to afford her an on-the-job training and equip her with the
proper opportunities so as to later qualify her as an "experienced" tour guide and eventually be an asset of

respondent corporation. 17 Unfortunately, this resulted in a virtual project experimentation with petitioner and
the members of the tour as the unwitting participants.

He will accompany you throughout Europe. He speaks your language, shares your
culture and feels your excitement.

We are, therefore, one with respondent court in faulting private respondent's choice of Zapanta as a qualified
tour guide for the Volare 3 tour package. It brooks no argument that to be true to its undertakings, private
respondent should have selected an experienced European tour guide, or it could have allowed Zapanta to go
merely as an understudy under the guidance, control and supervision of an experienced and competent
European or Filipino tour guide, 18 who could give her the desired training.

He won't be alone because you will also be accompanied by a . . .

Moreover, a tour guide is supposed to attend to the routinary needs of the tourists, not only when the latter ask
for assistance but at the moment such need becomes apparent. In other words, the tour guide, especially by
reason of her experience in previous tours, must be able to anticipate the possible needs and problems of the
tourists instead of waiting for them to bring it to her attention. While this is stating the obvious, it is her duty to
see to it that basic personal necessities such as soap, towels and other daily amenities are provided by the
hotels. It is also expected of her to see to it that the tourists are provided with sanitary surroundings and to
actively arrange for medical attention in case of accidents, as what befell petitioner's sister and wherein the
siblings had to practically fend for themselves since, after merely calling for an ambulance, Zapanta left with
the other tour participants. 19
Zapanta fell far short of the performance expected by the tour group, her testimony in open court being
revelatory of her inexperience even on the basic function of a tour guide, to wit:
Q Now, are you aware that there were times that the tourists
under the "Volare 3" were not provided with soap and towels?
A They did not tell me that but I was able to ask them later on
but then nobody is complaining. 20 . . . .
The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness of
Zapanta in attentively following the itinerary of the day. This incompetence must necessarily be traced to the
lack of due diligence on the part of private respondent in the selection of its employees. It is true that among
the thirty-two destinations, which included twenty-three cities and special visits to nine tourist spots, this was
the only place that was not visited. 21 It must be noted, however, that the visit to the UGC Leather Factory was
one of the highlights 22 of the Volare 3 program which even had to be specifically inserted in the itinerary,
hence it was incumbent upon the organizers of the tour to take special efforts to ensure the same. Besides,
petitioner did expect much from the visit to that factory since it was represented by private respondent that
quality leather goods could be bought there at lower prices. 23
Private respondent represents Zapanta's act of making daily overseas calls to Manila as an exercise of
prudence and diligence on the latter's part as a tour guide. 24 It further claims that these calls were needed so
that it could monitor the progress of the tour and respond to any problem immediately. 25 We are not
persuaded. The truth of the matter is that Zapanta, as an inexperienced trainee-on-the-job, was required to
make these calls to private respondent for the latter to gauge her ability in coping with her first assignment and
to provide instructions to her. 26
Clearly, therefore, private respondent's choice of Zapanta as the tour guide is a manifest disregard of its
specific assurances to the tour group, resulting in agitation and anxiety on their part, and which deliberate
omission is contrary to the elementary rules of good faith and fair play. It is extremely doubtful if any group of
Filipino tourists would knowingly agree to be used in effect as guinea pigs in an employees' training program
of a travel agency, to be conducted in unfamiliar European countries with their diverse cultures, lifestyles and
languages.
On the matter of the European tour manager, private respondent's advertisement in its tour contract declares
and represents as follows:
FILIPINO TOUR ESCORT!

EUROPEAN TOUR MANAGER!

You get the best of both worlds. Having done so may tours in the past with people like
you, he knows your sentiments, too. So knowledgeable about Europe, there is hardly a
question he can't answer. 27
Private respondent contends that the term "European Tour Manager" does not refer to an individual but to an
organization, allegedly the Kuoni Travel of Switzerland which supposedly prepared the itinerary for its "Volare
Europe Tour," negotiated with all the hotels in Europe, selected tourist spots and historical places to visit, and
appointed experienced local tour guides for the tour group. 28
We regret this unseemly quibbling which perforce cannot be allowed to pass judicial muster.
A cursory reading of said advertisement will readily reveal the express representation that the contemplated
European tour manager is a natural person, and not a juridical one as private respondent asserts. A corporate
entity could not possibly accompany the members of the tour group to places in Europe; neither can it answer
questions from the tourists during the tour. Of course, it is absurd that if a tourist would want to know how he
could possibly go to the nearest store or supermarket, he would still have to call Kuoni Travel of Switzerland.
Furthermore, both lower courts observed, and we uphold their observations, that indeed private respondent
had the obligation to provide the tour group not only with a European tour manger, but also with local
European tour guides. The latter, parenthetically, were likewise never made available. 29 Zapanta claims that
she was accompanied by a European local tour guide in most of the major cities in Europe. We entertain
serious doubts on, and accordingly reject, this pretension for she could not even remember the name of said
European tour guide. 30 If such a guide really existed, it is incredible why she could not even identify the former
when she testified a year later, despite the length of their sojourn and the duration of their association.
As to why the word "he" was used in the aforequoted advertisement, private respondent maintains that the
pronoun "he" also includes the word "it," as where it is used as a "nominative case form in general statements
(as in statutes) to include females, fictitious persons (as corporations)." 31 We are constrained to reject this
submission as patently strained and untenable. As already demonstrated, it is incredible that the word "he"
was used by private respondent to denote an artificial or corporate being. From its advertisement, it is beyond
cavil that the import of the word "he" is a natural and not a juridical person. There is no need for further
interpretation when the wordings are clear. The meaning that will determine the legal effect of a contract is that
which is arrived at by objective standards; one is bound, not by what he subjectively intends, but by what he
leads others reasonably to think he intends. 32
In an obvious but hopeless attempt to arrive at a possible justification, private respondent further contends that
it explained the concept of a European tour manager to its clients at the pre-departure briefing, which
petitioner did not attend. 33 Significantly, however, private respondent failed to present even one member of the
tour group to substantiate its claim. It is a basic rule of evidence that a party must prove his own affirmative
allegations. 34 Besides, if it was really its intention to provide a juridical European tour manager, it could not
have kept on promising its tourists during the tour that a European tour manager would come, 35 supposedly to
join and assist them.
Veering to another line of defense, private respondent seeks sanctuary in the delimitation of its responsibility
as printed on the face of its brochure on the Volare 3 program, to wit:
RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR TRAVEL AGENT,
THEIR EMPLOYEES OR SUB-AGENTS SHALL BE RESPONSIBLE ONLY

FOR BOOKING AND MAKING ARRANGEMENTS AS YOUR AGENTS. Kenstar Travel

Corporation, your travel Agent, their employees or sub-agents assume no responsibility
or liability arising out of or in connection with the services or lack of services, of any
train, vessel, other conveyance or station whatsoever in the performance of their duty
to the passengers or guests, neither will they be responsible for any act, error or
omission, or of any damages, injury, loss, accident, delay or irregularity which may be
occasioned by reason (of) or any defect in . . . lodging place or any
facilities . . . . (Emphasis by private respondent.) 36
While, generally, the terms of a contract result from the mutual formulation thereof by the parties thereto, it is
of common knowledge that there are certain contracts almost all the provisions of which have been drafted by
only one party, usually a corporation. Such contracts are called contracts of adhesion, because the only
participation of the party is the affixing of his signature or his "adhesion" thereto. 37 In situations like these,
when a party imposes upon another a ready-made form of contract, 38 and the other is reduced to the
alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing, a contract of adhesion results. While it is true that an adhesion contract is not
necessarily void, it must nevertheless be construed strictly against the one who drafted the same. 39 This is
especially true where the stipulations are printed in fine letters and are hardly legible as is the case of the tour
contract 40 involved in the present controversy.
Yet, even assuming arguendo that the contractual limitation aforequoted is enforceable, private respondent
still cannot be exculpated for the reason that responsibility arising from fraudulent acts, as in the instant case,
cannot be stipulated against by reason of public policy. Consequently, for the foregoing reasons, private
respondent cannot rely on its defense of "substantial compliance" with the contract.
Private respondent submits likewise that the tour was satisfactory, considering that only petitioner, out of
eighteen participants in the Volare 3 Tour Program, actually complained. 41 We cannot accept this argument.
Section 28, Rule 130 of the Rules of Court declares that the rights of a party cannot be prejudiced by an act,
declaration, or omission of another, a statutory adaptation of the first branch of the hornbook rule of res inter
alios acta 42 which we do not have to belabor here.
Besides, it is a commonly known fact that there are tourists who, although the tour was far from what the tour
operator undertook under the contract, choose to remain silent and forego recourse to a suit just to avoid the
expenses, hassle and rancor of litigation, and not because the tour was in accord with was promised. One
does not relish adding to the bitter memory of a misadventure the unpleasantness of another extended
confrontation. Furthermore, contrary to private respondent's assertion, not only petitioner but two other
members of the tour group, Luz Sui Haw and Ercilla Ampil, confirmed petitioner's complaints when they
testified as witnesses for her as plaintiff in the court below. 43
Private respondent likewise committed a grave misrepresentation when it assured in its Volare 3 tour package
that the hotels it had chosen would provide the tourists complete amenities and were conveniently located
along the way for the daily itineraries. 44 It turned out that some of the hotels were not sufficiently equipped
with even the basic facilities and were at a distance from the cities covered by the projected tour. Petitioner
testified on her disgust with the conditions and locations of the hotels, thus:
Q And that these bathrooms ha(ve) bath tub(s) and hot and cold
shower(s)?

Q Did they also provide soap and towels?

Q Which one?

Q What I am saying . . .
A You are asking a question? I am answering you. 2 stars, 3
stars and some 4 stars (sic) hotels, no soap, toilet paper and
(the) bowl
stinks. . . .
xxx xxx xxx
Q And that except for the fact that some of these four star
hotels were outside the city they provided you with the comfort?
A Not all, sir.
Q Can you mention some which did not provide you that
comfort?
A For example, if Ramada Hotel Venezia is in Quezon City, our
hotel is in Meycauayan. And if Florence or Ferenze is in manila,
our hotel is in Muntinlupa. 46
xxx xxx xxx
A One more hotel, sir, in Barcelona, Hotel Saint Jacques is also
outside the city. Suppose Barcelona is in Quezon City, our hotel
is in Marilao. We looked for this hotel inside the city of
Barcelona for three (3) hours. We wasted our time looking for
almost all the hotels and places where to eat. That is the kind of
tour that you have. 47
Luz Sui Haw, who availed of the Volare 3 tour package with her husband for their honeymoon, shared the
sentiments of petitioner and testified as follows:
Q . . . Will you kindly tell us why the hotels where you stayed
are not considered first class hotels?
A Because the hotels where we went, sir, (are) far from the City
and the materials used are not first class and at times there
were no towels and soap. And the two (2) hotels in Nevers and
Florence the conditions (are) very worse (sic). 48
Q Considering that you are honeymooners together with your
husband, what (were) your feelings when you found out that the
condition were not fulfilled by the defendant?

A Not all, sir.

A Not all, sir, some (had) no toilet paper.

A The 2 stars, the 3 stars and some 4 stars (sic) hotels.

45

A I would like to be very honest. I got sick when I reached

Florence and half of my body got itch (sic). I think for a
honeymooner I would like to emphasize that we should enjoy
that day of our life and it seems my feet kept on itching because
of the condition of the hotel. And I was so dissatisfied because
the European Tour Manager was not around there (were)

beautiful promises. They kept on telling us that a European Tour

Manager will come over; until our Paris tour was ended there
was no European tour manager. 49

A It is far from the city. It is not first class hotel.

Q So with Hotel Le Prieure Du Coeur de Jesus neither a first
class hotel?

xxx xxx xxx

A Yes, sir.
Q You will file an action against the defendant because there
was a disruption of your happiness, in your honeymoon, is that
correct?
A That is one of my causes of (sic) coming up here. Secondly, i
was very dissatisfied (with) the condition. Thirdly, that Volare 89
it says it will let your heart sing. That is not true. There was no
European tour (manager) and the highlights of the tour (were)
very poor. The hotels were worse (sic) hotels. 50
Q All the conditions of the hotels as you . . .
A Not all but as stated in the brochure that it is first class hotel.
The first class hotels state that all things are beautiful and it is
neat and clean with complete amenities and I encountered the
Luxembourg hotel which is quite very dilapidated because of
the flooring when you step on the side "kumikiring" and the
cabinets (are) antiques and as honeymooners we don't want to
be disturbed or seen. 51
xxx xxx xxx
Q None of these are first class hotels?
A Yes, sir.
Q So, for example Ramada Hotel Venezia which according to
Miss Geraldez is first class hotel is not first class hotel?
A Yes, sir.
Q You share the opinion of Miss Geraldez?
A Yes, sir.
Q The same is true with Grand Hotel Palatino which is not a
first class hotel?

Q Hotel De Nevers is not a first class hotel?

A Yes, sir.
Q Hotel Roc Blanc Andorra is not a first class hotel?
A Yes, sir.
Q Saint Just Hotel, Barcelona is not a first class hotel?
A Yes, sir.
Q Hotel Pullman Nice neither is not a first class hotel?
A Yes, sir.
Q Hotel Prinz Eugen and Austrotel are not first class hotels?
A Yes, sir. 52
Private respondent cannot escape responsibility by seeking refuge under the listing of first-class hotels in
publications like the "Official Hotel and Resort Guide" and Worldwide Hotel Guide." 53 Kuoni Travel, its tour
operator,54 which prepared the hotel listings, is a European-based travel agency 55 and, as such, could have
easily verified the matter of first-class accommodations. Nor can it logically claim that the first-class hotels in
Europe may not necessarily be the first-class hotels here in the Philippines. 56 It is reasonable for petitioner to
assume that the promised first-class hotels are equivalent to what are considered first-class hotels in Manila.
Even assuming arguendo that there is indeed a difference in classifications, it cannot be gainsaid that a firstclass hotel could at the very least provide basic necessities and sanitary accommodations. We are accordingly
not at all impressed by private respondent's attempts to trivialize the complaints thereon by petitioner and her
companions.
In a last ditch effort to justify its choice of the hotels, private respondent contends that it merely provided such
"first class" hotels which are commensurate to the tourists budget, or which were, under the given
circumstances, the "best for their money." It postulated that it could not have offered better hostelry when the
consideration paid for hotel accommodations by the tour participants was only so much, 57 and the tour price of
$2,990.00 covers a European tour for 22 days inclusive of lower room rates and meals. 58 this is implausible,
self-serving and borders on sophistry.

A Yes, sir.
Q And Hotel Delta Florence is not first class hotel?
A That is how I got my itch, sir. Seven (7) days of itch.
Q How about Hotel Saint-Jacquez, Paris?

The fact that the tourists were to pay a supposedly lower amount, such that private respondent allegedly
retained hardly enough as reasonable profit, 59 does not justify a substandard form of service in return. It was
private respondent, in the first place, which fixed the charges for the package tour and determined the services
that could be availed of corresponding to such price. Hence, it cannot now be heard to complain that it only
made a putative marginal profit out of the transaction. if it could not provide the tour participants with first-class
lodgings on the basis of the amount that they paid, it could and should have instead increased the price to
enable it to arrange for the promised first-class accommodations.

On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary
damages. Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in
bad faith. 60From the facts earlier narrated, private respondent can be faulted with fraud in the inducement,
which is employed by a party to a contract in securing the consent of the other.
This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either
be dolocausante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without which the other party would not
have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would still have entered into the
contract. 61Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only
to some particular or accident of the
obligations. 62 The effects of dolo causante are the nullity of the contract and the indemnification of
damages, 63 and dolo incidente also obliges the person employing it to pay damages. 64
In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions
became patent in the light of after-events when, contrary to its representations, it employed an inexperienced
tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a European tour
manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.
In the belief that an experienced tour escort and a European tour manager would accompany them, with the
concomitant reassuring and comforting thought of having security and assistance readily at hand, petitioner
was induced to join the Volare 3 tourists, instead of travelling alone 65 She likewise suffered serious anxiety
and distress when the group was unable to visit the leather factory and when she did not receive first-class
accommodations in their lodgings which were misrepresented as first-class hotels. These, to our mind, justify
the award for moral damages, which are in the category of an award designed to compensate the claimant for
that injury which she had suffered, and not as a penalty on the wrongdoer, 66 we believe that an award of
P100,000.00 is sufficient and reasonable.
When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also be
decreed. Exemplary damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated or compensatory damages. According to the code Commission, exemplary
damages are required by public policy, for wanton acts must be suppressed. 67 An award, therefore, of
P50,000.00 is called for to deter travel agencies from resorting to advertisements and enticements with the
intention of realizing considerable profit at the expense of the public, without ensuring compliance with their
express commitments. While, under the present state of the law, extraordinary diligence is not required in
travel or tour contracts, such as that in the case at bar, the travel agency acting as tour operator must
nevertheless be held to strict accounting for contracted services, considering the public interest in tourism,
whether in the local or in the international scene. Consequently, we have to likewise reject the theory of private
respondent that the promise it made in the tour brochure may be regarded only as "commendatory trade
talk." 68
With regard to the honorarium for counsel as an item of damages, since we are awarding moral and
exemplary damages, 69 and considering the legal importance of the instant litigation and the efforts of counsel
evident from the records of three levels of the judicial hierarchy, we favorably consider the amount of
P20,000.00 therefor.
WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET ASIDE, and
another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L.
Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and
P20,000.00 as and for attorney's fees, with costs against private respondent. The award for nominal damages
is hereby deleted.
[G.R. No. 150843. March 14, 2003]

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA
MADRIGAL VAZQUEZ, respondents.
DECISION
DAVIDE, JR., C.J.:
Is an involuntary upgrading of an airline passengers accommodation from one class to a more superior
class at no extra cost a breach of contract of carriage that would entitle the passenger to an award of
damages? This is a novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific
Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers and goods by
air. Among the many routes it services is the Manila-Hongkong-Manila course. As part of its marketing
strategy, Cathay accords its frequent flyers membership in its Marco Polo Club. The members enjoy several
privileges, such as priority for upgrading of booking without any extra charge whenever an opportunity
arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if the
Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent
flyers of Cathay and are Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes,
together with their maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for
pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked on Cathays Flight CX-905,
with departure time at 9:20 p.m. Two hours before their time of departure, the Vazquezes and their
companions checked in their luggage at Cathays check-in counter at Kai Tak Airport and were given their
respective boarding passes, to wit, Business Class boarding passes for the Vazquezes and their two friends,
and Economy Class for their maid. They then proceeded to the Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No.
28, which was designated for Business Class passengers. Dr. Vazquez presented his boarding pass to the
ground stewardess, who in turn inserted it into an electronic machine reader or computer at the gate. The
ground stewardess was assisted by a ground attendant by the name of Clara Lai Han Chiu. When Ms. Chiu
glanced at the computer monitor, she saw a message that there was a seat change from Business Class to
First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes accommodations were upgraded to
First Class. Dr. Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel
in First Class and their guests, in the Business Class; and moreover, they were going to discuss business
matters during the flight. He also told Ms. Chiu that she could have other passengers instead transferred to
the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her supervisor, who told
her to handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu informed the latter
that the Business Class was fully booked, and that since they were Marco Polo Club members they had the
priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they
would not avail themselves of the privilege, they would not be allowed to take the flight. Eventually, after
talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathays
Country Manager, demanded that they be indemnified in the amount of P1million for the humiliation and
embarrassment caused by its employees. They also demanded a written apology from the management of
Cathay, preferably a responsible person with a rank of no less than the Country Manager, as well as the
apology from Ms. Chiu within fifteen days from receipt of the letter.

In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays Country Manager Argus Guy
Robson, informed the Vazquezes that Cathay would investigate the incident and get back to them within a
weeks time.
On 8 November 1996, after Cathays failure to give them any feedback within its self-imposed deadline,
the Vazquezes instituted before the Regional Trial Court of Makati City an action for damages against Cathay,
praying for the payment to each of them the amounts of P250,000 as temperate damages;P500,000 as moral
damages; P500,000 as exemplary or corrective damages; and P250,000 as attorneys fees.

letter of the Vazquezes was immediately acted upon. Reports were gathered from their office in Hong Kong
and immediately forwarded to their counsel Atty. Remollo for legal advice. However, Atty. Remollo begged off
because his services were likewise retained by the Vazquezes; nonetheless, he undertook to solve the
problem in behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this
case. For her part, Ms. Chiu denied that she shouted or used foul or impolite language against the
Vazquezes. Ms. Barrientos testified on the amount of attorneys fees and other litigation expenses, such as
those for the taking of the depositions of Yuen and Chiu.
In its decision[1] of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:

In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay
in Business Class, Ms. Chiu obstinately, uncompromisingly and in a loud, discourteous and harsh voice
threatened that they could not board and leave with the flight unless they go to First Class, since the Business
Class was overbooked. Ms. Chius loud and stringent shouting annoyed, embarrassed, and humiliated them
because the incident was witnessed by all the other passengers waiting for boarding. They also claimed that
they were unjustifiably delayed to board the plane, and when they were finally permitted to get into the aircraft,
the forward storage compartment was already full. A flight stewardess instructed Dr. Vazquez to put his roll-on
luggage in the overhead storage compartment. Because he was not assisted by any of the crew in putting up
his luggage, his bilateral carpal tunnel syndrome was aggravated, causing him extreme pain on his arm and
wrist. The Vazquezes also averred that they belong to the uppermost and absolutely top elite of both
Philippine Society and the Philippine financial community, [and that] they were among the wealthiest persons
in the Philippine[s].
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to
the next better class of accommodation, whenever an opportunity arises, such as when a certain section is
fully booked. Priority in upgrading is given to its frequent flyers, who are considered favored passengers like
the Vazquezes. Thus, when the Business Class Section of Flight CX-905 was fully booked, Cathays
computer sorted out the names of favored passengers for involuntary upgrading to First Class. When Ms. Chiu
informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He then stood at the
entrance of the boarding apron, blocking the queue of passengers from boarding the plane, which
inconvenienced other passengers. He shouted that it was impossible for him and his wife to be upgraded
without his two friends who were traveling with them. Because of Dr. Vazquezs outburst, Ms. Chiu thought of
upgrading the traveling companions of the Vazquezes. But when she checked the computer, she learned that
the Vazquezes companions did not have priority for upgrading. She then tried to book the Vazquezes again to
their original seats. However, since the Business Class Section was already fully booked, she politely informed
Dr. Vazquez of such fact and explained that the upgrading was in recognition of their status as Cathays
valued passengers. Finally, after talking to their guests, the Vazquezes eventually decided to take the First
Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the
Vazquezes; none of them shouted, humiliated, embarrassed, or committed any act of disrespect against them
(the Vazquezes). Assuming that there was indeed a breach of contractual obligation, Cathay acted in good
faith, which negates any basis for their claim for temperate, moral, and exemplary damages and attorneys
fees. Hence, it prayed for the dismissal of the complaint and for payment of P100,000 for exemplary damages
and P300,000 as attorneys fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was
corroborated by his two friends who were with him at the time of the incident, namely, Pacita G. Cruz and
Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu;
Norma Barrientos, Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on
Cathays policy of upgrading the seat accommodation of its Marco Polo Club members when an opportunity
arises. The upgrading of the Vazquezes to First Class was done in good faith; in fact, the First Class Section
is definitely much better than the Business Class in terms of comfort, quality of food, and service from the
cabin crew. They also testified that overbooking is a widely accepted practice in the airline industry and is in
accordance with the International Air Transport Association (IATA) regulations. Airlines overbook because a lot
of passengers do not show up for their flight. With respect to Flight CX-905, there was no overall overbooking
to a degree that a passenger was bumped off or downgraded. Yuen and Robson also stated that the demand

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby
rendered in favor of plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd., ordering
the latter to pay each plaintiff the following:

e)

a)

Nominal damages in the amount of P100,000.00 for each plaintiff;

b)

Moral damages in the amount of P2,000,000.00 for each plaintiff;

c)

Exemplary damages in the amount of P5,000,000.00 for each plaintiff;

d)

Attorneys fees and expenses of litigation in the amount of P1,000,000.00 for

each plaintiff; and

Costs of suit.

SO ORDERED.
According to the trial court, Cathay offers various classes of seats from which passengers are allowed
to choose regardless of their reasons or motives, whether it be due to budgetary constraints or whim. The
choice imposes a clear obligation on Cathay to transport the passengers in the class chosen by them. The
carrier cannot, without exposing itself to liability, force a passenger to involuntarily change his choice. The
upgrading of the Vazquezes accommodation over and above their vehement objections was due to the
overbooking of the Business Class. It was a pretext to pack as many passengers as possible into the plane to
maximize Cathays revenues. Cathays actuations in this case displayed deceit, gross negligence, and bad
faith, which entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001, [2] deleted the award
for exemplary damages; and it reduced the awards for moral and nominal damages for each of the Vazquezes
to P250,000 and P50,000, respectively, and the attorneys fees and litigation expenses toP50,000 for both
of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the
contract of carriage without the formers consent. There was a breach of contract not because Cathay
overbooked the Business Class Section of Flight CX-905 but because the latter pushed through with the
upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be
discourteous to, Dr. Vazquez, although it might seemed that way to the latter, who was a member of the elite in
Philippine society and was not therefore used to being harangued by anybody. Ms. Chiu was a Hong Kong
Chinese whose fractured Chinese was difficult to understand and whose manner of speaking might sound
harsh or shrill to Filipinos because of cultural differences. But the Court of Appeals did not find her to have
acted with deliberate malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering
the First Class accommodations to other passengers. Neither can the flight stewardess in the First Class
Cabin be said to have been in bad faith when she failed to assist Dr. Vazquez in lifting his baggage into the
overhead storage bin. There is no proof that he asked for help and was refused even after saying that he was

suffering from bilateral carpal tunnel syndrome. Anent the delay of Yuen in responding to the demand letter
of the Vazquezes, the Court of Appeals found it to have been sufficiently explained.
The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which
were denied by the Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral
damages has no basis, since the Court of Appeals found that there was no wanton, fraudulent, reckless and
oppressive display of manners on the part of its personnel; and that the breach of contract was not attended
by fraud, malice, or bad faith. If any damage had been suffered by the Vazquezes, it was damnum absque
injuria, which is damage without injury, damage or injury inflicted without injustice, loss or damage without
violation of a legal right, or a wrong done to a man for which the law provides no remedy. Cathay also invokes
our decision in United Airlines, Inc. v. Court of Appeals [3] where we recognized that, in accordance with the
Civil Aeronautics Boards Economic Regulation No. 7, as amended, an overbooking that does not exceed ten
percent cannot be considered deliberate and done in bad faith. We thus deleted in that case the awards for
moral and exemplary damages, as well as attorneys fees, for lack of proof of overbooking exceeding ten
percent or of bad faith on the part of the airline carrier.

We note that in all their pleadings, the Vazquezes never denied that they were members of Cathays
Marco Polo Club. They knew that as members of the Club, they had priority for upgrading of their seat
accommodation at no extra cost when an opportunity arises. But, just like other privileges, such priority could
be waived. The Vazquezes should have been consulted first whether they wanted to avail themselves of the
privilege or would consent to a change of seat accommodation before their seat assignments were given to
other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a better
accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right
to decline the upgrade and insist on the Business Class accommodation they had booked for and which was
designated in their boarding passes. They clearly waived their priority or preference when they asked that
other passengers be given the upgrade. It should not have been imposed on them over their vehement
objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.
We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or
bad faith. Thus, we resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious
accusations that can be so conveniently and casually invoked, and that is why they are never presumed. They
amount to mere slogans or mudslinging unless convincingly substantiated by whoever is alleging them.

On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for
moral and nominal damages and attorneys fees in view of the breach of contract committed by Cathay for
transferring them from the Business Class to First Class Section without prior notice or consent and over their
vigorous objection. They likewise argue that the issuance of passenger tickets more than the seating capacity
of each section of the plane is in itself fraudulent, malicious and tainted with bad faith.

Fraud has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists where the
party, with intent to deceive, conceals or omits to state material facts and, by reason of such omission or
concealment, the other party was induced to give consent that would not otherwise have been given. [7]

The key issues for our consideration are whether (1) by upgrading the seat accommodation of the
Vazquezes from Business Class to First Class Cathay breached its contract of carriage with the Vazquezes;
(2) the upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are entitled to damages.

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some
moral obliquity and conscious doing of a wrong, a breach of a known duty through some motive or interest or
ill will that partakes of the nature of fraud.[8]

We resolve the first issue in the affirmative.

A contract is a meeting of minds between two persons whereby one agrees to give something or render
some service to another for a consideration. There is no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) an object certain which is the subject of the contract; and (3) the cause
of the obligation which is established. [4] Undoubtedly, a contract of carriage existed between Cathay and the
Vazquezes. They voluntarily and freely gave their consent to an agreement whose object was the
transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business
Class Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.

We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to
agree to the upgrading through insidious words or deceitful machination or through willful concealment of
material facts. Upon boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First
Class in view of their being Gold Card members of Cathays Marco Polo Club. She was honest in telling them
that their seats were already given to other passengers and the Business Class Section was fully booked. Ms.
Chiu might have failed to consider the remedy of offering the First Class seats to other passengers. But, we
find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment.

The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did
it constitute a breach of contract?

Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by
Mr. Robson, the First Class Section is better than the Business Class Section in terms of comfort, quality of
food, and service from the cabin crew; thus, the difference in fare between the First Class and Business Class
at that time was $250.[9] Needless to state, an upgrading is for the better condition and, definitely, for the
benefit of the passenger.

Breach of contract is defined as the failure without legal reason to comply with the terms of a
contract.[5] It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the
whole or part of the contract.[6]

We are not persuaded by the Vazquezes argument that the overbooking of the Business Class Section
constituted bad faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics
Board, as amended, provides:

In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger
with confirmed reservation or the downgrading of a passengers seat accommodation from one class to a
lower class. In this case, what happened was the reverse. The contract between the parties was for Cathay
to transport the Vazquezes to Manila on a Business Class accommodation in Flight CX-905. After checking-in
their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding cards indicating their
seat assignments in the Business Class Section. However, during the boarding time, when the Vazquezes
presented their boarding passes, they were informed that they had a seat change from Business Class to First
Class. It turned out that the Business Class was overbooked in that there were more passengers than the
number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted passengers, and the
Vazquezes, being members of the Marco Polo Club, were upgraded from Business Class to First Class.

Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its
operation of flights or portions of flights originating from or terminating at, or serving a point within the territory
of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight
inside or outside the Philippines, for which he holds confirmed reserved space. Furthermore, this Regulation
is designed to cover only honest mistakes on the part of the carriers and excludes deliberate and willful acts of
non-accommodation. Provided, however, that overbooking not exceeding 10% of the seating capacity of the
aircraft shall not be considered as a deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not considered
deliberate and therefore does not amount to bad faith. [10] Here, while there was admittedly an overbooking of

the Business Class, there was no evidence of overbooking of the plane beyond ten percent, and no passenger
was ever bumped off or was refused to board the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000.
Article 2220 of the Civil Code provides:

normally-appreciated gesture of petitioner to upgrade their accommodations, petitioner may have disturbed
the respondents-spouses wish to be with their companions (who traveled to Hong Kong with them) at the
Business Class on their flight to Manila. Petitioner regrets that in its desire to provide the respondentsspouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila, unintended tension
ensued.[18]
Nonetheless, considering that the breach was intended to give more benefit and advantage to the Vazquezes
by upgrading their Business Class accommodation to First Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to P5,000.

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should
find that, under the circumstances, such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.

Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of
Appeals regarding the awards adjudged by the trial court:

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Although incapable of
pecuniary computation, moral damages may be recovered if they are the proximate result of the defendants
wrongful act or omission.[11] Thus, case law establishes the following requisites for the award of moral
damages: (1) there must be an injury clearly sustained by the claimant, whether physical, mental or
psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for
damages is predicated on any of the cases stated in Article 2219 of the Civil Code. [12]

We are not amused but alarmed at the lower courts unbelievable alacrity, bordering on the scandalous, to
award excessive amounts as damages. In their complaint, appellees asked for P1 million as moral damages
but the lower court awarded P4 million; they asked for P500,000.00 as exemplary damages but the lower court
cavalierly awarded a whooping P10 million; they asked for P250,000.00 as attorneys fees but were
awarded P2 million; they did not ask for nominal damages but were awarded P200,000.00. It is as if the lower
court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the excessiveness of
the total award invites the suspicion that it was the result of prejudice or corruption on the part of the trial
court.

Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances
where the carrier is guilty of fraud or bad faith or where the mishap resulted in the death of a passenger.
[13]
Where in breaching the contract of carriage the airline is not shown to have acted fraudulently or in bad
faith, liability for damages is limited to the natural and probable consequences of the breach of the obligation
which the parties had foreseen or could have reasonably foreseen. In such a case the liability does not
include moral and exemplary damages. [14]

The presiding judge of the lower court is enjoined to hearken to the Supreme Courts admonition in Singson
vs. CA(282 SCRA 149 [1997]), where it said:

In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary
upgrading of the Vazquezes seat accommodation, was not attended by fraud or bad faith. The Court of
Appeals award of moral damages has, therefore, no leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in
the grant of exemplary damages that the act of the offender must be accompanied by bad faith or done in
wanton, fraudulent or malevolent manner.[15] Such requisite is absent in this case. Moreover, to be entitled
thereto the claimant must first establish his right to moral, temperate, or compensatory damages. [16] Since the
Vazquezes are not entitled to any of these damages, the award for exemplary damages has no legal
basis. And where the awards for moral and exemplary damages are eliminated, so must the award for
attorneys fees.[17]
The most that can be adjudged in favor of the Vazquezes for Cathays breach of contract is an award
for nominal damages under Article 2221 of the Civil Code, which reads as follows:

The well-entrenched principle is that the grant of moral damages depends upon the discretion of the court
based on the circumstances of each case. This discretion is limited by the principle that the amount awarded
should not be palpably and scandalously excessive as to indicate that it was the result of prejudice or
corruption on the part of the trial court.
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:
Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not prey
on international airlines for damage awards, like trophies in a safari. After all neither the social standing nor
prestige of the passenger should determine the extent to which he would suffer because of a wrong done,
since the dignity affronted in the individual is a quality inherent in him and not conferred by these social
indicators. [19]
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of
24 July 2001 in CA-G.R. CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages
and attorneys fees are set aside and deleted, and the award for nominal damages is reduced toP5,000.

Article 2221 of the Civil Code provides:

No pronouncement on costs.
Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathays Memorandum filed with this Court, it prayed only for the
deletion of the award for moral damages. It deferred to the Court of Appeals discretion in awarding nominal
damages; thus:
As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of
Appeals discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the

SO ORDERED.
March 25, 1924
G.R. No. 21383
H. O'LEARY, plaintiff-appellee,
vs.
MACONDRAY and CO., INC., defendant-appellant.

Fisher, DeWitt, Perkins and Brady for appellant.

Hartigan and Welch for appellee.
STATEMENT
It is alleged that on January 30, 1920, the plaintiff, who is a resident of Manila, and the defendant, a domestic
corporation, made the following agreement:
"MACONDRAY & CO.
"Manila, P. I.
"Through G. H. Hayward.
SIRS: Appertaining to the residence to be erected for your firm in Pasay, for which I have been requested by
G. H. Hayward to submit a proposition, I have the honor to state that I have examined the plans and site and
would undertake the work and complete the building in accordance with the plans and instructions, and under
the supervision of the said architect for the amount of the actual cost plus twelve and one-half per cent (12
%).
Payments to be made monthly on statements supported by vouchers, approved and certified to by the
architect.
It is understood that time is an important provision, and with due consideration therefor materials suitable for
the work are to be purchased in such quantities and at such times as may appear to be to your best interest.
Very respectfully,
(Sgd.) "H. O'LEARY

receive evidence of the rental value of the house, in failing to make special findings of fact, and in failing to find
that the delay caused in the completion of the house was caused by plaintiff's negligence, in finding for the
plaintiff on defendant's second counterclaim for damages in the sum of P797, in finding for the plaintiff on
defendant's third counterclaim for damages in the sum of P5,440.11, and in finding for the plaintiff on
defendant's fourth counterclaim for damages in the sum of P13,407.25, the amount of the alleged increase in
the cost of labor caused by plaintiff's negligence.
JOHNS, J.:
Plaintiff's cause of action is founded upon the contract above quoted, the making of which defendant admits.
By its express terms, plaintiff says that he "would undertake the work and complete the building in accordance
with the plans and instructions, and under the supervision of the said architect for the amount of the actual
cost plus twelve and one-half per cent (12 %)." Payments are to be made on monthly statements
accompanied by vouchers to be approved and certified by the architect. It then recites:
It is understood that time is an important provision, and with due consideration therefor materials suitable for
the work are to be purchased in such quantities and at such times as may appear to be to your best interest.
To say the least, the contract was very loosely drawn. No date is specified in which the building is to be
completed, and time is not made the essence of the contract. It is true that the materials were to be purchased
in such quantities and at such times as may appear to be to the defendant's interest.
The defense is founded upon the theory that the labor was not furnished and that the materials were not
purchased for its best interest. There is no claim or pretense of fraud, or that the plaintiff was dishonest. In its
final analysis, defendant's counterclaims are founded upon plaintiff's mistakes and errors of judgment in the
employment of labor and the purchase of materials.
Assuming that there were mistakes and errors of judgment only, the plaintiff would not be liable for them under
the contract. The fact that the price of lumber or of labor went up or down, or was cheaper at a certain time,
would not make the plaintiff liable for a breach of contract, so long as he was exercising his best judgment and
acting in good faith.

Accepted for and on behalf of Macondray & Co.

By (Sgd.) "CARLOS YOUNG"
That plaintiff commenced the construction of the building under the supervision of the architect, and continued
the work thereon until near its completion, and kept and performed all the terms and provisions of the contract
by him to be kept and performed, and that pursuant to such agreement he paid out for labor and materials the
sum of P20,287.03, which was the actual cost; and that the defendant is indebted to him in the further sum of
P2,535.83, being 12 per cent of the actual cost of such labor and materials, and for and on account of his
services and superintendence of the building, and he prays judgment for P22,822.86, with interest from the
filing of the complaint and costs.
In its second amended answer, after admitting the making of the contract and the formal all allegations of the
complaint, the defendant denies all other material allegations, and, as a special defense, alleges that, through
plaintiff's negligence in the construction of the building and the purchase of materials, the defendant was
damaged in the sum of P32,624.25, as specified in seven different counterclaims. It is then alleged that the
plaintiff was indebted to the Luneta Motor Company in the sum of P702.49, and to the Insular Lumber
Company in the sum P9,766.23, both of which claims are assigned to the defendant, and it prays judgment
against the plaintiff for the total of all of such claims amounting to P43,092.97.
The parties entered into a stipulation as to certain exhibits, and upon such issues, the trial court rendered
judgment in favor of the plaintiff for P12,201.99, with legal interest from the filing of the complaint and costs,
from which the defendant appeals, contending that the court erred in allowing interest from the filing of the
complaint, and in its computation and as to the duplicated item of the Tuason & Sampedro bill, in refusing to

It will be noted that the materials were to be purchased "in such quantities and at such times as may appear to
be to your best interest." That vested in the plaintiff a discretionary power as to the time and manner for the
purchase of materials, for which he would not be liable for honest mistakes or errors of judgment. The same
thing is true as to the employment of labor. It is true that the contract recites "that time is an important
provision." But it does not say when the building is to be completed, or that time is of the essence of the
contract. In other words, under the terms of the contract, the employment of labor, the purchase of materials
and the completion and construction of the building were all matters which were largely left to the discretion of
the plaintiff, for which he would not be liable for honest mistakes or errors of judgment.
Pending the trial the judge of the lower court made a personal inspection of the building and of the labor and
materials used in its construction, and upon all of such questions, we agree with the trial court.
Although this action is founded upon contract, the amount of plaintiff's claim was vigorously disputed. In fact
the defendant claimed judgment against the plaintiff for a much larger amount. Upon such a state of facts, and
under recent decisions of this court, plaintiff is only entitled to interest from the date of the judgment, and
defendant's first assignment of error must be sustained. It also appears that a clerical error was made in
computing 12 1/2 per cent on P1,772.14, and that the amount which should be deducted was P221.52 and not
P22.15, as found by the trial court. Correcting this error, the amount of plaintiff's judgment should be
P12,002.63.
The judgment of the lower court will be modified, and instead of P12,201.00, the amount of plaintiff's judgment
will be P12,002.63, which will draw interest at the rate of 6 per cent per annum from the first day of August,
1923, the date of the judgment in the lower court. In all other respects, the judgment is affirmed, with costs in
favor of the appellant in this court. So ordered.

G.R. No. L-48930

February 23, 1944

ANTONIO VAZQUEZ, petitioner,

vs.
FRANCISCO DE BORJA, respondent.
x---------------------------------------------------------x
G.R. No. L-48931

February 23, 1944

FRANCISCO DE BORJA, petitioner,

vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance of Manila by Francisco de Borja against Antonio
Vazquez and Fernando Busuego to recover from them jointly and severally the total sum of P4,702.70 upon
three alleged causes of action, to wit: First, that in or about the month of January, 1932, the defendants jointly
and severally obligated themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be
delivered during the month of February, 1932, the said defendants having subsequently received from the
plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the plaintiff during the
months of February, March, and April, 1932, only 2,488 cavans of palay of the value of P5,224.80 and refused
to deliver the balance of 1,512 cavans of the value of P3,175.20 notwithstanding repeated demands. Second,
that because of defendants' refusal to deliver to the plaintiff the said 1,512 cavans of palay within the period
above mentioned, the plaintiff suffered damages in the sum of P1,000. And, third, that on account of the
agreement above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they
returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510 sacks or to pay
their value amounting to P377.50; and that on account of such refusal the plaintiff suffered damages in the
sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered into the contract mentioned
in the first cause of action in his own individual and personal capacity, either solely or together with his
codefendant Fernando Busuego, and alleging that the agreement for the purchase of 4,000 cavans of palay
and the payment of the price of P8,400 were made by the plaintiff with and to the Natividad-Vasquez Sabani
Development Co., Inc., a corporation organized and existing under the laws of the Philippines, of which the
defendant Antonio Vazquez was the acting manager at the time the transaction took place. By way of
counterclaim, the said defendant alleged that he suffered damages in the sum of P1,000 on account of the
filing of this action against him by the plaintiff with full knowledge that the said defendant had nothing to do
whatever with any and all of the transactions mentioned in the complaint in his own individual and personal
capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay to the plaintiff the sum of
P3,175.20 plus the sum of P377.50, with legal interest on both sums, and absolving the defendant Fernando
Busuego (treasurer of the corporation) from the complaint and the plaintiff from the defendant Antonio
Vazquez' counterclaim. Upon appeal to the Court of Appeals, the latter modified that judgment by reducing it to
the total sum of P3,314.78, with legal interest thereon and the costs. But by a subsequent resolution upon the
defendant's motion for reconsideration, the Court of Appeals set aside its judgment and ordered that the case
be remanded to the court of origin for further proceedings. The defendant Vazquez, not being agreeable to
that result, filed the present petition for certiorari (G.R. No. 48930) to review and reverse the judgment of the
Court of Appeals; and the plaintiff Francisco de Borja, excepting to the resolution of the Court of Appeals
whereby its original judgment was set aside and the case was ordered remanded to the court of origin for
further proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original judgment of
the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on reconsideration read as
follows:

Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante vendio al

demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales, dicho
demandante solamente recibio 2,583 cavanes; y que asimismo recibio para su envase 4,000
sacos vacios. Esta provbado que de dichos 4,000 sacos vacios solamente se entregaron, 2,583
quedando en poder del demandado el resto, y cuyo valor es el de P0.24 cada uno. Presentada la
demanda contra los demandados Antonio Vazquez y Fernando Busuego para el pago de la
cantidad de P4,702.70, con sus intereses legales desde el 1.o de marzo de 1932 hasta su
completo pago y las costas, el Juzgado de Primera Instancia de Manila el asunto condenando a
Antonio Vazquez a pagar al demandante la cantidad de P3,175.20, mas la cantidad de P377.50,
con sus intereses legales, absolviendo al demandado Fernando Busuego de la demanda y al
demandante de la reconvencion de los demandados, sin especial pronunciamiento en cuanto a
las costas. De dicha decision apelo el demandado Antonio Vazquez, apuntado como principal
error el de que el habia sido condenado personalmente, y no la corporacion por el representada.
Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a favor de
Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente interino y
Manager de la corporacion Natividad-Vazquez Sabani Development Co., Inc. Asi resulta del Exh.
1, que es la copia al carbon del recibo otorgado por el demandado Vazquez, y cuyo original lo
habia perdido el demandante, segun el. Asi tambien consta en los libros de la corporacion arriba
mencionada, puesto que en los mismos se ha asentado tanto la entrada de los P8,400, precio del
palay, como su envio al gobierno en pago de los alquileres de la Hacienda Sabani. Asi mismo lo
admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz, posterior presidente de la
corporacion sucesora en el arrendamiento de la Sabani Estate, cuando el solicito sus buenos
oficios para el cobro del precio del palay no entregado. Asi igualmente lo declaro el que hizo
entrega de parte del palay a Borja, Felipe Veneracion, cuyo testimonio no ha sido refutado. Y asi
se deduce de la misma demanda, cuando se incluyo en ella a Fernando Busuego, tesorero de la
Natividad-Vazquez Sabani Development Co., Inc.
Siendo esto asi, la principal responsable debe ser la Natividad-Vazquez Sabani Development Co.,
Inc., que quedo insolvente y dejo de existir. El Juez sentenciador declaro, sin embargo, al
demandado Vazquez responsable del pago de la cantidad reclamada por su negligencia al vender
los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha cantidad existia en las
bodegas de la corporacion.
Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a Francisco de Borja,
el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio de P2.00 el cavan, y
decimos 'despues' porque esta ultima venta aparece asentada despues de la primera. Segun
esto, el apelante no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo
que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable
subsidiariamente del pago de la cantidad objecto de la demanda.
En meritos de todo lo expuesto, se confirma la decision apelada con la modificacion de que el
apelante debe pagar al apelado la suma de P2,295.70 como valor de los 1,417 cavanes de palay
que dejo de entregar al demandante, mas la suma de P339.08 como importe de los 1,417 sacos
vacios, que dejo de devolver, a razon de P0.24 el saco, total P3,314.78, con sus intereses legales
desde la interposicion de la demanda y las costas de ambas instancias.
Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de 1942, y
alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de palay a Ah Phoy, la
corporacion todavia tenia bastante existencia de dicho grano, y no estando dicho extremo
suficientemente discutido y probado, y pudiendo variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la devolucion de la causa al Juzgado de origen para que
reciba pruebas al efecto y dicte despues la decision correspondiente.
Upon consideration of the motion of the attorney for the plaintiff-appellee in case CA-G.R. No.
8676,Francisco de Borja vs. Antonio Vasquez et al., praying, for the reasons therein given, that the
resolution of December 22, 1942, be reconsidered: Considering that said resolution remanding the
case to the lower court is for the benefit of the plaintiff-appellee to afford him opportunity to refute
the contention of the defendant-appellant Antonio Vazquez, motion denied.

The action is on a contract, and the only issue pleaded and tried is whether the plaintiff entered into the
contract with the defendant Antonio Vazquez in his personal capacity or as manager of the Natividad-Vazquez
Sabani Development Co., Inc. The Court of Appeals found that according to the preponderance of the
evidence "the sale made by Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in
his capacity as acting president and manager of the corporation Natividad-Vazquez Sabani Development Co.,
Inc." That finding of fact is final and, it resolving the only issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the court of origin for further trial
to determine whether the corporation had sufficient stock of palay at the time appellant sold, 1500 cavans of
palay to Kwong Ah Phoy. First, if that point was material to the issue, it should have been proven during the
trial; and the statement of the court that it had not been sufficiently discussed and proven was no justification
for ordering a new trial, which, by the way, neither party had solicited but against which, on the contrary, both
parties now vehemently protest. Second, the point is, in any event, beside the issue, and this we shall now
discuss in connection with the original judgment of the Court of Appeals which the plaintiff cross-petitioner
seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the evidence that the party liable
on the contract is the Natividad-Vazquez Sabani Development Co., Inc. which is not a party herein, the
complaint should have been dismissed. Counsel for the plaintiff, in his brief as respondent, argues that altho
by the preponderance of the evidence the trial court and the Court of Appeals found that Vazquez celebrated
the contract in his capacity as acting president of the corporation and altho it was the latter, thru Vazquez, with
which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400 from Borja, and
altho that was true from the point of view of a legal fiction, "ello no impede que tambien sea verdad lo alegado
en la demanda de que la misma persona de Vasquez fue la que contrato con Borja y que la misma persona
de Vasquez fue quien recibio la suma de P8,400." But such argument is invalid and insufficient to show that
the president of the corporation is personally liable on the contract duly and lawfully entered into by him in its
behalf.
It is well known that a corporation is an artificial being invested by law with a personality of its own, separate
and distinct from that of its stockholders and from that of its officers who manage and run its affairs. The mere
fact that its personality is owing to a legal fiction and that it necessarily has to act thru its agents, does not
make the latter personally liable on a contract duly entered into, or for an act lawfully performed, by them for
an in its behalf. The legal fiction by which the personality of a corporation is created is a practical reality and
necessity. Without it no corporate entities may exists and no corporate business may be transacted. Such
legal fiction may be disregarded only when an attempt is made to use it as a cloak to hide an unlawful or
fraudulent purpose. No such thing has been alleged or proven in this case. It has not been alleged nor even
intimated that Vazquez personally benefited by the contract of sale in question and that he is merely invoking
the legal fiction to avoid personal liability. Neither is it contended that he entered into said contract for the
corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual basis upon which to
hold him liable on the contract either principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and held him personally liable
on that account. On the other hand, the Court of Appeals found that he "no solamente obro con negligencia,
sino interveniendo culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil,
el debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think both the
trial court and the Court of Appeals erred in law in so holding. They have manifestly failed to distinguish a
contractual from an extracontractual obligation, or an obligation arising from contract from an obligation arising
from culpa aquiliana. The fault and negligence referred to in articles 1101-1104 of the Civil Code are those
incidental to the fulfillment or nonfullfillment of a contractual obligation; while the fault or negligence referred to
in article 1902 is the culpa aquiliana of the civil law, homologous but not identical to tort of the common law,
which gives rise to an obligation independently of any contract. (Cf. Manila R.R. Co. vs. Cia. Trasatlantica, 38
Phil., 875, 887-890; Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that the corporation, acting thru
Vazquez as its manager, was guilty of negligence in the fulfillment of the contract, did not make Vazquez
principally or even subsidiarily liable for such negligence. Since it was the corporation's contract, its
nonfulfillment, whether due to negligence or fault or to any other cause, made the corporation and not its agent
liable.
On the other hand if independently of the contract Vazquez by his fault or negligence cause damaged to the
plaintiff, he would be liable to the latter under article 1902 of the Civil Code. But then the plaintiff's cause of
action should be based on culpa aquiliana and not on the contract alleged in his complaint herein; and
Vazquez' liability would be principal and not merely subsidiary, as the Court of Appeals has erroneously held.
No such cause of action was alleged in the complaint or tried by express or implied consent of the parties by
virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could not adjudicate

upon it (Reyes vs. Diaz, G.R. No. 48754.) Consequently it was error for the Court of Appeals to remand the
case to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring to the lower courts' refusal
to entertain his counterclaim for damages against the respondent Borja arising from the bringing of this action.
The lower courts having sustained plaintiff's action. The finding of the Court of Appeals that according to the
preponderance of the evidence the defendant Vazquez celebrated the contract not in his personal capacity but
as acting president and manager of the corporation, does not warrant his contention that the suit against him
is malicious and tortious; and since we have to decide defendant's counterclaim upon the facts found by the
Court of Appeals, we find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel that a a
matter of moral justice we ought to state here that the indignant attitude adopted by the defendant towards the
plaintiff for having brought this action against him is in our estimation not wholly right. Altho from the legal point
of view he was not personally liable for the fulfillment of the contract entered into by him on behalf of the
corporation of which he was the acting president and manager, we think it was his moral duty towards the
party with whom he contracted in said capacity to see to it that the corporation represented by him fulfilled the
contract by delivering the palay it had sold, the price of which it had already received. Recreant to such duty
as a moral person, he has no legitimate cause for indignation. We feel that under the circumstances he not
only has no cause of action against the plaintiff for damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby dismissed, without any finding
as to costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.

Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority opinion, the plaintiff is entitled to
a judgment against the defendant. The latter, as acting president and manager of Natividad-Vazquez Sabani
Development Co., Inc., and with full knowledge of the then insolvent status of his company, agreed to sell to
the plaintiff 4,000 cavans of palay. Notwithstanding the receipt from the plaintiff of the full purchase price, the
defendant delivered only 2,488 cavans and failed and refused to deliver the remaining 1,512 cavans and failed
and refused to deliver the remaining 1,512 cavans and a quantity of empty sacks, or their value. Such failure
resulted, according to the Court of First Instance of Manila and the Court of Appeals, from his fault or
negligence.
It is true that the cause of action made out by the complaint is technically based on a contract between the
plaintiff and Natividad-Vazquez Sabani Development Co., Inc. which is not a party to this case. Nevertheless,
inasmuch as it was proven at the trial that the defendant was guilty of fault in that he prevented the
performance of the plaintiff's contract and also of negligence bordering on fraud which cause damage to the
plaintiff, the error of procedure should not be a hindrance to the rendition of a decision in accordance with the
evidence actually introduced by the parties, especially when in such a situation we may order the necessary
amendment of the pleadings, or even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and manager was, at the time
he made the sale of the plaintiff, known to him to be insolvent. As a matter of fact, said corporation was soon
thereafter dissolved. There is admitted damage on the part of the plaintiff, proven to have been inflicted by
reason of the fault or negligence of the defendant. In the interest of simple justice and to avoid multiplicity of
suits I am therefore impelled to consider the present action as one based on fault or negligence and to
sentence the defendant accordingly. Otherwise, he would be allowed to profit by his own wrong under the
protective cover of the corporate existence of the company he represented. It cannot be pretended that any
advantage under the sale inured to the benefit of Natividad-Vazquez Sabani Development Co., Inc. and not of
the defendant personally, since the latter undoubtedly owned a considerable part of its capital.
January 28, 1920

G.R. No. 14335

MANUEL DE GUIA, plaintiff-appellant,
vs.
THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY, defendant-appellant.
Sumulong and Estrada, Crossfield and O'Brien and Francisco A. Delgado for plaintiff-appellant.
Lawrence and Ross for defendant-appellant.
STREET, J.:
This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of First
Instance of the City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest and costs,
as damages incurred by him in consequence of physical injuries sustained while riding on one of the
defendant's car.
The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the street-car
line in Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8 o'clock p.m., of the
date mentioned, the plaintiff Manuel de Guia, a physician residing in Caloocan, boarded a car at the end of the
line with the intention of coming to the city. At about 30 meters from the starting point the car entered a switch,
the plaintiff remaining on the back platform holding the handle of the right-hand door. Upon coming out of the
switch, the small wheels of the rear truck left the track, ran for a short distance along the macadam filling,
which was flush with the rails, and struck a concrete post at the left of the tract. The post was shattered; and
as the car stopped the plaintiff was thrown against the door with some violence, receiving bruises and possibly
certain internal injuries, the extent of which is a subject of dispute.
The trial court found that the motorman of the derailed car was negligent in having maintained too rapid a
speed. This inference appears to be based chiefly upon the results of the shock, involving the shattering of the
post and the bending of the kingpost of the car. It is insisted for the defendant company that the derailment
was due to the presence of a stone, somewhat larger than a goose egg, which had become accidentally
lodged between the rails at the juncture of the switch and which was unobserved by the motorman. In this
view the derailment of the car is supposed to be due to casus fortuitos and not chargeable to the negligence of
the motorman.
Even supposing that the derailment of the car was due to the accidental presence of such a stone as
suggested, we do not think that the existence of negligence is disproved. The motorman says that upon
approaching the switch he reduced the electrical energy to the point that the car barely entered the switch
under its own momentum, and this operation was repeated as he passed out. Upon getting again on the
straight tract he put the control successively at points one, two, three and lastly at point four. At the moment
when the control was placed at point four he perceived that the rear wheels were derailed and applied the
brake; but at the same instant the car struck the post, some 40 meters distant from the exit of the switch. One
of the defendant's witnesses stated in court that the rate of a car propelled by electricity with the control at
point "four" should be about five or 6 miles per hour. There was some other evidence to the effect that the car
was behind schedule time and that it was being driven after leaving the switch, at a higher rate than would
ordinarily be indicated by the control at point four. This inference is rendered more tenable by the
circumstance that the car was practically empty. On the whole, we are of the opinion that the finding of
negligence in the operation of the car must be sustained, as not being clearly contrary to the evidence; not so
much because of excessive speed as because of the distance which the car was allowed to run with the front
wheels of the rear truck derailed. It seems to us than an experienced and attentive motorman should have
discovered that something was wrong and would have stopped before he had driven the car over the entire
distance from the point where the wheels left the track to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the motorman in driving the car, it
results that the company is liable for the damage resulting to the plaintiff as a consequence of that negligence.
The plaintiff had boarded the car as a passenger for the city of Manila and the company undertook to convey
him for hire. The relation between the parties was, therefore, of a contractual nature, and the duty of the
carrier is to be determined with reference to the principles of contract law, that is, the company was bound to
convey and deliver the plaintiff safely and securely with reference to the degree of care which, under the
circumstances, is required by law and custom applicable to the case (art. 1258, Civil Code). Upon failure to

comply with that obligation the company incurred the liability defined in articles 1103-1107 of the Civil Code.
(Cangco vs. Manila Railroad Company, 38 Phil. Rep., 768; Manila Railroad Company vs. Compaia
Transatlantica, and Atlantic, Gulf & Pacific Co., 38 Phil. Rep., 875.)
From the nature of the liability thus incurred, it is clear that the defendant company can not avail itself of the
last paragraph of article 1903 of the Civil Code, since that provision has reference to liability incurred by
negligence in the absence of contractual relation, that is, to the culpa aquiliana of the civil law. It was therefore
irrelevant for the defendant company to prove, as it did, that the company had exercised due care in the
selection and instruction of the motorman who was in charge of its car and that he was in fact an experienced
and reliable servant.
At this point, however, it should be observed that although in case like this the defendant must answer for the
consequences of the negligence of its employee, the court has the power to moderate liability according to the
circumstances of the case (art. 1103, Civ. Code): Furthermore, we think it obvious that an employer who has in
fact displayed due diligence in choosing and instructing his servants is entitled to be considered a debtor in
good faith, within the meaning of article 1107 of the same Code. Construing these two provisions together,
applying them to the facts of this case, it results that the defendant's liability is limited to such damages as
might, at the time of the accident, have been reasonably foreseen as a probable consequence of the physical
injuries inflicted upon the plaintiff and which were in fact a necessary result of those injuries. There is nothing
novel in this proposition, since both the civil and the common law are agreed upon the point that the damages
ordinarily recoverable for the breach of a contractual obligation, against a person who has acted in good faith,
are such as can reasonably be foreseen at the time the obligation is contracted. InDaywalt vs. Corporacion de
PP. Agustinos Recoletos (39 Phil., 587), we said: "The extent of the liability for the breach of a contract must
be determined in the light of the situation in existence at the time the contract is made; and the damages
ordinarily recoverable are in all events limited to such as might be reasonably foreseen in the light of the facts
then known to the contracting parties."
This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this point the
trial judge found that, as a result of the physical and nervous derangement resulting from the accident, Dr. De
Guia was unable properly to attend to his professional labors for three months and suspended his practice for
that period. It was also proved by the testimony of the plaintiff that his customary income, as a physician, was
about P300 per month. The trial judge accordingly allowed P900, as damages for loss of professional
earnings. This allowance is attacked upon appeal by the defendant as excessive both as to the period and
rate of allowance. Upon examining the evidence we fell disinclined to disturb this part of the judgment, though
it must be conceded that the estimate of the trial judge on this point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost by
reason of his inability to accept a position as district health officer in Occidental Negros. It appears in this
connection that Mr. Alunan, representative from Occidental Negros, had asked Dr. Montinola, who supposedly
had the authority to make the appointment, to nominate the plaintiff to such position. The job was supposed to
be good for two years, with a salary of P1,600 per annum, and possibility of outside practice worth P350.
Accepting these suggestions as true, it is evident that the damages thus incurred are too speculative to be the
basis of recovery in a civil action. This element of damages must therefore be eliminated. It goes without
saying that damage of this character could not, at the time of the accident, have been foreseen by the
delinquent party as a probable consequence of the injury inflicted - a circumstance which makes applicable
article 1107 of the Civil Code, as already expounded.
The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject which we
momentarily pass for discussion further on, since the controversy on this point can be more readily understood
in connection with the question raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in question
ascend to the amount of P40,000. Of this amount the sum of P10,000 is supposed to represent the cost of
medical treatment and other expenses incident to the plaintiff's cure, while the remainder (P30,000) represents
the damage resulting from the character of his injuries, which are supposedly such as to incapacitate him for
the exercise of the medical profession in the future. In support of these claims the plaintiff introduced
evidence, consisting of his own testimony and that of numerous medical experts, tending to show that as a
result of the injuries in question he had developed infarct of the liver and traumatic neurosis, accompanied by

nervousness, vertigo, and other disturbing symptoms of a serious and permanent character, it being claimed
that these manifestations of disorder rendered him liable to a host of other dangerous diseases, such as
pleuresy, tuberculosis, pneumonia, and pulmonary gangrene, and that restoration to health could only be
accomplished, if at all, after long years of complete repose. The trial judge did not take these pretensions very
seriously, and, as already stated, limited the damages to the three items of professional earnings, expenses of
medical treatment, and the loss of the appointment as medical treatment, and the loss of the appointment as
medical inspector in Occidental Negros. As the appeal of the plaintiff opens the whole case upon the question
of damages, it is desirable to present a somewhat fuller statement than that already given with respect to
extent and character of the injuries in question.
The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the rear
platform, grasping the handle of the right-hand door. The shock of the impact threw him forward, and the left
part of his chest struck against the door causing him to fall. In falling, the plaintiff says, his head struck one of
the seats and he became unconscious. He was presently taken to his home which was only a short distance
away, where he was seen at about 10 o'clock p. m., by a physician in the employment of the defendant
company. This physician says that the plaintiff was then walking about and apparently suffering somewhat
from bruises on his chest. He said nothing about his head being injured and refused to go to a hospital. Later,
during the same night Dr. Carmelo Basa was called in to see the plaintiff. This physician says that he found
Doctor De Guia lying in bed and complaining of a severe pain in the side. During the visit of Doctor Basa the
plaintiff several times spit up blood, a manifestation no doubt due to the effects of the bruises received in his
side. The next day Doctor De Guia went into Manila to consult another physician, Doctor Miciano, and during
the course of a few weeks he called into consultation other doctors who were introduced as witnesses in his
behalf at the trial of this case. According to the testimony of these witnesses, as well as that of the plaintiff
himself, the symptoms of physical and nervous derangement in the plaintiff speedily developed in portentous
degree.
Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's injuries,
considered in their physical effects, were trivial and that the attendant nervous derangement, with its
complicated train of ailments, was merely simulated.
Upon this question the opposing medical experts ventilated a considerable mass of professional learning with
reference to the nature and effects of the baffling disease known as traumatic neurosis, or traumatic hysteria a topic which has been the occasion of much controversy in actions of this character in the tribunals of Europe
and America. The subject is one of considerable interest from a medico-legal point of view, but we deem it
unnecessary in this opinion to enter upon a discussion of its voluminous literature. It is enough to say that in
our opinion the plaintiff's case for large damages in respect to his supposed incapacitation for future
professional practice is not made out. Of course in this jurisdiction damages can not be assessed in favor of
the plaintiff as compensation for the physical or mental pain which he may have endured (Marcelo vs.
Velasco, 11 Phil. Rep. 287); and the evidence relating to the injuries, both external and internal, received by
him must be examined chiefly in its bearing upon his material welfare, that is, in its results upon his earning
capacity and the expenses incurred in restoration to the usual condition of health.
The evidence before us shows that immediately after the accident in question Doctor De Guia, sensing in the
situation a possibility of profit, devoted himself with great assiduity to the promotion of this litigation; and with
the aid of his own professional knowledge, supplemented by suggestions obtained from his professional
friends and associates, he enveloped himself more or less unconsciously in an atmosphere of delusion which
rendered him incapable of appreciating at their true value the symptoms of disorder which he developed. The
trial court was in our opinion fully justified in rejecting the exaggerated estimate of damages thus created.
We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the expense
incurred for medical service. In this connection Doctor Montes testified that he was first called to see the
plaintiff upon September 14, 1915, when he found him suffering from traumatic neurosis. Three months later
he was called upon to treat the same patient for an acute catarrhal condition, involving disturbance in the
pulmonary region. The treatment for this malady was successful after two months, but at the end of six months
the same trouble recurred and required further treatment. In October of the year 1916, or more than a year
after the accident in question occurred, Doctor Montes was called in consultation with Doctor Guerrero to
make an examination of the plaintiff. Doctor Montes says that his charges altogether for services rendered to
the plaintiff amount to P350, of which the sum of P200 had been paid by the plaintiff upon bills rendered from
time to time. This physician speaks in the most general terms with respect to the times and extent of the

services rendered; and it is by no means clear that those services which were rendered many months, or year,
after the accident had in fact any necessary or legitimate relation to the injuries received by the plaintiff. In
view of the vagueness and uncertainty of the testimony relating to Doctor Montes' services, we are of the
opinion that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent of the
plaintiff's obligation with respect to treatment for said injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of the
opinion that they are not a proper subject of recovery in this action; and this for more than one reason. In the
first place, it does not appear that said physicians have in fact made charges for those services with the
intention of imposing obligations on the plaintiff to pay for them. On the contrary it would seem that said
services were gratuitously rendered out of courtesy to the plaintiff as a member of the medical profession. The
suggestions made on the stand by these physicians to the effect that their services were worth the amounts
stated by them are not sufficient to proved that the plaintiff had incurred the obligation to pay those amounts.
In the second place, we are convinced that in employing so many physicians the plaintiff must have had in
view of the successful promotion of the issue of this lawsuit rather than the bona fide purpose of effecting the
cure of his injuries. In order to constitute a proper element of recovery in an action of this character, the
medical service for which reimbursement is claimed should not only be such as to have created a legal
obligation upon the plaintiff but such as was reasonably necessary in view of his actual condition. It can not be
permitted that a litigant should retain an unusual and unnecessary number of professional experts with a view
to the successful promotion of a lawsuit and expect to recover against his adversary the entire expense thus
incurred. His claim for medical services must be limited to such expenditures as were reasonably suited to the
case.
The second error assigned in the brief of the defendant company presents a question of practice which,
though not vital to the solution of this case, is of sufficient general importance to merit notice. It appears that
four of the physicians examined as witnesses for the plaintiff had made written statements at various dates
certifying the results of their respective examinations into the condition of the plaintiff. When these witnesses
were examined in court the identified their respective signatures to these certificates and the trial judge, over
the defendant's objection, admitted the documents as primary evidence in the case. This was undoubtedly
erroneous. A document of this character is not primary evidence in any sense, since it is fundamentally of a
hearsay nature; and the only legitimate use to which one of these certificates could be put, as evidence for the
plaintiff, was to allow the physician who issued it to refer thereto to refresh his memory upon details which he
might have forgotten. In Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover
damages for personal injury, it appeared that a physician, who had been sent by one of the parties to examine
the plaintiff, had made at the time a written memorandum of the results of the examination; and it was
proposed to introduce this document in evidence at the trial. It was excluded by the trial judge, and it was held
upon appeal that this was proper. Said the court: "There was no failure or exhaustion of the memory, and no
impeachment of the memorandum on cross-examination; and the document was clearly incompetent as
evidence in chief."
It results from the foregoing that the judgment appealed from must be modified by reducing the amount of the
recovery to eleven hundred pesos (1,100), with legal interest from November 8, 1916. As thus modified the
judgment is affirmed, without any special pronouncement as to costs of this instance. So ordered.

November 12, 1912

G.R. No. 7567
THE UNITED STATES, plaintiff-appellee,
vs.
SEGUNDO BARIAS, defendant-appellant.
Bruce, Lawrence, Ross and Block for appellant.
Office of the Solicitor-General Harvey, for appellee.

The sole question raised by this appeal is whether the evidence shows such carelessness or want of ordinary
care on the part of the defendant as to amount to reckless negligence (imprudencia temeraria).
Judge Cooley in his work on Torts (3d ed., 1324) defines negligence to be: "The failure to observe, for the
protection of the interests of another person, that degree of care, precaution and vigilance which the
circumstances justly demand, whereby such other persons suffers injury."
In the case of U. S. vs. Nava, (1 Phil. Rep., 580), we held that: "Reckless negligence consists of the failure to
take such precautions or advance measures in the performance of an act as the most prudence would
suggest whereby injury is caused to persons or to property."

CARSON, J.:
Silvela says in his "Derecho Penal," in speaking of reckless imprudence (imprudencia temeraria):
This is an appeal from a sentence imposed by the Honorable A. S. Crossfield, judge of the Court of First
Instance of Manila, for homicide resulting from reckless negligence. The information charges:
That on or about November 2, 1911, in the city of Manila, Philippine Islands, the said Segundo Barias was a
motorman on street car No. 9, run 7 of the Pasay-Cervantes lines of the Manila Electric Railroad and Light
Company, a corporation duly organized and doing business in the city of Manila, Philippine Islands; as a such
motorman he was controlling and operating said street car along Rizal Avenue, formerly Calle Cervantes, of
this city, and as such motorman of the said street car he was under obligation to run the same with due care
and diligence to avoid any accident that might occur to vehicles and pedestrians who were travelling on said
Rizal Avenue; said accused, at said time and place, did willfully, with reckless imprudence and inexcusable
negligence and in violation of the regulations promulgated to that effect, control and operate said street car,
without heeding the pedestrians crossing Rizal Avenue from one side to the other, thus knocking down and
causing by his carelessness and imprudent negligence that said street car No. 9, operated and controlled by
said accused, as hereinbefore stated, should knock down and pass over the body and head of one Fermina
Jose, a girl 2 years old, who at said time and place was crossing the said Rizal Avenue, the body of said girl
being dragged along street-car on said Rizal Avenue for a long distance, thus crushing and destroying her
head and causing her sudden death as a result of the injury received; that if the acts executed by the accused
had been done with malice, he would be guilty of the serious crime of homicide.
The defendant was a motorman for the Manila Electric Railroad and Light Company. At about 6 o'clock on the
morning of November 2, 1911, he was driving his car along Rizal avenue and stopped it near the intersection
of that street with Calle Requesen to take on some passengers. When the car stopped, the defendant looked
backward, presumably to note whether all the passengers were aboard, and then started his car. At that
moment Fermina Jose, a child about 3 years old, walked or ran in front of he car. She was knocked down and
dragged some little distance underneath the car, and was left dead upon the track. The motorman proceeded
with his car to the end of the track, some distance from the place of the accident, and apparently knew nothing
of it until his return, when he was informed of what happened.
There is no substantial dispute as to the facts. It is true that one witness testified that the defendant started the
car without turning his head, and while he was still looking backwards and that this testimony was directly
contradicted by that of another witness. But we do not deem it necessary to make an express finding as to the
precise direction in which the defendant's head was turned at the moment when he started his car. It is
sufficient for the purpose of our decision to hold, as we do, that the evidence clearly discloses that he started
his car from a standstill without looking over the track immediately in front of the car to satisfy himself that it
was clear. he did not see the child until after he had run his car over it, and after he had return to the place
where it was found dead, and we think we are justified in saying that whenever he was looking at the moment
when he started his car, he was not looking at the track immediately in front of the car, and that he had not
satisfied himself that this portion of the tract was clear immediately before putting the car in the motion.
The trial court found the defendant guilty of imprudencia temeraria (reckless negligence) as charged in the
information, and sentenced him to over one year and one month of imprisonment in the Bilibid Prison, and to
pay the cause of the action.

The word "negligencia" used in the code, and the term "imprudencia" with which this punishable act is defined,
express this idea in such a clear manner that it is not necessary to enlarge upon it. He who has done
everything on his part to prevent his actions from causing damage to another, although he has not succeeded
in doing so, notwithstanding his efforts, is the victim of an accident and can not be considered responsible for
the same. (Vol. 2, p. 127 [153].)
Temerario is, in our opinion, one who omits, with regard to this actions, which are liable to cause injury to
another, that care and diligence, that attention, which can be required of the least careful, attentive, or diligent.
If a moment's attention and reflection would have shown a person that the act which he was about to perform
was liable to have the harmful consequence which it had, such person acted with temerity and may be guilty of
"imprudencia temeraria." It may be that in practice this idea has been given a greater scope and the acts of
imprudence which did not show carelessness as carried to such high degree, might have been punished as
"imprudencia temeraria;" but in our opinion, the proper meaning of the word does not authorize another
interpretation. (Id., p. 133 [161].)
Groizard, commenting upon "imprudencia temeraria," on page 389, volume 8, of his work on the Penal Code,
says:
Prudence is that cardinal virtue which teaches us to discern and distinguish the good from bad, in order to
adopt or flee from it. It also means good judgment, temperance, and moderation in one's actions. `Temerario is
one who exposes himself to danger or rushes into it without reflection and without examining the same.
Consequently, he who from lack of good judgment, temperance, or moderation in his actions, exposes himself
without reflection and examination to the danger of committing a crime, must be held responsible under the
provision of law aforementioned.
Negligence is want of the care required by the circumstances. It is a relative or comparative, not an absolute,
term and its application depends upon the situation of the parties and the degree of care and vigilance which
the circumstances reasonably require. Where the danger is great, a high degree of care is necessary, and the
failure to observe it is a want of ordinary care under the circumstances. (Ahern vs. Oregon Telephone Co., 24
Oreg., 276, 294; 35 Pac., 549.)
Ordinary care, if the danger is great, may arise to the grade of a very exact and unchangeable attention.
(Parry Mfg. Co. vs. Eaton, 41 Ind. App., 81, 1908; 83 N. E., 510.)
In the case of U. S. vs. Reyes (1 Phil. Rep., 375-377), we held that: "The diligence with which the law requires
the individual at all the time to govern his conduct varies with the nature of the situation in which he is placed
and with the importance of the act which he is to perform.
The question to be determined then, is whether, under all the circumstances, and having in mind the situation
of the defendant when he put his car in motion and ran it over the child, he was guilty of a failure to take such
precautions or advance measures as common prudence would suggest.

The evidence shows that the thoroughfare on which the incident occurred was a public street in a densely
populated section of the city. The hour was six in the morning, or about the time when the residents of such
streets begin to move about. Under such conditions a motorman of an electric street car was clearly charged
with a high degree of diligence in the performance of his duties. He was bound to know and to recognize that
any negligence on his part in observing the track over which he was running his car might result in fatal
accidents. He had no right to assume that the track before his car was clear. It was his duty to satisfy himself
of that fact by keeping a sharp lookout, and to do everything in his power to avoid the danger which is
necessarily incident to the operation of heavy street cars on public thoroughfares in populous sections of the
city.
Did he exercise the degree of diligence required of him? We think this question must be answered in the
negative. We do not go so far as to say that having brought his car to a standstill it was his bounden duty to
keep his eyes directed to the front. Indeed, in the absence of some regulation of his employers, we can well
understand that, at times, it might be highly proper and prudent for him to glance back before again setting his
car in motion, to satisfy himself that he understood correctly a signal to go forward or that all the passengers
had safely alighted or gotten on board. But we do insist that before setting his car again in motion, it was his
duty to satisfy himself that the track was clear, and, for that purpose, to look and to see the track just in front of
his car. This the defendant did not do, and the result of his negligence was the death of the child.
In the case of Smith vs. St. Paul City Ry. Co., (32 Minn., p. 1), the supreme court of Minnesota, in discussing
the diligence required of street railway companies in the conduct of their business observed that: "The
defendant was a carrier of passengers for hire, owing and controlling the tracks and cars operated thereon. It
is therefore subject to the rules applicable to passenger carriers. (Thompson's Carriers, 442; Barrett vs. Third
Ave. R. Co., 1 Sweeny, 568; 8 Abb. Pr. (N.S.), 205.) As respects hazards and dangers incident to the business
or employment, the law enjoins upon such carrier the highest degree of care consistent with its undertaking,
and it is responsible for the slightest negligence. (Wilson vs. Northern Pacific R. Co., 26 Minn., 278; Warren
vs. Fitchburg R. Co., 8 Allen, 233; 43 Am. Dec. 354, 356, notes and cases.) . . . The severe ruled which
enjoins upon the carrier such extraordinary care and diligence, is intended, for reasons of public policy, to
secure the safe carriage of passengers, in so far as human skill and foresight can affect such result." The case
just cited was a civil case, and the doctrine therein announced had special reference to the care which should
be exercised in securing the safety of passengers. But we hold that the reasons of public policy which impose
upon street car companies and their employees the duty of exercising the utmost degree of diligence in
securing the safety of passengers, apply with equal force to the duty of avoiding the infliction of injuries upon
pedestrians and others on the public streets and thoroughfares over which these companies are authorized to
run their cars. And while, in a criminal case, the courts will require proof of the guilt of the company or its
employees beyond a reasonable doubt, nevertheless the care or diligence required of the company and its
employees is the same in both cases, and the only question to be determined is whether the proofs shows
beyond a reasonable doubt that the failure to exercise such care or diligence was the cause of the accident,
and that the defendant was guilty thereof.
Counsel for the defendant insist that the accident might have happened despite the exercise of the utmost
care by the defendant, and they have introduced photographs into the record for the purpose of proving that
while the motorman was standing in his proper place on the front platform of the car, a child might have
walked up immediately in front of he car without coming within the line of his vision. Examining the
photographs, we think that this contention may have some foundation in fact; but only to this extent, that
standing erect, at the position he would ordinarily assume while the car is in motion, the eye of the average
motorman might just miss seeing the top of the head of a child, about three years old, standing or walking
close up to the front of the car. But it is also very evident that by inclining the head and shoulders forward very
slightly, and glancing in front of the car, a person in the position of a motorman could not fail to see a child on
the track immediately in front of his car; and we hold that it is the manifest duty of a motorman, who is about to
start his car on a public thoroughfare in a thickly-settled district, to satisfy himself that the track is clear
immediately in front of his car, and to incline his body slightly forward, if that be necessary, in order to bring the
whole track within his line of vision. Of course, this may not be, and usually is not necessary when the car is in
motion, but we think that it is required by the dictates of the most ordinary prudence in starting from a
standstill.
We are not unmindful of our remarks in the case of U. S. vs. Bacho (10 Phil. Rep., 577), to which our attention
is directed by counsel for appellant. In that case we said that:

. . . In the general experience of mankind, accidents apparently avoidable and often inexplicable are
unfortunately too frequent to permit us to conclude that some one must be criminally liable for negligence in
every case where an accident occurs. It is the duty of the prosecution in each case to prove by competent
evidence not only the existence of criminal negligence, but that the accused was guilty thereof.
Nor do we overlook the ruling in the case of U. S. vs. Barnes (12 Phil. Rep., 93), to which our attention is also
invited, wherein we held that the defendant was not guilty of reckless negligence, where it appeared that he
killed another by the discharge of his gun under such circumstances that he might have been held guilty of
criminally reckless negligence had he had knowledge at that moment that another person was in such position
as to be in danger if the gun should be discharged. In this latter case the defendant had no reason to
anticipate that the person who was injured was in the line of fire, or that there was any probability that he or
anyone else would place himself in the line of fire. In the case at bar, however, it was, as we have seen, the
manifest duty of the motorman to take reasonable precautions in starting his car to see that in doing so he was
not endangering the life of any pedestrian, old or young; and to this end it was further his duty to guard against
the reasonable possibility that some one might be on the track immediately in front of the car. We think that the
evidence showing, as it does, that the child was killed at the moment when the car was set in motion, we are
justified in holding that, had the motorman seen the child, he could have avoided the accident; the accident
was not, therefore, "unavailable or inexplicable," and it appearing that the motorman, by the exercise of
ordinary diligence, might have seen the child before he set the car in motion, his failure to satisfy himself that
the track was clear before doing so was reckless negligence, of which he was properly convicted in the court
below.
We think, however, that the penalty should be reduced to that of six months and one day of prision
correccional. Modified by substituting for so much thereof as imposes the penalty of one year and one month
of imprisonment, the penalty of six months and one day of prision correccional, the judgment of the lower court
convicting and sentencing the appellant is affirmed, with costs of both instances against him. So ordered.
[G.R. No. 141258. April 9, 2003]
TOMASA SARMIENTO, petitioner, vs. SPS. LUIS & ROSE SUN-CABRIDO and MARIA LOURDES
SUN, respondents.
DECISION
CORONA, J.:
This appeal by certiorari stems from the Decision [1] of respondent Court of Appeals promulgated on
November 26, 1999 in CA-G.R. SP No. 47431 declaring the private respondents not liable for damages.
Petitioner, Tomasa Sarmiento, states that sometime in April 1994, a friend, Dra. Virginia Lao, requested
her to find somebody to reset a pair of diamond earrings into two gold rings. [2]Accordingly, petitioner sent a
certain Tita Payag with the pair of earrings to Dingdings Jewelry Shop, owned and managed by respondent
spouses Luis and Rose Cabrido,[3] which accepted the job order for P400.[4]
Petitioner provided 12 grams of gold to be used in crafting the pair of ring settings. [5] After 3 days, Tita
Payag delivered to the jewelry shop one of Dra. Laos diamond earrings which was earlier appraised as
worth .33 carat and almost perfect in cut and clarity. [6] Respondent Ma. Lourdes (Marilou) Sun went on to
dismount the diamond from its original setting. Unsuccessful, she asked their goldsmith, Zenon Santos, to do
it. Santos removed the diamond by twisting the setting with a pair of pliers, breaking the gem in the process. [7]
Petitioner required the respondents to replace the diamond with the same size and quality. When they
refused, the petitioner was forced to buy a replacement in the amount ofP30,000.[8]
Respondent Rose Cabrido, manager of Dingdings Jewelry Shop, denied having entered into any
transaction with Tita Payag whom she met only after the latter came to the jewelry shop to seek compensation

from Santos for the broken piece of jewelry. [9] However, it was possible that Payag may have availed of their
services as she could not have known every customer who came to their shop. Rose disclosed that she
usually arrived at 11:00 a.m. When she was not around, her mother and sister tended the shop. [10]
Marilou admitted knowing Payag who came to Dingdings Jewelry Shop to avail of their services
regarding a certain piece of jewelry. After a short conversation, Payag went inside the shop to see
Santos. When the precious stone was broken by Santos, Payag demanded P15,000 from him. As the latter
had no money, she turned to Marilou for reimbursement apparently thinking that Marilou was the owner of the
shop.[11]
For his part, Santos recalled that Payag requested him to dismount what appeared to him was a
sapphire. While clipping the setting with the use of a small pair of pliers, the stone accidentally broke. Santos
denied being an employee of Dingdings Jewelry Shop. [12]
Attempts to settle the controversy before the barangay lupon proved futile.[13] Consequently, petitioner
filed a complaint for damages on June 28, 1994 with the Municipal Trial Court in Cities (MTCC) of Tagbilaran
City docketed as Civil Case No. 2339 which rendered a decision [14] in favor of the petitioner, the dispositive
portion of which reads:
WHEREFORE, Decision is hereby rendered in favor of plaintiff Tomasa Sarmiento and against defendants
Spouses Luis and Rose Sun-Cabrido, ordering defendants to pay jointly and severally the amount of Thirty
Thousand Pesos (P30,000.00) as actual or compensatory damages; Three Thousand Pesos (P3,000.00) as
moral damages; Five Thousand Pesos (P5,000.00) as attorneys fees; Two Thousand Pesos (P2,000.00) as
litigation expenses, with legal interest of 6% per annum from the date of this decision and 12% per annum
from the date when this decision becomes final until the amounts shall have been fully paid and to pay the
costs.
This case as against defendant Maria Lourdes Sun as well as defendants counterclaim are dismissed for lack
of merit.
SO ORDERED.
On appeal, the Regional Trial Court (RTC) of Tagbilaran City, Branch 3, reversed the decision of the
MTCC, thus absolving the respondents of any responsibility arising from breach of contract. [15] Finding no
reversible error, the Court of Appeals (CA) affirmed the judgment of the RTC in its Decision promulgated on
November 26, 1999.[16]
Unable to accept the decision, the petitioner filed the instant petition for review with the following
assigned errors:

Essentially, petitioner claims that the dismounting of the diamond from its original setting was part of
the obligation assumed by the private respondents under the contract of service. Thus, they should be held
liable for damages arising from its breakage. On the other hand, the version of the private respondents,
upheld by the RTC and the CA, is that their agreement with the petitioner was for crafting two gold rings
mounted with diamonds only and did not include the dismounting of the said diamonds from their original
setting.[17] Consequently, the crux of the instant controversy is the scope of the obligation assumed by the
private respondents under the verbal contract of service with the petitioner.
The Court notes that, during the trial, private respondents vigorously denied any transaction between
Dingdings Jewelry Shop and the petitioner, through Tita Payag. Rose Cabrido, for instance, denied having
ever met Payag before the latter came to seek reimbursement for the value of the broken diamond. Likewise,
while Marilou acknowledged acquaintance with Payag, she nevertheless denied accepting any job order from
her. Debunking their protestations, however, the MTCC of Tagbilaran City rendered its decision on November
26, 1999 in favor of herein petitioner.
Apparently realizing the weakness and futility of their position, private respondents conceded, on
appeal, the existence of an agreement with the petitioner for crafting a pair of gold rings mounted with
diamonds. This apparent concession by the private respondents, however, was really nothing but an
ingenious maneuver, designed to preclude, just the same, any recovery for damages by the petitioner. Thus,
while ostensibly admitting the existence of the said agreement, private respondents, nonetheless denied
assuming any obligation to dismount the diamonds from their original settings. [18]
The inconsistent position of the private respondents impugns their credibility. They cannot be permitted
to adopt a certain stance, only to vacillate later to suit their interest. We are therefore inclined to agree with the
MTCC in giving credence to the version of the petitioner. The MTCC had the unique opportunity to actually
observe the behavior and demeanor of the witnesses as they testified during the trial.[19]
At any rate, the contemporaneous and subsequent acts of the parties [20] support the version of the
petitioner. Thus, when Tita Payag asked Marilou of Dingdings Jewelry Shop to reset a pair of diamond
earrings, she brought with her the said pieces of jewelry so that the diamonds which were still mounted could
be measured and the new ring settings crafted accordingly. On the said occasion, Marilou expressed no
reservation regarding the dismounting of the diamonds which, after all, was an integral part of petitioners job
order. She should have instructed Payag to have them dismounted first if Marilou had actually intended to
spare the jewelry shop of the task but she did not. Instead, petitioner was charged P400 for the job order
which was readily accepted. Thus, a perfected contract to reset the pair of diamond earrings arose between
the petitioner, through Payag, and Dingdings Jewelry Shop, through Marilou.
Marilous subsequent actuations were even more revealing as regards the scope of obligation assumed
by the jewelry shop. After the new settings were completed in 3 days, she called up the petitioner to bring the
diamond earrings to be reset. [21] Having initially examined one of them, Marilou went on to dismount the
diamond from its original setting. Unsuccessful, she then delegated the task to their goldsmith, Zenon Santos.
Having acted the way she did, Marilou cannot now deny the shops obligation to reset the pair of earrings.

I
THE COURT OF APPEALS ERRED IN MAINTAINING AND SO HOLDING THAT ZENON SANTOS IS NOT
AN EMPLOYEE OF DEFENDANT (herein respondent) ROSE SUN-CABRIDO, AND IS THEREFORE
ANSWERABLE FOR HIS OWN ACTS OR OMISSIONS
II
THE HONORABLE COURT OF APPEALS ERRED IN SUSTAINING THE REGIONAL TRIAL COURTS
PRONOUNCEMENTS THAT THERE EXISTS NO AGREEMENT BETWEEN THE PETITIONER AND
RESPONDENTS THAT THE LATTER WOULD ANSWER FOR ANY LIABILITY SHOULD THE DIAMOND BE
DAMAGED IN THE PROCESS OF DISMOUNTING THEM FROM THE EARRINGS.

Obligations arising from contracts have the force of law between the contracting parties. [22] Corollarily,
those who in the performance of their obligations are guilty of fraud, negligence or delay and those who in any
manner contravene the tenor thereof, are liable for damages. [23] The fault or negligence of the obligor consists
in the omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place. [24]
In the case at bar, it is beyond doubt that Santos acted negligently in dismounting the diamond from its
original setting. It appears to be the practice of the trade to use a miniature wire saw in dismounting precious
gems, such as diamonds, from their original settings. [25] However, Santos employed a pair of pliers in clipping
the original setting, thus resulting in breakage of the diamond. The jewelry shop failed to perform its obligation
with the ordinary diligence required by the circumstances. It should be pointed out that Marilou examined the
diamond before dismounting it from the original setting and found the same to be in order. Its subsequent
breakage in the hands of Santos could only have been caused by his negligence in using the wrong
equipment. Res ipsa loquitur.

Private respondents seek to avoid liability by passing the buck to Santos who claimed to be an
independent worker. They also claim, rather lamely, that Marilou simply happened to drop by at Dingdings
Jewelry Shop when Payag arrived to place her job order.[26]

Jewels of Europe. The package tour included the countries of England, Holland, Germany, Austria,
Liechstenstein, Switzerland and France at a total cost of P74,322.70. Petitioner was given a 5% discount on
the amount, which included airfare, and the booking fee was also waived because petitioners niece, Meriam
Menor, was respondent companys ticketing manager.

We do not think so.

The facts show that Santos had been working at Dingdings Jewelry Shop as goldsmith for about 6
months accepting job orders through referrals from private respondents. [27] On the other hand, Payag stated
that she had transacted with Dingdings Jewelry Shop on at least 10 previews occasions, always through
Marilou.[28] The preponderance of evidence supports the view that Marilou and Zenon Santos were employed
at Dingdings Jewelry Shop in order to perform activities which were usually necessary or desirable in its
business.[29]
We therefore hold that an obligation to pay actual damages arose in favor of the petitioner against the
respondents spouses who admittedly owned and managed Dingdings Jewelry Shop. It was proven that
petitioner replaced the damaged jewelry in the amount of P30,000.[30]
The facts of the case also justify the award of moral damages. As a general rule, moral damages are
not recoverable in actions for damages predicated on a breach of contract for it is not one of the items
enumerated under Article 2219 of the Civil Code. [31] Moral damages may be awarded in a breach of contract
only when there is proof that defendant acted in bad faith, or was guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligation. [32] Santos was a goldsmith for more than 40 years.
[33]
Given his long experience in the trade, he should have known that using a pair of pliers instead of a
miniature wire saw in dismounting a precious stone like a diamond would have entailed an unnecessary risk of
breakage. He went on with it anyway. Hence, respondent spouses are liable for P10,000 as moral damages
due to the gross negligence of their employee.
However, private respondents refusal to pay the value of the damaged jewelry emanated from an
honest belief that they were not responsible therefor, hence, negating any basis for the award of attorneys
fees.[34]
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals
dated November 26, 1999 is hereby reversed and set aside. Private respondents Luis Cabrido and Rose SunCabrido are hereby ordered to pay, jointly and severally, the amount of P30,000 as actual damages
and P10,000 as moral damages in favor of the petitioner.
No costs.
SO ORDERED.

Pursuant to said contract, Menor went to her aunts residence on June 12, 1991 a Wednesday to
deliver petitioners travel documents and plane tickets. Petitioner, in turn, gave Menor the full payment for the
package tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA) on Saturday, two
hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on Saturday, June 15, 1991, to take the
flight for the first leg of her journey from Manila to Hongkong. To petitioners dismay, she discovered that the
flight she was supposed to take had already departed the previous day. She learned that her plane ticket was
for the flight scheduled on June 14, 1991. She thus called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the British Pageant which
included England, Scotland and Wales in its itinerary. For this tour package, petitioner was asked anew to pay
US$785.00 or P20,881.00 (at the then prevailing exchange rate of P26.60). She gave respondent US$300 or
P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the reimbursement of
P61,421.70, representing the difference between the sum she paid for Jewels of Europe and the amount she
owed respondent for the British Pageant tour. Despite several demands, respondent company refused to
reimburse the amount, contending that the same was non-refundable. [1] Petitioner was thus constrained to file
a complaint against respondent for breach of contract of carriage and damages, which was docketed as Civil
Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of Europe was due to respondents
fault since it did not clearly indicate the departure date on the plane ticket. Respondent was also negligent in
informing her of the wrong flight schedule through its employee Menor. She insisted that the British Pageant
was merely a substitute for the Jewels of Europe tour, such that the cost of the former should be properly
set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager, Concepcion Chipeco, denied
responsibility for petitioners failure to join the first tour. Chipeco insisted that petitioner was informed of the
correct departure date, which was clearly and legibly printed on the plane ticket. The travel documents were
given to petitioner two days ahead of the scheduled trip. Petitioner had only herself to blame for missing the
flight, as she did not bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for Jewels of Europe,
considering that the same had already been remitted to its principal in Singapore, Lotus Travel Ltd., which had
already billed the same even if petitioner did not join the tour. Lotus European tour organizer, Insight
International Tours Ltd., determines the cost of a package tour based on a minimum number of projected
participants. For this reason, it is accepted industry practice to disallow refund for individuals who failed to take
a booked tour.[3]

[G.R. No. 138334. August 25, 2003]

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF APPEALS and CARAVAN TRAVEL &
TOURS INTERNATIONAL, INC., respondents.
DECISION

Lastly, respondent maintained that the British Pageant was not a substitute for the package tour that
petitioner missed. This tour was independently procured by petitioner after realizing that she made a mistake
in missing her flight for Jewels of Europe. Petitioner was allowed to make a partial payment of only
US$300.00 for the second tour because her niece was then an employee of the travel agency. Consequently,
respondent prayed that petitioner be ordered to pay the balance of P12,901.00 for the British Pageant
package tour.

YNARES-SANTIAGO, J.:
After due proceedings, the trial court rendered a decision, [4] the dispositive part of which reads:
In May 1991, petitioner Estela L. Crisostomo contracted the services of respondent Caravan Travel and
Tours International, Inc. to arrange and facilitate her booking, ticketing and accommodation in a tour dubbed

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1.

Ordering the defendant to return and/or refund to the plaintiff the amount of Fifty Three
Thousand Nine Hundred Eighty Nine Pesos and Forty Three Centavos (P53,989.43)
with legal interest thereon at the rate of twelve percent (12%) per annum starting
January 16, 1992, the date when the complaint was filed;

2.

Ordering the defendant to pay the plaintiff the amount of Five Thousand (P5,000.00)
Pesos as and for reasonable attorneys fees;

3.

Dismissing the defendants counterclaim, for lack of merit; and

4.

With costs against the defendant.

SO ORDERED.[5]
The trial court held that respondent was negligent in erroneously advising petitioner of her departure
date through its employee, Menor, who was not presented as witness to rebut petitioners testimony. However,
petitioner should have verified the exact date and time of departure by looking at her ticket and should have
simply not relied on Menors verbal representation. The trial court thus declared that petitioner was guilty of
contributory negligence and accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both parties to be at
fault. However, the appellate court held that petitioner is more negligent than respondent because as a lawyer
and well-traveled person, she should have known better than to simply rely on what was told to her. This
being so, she is not entitled to any form of damages. Petitioner also forfeited her right to the Jewels of
Europe tour and must therefore pay respondent the balance of the price for the British Pageant tour. The
dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court dated October 26, 1995 is
hereby REVERSED and SET ASIDE. A new judgment is hereby ENTERED requiring the plaintiff-appellee to
pay to the defendant-appellant the amount of P12,901.00, representing the balance of the price of the British
Pageant Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per annum, to be
computed from the time the counterclaim was filed until the finality of this decision. After this decision becomes
final and executory, the rate of TWELVE PERCENT (12%) interest per annum shall be additionally imposed on
the total obligation until payment thereof is satisfied. The award of attorneys fees is DELETED. Costs against
the plaintiff-appellee.
SO ORDERED.[6]
Upon denial of her motion for reconsideration, [7] petitioner filed the instant petition under Rule 45 on the
following grounds:
I
It is respectfully submitted that the Honorable Court of Appeals committed a reversible error in reversing and
setting aside the decision of the trial court by ruling that the petitioner is not entitled to a refund of the cost of
unavailed Jewels of Europe tour she being equally, if not more, negligent than the private respondent, for in
the contract of carriage the common carrier is obliged to observe utmost care and extra-ordinary diligence
which is higher in degree than the ordinary diligence required of the passenger. Thus, even if the petitioner
and private respondent were both negligent, the petitioner cannot be considered to be equally, or worse, more
guilty than the private respondent. At best, petitioners negligence is only contributory while the private
respondent [is guilty] of gross negligence making the principle of pari delicto inapplicable in the case;
II

The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe tour was not indivisible
and the amount paid therefor refundable;
III
The Honorable Court erred in not granting to the petitioner the consequential damages due her as a result of
breach of contract of carriage.[8]
Petitioner contends that respondent did not observe the standard of care required of a common carrier
when it informed her wrongly of the flight schedule. She could not be deemed more negligent than respondent
since the latter is required by law to exercise extraordinary diligence in the fulfillment of its obligation. If she
were negligent at all, the same is merely contributory and not the proximate cause of the damage she
suffered. Her loss could only be attributed to respondent as it was the direct consequence of its employees
gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a certain person or association of
persons obligate themselves to transport persons, things, or news from one place to another for a fixed price.
[9]
Such person or association of persons are regarded as carriers and are classified as private or special
carriers and common or public carriers. [10] A common carrier is defined under Article 1732 of the Civil Code as
persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or
goods or both, by land, water or air, for compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity engaged in the business of
transporting either passengers or goods and is therefore, neither a private nor a common carrier. Respondent
did not undertake to transport petitioner from one place to another since its covenant with its customers is
simply to make travel arrangements in their behalf. Respondents services as a travel agency include
procuring tickets and facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of respondent company, this
does not mean that the latter ipso facto is a common carrier. At most, respondent acted merely as an agent of
the airline, with whom petitioner ultimately contracted for her carriage to Europe. Respondents obligation to
petitioner in this regard was simply to see to it that petitioner was properly booked with the airline for the
appointed date and time. Her transport to the place of destination, meanwhile, pertained directly to the airline.
The object of petitioners contractual relation with respondent is the latters service of arranging and
facilitating petitioners booking, ticketing and accommodation in the package tour. In contrast, the object of a
contract of carriage is the transportation of passengers or goods. It is in this sense that the contract between
the parties in this case was an ordinary one for services and not one of carriage. Petitioners submission is
premised on a wrong assumption.
The nature of the contractual relation between petitioner and respondent is determinative of the degree
of care required in the performance of the latters obligation under the contract. For reasons of public policy, a
common carrier in a contract of carriage is bound by law to carry passengers as far as human care and
foresight can provide using the utmost diligence of very cautious persons and with due regard for all the
circumstances.[11] As earlier stated, however, respondent is not a common carrier but a travel agency. It is thus
not bound under the law to observe extraordinary diligence in the performance of its obligation, as petitioner
claims.
Since the contract between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a family under Article 1173 of the Civil Code. [12] This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the performance of an
obligation is: did the defendant in doing the alleged negligent act use that reasonable care and caution which
an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. [13]

In the case at bar, the lower court found Menor negligent when she allegedly informed petitioner of the
wrong day of departure. Petitioners testimony was accepted as indubitable evidence of Menors alleged
negligent act since respondent did not call Menor to the witness stand to refute the allegation. The lower court
applied the presumption under Rule 131, Section 3 (e) [14] of the Rules of Court that evidence willfully
suppressed would be adverse if produced and thus considered petitioners uncontradicted testimony to be
sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was negligent and maintains that
petitioners assertion is belied by the evidence on record. The date and time of departure was legibly written
on the plane ticket and the travel papers were delivered two days in advance precisely so that petitioner could
prepare for the trip. It performed all its obligations to enable petitioner to join the tour and exercised due
diligence in its dealings with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners testimony could not give rise to
an inference unfavorable to the former. Menor was already working in France at the time of the filing of the
complaint,[15] thereby making it physically impossible for respondent to present her as a witness. Then too,
even if it were possible for respondent to secure Menors testimony, the presumption under Rule 131, Section
3(e) would still not apply. The opportunity and possibility for obtaining Menors testimony belonged to both
parties, considering that Menor was not just respondents employee, but also petitioners niece. It was thus
error for the lower court to invoke the presumption that respondent willfully suppressed evidence under Rule
131, Section 3(e). Said presumption would logically be inoperative if the evidence is not intentionally omitted
but is simply unavailable, or when the same could have been obtained by both parties. [16]
In sum, we do not agree with the finding of the lower court that Menors negligence concurred with the
negligence of petitioner and resultantly caused damage to the latter. Menors negligence was not sufficiently
proved, considering that the only evidence presented on this score was petitioners uncorroborated narration
of the events. It is well-settled that the party alleging a fact has the burden of proving it and a mere allegation
cannot take the place of evidence. [17] If the plaintiff, upon whom rests the burden of proving his cause of action,
fails to show in a satisfactory manner facts upon which he bases his claim, the defendant is under no
obligation to prove his exception or defense.[18]
Contrary to petitioners claim, the evidence on record shows that respondent exercised due diligence in
performing its obligations under the contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket [19] issued to petitioner clearly reflected the
departure date and time, contrary to petitioners contention. The travel documents, consisting of the tour
itinerary, vouchers and instructions, were likewise delivered to petitioner two days prior to the trip. Respondent
also properly booked petitioner for the tour, prepared the necessary documents and procured the plane
tickets. It arranged petitioners hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the contract as well as everything
else that was essential to book petitioner for the tour. Had petitioner exercised due diligence in the conduct of
her affairs, there would have been no reason for her to miss the flight. Needless to say, after the travel papers
were delivered to petitioner, it became incumbent upon her to take ordinary care of her concerns. This
undoubtedly would require that she at least read the documents in order to assure herself of the important
details regarding the trip.
The negligence of the obligor in the performance of the obligation renders him liable for damages for
the resulting loss suffered by the obligee. Fault or negligence of the obligor consists in his failure to exercise
due care and prudence in the performance of the obligation as the nature of the obligation so demands.
[20]
There is no fixed standard of diligence applicable to each and every contractual obligation and each case
must be determined upon its particular facts. The degree of diligence required depends on the circumstances
of the specific obligation and whether one has been negligent is a question of fact that is to be determined
after taking into account the particulars of each case. [21]

The lower court declared that respondents employee was negligent. This factual finding, however, is
not supported by the evidence on record. While factual findings below are generally conclusive upon this
court, the rule is subject to certain exceptions, as when the trial court overlooked, misunderstood, or
misapplied some facts or circumstances of weight and substance which will affect the result of the case. [22]
In the case at bar, the evidence on record shows that respondent company performed its duty diligently
and did not commit any contractual breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals in
CA-G.R. CV No. 51932 is AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount of
P12,901.00 representing the balance of the price of the British Pageant Package Tour, with legal interest
thereon at the rate of 6% per annum, to be computed from the time the counterclaim was filed until the finality
of this Decision. After this Decision becomes final and executory, the rate of 12% per annum shall be imposed
until the obligation is fully settled, this interim period being deemed to be by then an equivalent to a
forbearance of credit.[23]
SO ORDERED.

[G.R. No. 109087. May 9, 2001]

RODZSSEN SUPPLY CO. INC., petitioner, vs. FAR EAST BANK & TRUST CO., respondent.
DECISION
PANGANIBAN, J.:
When both parties to a transaction are mutually negligent in the performance of their obligations, the
fault of one cancels the negligence of the other. Thus, their rights and obligations may be determined
equitably. No one shall enrich oneself at the expense of another.
The Case

Before us is a Petition for Review on Certiorari [1] under Rule 45 of the Rules of Court, assailing the
January 21, 1993 Decision[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 26045. The challenged Decision
affirmed with modification the ruling of the Regional Trial Court of Bacolod City in Civil Case No. 2296. The
CA ruled as follows:
WHEREFORE, the decision under appeal should be, as it is hereby affirmed in all its aspects, except for the
deletion of paragraph 2 of its dispositive portion, which paragraph shall be replaced by a new paragraph which
shall read as follows:
2. ordering the defendant to pay the plaintiff the sum equivalent to 10% of the total amount due and
collectible, as attorneys fees; and
No pronouncement as to costs.[4]
On the other hand, the trial court had rendered this judgment:

1. Ordering the defendant to pay the plaintiff the sum of P76,000.00, representing the principal
amount being claimed in this action, plus interest thereon at the rate of 12% per annum counted from
October 1979 until fully paid;
2. Ordering the defendant to pay the plaintiff the sum equivalent to 25% of the total amount due and
collectible; and

The CA rejected petitioners imputation of bad faith and negligence to respondent bank for paying for
the two hydraulic loaders, which had been delivered after the expiration of the subject letter of credit. The
appellate court pointed out that petitioner received the equipment after the letter of credit had expired. To
absolve defendant from liability for the price of the same, the CA explained, is to allow it to get away with its
unjust enrichment at the expense of the plaintiff.
Hence, this Petition.[7]

3. Ordering the defendant to pay the costs of the suit.

[5]
Issues

The Facts

Petitioner presents the following issues for resolution:

The factual and procedural antecedents of the case are summarized by the Court of Appeals as
follows:
In the complaint from which the present proceedings originated, it is alleged that on January 15, 1979,
defendant Rodzssen Supply, Inc. opened with plaintiff Far East Bank and Trust Co. a 30-day domestic letter of
credit, LC No. 52/0428/79-D, in the amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for
the purchase from the latter of five units of hydraulic loaders, to expire on February 15, 1979; that subsequent
amendments extended the validity of said LC up to October 16, 1979; that on March 16, 1979, three units of
the hydraulic loaders were delivered to defendant for which plaintiff on March 26, 1979, paid Ekman the sum
of P114,000.00, which amount defendant paid plaintiff before the expiry date of the LC; that the shipment of
the remaining two units of hydraulic loaders valued at P76,000.00 sent by Ekman was readily received by the
defendant before the expiry date [of] subject LC; that upon Ekmans presentation of the documents for the
P76,000.00 representing final negotiation on the LC before the expiry date, and after a series
of negotiations, plaintiff paid to Ekman the amount of P76,000.00; and that upon plaintiffs demand on
defendant to pay for said amount (P76,000.00), defendant refused to pay ... without any valid
reason. Plaintiff prays for judgment ordering defendant to pay the abovementioned P76,000.00 plus due
interest thereon, plus 25% of the amount of the award as attorneys fees.
In the Answer, defendant interposed, inter alia, by way of special and affirmative defenses that plaintiff ha[d]
no cause of action against defendant; that there was a breach of contract by plaintiff who in bad faith
paid Ekman, knowing that the two units of hydraulic loaders had been delivered to defendant after the expiry
date of subject LC; and that in view of the breach of contract, defendant offered to return to plaintiff the two
units of hydraulic loaders, presently still with the defendant but plaintiff refused to take possession thereof.
The trial courts ruling that plaintiff [was] entitled to recover from defendant the amount of P76,000.00 was
based on its following findings/conclusions: (1) under the contract of sale of the five loaders between Ekman
and defendant, upon Ekmans delivery to, and acceptance by, defendant of the two remaining units of the five
loaders, defendant became liable to Ekman for the payment of said two units. However, as defendant did not
pay Ekman, the latter pressed plaintiff for the payment of said two loaders in the amount of P76,000.00. In the
honest belief that it was still under obligation to Ekman for said amount, considering that Ekman had
presented all the necessary documents, plaintiff voluntarily paid the said amount to Ekman. Plaintiffs x x x
voluntary and lawful act of payment g[a]ve rise to a quasi-contract between plaintiff and defendant; and if
defendant should escape liability for said amount, the result would be to allow defendant to enrich itself at
plaintiffs expense x x x.
x x x. While defendant, indeed offered to return the two loaders to plaintiff, x x x this offer was made 3 years
after defendants receipt of the goods, when plaintiff pressed for payment. By said voluntary acceptance of
the two loaders, estoppel works against defendant who should have refused delivery of, and/or immediately
offered to return, the goods.
Accordingly, judgment was rendered in favor of the plaintiff and against the defendant x x x. [6]
The CA Ruling

1. Whether or not it is proper for a banking institution to pay a letter of credit which has long expired or been
cancelled.
2. Whether or not respondent courts were correct in their conclusion that there was a consummated sale
between petitioner and Ekman Co.
3. Whether or not Respondent Court of Appeals was correct in evading the issues raised in the appeal that
under the trust receipt, petitioner was merely the depositary of private respondent with respect to the goods
covered by the trust receipt.[8]
The Courts Ruling

We affirm the Court of Appeals, but lower the interest rate to only 6 percent and delete the award of
attorneys fees.
First Issue:

Efficacy of Letter of Credit

Petitioner asserts that respondent bank was negligent in paying for the two hydraulic loaders, when it
no longer had any obligation to do so in view of the expiration and cancellation of the Letter of Credit.
Petitioner Rodzssen Supply Inc. applied for and obtained an irrevocable 30-day domestic Letter of
Credit from Far East Bank and Trust Company Inc. on January 15, 1979, in favor of Ekman and Company Inc.,
in order to finance the purchase of five units of hydraulic loaders in the amount of P190,000. Originally set to
expire on February 15, 1979, the subject Letter of Credit was amended several times to extend its validity until
October 16, 1979.
The Letter of Credit expressly restricted the negotiation to respondent bank and specifically instructed
Ekman and Company Inc. to tender the following documents: (1) delivery receipt duly acknowledged by the
buyer, (2) accepted draft, and (3) duly signed commercial invoices. Likewise, the instrument contained a
provision with regard to its expiration date.[9]
For the first three hydraulic loaders that were delivered, the bank paid the amount specified in the letter
of credit. The present dispute pertains only to the last two hydraulic loaders.
Clearly, the bank paid Ekman when the former was no longer bound to do so under the subject Letter
of Credit. The records show that respondent paid the latter P76,000 for the last two hydraulic loaders on
March 14, 1980,[10] five months after the expiration of the Letter of Credit on October 16, 1979. [11] In fact, on
December 27, 1979, the bank had informed Rodzssen of the cancellation of the commercial paper and
credited P22,800 to the account of the latter. The amount represented the marginal deposit, which petitioner

had been required to put up for the unnegotiated portion of the Letter of Credit -- P76,000 for the two hydraulic
loaders.[12]
The subject Letter of Credit had become invalid upon the lapse of the period fixed therein. [13] Thus,
respondent should not have paid Ekman; it was not obliged to do so. In the same vein, of no moment was
Ekmans presentation, within the prescribed period, of all the documents necessary for collection, as the Letter
of Credit had already expired and had in fact been cancelled.
Second Issue:

Was Petitioner Liable to Respondent?

Be that as it may, we agree with the CA that petitioner should pay respondent bank the amount the
latter expended for the equipment belatedly delivered by Ekman and voluntarily received and kept by
petitioner.

Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.
Although the sum of money involved in this case was payable to a bank, the present factual milieu
clearly shows that it was not a loan or forbearance of money. Thus, pursuant to established jurisprudence and
Article 2009 of the Civil Code, petitioner is bound to pay interest at 6 percent per annum, computed from April
7, 1983, the time respondent bank demanded payment from petitioner. From the finality of the judgment until
its satisfaction, the interest shall be 12 percent per annum.
Attorneys Fees

Respondent banks right to seek recovery from petitioner is anchored, not upon the inefficacious Letter
of Credit, but on Article 2142 of the Civil Code which reads as follows:
Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that
no one shall be unjustly enriched or benefited at the expense of another.
Indeed, equitable considerations behoove us to allow recovery by respondent. True, it erred in paying
Ekman, but petitioner itself was not without fault in the transaction. It must be noted that the latter had
voluntarily received and kept the loaders since October 1979.
Petitioner claims that it accepted the late delivery of the equipment, only because it was bound to
accept it under the companys trust receipt arrangement with respondent bank.
Granting that petitioner was bound under such arrangement to accept the late delivery of the
equipment, we note its unexplained inaction for almost four years with regard to the status of the ownership or
possession of the loaders. Bewildering was its lack of action to validate the ownership and possession of the
loaders, as well as its stolidity over the purported failed sales transaction. Significant too is the fact that it
formalized its offer to return the two pieces of equipment only after respondents demand for payment, which
came more than three years after it accepted delivery.
When both parties to a transaction are mutually negligent in the performance of their obligations, the
fault of one cancels the negligence of the other and, as in this case, their rights and obligations may be
determined equitably under the law proscribing unjust enrichment.
Payment of Interest

We, however, disagree with both the CA and the trial courts imposition of 12 percent interest on the
sum to be paid by petitioner. In Eastern Shipping Lines v. CA,[14] the Court laid down the following guidelines
in the imposition of interest:

Considering that negligence is imputable to both parties, both should bear their respective costs of the
suit. We also delete the award of attorneys fees in favor of respondent bank. [15]
WHEREFORE, the Petition is DENIED and
Appeals AFFIRMED with the following MODIFICATIONS:

xxx

Decision

of

the

Court

of

2. The award of attorneys fees in favor of respondent is DELETED.

3. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-46179 January 31, 1978
CANDIDA VIRATA, TOMAS VIRATA, MANOLITO VIRATA, EDERLINDA VIRATA, NAPOLEON VIRATA,
ARACELY VIRATA, ZENAIDA VIRATA, LUZMINDA VIRATA, PACITA VIRATA, and EVANGELINA
VIRATA,petitioners,
vs.
VICTORIO OCHOA, MAXIMO BORILLA and THE COURT OF FIRST INSTANCE OF CAVITE, 7th JUDICIAL
DISTRICT, BRANCH V, stationed at BACOOR, CAVITE, respondents.
Remulla, Estrella & Associates for petitioners

xxx

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169,

assailed

1.
Petitioner Rodzssen Supply Co., Inc. is ORDERED to reimburse Respondent Far East Bank and
Trust Co., Inc. P76,000 plus interest thereon at the rate of 6 percent per annum computed from April 7,
1983. After this judgment becomes final, the interest shall be 12 percent per annum.

Exequil C. Masangkay for respondents.

x x x

the

FERNANDEZ, J.:

This is an appeal by certiorari, from the order of the Court of First Instance of Cavite, Branch V, in Civil Case
No. B-134 granting the motion of the defendants to dismiss the complaint on the ground that there is another
action pending between the same parties for the same cause. 1
The record shows that on September 24, 1975 one Arsenio Virata died as a result of having been bumped
while walking along Taft Avenue, Pasay City by a passenger jeepney driven by Maximo Borilla and registered
in the name Of Victoria Ochoa; that Borilla is the employer of Ochoa; that for the death of Arsenio Virata, a
action for homicide through reckless imprudence was instituted on September 25, 1975 against Maximo
Borilla in the Court of First Instance of Rizal at Pasay City, docketed as C Case No. 3162-P of said court; that
at the hearing of the said criminal case on December 12, 1975, Atty. Julio Francisco, the private prosecutor,
made a reservation to file a separate civil action for damages against the driver on his criminal liability; that on
February 19, 1976 Atty. Julio Francisco filed a motion in said c case to withdraw the reservation to file a
separate civil action; that thereafter, the private prosecutor actively participated in the trial and presented
evidence on the damages; that on June 29, 1976 the heirs of Arsenio Virata again reserved their right to
institute a separate civil action; that on July 19, 1977 the heirs of Arsenio Virata, petitioners herein,
commenced Civil No. B-134 in the Court of First Instance of Cavite at Bacoor, Branch V, for damages based
on quasi-delict against the driver Maximo Borilla and the registered owner of the jeepney, Victorio Ochoa; that
on August 13, 1976 the defendants, private respondents filed a motion to dismiss on the ground that there is
another action, Criminal Case No. 3162-P, pending between the same parties for the same cause; that on
September 8, 1976 the Court of First Instance of Rizal at Pasay City a decision in Criminal Case No. 3612-P
acquitting the accused Maximo Borilla on the ground that he caused an injury by name accident; and that on
January 31, 1977, the Court of First Instance of Cavite at Bacoor granted the motion to Civil Case No. B-134
for damages. 2
The principal issue is weather or not the of the Arsenio Virata, can prosecute an action for the damages based
on quasi-delict against Maximo Borilla and Victoria Ochoa, driver and owner, respectively on the passenger
jeepney that bumped Arsenio Virata.

language in Rakes vs. Atlantic Gulf and Pacific Co., 7 Phil. to 359, to hod as We do
hold, that Article 2176, where it refers to 'fault covers not only acts 'not punishable by
law' but also criminal in character, whether intentional and voluntary or consequently, a
separate civil action lies against the in a criminal act, whether or not he is criminally
prosecuted and found guilty and acquitted, provided that the offended party is not
allowed, if he is actually charged also criminally, to recover damages on both scores,
and would be entitled in such eventuality only to the bigger award of the, two assuming
the awards made in the two cases vary. In other words the extinction of civil liability
refereed to in Par. (c) of Section 13, Rule 111, refers exclusively to civil liability founded
on Article 100 of the Revised Penal Code, whereas the civil liability for the same act
considered as a quasi-delict only and not as a crime is not extinguished even by a
declaration in the criminal case that the criminal act charged has not happened or has
not been committed by the accused. Brief stated, We hold, in reitration of Garcia, that
culpa aquilina includes voluntary and negligent acts which may be punishable by law. 3
The petitioners are not seeking to recover twice for the same negligent act. Before Criminal Case No. 3162-P
was decided, they manifested in said criminal case that they were filing a separate civil action for damages
against the owner and driver of the passenger jeepney based on quasi-delict. The acquittal of the driver,
Maximo Borilla, of the crime charged in Criminal Case No. 3162-P is not a bar to the prosecution of Civil Case
No. B-134 for damages based on quasi-delict The source of the obligation sought to be enforced in Civil Case
No. B-134 isquasi-delict, not an act or omission punishable by law. Under Article 1157 of the Civil Code of the
Philippines, quasi-delict and an act or omission punishable by law are two different sources of obligation.
Moreover, for the petitioners to prevail in the action for damages, Civil Case No. B-134, they have only to
establish their cause of action by preponderance of the evidence.
WHEREFORE, the order of dismissal appealed from is hereby set aside and Civil Case No. B-134 is
reinstated and remanded to the lower court for further proceedings, with costs against the private respondents.

It is settled that in negligence cases the aggrieved parties may choose between an action under the Revised
Penal Code or of quasi-delict under Article 2176 of the Civil Code of the Philippines. What is prohibited by
Article 2177 of the Civil Code of the Philippines is to recover twice for the same negligent act.

SO ORDERED.

The Supreme Court has held that:

G.R. No. 129792 December 21, 1999

According to the Code Commission: 'The foregoing provision (Article 2177) though at
first sight startling, is not so novel or extraordinary when we consider the exact nature
of criminal and civil negligence. The former is a violation of the criminal law, while the
latter is a 'culpa aquiliana' or quasi-delict, of ancient origin, having always had its own
foundation and individuality, separate from criminal negligence. Such distinction
between criminal negligence and 'culpa extra-contractual' or quasi-delito has been
sustained by decision of the Supreme Court of Spain and maintained as clear, sound
and perfectly tenable by Maura, an outstanding Spanish jurist. Therefore, under the
proposed Article 2177, acquittal from an accusation of criminal negligence, whether on
reasonable doubt or not, shall not be a bar to a subsequent civil action, not for civil
liability arising from criminal negligence, but for damages due to a quasi-delict or 'culpa
aquiliana'. But said article forestalls a double recovery. (Report of the Code
Commission, p. 162.)
Although, again, this Article 2177 does seem to literally refer to only acts of negligence,
the same argument of Justice Bocobo about construction that upholds 'the spirit that
given life' rather than that which is literal that killeth the intent of the lawmaker should
be observed in applying the same. And considering that the preliminary chapter on
human relations of the new Civil Code definitely establishes the separability and
independence of liability in a civil action for acts criminal in character (under Articles 29
to 32) from the civil responsibility arising from crime fixed by Article 100 of the Penal
Code, and, in a sense, the Rules of Court, under Sections 2 and 3(c), Rule 111,
contemplate also the same separability, it is 'more congruent' with the spirit of law,
equity and justice, and more in harmony with modern progress', to borrow the felicitous

JARCO MARKETING CORPORATION, LEONARDO KONG, JOSE TIOPE and ELISA

PANELO, petitioners,
vs.
HONORABLE COURT OF APPEALS, CONRADO C. AGUILAR and CRISELDA R.
AGUILAR, respondents.

DAVIDE, JR., J.:

In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioners seek the reversal of the
17 June 1996 decision 1 of the Court of Appeals in C.A. G.R. No. CV 37937 and the resolution 2 denying their
motion for reconsideration. The assailed decision set aside the 15 January 1992 judgment of the Regional
Trial Court (RTC), Makati City, Branch 60 in Civil Case No. 7119 and ordered petitioners to pay damages and
attorney's fees to private respondents Conrado and Criselda (CRISELDA) Aguilar.
Petitioner Jarco Marketing Corporation is the owner of Syvel's Department Store, Makati City. Petitioners
Leonardo Kong, Jose Tiope and Elisa Panelo are the store's branch manager, operations manager, and
supervisor, respectively. Private respondents are spouses and the parents of Zhieneth Aguilar (ZHIENETH).
In the afternoon of 9 May 1983, CRISELDA and ZHIENETH were at the 2nd floor of Syvel's Department Store,
Makati City. CRISELDA was signing her credit card slip at the payment and verification counter when she felt a

sudden gust of wind and heard a loud thud. She looked behind her. She then beheld her daughter ZHIENETH
on the floor, her young body pinned by the bulk of the store's gift-wrapping counter/structure. ZHIENETH was
crying and screaming for help. Although shocked, CRISELDA was quick to ask the assistance of the people
around in lifting the counter and retrieving ZHIENETH from the floor. 3
ZHIENETH was quickly rushed to the Makati Medical Center where she was operated on. The next day
ZHIENETH lost her speech and thereafter communicated with CRISELDA by writing on a magic slate. The
injuries she sustained took their toil on her young body. She died fourteen (14) days after the accident or on 22
May 1983, on the hospital bed. She was six years old. 4
The cause of her death was attributed to the injuries she sustained. The provisional medical certificate 5 issued
by ZHIENETH's attending doctor described the extent of her injuries:
Diagnoses:
1. Shock, severe, sec. to intraabdominal injuries due to blunt injury
2. Hemorrhage, massive, intraperitoneal
sec. to laceration, (L) lobe liver
3. Rupture, stomach, anterior &
posterior walls
4. Complete transection, 4th position,
duodenum
5. Hematoma, extensive, retroperitoneal
6. Contusion, lungs, severe
CRITICAL
After the burial of their daughter, private respondents demanded upon petitioners the reimbursement of the
hospitalization, medical bills and wake and funeral expenses 6 which they had incurred. Petitioners refused to
pay. Consequently, private respondents filed a complaint for damages, docketed as Civil Case No. 7119
wherein they sought the payment of P157,522.86 for actual damages, P300,000 for moral damages, P20,000
for attorney's fees and an unspecified amount for loss of income and exemplary damages.
In their answer with counterclaim, petitioners denied any liability for the injuries and consequent death of
ZHIENETH. They claimed that CRISELDA was negligent in exercising care and diligence over her daughter by
allowing her to freely roam around in a store filled with glassware and appliances. ZHIENETH too, was guilty
of contributory negligence since she climbed the counter, triggering its eventual collapse on her. Petitioners
also emphasized that the counter was made of sturdy wood with a strong support; it never fell nor collapsed
for the past fifteen years since its construction.
Additionally, petitioner Jarco Marketing Corporation maintained that it observed the diligence of a good father
of a family in the selection, supervision and control of its employees. The other petitioners likewise raised due
care and diligence in the performance of their duties and countered that the complaint was malicious for which
they suffered besmirched reputation and mental anguish. They sought the dismissal of the complaint and an
award of moral and exemplary damages and attorney's fees in their favor.

In its decision 7 the trial court dismissed the complaint and counterclaim after finding that the preponderance of
the evidence favored petitioners. It ruled that the proximate cause of the fall of the counter on ZHIENETH was
her act of clinging to it. It believed petitioners' witnesses who testified that ZHIENETH clung to the counter,
afterwhich the structure and the girl fell with the structure falling on top of her, pinning her stomach. In contrast,
none of private respondents' witnesses testified on how the counter fell. The trial court also held that
CRISELDA's negligence contributed to ZHIENETH's accident.
In absolving petitioners from any liability, the trial court reasoned that the counter was situated at the end or
corner of the 2nd floor as a precautionary measure hence, it could not be considered as an attractive
nuisance. 8The counter was higher than ZHIENETH. It has been in existence for fifteen years. Its structure
was safe and well-balanced. ZHIENETH, therefore, had no business climbing on and clinging to it.
Private respondents appealed the decision, attributing as errors of the trial court its findings that: (1) the
proximate cause of the fall of the counter was ZHIENETH's misbehavior; (2) CRISELDA was negligent in her
care of ZHIENETH; (3) petitioners were not negligent in the maintenance of the counter; and (4) petitioners
were not liable for the death of ZHIENETH.
Further, private respondents asserted that ZHIENETH should be entitled to the conclusive presumption that a
child below nine (9) years is incapable of contributory negligence. And even if ZHIENETH, at six (6) years old,
was already capable of contributory negligence, still it was physically impossible for her to have propped
herself on the counter. She had a small frame (four feet high and seventy pounds) and the counter was much
higher and heavier than she was. Also, the testimony of one of the store's former employees, Gerardo
Gonzales, who accompanied ZHIENETH when she was brought to the emergency room of the Makati Medical
Center belied petitioners' theory that ZHIENETH climbed the counter. Gonzales claimed that when ZHIENETH
was asked by the doctor what she did, ZHIENETH replied, "[N]othing, I did not come near the counter and the
counter just fell on me." 9 Accordingly, Gonzales' testimony on ZHIENETH's spontaneous declaration should
not only be considered as part ofres gestae but also accorded credit.
Moreover, negligence could not be imputed to CRISELDA for it was reasonable for her to have let go of
ZHIENETH at the precise moment that she was signing the credit card slip.
Finally, private respondents vigorously maintained that the proximate cause of ZHIENETH's death, was
petitioners' negligence in failing to institute measures to have the counter permanently nailed.
On the other hand, petitioners argued that private respondents raised purely factual issues which could no
longer be disturbed. They explained that ZHIENETH's death while unfortunate and tragic, was an accident for
which neither CRISELDA nor even ZHIENETH could entirely be held faultless and blameless. Further,
petitioners adverted to the trial court's rejection of Gonzales' testimony as unworthy of credence.
As to private respondent's claim that the counter should have been nailed to the ground, petitioners justified
that it was not necessary. The counter had been in existence for several years without any prior accident and
was deliberately placed at a corner to avoid such accidents. Truth to tell, they acted without fault or negligence
for they had exercised due diligence on the matter. In fact, the criminal case 10 for homicide through simple
negligence filed by private respondents against the individual petitioners was dismissed; a verdict of acquittal
was rendered in their favor.
The Court of Appeals, however, decided in favor of private respondents and reversed the appealed judgment.
It found that petitioners were negligent in maintaining a structurally dangerous counter. The counter was
shaped like an inverted "L" 11 with a top wider than the base. It was top heavy and the weight of the upper
portion was neither evenly distributed nor supported by its narrow base. Thus, the counter was defective,
unstable and dangerous; a downward pressure on the overhanging portion or a push from the front could
cause the counter to fall. Two former employees of petitioners had already previously brought to the attention
of the management the danger the counter could cause. But the latter ignored their concern. The Court of
Appeals faulted the petitioners for this omission, and concluded that the incident that befell ZHIENETH could
have been avoided had petitioners repaired the defective counter. It was inconsequential that the counter had
been in use for some time without a prior incident.

The Court of Appeals declared that ZHIENETH, who was below seven (7) years old at the time of the incident,
was absolutely incapable of negligence or other tort. It reasoned that since a child under nine (9) years could
not be held liable even for an intentional wrong, then the six-year old ZHIENETH could not be made to
account for a mere mischief or reckless act. It also absolved CRISELDA of any negligence, finding nothing
wrong or out of the ordinary in momentarily allowing ZHIENETH to walk while she signed the document at the
nearby counter.

For their part, private respondents principally reiterated their arguments that neither ZHIENETH nor
CRISELDA was negligent at any time while inside the store; the findings and conclusions of the Court of
Appeals are substantiated by the evidence on record; the testimony of Gonzales, who heard ZHIENETH
comment on the incident while she was in the hospital's emergency room should receive credence; and finally,
ZHIENETH's part of the res gestae declaration "that she did nothing to cause the heavy structure to fall on
her" should be considered as the correct version of the gruesome events.

The Court of Appeals also rejected the testimonies of the witnesses of petitioners. It found them biased and
prejudiced. It instead gave credit to the testimony of disinterested witness Gonzales. The Court of Appeals
then awarded P99,420.86 as actual damages, the amount representing the hospitalization expenses incurred
by private respondents as evidenced by the hospital's statement of account. 12 It denied an award for funeral
expenses for lack of proof to substantiate the same. Instead, a compensatory damage of P50,000 was
awarded for the death of ZHIENETH.

We deny the petition.

We quote the dispositive portion of the assailed decision,

13

thus:

WHEREFORE, premises considered, the judgment of the lower court is SET ASIDE
and another one is entered against [petitioners], ordering them to pay jointly and
severally unto [private respondents] the following:
1. P50,000.00 by way of compensatory
damages for the death of Zhieneth
Aguilar, with legal interest (6% p.a.) from
27 April 1984;
2. P99,420.86 as reimbursement for
hospitalization expenses incurred; with
legal interest (6% p.a.) from 27 April
1984;

The two issues to be resolved are: (1) whether the death of ZHIENETH was accidental or attributable to
negligence; and (2) in case of a finding of negligence, whether the same was attributable to private
respondents for maintaining a defective counter or to CRISELDA and ZHIENETH for failing to exercise due
and reasonable care while inside the store premises.
An accident pertains to an unforeseen event in which no fault or negligence attaches to the defendant. 15 It is
"a fortuitous circumstance, event or happening; an event happening without any human agency, or if
happening wholly or partly through human agency, an event which under the circumstances is unusual or
unexpected by the person to whom it happens." 16
On the other hand, negligence is the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would not do. 17 Negligence is "the failure to observe, for the protection
of the interest of another person, that degree of care, precaution and vigilance which the circumstances justly
demand, whereby such other person suffers injury." 18
Accident and negligence are intrinsically contradictory; one cannot exist with the other. Accident occurs when
the person concerned is exercising ordinary care, which is not caused by fault of any person and which could
not have been prevented by any means suggested by common prudence. 19

3. P100,000.00 as moral and exemplary

damages;

The test in determining the existence of negligence is enunciated in the landmark case of Plicart v.
Smith, 20 thus: Did the defendant in doing the alleged negligent act use that reasonable care and caution which
an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. 21

4. P20,000.00 in the concept of

attorney's fees; and

We rule that the tragedy which befell ZHIENETH was no accident and that ZHIENETH's death could only be
attributed to negligence.

5. Costs.

We quote the testimony of Gerardo Gonzales who was at the scene of the incident and accompanied
CRISELDA and ZHIENETH to the hospital:

Private respondents sought a reconsideration of the decision but the same was denied in the Court of Appeals'
resolution 14 of 16 July 1997.
Petitioners now seek the reversal of the Court of Appeals' decision and the reinstatement of the judgment of
the trial court. Petitioners primarily argue that the Court of Appeals erred in disregarding the factual findings
and conclusions of the trial court. They stress that since the action was based on tort, any finding of
negligence on the part of the private respondents would necessarily negate their claim for damages, where
said negligence was the proximate cause of the injury sustained. The injury in the instant case was the death
of ZHIENETH. The proximate cause was ZHIENETH's act of clinging to the counter. This act in turn caused
the counter to fall on her. This and CRISELDA's contributory negligence, through her failure to provide the
proper care and attention to her child while inside the store, nullified private respondents' claim for damages. It
is also for these reasons that parents are made accountable for the damage or injury inflicted on others by
their minor children. Under these circumstances, petitioners could not be held responsible for the accident that
befell ZHIENETH.
Petitioners also assail the credibility of Gonzales who was already separated from Syvel's at the time he
testified; hence, his testimony might have been tarnished by ill-feelings against them.

Q While at the Makati Medical Center, did you hear or notice

anything while the child was being treated?
A At the emergency room we were all surrounding the child.
And when the doctor asked the child "what did you do," the
child said "nothing, I did not come near the counter and the
counter just fell on me."
Q (COURT TO ATTY. BELTRAN)
You want the words in Tagalog to be translated?
ATTY. BELTRAN

Yes, your Honor.

COURT
Granted. Intercalate "wala po, hindi po ako lumapit doon. Basta
bumagsak." 22
This testimony of Gonzales pertaining to ZHIENETH's statement formed (and should be admitted as) part of
theres gestae under Section 42, Rule 130 of the Rules of Court, thus:
Part of res gestae. Statements made by a person while a startling occurrence is taking
place or immediately prior or subsequent thereto with respect to the circumstances
thereof, may be given in evidence as part of the res gestae. So, also, statements
accompanying an equivocal act material to the issue, and giving it a legal significance,
may be received as part of the res gestae.
It is axiomatic that matters relating to declarations of pain or suffering and statements made to a physician are
generally considered declarations and admissions. 23 All that is required for their admissibility as part of the res
gestaeis that they be made or uttered under the influence of a startling event before the declarant had the time
to think and concoct a falsehood as witnessed by the person who testified in court. Under the circumstances
thus described, it is unthinkable for ZHIENETH, a child of such tender age and in extreme pain, to have lied to
a doctor whom she trusted with her life. We therefore accord credence to Gonzales' testimony on the
matter, i.e., ZHIENETH performed no act that facilitated her tragic death. Sadly, petitioners did, through their
negligence or omission to secure or make stable the counter's base.
Gonzales' earlier testimony on petitioners' insistence to keep and maintain the structurally unstable giftwrapping counter proved their negligence, thus:

since I told him that it not [sic] nailed and it is shaky he told me
"better inform also the company about it." And since the
company did not do anything about the counter, so I also did
not do anything about the counter. 24 [Emphasis supplied]
Ramon Guevarra, another former employee, corroborated the testimony of Gonzales, thus:
Q Will you please described [sic] to the honorable Court the
counter where you were assigned in January 1983?
xxx xxx xxx
A That counter assigned to me was when my supervisor
ordered me to carry that counter to another place. I told him that
the counter needs nailing and it has to be nailed because it
might cause injury or accident to another since it was shaky.
Q When that gift wrapping counter was transferred at the
second floor on February 12, 1983, will you please describe
that to the honorable Court?
A I told her that the counter wrapper [sic] is really in good [sic]
condition; it was shaky. I told her that we had to nail it.
Q When you said she, to whom are you referring to [sic]?
A I am referring to Ms. Panelo, sir.

Q When you assumed the position as gift wrapper at the

second floor, will you please describe the gift wrapping counter,
were you able to examine?

Q And what was the answer of Ms. Panelo when you told her
that the counter was shaky?

A Because every morning before I start working I used to clean

that counter and since not nailed and it was only standing on
the floor, it was shaky.

A She told me "Why do you have to teach me. You are only my
subordinate and you are to teach me?" And she even got angry
at me when I told her that.

xxx xxx xxx

Q Will you please describe the counter at 5:00 o'clock [sic] in
the afternoon on [sic] May 9 1983?
A At that hour on May 9, 1983, that counter was standing
beside the verification counter. And since the top of it was
heavy and considering that it was not nailed, it can collapse at
anytime, since the top is heavy.
xxx xxx xxx
Q And what did you do?
A I informed Mr. Maat about that counter which is [sic] shaky
and since Mr. Maat is fond of putting display decorations on
tables, he even told me that I would put some decorations. But

xxx xxx xxx

Q From February 12, 1983 up to May 9, 1983, what if any, did
Ms. Panelo or any employee of the management do to that (sic)
xxx xxx xxx
Witness:
None, sir. They never nailed the counter. They only nailed the
counter after the accident happened. 25 [Emphasis supplied]
Without doubt, petitioner Panelo and another store supervisor were personally informed of the danger posed
by the unstable counter. Yet, neither initiated any concrete action to remedy the situation nor ensure the safety
of the store's employees and patrons as a reasonable and ordinary prudent man would have done. Thus, as
confronted by the situation petitioners miserably failed to discharge the due diligence required of a good father
of a family.

On the issue of the credibility of Gonzales and Guevarra, petitioners failed to establish that the former's
testimonies were biased and tainted with partiality. Therefore, the allegation that Gonzales and Guevarra's
testimonies were blemished by "ill feelings" against petitioners since they (Gonzales and Guevarra) were
already separated from the company at the time their testimonies were offered in court was but mere
speculation and deserved scant consideration.
It is settled that when the issue concerns the credibility of witnesses, the appellate courts will not as a general
rule disturb the findings of the trial court, which is in a better position to determine the same. The trial court has
the distinct advantage of actually hearing the testimony of and observing the deportment of the
witnesses. 26However, the rule admits of exceptions such as when its evaluation was reached arbitrarily or it
overlooked or failed to appreciate some facts or circumstances of weight and substance which could affect the
result of the case. 27 In the instant case, petitioners failed to bring their claim within the exception.

G.R. No. L-29889 May 31, 1979

VICTORINO CUSI and PILAR POBRE, plaintiffs-appellees,
vs.
PHILIPPINE NATIONAL RAILWAYS, defendant-appellant.
Leopoldo M. Abellera for appellant.
Francisco V. Marasigan for appellees.

Anent the negligence imputed to ZHIENETH, we apply the conclusive presumption that favors children below
nine (9) years old in that they are incapable of contributory negligence. In his book, 28 former Judge Cezar S.
Sangco stated:
GUERRERO, J.:
In our jurisdiction, a person under nine years of age is conclusively presumed to have
acted without discernment, and is, on that account, exempt from criminal liability. The
same presumption and a like exemption from criminal liability obtains in a case of a
person over nine and under fifteen years of age, unless it is shown that he has acted
with discernment. Since negligence may be a felony and aquasi-delict and required
discernment as a condition of liability, either criminal or civil, a child under nine years of
age is, by analogy, conclusively presumed to be incapable of negligence; and that the
presumption of lack of discernment or incapacity for negligence in the case of a child
over nine but under fifteen years of age is a rebuttable one, under our law. The rule,
therefore, is that a child under nine years of age must be conclusively presumed
incapable of contributory negligence as a matter of law. [Emphasis supplied]
Even if we attribute contributory negligence to ZHIENETH and assume that she climbed over the counter, no
injury should have occurred if we accept petitioners' theory that the counter was stable and sturdy. For if that
was the truth, a frail six-year old could not have caused the counter to collapse. The physical analysis of the
counter by both the trial court and Court of Appeals and a scrutiny of the evidence 29 on record reveal
otherwise, i.e., it was not durable after all. Shaped like an inverted "L," the counter was heavy, huge, and its
top laden with formica. It protruded towards the customer waiting area and its base was not secured. 30
CRISELDA too, should be absolved from any contributory negligence. Initially, ZHIENETH held on to
CRISELDA's waist, later to the latter's hand. 31 CRISELDA momentarily released the child's hand from her
clutch when she signed her credit card slip. At this precise moment, it was reasonable and usual for
CRISELDA to let go of her child. Further, at the time ZHIENETH was pinned down by the counter, she was just
a foot away from her mother; and the gift-wrapping counter was just four meters away from CRISELDA. 32 The
time and distance were both significant. ZHIENETH was near her mother and did not loiter as petitioners
would want to impress upon us. She even admitted to the doctor who treated her at the hospital that she did
not do anything; the counter just fell on her.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED and the challenged decision of the
Court of Appeals of 17 June 1996 in C.A. G.R. No. CV 37937 is hereby AFFIRMED.

Direct appeal from the decision of the Court of First Instance of Rizal ordering defendant-appellant to
indemnify the plaintiffs- appellees in the total amount of Two Hundred Thirty-Nine Thousand and Six Hundred
Forty-Eight Pesos, and Seventy-Two Centavos (P239,648.72) for injuries received in a collision caused by the
gross negligence of defendant-appellant, plus Ten Thousand Pesos (P10,000.00) as attorney's fees and
expenses of litigation.
Upon the amended and supplemental complaints for damages filed by plaintiffs-appellees, the spouses
Victorino Cusi and Pilar Pobre before the Court of First Instance of Rizal against the Manila Railroad
Company, now the Philippine National Railways and duly answered by the latter and after due hearing. the
following facts appear as undisputed: On the night of October 5, 1963, plaintiffs-appellees attended a birthday
party inside the United Housing Subdivision in Paranaque, Rizal. After the party which broke up at about 11
o'clock that evening, the plaintiffs-appellees proceeded home in their Vauxhall car with Victorino Cusi at the
wheel. Upon reaching the railroad tracks, finding that the level crossing bar was raised and seeing that there
was no flashing red light, and hearing no whistle from any coming train, Cusi merely slack ened his speed and
proceeded to cross the tracks. At the same time, a train bound for Lucena traversed the crossing, resulting in a
collision between the two. The impact threw the plaintiffs-appellees out of their car which was smashed. One
Benjamin Franco, who came from the same party and was driving a vehicle right behind them, rushed to their
aid and brought them. to San Juan de Dios Hospital for emergency treatment. Later, the plaintiffs-appellees
were transferred to the Philippine General Hospital. A week later, Mrs. Cusi transferred to the Manila Doctors
Hospital where Dr. Manuel Rivera, head of the Orthopedic and Fracture Service of the Philippine General
Hospital performed on her a second operation and continued to treat her until her discharge from the hospital
on November 2, 1963. Thereafter, Dr. Rivera treated her as an out-patient until the end of February, 1964
although by that time the fractured bones had not yet healed. Mrs. Cusi was also operated on by Dr. Francisco
Aguilar, Director of the National Orthopedic Hospital, in May, 1964 and in August, 1965, after another
operation in her upper body from the chest to the abdomen, she was placed in cast for some three (3) months
and her right arm immobilized by reason of the past
As enumerated in the Medical Certificate (Exh. "J"), Mrs. Cusi suffered the following:
(1) Fracture open middle third humerus right

Costs against petitioners.

(2) Fracture mandible right paramedian
SO ORDERED.
(3) Fracture fibula left distal
(4) Concussion, cerebral

(5) Abrasions, multiple (face, head, lumbosacral and extremities)

(6) Lacerations (2) right temporal
(7) Contusions with hematoma left forehead and parieto occipital right.
For these injuries, she underwent a total of four surgical opera. petitions in a period of two years. As a result of
the fracture on her right arm, there was a shortening of about 1 cm. of that arm. She lost the flexibility of her
wrist, elbow and shoulder. Up to the time she took the witness stand in August, 1966, she still had an
intermedullary nail in the bone of her right arm Likewise, Victorino Cusi suffered brain injuries which affected
his speech, memory, sense of hearing and neck movement. For a long period, he also felt pain all over his
body.
Victorino Cusi claimed that prior to the accident he was a successful businessman the Special Assistant to
the Dolor Lopez Enterprises, the managing partner of Cusi and Rivera Partnership, the manager of his ricemill,
and with substantial investments in other business enterprises. As a result of his injuries, he was unable to
properly attend to his various business undertakings. On the other hand, his wife, Pilar, was a skilled music
and piano teacher. After the accident, she lost the dexterity of her fingers forcing her to quit her profession.
She also bore ugly scars on several parts of her body, and she suffered anxiety of a possible miscarriage
being then five (5) months pregnant at the time of the accident.
The defense is centered on the proposition that the gross negligence of Victorino Cusi was the proximate
cause of the collision; that had he made a full stop before traversing the crossing as required by section 56(a)
of Act 3992 (Motor Vehicle Law), he could have seen and heard the approach of the train, and thus, there
would have been no collision.
After a protracted trial, the lower court rendered the decision now subject of the appeal. Defendant-appellant
seeks the reversal of said decision; but should we affirm the same, that the award be reduced to a reasonable
amount.
As the action is predicated on negligence, the New Civil Code 1 making clear that "whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay for the damage done the crucial
question posed in the petition at bar is the existence of negligence on the part of defendant-appellant as found
by the lower court.
1. The question of negligence being one of fact, the lower court's finding of negligence on the part of the
defendant-appellant deserves serious consideration by the Court. It commands great respect and weight, the
reason being that the trial judge, having the advantage of hearing the parties testify and of observing their
demeanor on the witness stand, is better situated to make conclusions of facts. Thus, it has been the standing
practice of appellate courts to accord lower court's judgments the presumption of correctness. And unless it
can be shown that error or errors, substantial in character, be shown in the conclusion arrived at, or that there
was abuse in judicial scrutiny, We are bound by their judgments. On this ground alone We can rest the
affirmance of the judgment appealed from. 2
2. Nor is the result different even if no such presumption were indulged in, that is, even if We were to resolve
whether or not there exist compelling reasons for an ultimate reversal.
The judicial pronouncement below that the gross negligence of defendant-appellant was the proximate cause
of the collision has been thoroughly reviewed by this Court and we fully affirm the same.

Negligence has been defined by Judge Cooley in his work on Torts 3d ed sec. 1324 3 as "the failure to observe
for the protection of the interests of another person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury." By such a test, it can readily be seen
that there is no hard and fast rule whereby such degree of care and vigilance is measured, it is dependent
upon the circumstances in which a person finds himself so situated. All that the law requires is that it is always
incumbent upon a person to use that care and diligence expected of reasonable men under similar
circumstances.
These are the circumstances attendant to the collision. Undisputably, the warning devices installed at the
railroad crossing were manually operated; there were only 2 shifts of guards provided for the operation thereof
one, the 7:00 A.M. to 3:00 P. M. shift, and the other, the 3:00 P.M. to 11:00 P.M. shift. On the night of the
accident, the train for Lucena was on an unscheduled trip after 11:00 P.M. During that precise hour, the
warning devices were not operating for no one attended to them. Also, as observed by the lower court, the
locomotive driver did not blow his whistle, thus: "... he simply sped on without taking an extra precaution of
blowing his whistle from a distance of 50 to 10 meters from the crossing. That the train was running at full
speed is attested to by the fact that notwithstanding the application of the emergency brakes, the train did not
stop until it reached a distance of around 100 meters."
These facts assessed together show the inadequacy, nay, the absence, of precautions taken by the
defendant-appellant to warn the travelling public of the impending danger. It is clear to Us that as the signal
devices were wholly manually-operated, there was an urgent need for a flagman or guard to man the crossing
at all times. As it was, the crossing was left unattended to after eleven o'clock every night and on the night of
the accident. We cannot in all reason justify or condone the act of the defendant-appellant allowing the subject
locomotive to travel through the unattended crossing with inoperative signal devices, but without sending any
of its employees to operate said signal devices so as to warn oncoming motorists of the approach of one of its
locomotives. It is not surprising therefore that the in operation of the warning devices created a situation which
was misunderstood by the riding public to mean safe passage. Jurisprudence recognizes that if warning
devices are installed in railroad crossings, the travelling public has the right to rely on such warning devices to
put them on their guard and take the necessary precautions before crossing the tracks. A need, therefore,
exists for the railroad company to use reasonable care to keep such devices in good condition and in working
order, or to give notice that they are not operating, since if such a signal is misunderstood it is a
menace. 4 Thus, it has been held that if a railroad company maintains a signalling device at a crossing to give
warning of the approach of a train, the failure of the device to operate is generally held to be evidence of
negligence, which maybe considered with all the circumstances of the case in determining whether the
railroad company was negligent as a matter of fact. 5
The set of circumstances surrounding the collision subject of this case is very much similar to that of Lilius v.
Manila Railroad Company, 59 Phil. 758 (1934), where this Court upheld the lower court's finding of negligence
on the part of defendant locomotive company upon the following facts
... on the part of the defendant company, for not having had on that occasion any
semaphore at the crossing at Dayap to serve as a warning to passersby of its
existence in order that they might take the necessary precautions before crossing the
railroad; and, on the part of its employees the flagman and switchman, for not
having remained at his post at the crossing in question to warn passersby of the
approaching train; the station master, for failure to send the said flagman and
switchman to his post on time; and the engineer, for not having taken the necessary
precautions to avoid an accident, in view of the absence of said flagman and
switchman, by slackening his speed and continuously ringing the bell and blowing the
whistle before arriving at the crossing.
Defendant-appellant rests its defense mainly on Section 56(a) of the Motor Vehicle Law. Thus:
Section 56(a) Traversing through streets and railroad crossing, etc, All vehicles
moving on the public highways shall be brought to a full stop before traversing any
'through street' or railroad crossing. Whenever any such 'through street' or crossing is
so designated and signposted, it shall be unlawful for the driver of any vehicle to fail to

stop within twenty meters but not less than two and one-half meters from such through
street or railroad crossing.
The defense presupposes that the failure of plaintiffs-appellees to stop before proceeding to traverse the
crossing constitutes contributory negligence, thereby precluding them from recovering indemnity for their
injuries and damages.
The candor of defendant-appellant in interposing such a defense is doubtful. As seemingly observed by the
lower court, the defense, through inadvertence or deliberateness, did not pursue further the excepting clause
of the same section thus to go on:
Provided, however, that the driver of a passenger automobile or motorcycle
may instead of coming to a full stop, slow down to not more than ten kilometers per
hour whenever it is apparent that no hazard exists.
After a thorough perusal of the facts attendant to the case, this Court is in fun accord with the lower court.
Plaintiff-appellee Victorino Cusi had exercised all the necessary precautions required of him as to avoid injury
to -himself and to others. We find no need for him to have made a full stop; relying on his faculties of sight and
hearing, Victorino Cusi had no reason to anticipate the impending danger. The record shows that the spouses
Cusi previously knew of the existence of the railroad crossing, having stopped at the guardhouse to ask for
directions before proceeding to the party. At the crossing, they found the level bar raised, no warning lights
flashing nor warning bells ringing, nor whistle from an oncoming train. They safely traversed the crossing. On
their return home, the situation at the crossing did not in the least change, except for the absence of the guard
or flagman. Hence, on the same impression that the crossing was safe for passage as before, plaintiffappellee Victorino Cusi merely slackened his speed and proceeded to cross the tracks, driving at the proper
rate of speed for going over railroad crossings. Had defendant-appellant been successful in establishing that
its locomotive driver blew his whistle to warn motorists of his approach to compensate for the absence of the
warning signals, and that Victorino Cusi, instead of stopping or slackening his speed, proceeded with reckless
speed and regardless of possible or threatened danger, then We would have been put in doubt as to the
degree of prudence exercised by him and would have, in all probability, declared him negligent. 6 But as the
contrary was established, we remain convinced that Victorino Cusi had not, through his own negligence,
contributed to the accident so as to deny him damages from the defendant-appellant.

The total award of actual damages in the amount of Twenty Three Thousand Nine Hundred Forty-Six Pesos
and Seventy-Two Centavos (P23,946.72) is, therefore, correct.
The lower court awarded Twenty-One Thousand Six Hundred Pesos (P21,600.00) to Mrs. Cusi for loss of
income for the three years that she was under constant medical treatment, and Fourteen Thousand Pesos
(P14,000.00) for impairment of her earning capacity; and Forty Thousand Pesos (P 40,000.00) to Mr. Cusi for
loss of income for the eight months that he was disabled and impairment of his earning capacity. We find the
award reasonable. The records show that Mrs. Cusi, previously a skilled piano teacher averaging a monthly
income of Six Hundred Pesos (P600.00), cannot now teach nor play the piano since the accident which
resulted in the loss of the dexterity of her fingers; likewise, Mr. Cusi cannot now vigorously attend to his
businesses which previously netted him a monthly average income of Five Thousand Pesos (P5,000.00).
As regards the award of Twenty Thousand Pesos (P20,000.00) for profits which Victorino Cusi failed to realize
from a certain real estate transaction with the Dolor Lopez Enterprises, we affirm the same as the defendantappellant has failed to present an iota of evidence to overcome plaintiffs-appellees' evidence credited by the
lower court as to the certainty of the materialization of the stated transaction.
The award of Seventy Thousand Pesos (P70,000.00) to Mrs. Cusi and Fifty Thousand Pesos (P50,000.00) to
Victorino Cusi as moral damages is not excessive. In their own respective fields of endeavor, both were
successful. Now they have to bear throughout their whole lifetime the humiliation wrought by their physical
deformities which no doubt affected, and will continue to do so, their social lives, their financial undertakings,
and even their mental attitudes.
Likewise, the amount of Ten Thousand Pesos (P10,000.00) given as attorney's fees and expenses of litigation
is not unreasonable. The total amount of damages awarded by the trial court should bear legal interest at 6%
from the rendition of the j judgment, which was on March 26, 1968.
WHEREFORE, the judgment of the lower court is hereby AFFIRMED with the modification that the total
amount of damages shall bear legal interest at six per cent (6%) from the rendition of the decision dated
March 26, 1968.
SO ORDERED.

The only question that now remains to be resolved is the reasonableness of the amount awarded as damages
to the plaintiffs- appellees.
The following actual expenses and losses are fully substantiated:

December 22, 1916

(a) Hospital bills of Mrs. Cusi from October, 1963 to May, 1964 in the amount of
Thirteen Thousand Five Hundred Fifty Pesos and Five Centavos (P13,550.05);

G.R. No. 10765

PACIENTE TAMAYO, father of the minor, Brualio Tamayo, plaintiff-appellee,
vs.
CARLOS GSELL, defendant-appellant.

(b) Another hospital bill of Mrs. Cusi in 1965 in the amount of Three Thousand and One
Pesos and Ninety Centavos (P3,001.90);

William A. Kincaid and Thomas L. Hartigan for appellant.

Modesto Joaquin for appellee.

(c) Doctor's fees for two surgical operations performed on Mrs. Cusi by one Dr. Manuel
Rivera in the amount of One Thousand and Five Hundred Pesos (Pl,500.00);

TRENT, J.:

(d) Loss of Victorino's wrist watch valued at Two Hundred and Fifty Pesos (P250.00);
(e) Loss of Pilar's half of her pair of demand earrings(l-carrats) valued at Two
Thousand Seven Hundred and Fifty Pesos (P2,750,00);
(f) Repair of the damaged Vauxhall car in the amount of Two Thousand Eight Hundred
and Ninety Four Pesos and Seventy- Seven Centavos (P2,894.77).

This is an action for damages against the defendant Gsell for personal injuries suffered by Braulio Tamayo,
minor son of the plaintiff. From a judgment in favor of the plaintiff in his capacity as guardianad litem of Braulio
Tamayo for the sum of P400, without costs, except P25 fees for the attorney of the Bureau of Labor, the
defendant appealed and now urges that the trial court erred:
1. In permitting the attorney of the Bureau of Labor to conduct the case and awarding him P25 fees.
2. In finding that Garlos Gsell is the owner of the factory wherein Braulio was injured.

3. In finding that the accident occurred because Braulio Tamayo was assigned to work to which he was not
accustomed and did not understand, without any previous warning as to the dangers thereof or instructions as
to the manner of doing the work, in order to avoid being injured.
4. In finding that the negligence of the defendant or the persons for whom he is responsible was the cause of
the accident.
5. In declining to sustain the defendant's defenses of contributory negligence and assumption of risks.
6. In awarding damages against the defendant in the absence of a showing that the injuries in any way
diminished Braulio Tamayo' earning capacity.
Act No. 1868 , approved June 18, 1908, creating the Bureau of Labor, provides in section 2 that the purpose of
the Bureau shall be to see to the proper enforcement of all existing laws and those which shall be enacted
hereafter with reference to labor and capital in the Philippine Islands and to promote the enactment of all other
legislation which shall tend to establish the material, social, intellectual, and moral improvement of workers; to
acquire, collect, compile, systematize, and submit from time to time reports to the Secretary of Commerce and
Police, statistical data relating to the hours and wages of labor, the number of workers in each trade or
occupation, etc., and to inspect all shops, factories, industrial and commercial establishments and "to take the
proper legal steps to prevent the exposure of the health or lives of laborers and to aid and assist by all proper
legal means laborers and workers in securing just compensation for their labor, and the indemnity prescribed
by law for injuries resulting from accidents when engaged in the performance of their duties." Sections 2 and 3
of Act No. 1868 were amended by Act No. 2258, but such amendments do not affect the issues involved in the
instant case. Act No. 2385 amends subsection (d) of section 2 and section 3 of Act No. 1868 and adds several
paragraphs to the end of section 4 of that Act and repeals Act No. 2258 . Subsection (d) of section 2, as thus
amended, reads:
To secure the settlement of difference between employer and laborer and between master and servant and to
avert strikes and lockouts, acting as arbitrator between the parties interested, summoning them to appear
before it, and advising and bringing about, after hearing their respective allegations and evidence, such
arrangement as these may, in his judgment, show to be just and fair.
The pertinent provision added to section 4 and provide that the Bureau of Labor shall also have an attorney
who shall be paid a fixed salary per annum.
Said attorney shall assist the Director or Assistant Director of Labor in all legal questions by them submitted to
him, and shall bring suit gratuitously, in the proper courts, for laborers or servants when he shall deem this
proper after the failure of the endeavors to bring about a friendly settlement made by the Director or Assistant
Director of Labor in the performance of the duties imposed had the exercise of the powers conferred upon
them by subsection (d). . . . Provided, however, That the attorney of the Bureau of Labor shall not bring suit
under this Act unless the plaintiff shall have previously secured a certificate of indigency from the proper court.
The sentences of the courts trying cases under this Act shall provide, in case of judgment in favor of the
plaintiff, for the payment by the defendant of the sum of twenty-five pesos as costs of the attorney of the
Bureau of Labor, which sum shall be collected in the same manner as other costs and turned into the Insular
Treasury and credited to the general funds.

It is argued that in conferring the power and duty upon the Director of the Bureau of Labor "to secure the
settlement of difference between employer and laborer and between master and servant and to avert strikes
and lockouts" the legislature never intended to bring negligence cases resulting in personal injuries under the
jurisdiction of the Director. If the attorney of the Bureau of Labor is authorized to represent the plaintiff in
actions such as the one under consideration he could, it is said, appear on behalf of a laborer charged by his
employer with larceny of materials or on behalf of an employee under prosecution for assaulting his master.
We think this result does not necessarily follow. The Director is given the power and it is made his duty to aid
and assist by all legal means laborers and workers in securing the indemnity prescribed by law for injuries
resulting from accidents. If this cannot be done by "a friendly settlement," then the attorney "shall bring suit
gratuitously" for the employee if such employee is too por to employ private counsel. No additional right of
action is given laborers and workers by this legislation.
It was only the intention of the Legislature, as expressed in the acts, to provide the services of an attorney for
pauper employees in certain cased and to tax a portion of the costs of such services against the defendant if
the suit be successful. This, it is true, is advanced legislation when compared with similar Acts in the United
States. In Missouri the Bureau of Labor is in most cases chiefly an instrument for gathering statistics. The
arbitration of disputes between employers and employees is given to a board distinct form the Bureau of Labor
(Ann. Sta., 1906). Minnesota (Statutes of 1894) provides for a Bureau of Labor to gather statistics and inspect
factories, with the power to enforce the laws pertaining to the welfare of the workingmen, but gives it no power
to prosecute civil actions for individuals. In Nebraska the Bureau of Labor is a statistic gatherer, a factory
inspector, and protector of the laborer to the extent that the commissioner may file a complaint for a violation
of the Act creating the Bureau and defining its powers, which the county attorney must prosecute. (Statutes of
Nebraska, 1911.) Other States have similar statues. Some State provide for public defenders in criminal
cases. In this jurisdiction provisions are made for the defense of pauper criminals and section 35 of the Code
of Civil Procedure authorizes the Supreme Court and the Courts of First Instance to assign any lawyer to
render professional aid to a p[arty in any pending action, free of charge, if such court, upon full investigation,
shall find that the party is destitute and unable to employ a lawyer. The statute under consideration requires a
certificate of indigency from the court before an attorney of the Bureau of Labor can institute the action. The
only essential difference between the two systems is a small amount for the services of the attorney of the
Bureau of Labor, which is taxed against defendants when the plaintiffs are successful, but it cannot be done
except in cases where "a friendly settlement" has failed. Considering the scope and purposes of the Acts, in
connection with the fact that the plaintiffs are paupers, we see no reason for holding that the provisions
attacked are in violation of public policy or transcends the power of the Legislature. Therefore, the first
assignment of error is without merit.
The second assignment of error has no merit. The plaintiff testified positively that the defendant is the owner of
the factory and when another witness was asked who the owner was, counsel for the defendant stated," We
do not dispute the ownership." No other testimony was offered on this point and all proceeded thereafter upon
the theory that there was no question about the fact that the defendant is the owner of the match factory, yet
counsel, in their printed brief, say that "there is not one syllable of evidence in the testimony or anywhere else
in the record as to the ownership of this factory."
The other assignments of error raise both questions of fact and law. The trial court's findings of fact are these:
The facts proven in the case are as follows:
1. That the boy Braulio Tamayo, whose age neither he nor his father, Paciente Tamayo, knows, nor does it
appear of record, but which, in the opinion of the court, is about eleven or twelve years, was one of the
workmen employed in the match factory, situated in Santa Ana, Manila, and owned by the defendant, Carlos
Gsell. On the 13th of March, 1914, the boy met with an accident which consisted of an injury caused by the
knife of one of the machines of the factory which cut the little ring fingers on the right hand, the latter of which
was severed.
2. That the accident arose by reason of his being assigned by Eugenio Murcia, one of the foremen employed
in the factory, to perform work to which he was not accustomed. He was put at the machine of Arcadio Reyes
only the day of the accident, in spite of his persistent and manifest opposition to assist the machinist; his work
was to recover strips, used in the manufacture of match boxes, from the machine, Exhibit 1, which were
extracted from the said machine from the wood placed therein. At the same time he had to clean out the

pieces of wood form said strips, which stuck in the machine and obstructed its proper working. Prior to the
date in question the only work entrusted to the boy, Braulio Tamayo, was to pick over the piles of wood from
which the strips used in the manufacture of match boxes were made and select the best pieces for the
purpose.

Q. Do you know in what condition the child's finger was? A. The finger was mashed.

3. Due to his inexperience in the work to which, for the first item and without any preparation or instruction, he
had been assigned in essaying to clean that part of the machine where the pieces of wood from the strips
were stuck, he was caught by the knife of the machine and the right finger of his right hand was served. He
was thereupon taken to the General Hospital, where he received medical treatment until he was released.

During the trial of the case counsel for the defendant made this statement:

4. The plaintiff complied with the provision contained in section 4 of Act No. 1874, advising the employer, who
is the defendant herein, of the accident which had occurred to his son.

With reference to whether there was a dimunition in the earning capacity of Braulio Tamayo due to the injuries
received and as to the payment of expenses and salary while he was being treated for the injuries, Geiser,
superintendent of the defendant's factory, testified that the defendant paid the hospital bill and Braulio's regular
salary of fifty cents a day during the time he was absent; that after Braulio left the hospital he (the witness)
tried to get him to return to work at the same salary, but he refused to do so; and that Braulio could occupy any
place in the factory which his age would permit, as his hand had been cured. While this witness did not
definitely state that Braulio's injuries did not diminish his earning capacity for the work he was doing in the
factory, yet it may be inferred, and we so decide, that the boy can perform his former works in the factory just
as well as now as he could before the accident, or in other words, the injuries caused no dimunition of his
ability to perform such work. As to the character of the injuries, we have the finding of the trial court to the
effect that the little and ring fingers on the right hand were cut, the latter of which was severed, and the
statement of counsel that the ring finger was cut off at the first joint and the little finger showed a diagonal scar
on the inside of the end.

In view of the facts as they were shown in the record, in spite of the conflicting testimony of the witnesses of
both sides, the court is obliged to give credit to the testimony of the witnesses for the plaintiff, and since it was
not contradicted by Eugenio Murcia, to whom is attributed the determination to assign Braulio Tamayo, on the
date and hour in question, to another machine and to give him, inspite of his tender years, work of a class to
which he was not accustomed, the responsibility contracted by the employer to indemnify the injured
workman, represented by his father, for the damage and injury which he has suffered, according to the Act
cited, is very clear.
Eugenio Murcia was one of the foremen employed in the factory; he knew the kind of work which was
assigned to each of the employees in relation to their respective ages and he must have known that it is not
the same thing to select wood lying on the ground, work in which Braulio Tamayo had been employed ever
since he entered the employ of the factory, as to receive the strips delivered from the machine, Exhibit 1, and
to clean the said machine, even while it was running, of those parts of the strips which might interfere with its
working, and he should not have suddenly ordered Braulio Tamayo, taking into account his youth, to
temporarily take the place of a workman who ordinarily performed the work we have spoken of on Arcadio
Reyes' machine, especially without first preparing him and giving him the necessary instruction in order to
avoid an accident such as that which occurred and one to which a boy of the age of Braulio Tamayo would be
exposed.
After a careful examination of the record we are convinced that the foregoing findings of fact are supported by
a fair preponderance of the evidence. This being true and the findings being the result found by the trial court
from conflicting testimony, we certainly are not justified in reversing the judgment upon this branch of the case.
In United States vs. Benitez and Lipia (18 Phil. Rep., 513, 517), Justice Moreland, speaking for the court said:
In a conflict of testimony such as is presented in this case, this court must reopened to a considerable extent
upon the discernment of the judge who sits at the trial. A careful and discriminating trial judge has unequaled
advantages in determining the relative credibility of opposing witnesses. If he exercises his facilities with
shrewdness and sagacity, he performs a most valuable work for the appellate court. We have considered this
case in a very painstaking manner. We have searched the record for any evidence indicating that the learned
trial court was mistaken in his judgment as to the relative credibility of the witnesses or that he had overlooked
some fact or circumstances of weight or influence in passing upon the evidence, or that he had misinterpreted
the significance of the facts as proved. We have been unable to find from the record that the learned trial court
has fallen into such error; and, in accordance with the rule which we have so often laid down, namely, that this
court will not interfere with the judgment of the trial court in passing upon the relative credibility of opposing
witnesses unless there appears in the record some fact or circumstance of weight and influence which has
been overlooked or its significance misinterpreted by him, we decline to interfere with the judgment of the trial
court upon the facts in this case.
The foregoing well considered rule is perfectly applicable to the case under consideration.
Dr. Vasquez of the General Hospital, who attended Braulio Tamayo at the time he was injured, testified in
reference to the nature and character of the injuries as follows:

Q. Are you sure that it was mashed? A. Mashed and severed.

I wish to appear of record that the right hand of the child shows that the severed finger was cut at the first joint.
It also bears a diagonal scar inside (interior?) and near the tip of the next finger, the little finger.

The result is that we have a case where a foreman of a match factory, owned and operated by the defendant,
put a young ignorant employee to work at dangerous machinery without any previous preparation or
instruction. The boy was only 11 or 12 years old and so ignorant that he did not know before the accident,
which resulted in the severing of his ring finger on his right hand at the first joint, doing only the very simplest
work, in the performance of which he had nothing to do with the machinery. He was ordered against his
persistent and manifest opposition to assist in cleaning out the pieces of wood "which stuck in the machinery
and obstructed its proper working," without any previous warning of the dangers incident to such work or
previous instruction as to how he should do the work in order to avoid accidents. He was entirely unfamiliar
with that kind of work, which required at least some knowledge of the working of the machine. The machine
was not defective and the danger resulting from putting one's finger under the knife was obvious. To this extent
the established facts are against the contentions of the defendant.
The questions of law require an investigation touching the scope and purposes of Act No. 1874, known as the
Employer's Liability Act . We will first inquire into the origin and history of this Act.
By a joint resolution of the two Houses, dated February 1, 1908, there were appointed on April 30, 1908, a
committee of twenty-one for the purpose of "preparing and submitting to the president of the Commission and
the Speaker of the Assembly its recommendations on the Labor Accident Bill presented by the Representative
for the Second District of Manila, Honorable Fernando Ma. Guerrero, and to study, prepare, and submit also
any other recommendations deemed pertinent in the premises." (Vol. 2, p. 289 of the Commission Journal of
1908.)
Before this committee met for the purpose, as indicated two other bills were drafted, one by another member
of the Assembly and the other by the Secretary of Commerce and Police, who was then a member of the
Legislature. During the sessions of the committee the three bills were discussed and by a majority vote a
fourth bill was prepared and its passage recommended. The Assembly then passed a bill substantially the
same as that recommended by the committee. The committee of the Commission, to whom the Assembly bill
was referred, recommended in its report of June 13, 1908, various amendments. These amendments were
adopted by the Commission and the bill, as thus amended, was passed by that body. The bill in its amended
form was returned to the Assembly and passed by it, and became law (Act No. 1874) on June 19, 1908. The
chairman of the joint committee, in his report to the President of the Commission and the speaker of the
Assembly, in referring to the bill prepared by the Secretary of Commerce and Police, said:

One of these (bills) was prepared in the Department of Commerce and Police for submission to the committee,
which was drawn substantially along the lines which have prevailed in the State of Massachusetts some years
and upon which interpretations have been made by the Masachusetts courts defining the exact meaning of the
provisions of the law. (Vol. 2, p. 298, Commission Journal of 1908.)

The law being so clearly traced to its source and the intention of the Legislature being so apparent, it is
necessary to ascertain and be guided by the decisions of the courts in the United States construing essentially
the same law. Further reference will be made to the same question in considering the sixth assignment of
error.

A comparison of Act No. 1874 with that of the State of Massachusetts of 1902 shows that the former is
essentially a copy of the latter. The first section of each is exactly the same and, in so far as the question
under consideration are concerned, there are no differences in the other sections of the two acts.

Dresser on Employers' Liability (vol. 1, sec. 2), says:

It appears from the official proceedings of the joint committee that the Guerrero bill, which was rejected by the
committee and the Legislature, was based on the Spanish law. This is shown from the following extract from
these proceedings:
The clause contained in the Guerrero bill was based on a similar clause found in the Spanish law, which was
put in the same order to make provision for the damage and detriment caused by work in the mercury mines,
and as the Guerrero bill was based on the Spanish law this clause was put in. . . . For this reason I move that
the amendment proposed by Mr. Javier be rejected but the section as it is drawn up be adopted.
Act No. 1874 does not attempt to define generally the rights of master and servants, and is not a codification
of the law. Reference must be made to some other law to define who are masters, who are servants, what is
the scope of the employment, and whether the injury was the approximate result of the negligence; and
negligence itself must be determined by that other law and not by the Act. The Act does not impose any
obligation on the master to employ competent servants nor to instruct or warn his servants about their work or
the dangers of it. These obligations, if they exist, must be found elsewhere. Neither does the Act define the
word "damages" by setting forth the element thereof, nor does it fix any general rules for determining the
measure of damages in personal injury case brought under it. It does provide, however, that in those case
where damages are awarded for the death of an employee the same shall be assessed with reference to the
degree of culpability of the employer or of the person for whose negligence the employer is liable. The Act also
fixes the minimum and maximum amounts which may be awarded if deaths results from the injuries, and the
maximum amount of damages for personal injuries not resulting in the death of the employee. In determining
the important question here involved for the purpose of ascertaining the intention of the Legislature, must we
look to the Civil Code and the decision of this court in construing its provisions for our guidance or was the
statute adopted with the construction given to it by the court in the country from which it was copied?
The Massachusetts statute was "copied verbatim, with some variations of detail, from the English statute (43
and 44 Vict. ch. 42). Therefore, it is proper, if not necessary, to begin by considering how the English act had
been constructed before our statute was enacted." (Ryalls vs. Mechanics' Mills, 150 Mass., 190; 5 L. R. A.,
667.)
The Employers' Liability Act of Alabama, first enacted in 1855 (Civil Code 1907, Ch. 80, sec. 3910), is a
substantial, if not an exact copy, of the English Act of 1880.
This court is not finally concluded by the decision of any other State court or the British court, in their
construction of a similar statute, but the opinion of learned courts upon similar questions are entitled to great
weight, and this is specially true when the statute, from which ours was copied had been construed prior to its
enactment by our legislature. (Brimingham Ry & Electric Co.vs. Allen, 99 Ala., 359, 371; 20 L. R. A., 457.)
The Employers' Liability Act of Colorado (Laws 1893, chap. 77; Mill's Annotated Statutes, Supp. 1891-1896,
sec. 1511a) was copied from the Massachusetts Act of 1887 and the Colorado Legislature "presumably
adopted the Act with the construction that had been given it by the courts of that state." (Colorado Milling &
Elevator Co. vs. Mitchell [1899], 26 Colo., 284.)
Generally speaking, when a statute has been adopted from another State or country and such statute has
previously been construed by the courts of such State or country, the statute is deemed to have been adopted
with the construction so given it. (Cerezo vs. Atlantic, Gulf & Pacific Co., 33 Phil. Rep., 425, citing 2 Lewis
Sutherland on Stat. Const., sec. 783.)

It is apparent that the act has not attempted to define generally the rights and duties of master and servants,
and is not a codification of the law. . . . Constant reference must be made to the common law to define who
are master and who servants, what is the scope of the employment, and whether the injury was the proximate
result of the negligence; and negligence itself is determined by the common law, and not by the act. The act,
moreover, is silent concerning certain terms of the contract of service. It does not impose any obligations on
the master to employ competent servants, nor to instruct or warn his servants about their work or the dangers
of it. These obligations were too well settled and important to be taken away by implication merely, and the
courts have held that the act was remedial, and a concurrent, instead of an exclusive remedy. (Citing cases
from Massachusetts, Alabama, Colorado, and England.)
The courts in the United States, in order to ascertain what changes have been made by the Employers'
Liability Acts in the "fellow servant rule," held that at common law the master impliedly agreed to provide
competent workmen, and in so doing he was bound to exercise that measure of care which reasonably
prudent men do so under similar circumstances, that the master is not an insurer, and that it was only
necessary that the danger in the work be not enhanced through his fault. The servant on his part, by entering
the employment, was held to impliedly agree to take upon himself the perils arising from the carelessness and
recklessness of those were in the same employment, without regard to their grade, rank or authority in the
service, provided that the act causing the injury was not in the performance of any personal duty of the master
intrusted to the negligent servant. The whole doctrine in brief was a denial as to the employee of the principle
of respondent superior. Under the latter, a stranger invited upon the master's premises could recover for the
injuries received through the negligence of the employees. It was this right which was denied to the
employees. The effect of section 1 of the Employers' Liability Act, the same courts held, is to exempt from the
class of fellow servants, the result of whose negligence the servant was held to have assumed, such persons
as are intrusted by the master with duties of superintendence while in the exercise of them. The persons must
be superintendents within the meaning of the Act and the negligent acts must have been done in the exercise
of the controlling functions of superintendent. Applying these principles to the instant case, there can be no
doubt that Eugenio Murcia, one of the foremen employed in the defendant's factory, was exercising the
controlling functions of superintendent when he ordered Braulio Tamayo to assist in keeping the machine
clean. Consequently, if such act constitutes negligence, the defendant is liable in damages for the injures
caused thereby, if it were, under the circumstances, the duty of the defendant or the foreman to warn Braulio
Tamayo as to the dangers incident to such work and instruct him how the work should be done in order to
avoid accidents.
As to whether it was the duty of the defendant or the superintendent to thus warn and instruct Braulio Tamayo,
it is urged that no such duty was imposed on either of them because, as the danger of putting one's fingers
under the knife was obvious, Braulio assumed all the risks of the work which he was ordered to do. It is further
urged that the defendant is not liable because Braulio Tamayo was not in the exercise of due care at the time
he received the injuries. In other words, the defendant here interposes the common law defense of
assumption of risks and contributory negligence. Some confusion has arisen with reference to these two
defenses. The Supreme Court of the United States explained the distinction between the two in the following
language in the recent case of Seaboard Air Line Railway vs. Horton (233 U. S., 492, 503):
The distinction, although simple, is sometimes overlooked. Contributory negligence involves the notion of
some fault or breach of duty on the part of the employees, and since it is ordinarily his duty to take some
precaution for his own safety when engaged in a hazardous occupation, contributory negligence is sometimes
defined as a failure to use such care for his safety as ordinarily prudent employees in similar circumstances
would use. On the other hand, the assumption of risk, even though the risk be obvious, may be free from any
suggestion of fault or negligence on the part of the employees. The risks may be present, notwithstanding the
exercise of all reasonable care on is part. Some employments danger that must be and is confronted in the
line of his duty. such danger as are normally and necessarily incident to the occupation are presumably taken
into account in fixing the rate of wages. And a workman of mature years is taken to assume risks of this sort,
whether he is actually aware of them or not. But risks of another sort, not naturally incident to the occupation,

may arise put of the failure to providing a safe place of work and a suitable and safe appliances for the work.
These the employee is not treated as assuming until he becomes aware of the defect and risk alike are so
obvious that an ordinarily prudent person under the circumstance would have observed and appreciated them.
These distinctions have been recognized and applied in numerous decisions of this court. (Choctaw,
Oklahoma & Gulf R. Co. vs. McDade, 191 U. S., 64, 68; Schlemmer vs. Buffalo, Rochester & Pittsburg Ry.
Co., 220 U. S., 590, 596; Tex & Pac. Ry. Co. vs. Harvey, 228 U. S., 319, 321; Gila Valley Ry. Co.vs. Hall, 232
U. S., 94, 102, and cases cited.)
In Southern Ry. Co. vs. Crockett (234 U. S., 725), the Supreme Court of the United States, in passing upon
the question as to what effect the Federal Employers' Liability Act of April 22, 1908, has had upon the common
law defense of assumption of risks, said:
Upon the merits we of course sustain the contention that by the employers' Liability Act the defense of
assumption of risk remains as at common law, saving in the cases mentioned in section 4, that is to say: "Any
case where the violation by such common carrier of any statute enacted for the safety of employees
contributed to the injury or death of such employee."
In England it was said in the case of Thomas vs. Quartermaine (18 Q. B. D., 685) that the act had not variated
the effect of the maxim volenti non fit injuria, so far as it involves the ordinary risks inherent in the particular
employment. To the same effect is O'Malley vs. South Boston Gas Light Co. (158 Mass., 135); Birmingham
Ry. & Electric Co. vs. Allen (99 Ala., 359); Whitcomb vs.Standard Oil Co. (153 Ins., 513.) There has been,
however, a noticeable difference in the application of the doctrine in favor of the workman since the enactment
of the Employers' Liability Act, but this change does not affect the issues involved in the instant case. So it is
quite clear that the Legislature in enacting Act No. 1874 intended to establish in this jurisdiction, if it did not
already exist, the defense of assumption of risks; that is, the servant assumes such dangers as are normally
and necessarily incident to the occupation.
At common law the defense of contributory negligence is always available in actions for compensation for
negligence and if proved, defeats the action. The Act has not deprived the employer of this defense.
(Halsbury's Laws of England, vol. 20, p. 138.) In Massachusetts it was said that assuming the negligence of
the superintendent, the servant could not recover if he were guilty of contributory negligence.
(Regan vs. Lombard, 192 Mass., 319.) This doctrine, however, has been more recently partially abrogated by
statutes. Under the Federal Employers' Liability Act of April 22, 1908 (35 Stat. 65; U. S. Comp. Stat., Supp.,
1911, p. 1322), the defense of contributory negligence "is abrogated in all instances where the employer's
violation of a statute enacted for the safety of his employees contributes to the injury." And in several states
the doctrine of comparative negligence, as to some industries, has been established by statute.
(Cerezo vs. Atlantic, Gulf & Pacific Co.,supra, and cases cited.) But such is not the case in this jurisdiction in
so far as the application of Act No. 1874 is concerned.
That the defense of contributory negligence, as it is understood in the United States, is recognized in the Act
(Act No. 1874) with all its force and effect, is clear because the first section requires as an essential requisite
that the employee be "in the exercise of due care" at the time of the injury in order to hold the employer liable
for damages. (Cerezo vs. Atlantic, Gulf & Pacific Co., supra.)
The Civil Code does not recognized such a complete defense. (Rakes vs. Atlantic, Gulf & Pacific Co., 7 Phil.
Rep., 359, 366; Eades vs. Atlantic, Gulf & Pacific Co., 19 Phil. Rep., 561.)
While the defenses of assumption of risks and contributory negligence are available to masters in actions for
personal injuries brought under Act No. 1874, these defenses have their limitations when interposed in actions
for personal injuries of minor or infant employees. These limitations rest upon the well-established principle
that it is the duty of masters or their superintendents to warn such employees as to the dangers of the work
and instruct them as to the manner of doing the work in order to avoid accidents.
The master is bound to warn and instruct his servant as to all dangers which he knows, or in the exercise of
reasonable care ought to know, and which he has reason to believe the servant does not know and would not
by the exercise of reasonable care discover.

The duty continues during the employment, and cannot be delegated by the master. (Dresser on Employers'
Liability, sec. 99.)
In cases where the servant assumes the risks, there is no duty on the part of the master to warn or instruct
him in regard to the work. The obligation of warning "is imposed mainly for the sake of the young who have not
the experience or power to look out for themselves, which are to be expected in adults, o, in the case of
adults, where there are concealed defects." (Robinska vs. Lyman Mills, 174 Mass., 432, 433;
O'Neal vs. Chicago & I. C. Ry. Co., 132 Ind., 110.)
And "it is clear that, in respect to all matters wherein a young and inexperienced employee is competent to
understand and avoid the dangers, such employee stands upon the same footing with an experienced adult."
(Levey vs. Bigelow, 6 Ind. App., 677.)
The distinction between the adult and the child becomes important when it is necessary to presume
knowledge from the character of the danger, and determine whether it was obvious to a person of the plaintiff's
apparent capacity. (Dresser on Employers' Liability, sec. 99.)
The dangers of a particular position or mode of doing work are often apparent to a person of capacity of
knowledge of the subject, while other, from youth, inexperience, or want of capacity, may fail to appreciates
them; and a servant, even with his own consent, is not to be exposed to such dangers, unless with instructions
and cautions sufficient to enable him to comprehend them and to do his work safely, with proper care on his
part. This is particularly so when the master employs for a hazardous work, a child, young person, or other
person without experience, and of immature judgment. In such a case, the master is bound to point out the
dangers of which he has, or ought to have, knowledge, and give to the employee such instructions as will
enable him to avoid injury by the exercise of reasonable care, unless both the danger and the means of
avoiding it are apparent, and within the comprehension of the servant. But a master is not culpable simply
because he hires a minor servant for the performance of dangerous duties. Shearman and Redfield on
Negligence (vol. 1, sec. 218) state the rule as follows:
Where a servant is set at dangerous work, the mere fact of his minority does not render the master liable for
the risk, if the servant has sufficient capacity to take care of himself, and knows and can properly appreciate
the risk.
The following statement of the law relating to the employment of young children occurs in 4 Thompson on
Negligence, sec. 3826, and is quoted with approval in Fitzgerald vs. Furniture Co. (131 N. C. 636):
The law, says Thompson on Neg., 978 "puts upon a master, when he takes an infant into his service, the duty
of explaining to him fully the hazards and dangers connected with the business, and of instructing him how to
avoid them. Nor is this all; the master will not have discharged his duty in the regard unless the instructions
and precautions given are so graduated to the youth, ignorance and inexperience of the servant as to make
him fully aware of the danger to him, and to place him, with reference to it, in substantially the same state as if
he were an adult."
In Taylor vs. Wootan (50 Am. St. Rep., 200) it was held that:
It is an actionable wrong for a person to place or employ a child of such immature judgment as to be unable to
comprehend the danger to work with or about a machine of a dangerous character likely to produce injury, . . .
With reference to the nature and character of the risks assumed by infant employees, the court, in
Saller vs. Friedman Brothers Shoe Co. (130 Mo. App., 712) said:
Generally, an employee assumes such risks as are open and obvious or which he would have observed he
had used ordinary caution; but children are not expected to observe closely the construction of machines at
which they are put to work or to appreciate the ordinary risks incident to their operation, and for this reason are
not held to assume the ordinary risks of their operation, or such risks as they do not perceive and apprehend,

and of which they are not informed and warned against. (Vansler vs. Boc Co., 108 Mo. App., l. c. 628-9, 84 S.
W., 201, and cases cited.)
The law with reference to contributory negligence on the part of infant employees is fairly well settled in the
United States.
In Wynne vs. Conklin (86 Ga., 40) the court held that whether the plaintiff [a boy of 13 years of age] knew of
the hazard or peril; whether he was of sufficient age and capacity to appreciate the same and to provide
against danger, are questions of fact which ". . . must be left to the consideration of a jury."
In Bare vs. Crane Creek Coal Co. (61 W. Va., 28) the court said:
It is actionable negligence for an employer to engage and place at a dangerous employment a minor who,
although instructed, lacks sufficient age and capacity to comprehend and avoid the dangers of the
employment if the employer has, or should have, notice of the minor's age and lack of capacity. (Thomp. on
Neg. sec. 4689; 20 Am. & Eng. Enc. Law, supra; Golf vs. Norfolk & W. R. Co. supra; 1 Shear. & Redf. Neg.,
supra.)
In Saller vs. Friedman Brothers Shoe Co., supra, the court said:
Plaintiff, on cross-examination, testified he knew if his fingers were caught between the upper and lower
halves of the molder when they came together, they would be crushed. Of course he knew this; the simplest
child would know as much if it observed the operation of the machine, but it might not, and probably would not
make the observation. Plaintiff's evidence tends to prove that though he knew his fingers would be mashed if
caught between the two halves of the molder when they came together, yet he swore he never thought of
getting hurt. His evidence shows that the idea that he might be hurt never entered his mind until he was hurt;
while his evidence shows he knew he might be hurt in the manner he was hurt, yet he never thought of or
appreciated the danger of getting hurt in that manner. It is because of this very thoughtlessness and on
account of the inexperience of minors that the law does not hold them to the exercise of the same degree of
care as it requires of adults.
In the Brand Case (64 Fla., 184) cited in the recent case of Coons vs. Pritchard (L. R. A., 1915 F, 558) the
court held:
As a matter of fact an employees who is an inexperienced youth may not be free from fault when he is injured,
yet in law his youth and inexperience may excuse his fault, and when the employer has placed him at work the
dangers and risks of which the youth does not appreciate, and the youth is injured because of the dangers of
the work, the employer is liable.
The court in Coons vs. Prichard, supra, lays down this rule:
In employing a minor, the duty devolves upon the employer to fully instruct such employee, and in such cases
the master is bound to consider the age, mentality, and lack of capacity and experience of his infant employee,
and make such instructions so full and explicit as to bring the dangers incident to the employment to the
complete comprehension of the minor. The theory seems to be that a minor presumably ignorant of the use of
machinery or dangers incident to his occupation, or to risks incident to the use of defective machinery, would,
without such instructions, be exposed to those dangers which he could have avoided had his master fully
discharged this duty.
The infant employee's capacity is the criterion of his responsibility. As he grows older, he becomes more and
more amenable to the rules of law in respect to assumption of risk and contributory negligence applicable to
adults, and whether such infant employee has assumed the risks or been negligent are questions to be
answered by the jury in the United States and by the courts in this jurisdiction.

There is another point ion the case at bar which should be taken into consideration and which bears upon the
defendant's defenses of assumption of risks and contributory negligence, and that is, the injuries did not occur
while Braulio Tamayo was engaged in the particular work and class of work for which he was employed. On
the contrary, he was at the time engaged in a work outside the ordinary contract of employment and wholly
disconnected with it. "To pick from piles of wood from which the strips used in the manufacture of match boxes
were made and select the best pieces" is a very different thing from assisting in keeping the machine clean in
order that it would not be obstructed in its proper working. While the record is silent as to who made the
contract of employment, yet, taking into consideration the age of the boy and the interest which the father was
taking in his welfare, we may at least presume that the father consented to the boy's entering the factory and
doing the ordinary work which he had been engaged in before he was ordered to work at the machine, and the
father, in so doing, had the right to presume that neither the defendant nor those who represented him would
expose his son to such perils. If the order had been given to a person of mature years, who was not engaged
to do such work, although enjoined to obey the directions of the foremen, it might, with some possibility, be
argued that he should have disobeyed it, as he must have known that its execution was attendant with danger,
or, if he chose to obey that order, he took upon himself the risks incident to such work. Bur Braulio Tamayo
occupied a very different position. He was a mere child without, as we have said, any experience in that kind
of work, and not familiar with the machinery.
In Union Pacific Railroad Co. vs. Fort (84 U. S., 553), Fort brought suit to recover damages for injury to his
son, age 16 years, resulting in the loss of an arm while in the employment of the railroad company. The boy
was employed in the machine shop as a workman or a helper under the superintendence and control of one
Collett and had been chiefly engaged in receiving and putting away mouldings as they came from a molding
machine. After the service had been continued for a few months, the boy, by order of Collett, ascended a
ladder, resting on a shaft, for the purpose of adjusting a belt by which a portion of the machinery was propelled
and which had gotten out of place. While engaged in an endeavor to execute the order, his arm was caught in
the rapidly revolving machinery and torn from his body. The injury found that he had been engaged to serve
under Collett as a workman or helper and was required to obey his orders; that the order by Collett to the boy
(in carrying out which he lost his arm) was not within the scope of his duty and employment, but was within
that of Collett's; that the order was not a reasonable one; that its execution was attended with hazard to life
and limb; and that a prudent man would not have ordered the boy to execute it. A verdict and judgement in
favor of Fort was sustained.
Applying the foregoing principles, which are founded upon reason and justice, to the case under consideration,
we conclude that the trial court did not err in rejecting the defenses of assumption of risks and contributory
negligence interpose by the defendant.
We now come to the consideration of damages. As above stated, the record fails to disclose to what extent, if
any, the earning capacity of Braulio Tamayo has been diminished by reason of the injuries. He could not,
therefore, recover any amount if this action had been brought under the Civil Code, as the services for medical
attendance and salary during the confinement have been paid by the defendant. (Marcelo vs. Velasco, 11 Phil.
Rep., 287; Algarra vs. Sandejas, 27 Phil. Rep., 284). But this court has never held that slight lameness or
permanent injuries and pain and suffering are not elements of damages, but simply that damages cannot be
allowed for the former, unless the extent of the diminution of the earning power or capacity is how, and that the
Civil Code does not include damages for the latter.
The English rule as to the measure of damages which may be awarded for personal injuries is stated in
Halsbury's Laws of England (vol. 10, p. 323), as follows:
In actions for personal injuries, whether such actions are founded on breach of contract to carry safely, or
upon negligence, the jury are to award damages not only for the actual pecuniary loss occasioned by the
injury, but also for the pain and suffering of the plaintiff and the diminution of his capacity for the enjoyment of
life, as well as in respect of the probable inability of the plaintiff to earn an income equal to that which he has
earned in the past; and the probability that but for the injury the plaintiff might have earned an increasing
income is to be taken into account.
Shearman and Redfield on the Law of Negligence (vol. 3, p. 1994 [6th ed.]) in discussing the measure of
damages for personal injuries, say:

In an action for negligent injury to the person of the plaintiff, he may recover the expense of his cure, the value
of the time lost by him during his disabilities, and a fair compensation for the bodily and mental suffering
caused by the injury, as well as for any permanent reduction of his power to earn money, provided, of course,
that such damage is a proximate result of the injury. As already stated, allowance should be made for all such
damages, future as well as past, if reasonably certain to occur. (Citing numerous authorities, including various
decisions of the Supreme Court of the United States.)
As these rules, if not exclusively, upon the Anglo-American common law, it becomes necessary to inquire just
what changes, if any, have been brought about by the enactment of the Employers' Liability Acts.

In determining these questions it must be borne in mind that the intent of the Legislature is the law; that the
legislative meaning is to be extracted from the statute as a whole. Its clauses are not to be segregated, but
every part of a statute is to be construed with reference to every other part and every word and phrase in
connection with its context, and that construction sought which gives effect to the whole of the statute its
every word; that the history of the statute from the time it was introduced until it was finally passed may afford
aid to its construction; that where one legislature adopts, without change of phraseology, or with only a merely
immaterial change a legislative act of another jurisdiction, if antecedent to its adoption, the statute has
received a settled construction in the jurisdiction from which adopted, the Legislature is presumed to have
adopted the construction along with the statute; and that a remedial statute is to be liberally construed to
accomplish the purpose of its enactment. (Vol. 11, Encyclopedia of United States Supreme Court Reports
under "Construction," and cases cited.)

Dresser on Employers' Liability, section 18, says:

In Cerezo vs. Atlantic Gulf & Pacific Co. (supra), the court said:
Subject to the limitation upon the amount, damages are to be measured in accordance with the common-law
rules.
Reno's Employers' Liability Acts (2nd ed.), section 186, says:
The Massachusetts statute limits the amount of damages recoverable by an employee when his injury does
not result in death to a sum not exceeding four thousand dollars. It does not prescribe any criterion for
estimating the amount, but leaves the question to be settled upon general principles of law.
And further on (sec. 198) the same author states:
In Alabama it has been decided, in an action under its Employers' Liability Act, that such (Exemplary or
punitive) damages are not receivable where the injury results in death. The statute does not limit the amount
of damages recoverable, and the measure of damages is determined upon common-law principles.
Labatt's Master and Servant ([2d ed.], vol. 5, sec. 1730) lays down this rule:
The provisions specifying the amount recoverable by an injured servant do not give a measure of damages,
but merely fix a limit beyond which the jury cannot award compensation. Within that limit the measure of
damages is left to be determined upon the ordinary principles which regulate the assessment of the indemnity
in actions for personal injuries.
Section 1 of the Federal Employers' Liability Act (Act of Congress of April 22, 1908) provides "That every
common carrier by railroad, while engaging in commerce between any of the several States or Territories, . . .
shall be liable in damages to any person suffering injury while he is employed by such carrier in such
commerce, . . . ." The Supreme Court of the United States in Michigan Central R. R. Co. vs. Vreeland (227 U.
S., 59, 65), in referring to the measure of damages recoverable under the Act, said:
It (the Act) plainly declares the liability of the carrier to its injured servant. If he had survived he might have
recovered such damages as would have compensated him for his expense, loss of time, suffering, and
diminished earning power.
And in St. Louis & Irom Mtn. Ry. vs. Craft (237 U. S., 648) the Supreme Court of the United States sustained a
judgment, in an action brought under the Federal Employers' Liability Act, of the State court in favor of the
father of the deceased employee for $6,000, being $1,000 for the pecuniary loss to the father and $5,000 for
the pain and suffering of the deceased.
What is the scope of the word damages as used in Act No. 1874? Did the Legislature intend that the measure
of damages should be the same as that in the United States, from the country the Act was copied, or did it
intend that the recovery should be limited to those elements of damages provide for by the Civil Code in
personal injury cases?

We do not doubt that it was, prior to the passage of Act No. 1874 and still is, the duty of the employer in this
jurisdiction to perform those duties, in reference to providing reasonably safe places, and safe and suitable
ways, works, and machinery, etc., in and about which his employees are required to work, which, under the
common law of England and America, are termed personal duties, and which in the United States are held to
be such that the employer cannot delegate his responsibility and liability to his subordinates.
(Rakes vs. Atlantic, Gulf & Pacific Co., 7 Phil. Rep., 359.)
The employer or master also impliedly agrees to furnish competent workmen (article 1903 of the Civil Code;
Chaves and Garcia vs. Manila Electric R. R. & Light Co., 31 Phil. Rep., 47). Therefore, the master, under the
Civil Code, can defend against an action by his servant by proving his own freedom from negligence; that the
negligence of the servant was the immediate cause of the injury or that the accident happened through one of
the ordinary risks of employment. On the other hand the servant can recover a portion of the damages
resulting from the injuries, although he may be guilty of contributory negligence. (Rakes vs. Atlantic, Gulf &
Pac. Co., supra.) And the Civil Code does not fit the maximum amount of the recovery.
Act No. 1874 should be liberally construed in favor of employees. The main purpose of the Act, as its title
indicates, was to extend the liability of employers and to render them liable in damages for certain classes of
personal injuries for which they are not liable under the Civil Code. And one of these classes of cases is that
where injuries are cause to employees through the negligence of the master's "superintendent," although the
master may have used due care in the selection of his superintendent. To this extent the master's liability or
responsibility has, in fact, been extended. But the defense of contributory negligence, as it is understood in the
United States, is recognized in the Act with all its force and effect, as the first section requires as an essential
requisite to recovery that the employee be "in the exercise of due care" at the time of the injury. The Act does
not recognize the rule of comparative negligence. It fixes the maximum amount which the injured servant may
recover. As to these matters, the Act restricts the master's liability. And if the measure of damages is limited to
conform with the Civil Code, the master's liability would be further restricted.
If reference must be made to the Anglo-American common law to define the rights and duties of master and
servants, as above indicated, what reasons exist for saying that the Legislature intended that the courts must
look to the Civil code for the meaning and scope of the word "damages," a word, according to the origin and
history of the Act, of purely English origin, different in its scope from the Spanish word "dao"? It is said that
the Act is an Employers' Liability Act and not a law of damages. This contention is without foundation in law
because "to extend and regulate the responsibility of employers' means to enlarge their pecuniary liability,
otherwise the phrase would be meaningless. One's responsibility is his liability or obligation. The Act is
remedial. By remedial is not meant that it pertains to a remedy in the sense of procedure such as the
character and form of the action, the admissibility of evidence, etc. The Act defines certain rights which it will
aid, and specifies the way in which it will aid them. So far as it defines, thereby creating, it is "substantive law."
So far as it provides a method of aiding and protecting, it is "adjective law," or procedure. The right to
damages is the essence of the cause of action. It is a substantive right granted by the Act. Take this away and
the injured employee has nothing of value left. No one in this country has a vested interest in any rule of the
Civil Code and the great office of the Act is to remedy defects in the Civil Code rules as they are developed.
The Congress of the United States, in conferring upon the personal representative of a deceased person,
whose death was the result of a wrongful act, neglect or fault of any person or corporation in the District of

Columbia, a right of action for damages, provided "that in no case shall the recovery under this Act, exceed
the sum of $10,000." (31 Stat. at Large, 1394, chap. 854.) The Federal Employers' liability Act, referred to
above, does not limit the amount of damages which may be recovered in actions brought thereunder. In
Hyde vs. Southern Railway Co. (31 App. D. C., 466) the court held that the recovery under the last named Act
was not limited to $10,000 as provided in the former Act. To the same effect is the case of Devine vs. C. R. I. &
R. R. Co. (266 Ill., 248).

There are certain profession, such as that of instrumental music, where the loss of the ends of two fingers,
even on the left hand, would be quite serious; but it is self-evident, without the aid of evidence, that in all the
ordinary occupations of life the injury to the boy will be almost inappreciable. We have often had occasion to
say that the question is not for what sum of money will compensate for it as far as money can compensate at
all; and, where a person asks for pecuniary compensation, he cannot complain if the loss is estimated on a
strictly pecuniary basis.

The inevitable conclusion is, therefore, that the Legislature intended that the measure of damages in personal
injury cases brought under Act No. 1874 shall be the same as that in the country from which the Act was
taken. The result is that Braulio Tamayo is entitled to recover, through his guardian ad litem, damages for pain
and suffering and permanent injury, such damages being as they are the approximate result of the injuries.
Bodily disfigurement is included in his permanent injury. It needs no proof to show that the severing of the ring
finger at the first joint caused pain and suffering and a permanent injury and bodily disfigurement, although
slight. The fact that damages for such injuries cannot be ascertained with mathematical exactness does not
and should not defeat recovery for a reasonable amount.

In Rittel vs. Souther Iron Co. (127 Mo. App., 463) in reducing the award from $4,500 to $3,000 and in
disposing of the contention of the appellant that there was no evidence that the plaintiff's earning capacity had
been diminished by reason of the injuries, the court said:

In Gagnon vs. Klauder-Weldon Dyeing Mach. Co. (174 Fed. Rep., 477), the plaintiff was awarded $4,000. This
was reduced to $3,000, the court saying:
As to the damages, there was no evidence that Gagnon has received less wages since his injury than he did
before. He was out nothing. His wages were continued while laid up, and then he was given employment by
defendant and later by others at no less wages than he had been receiving. But he suffered pain and
permanent disfigurement of one hand. He lost two fingers and that part of the hand immediately below or
behind them. His power to lift and handle things is interfered with and lessened. In some stations or
businesses his earning power or ability to perform his duties would not be interfered with at all; in others it
would be materially. What his future will demand of him cannot be foretold. As a mechanical blacksmith his
ability to do work, handle things, is impaired. I do not think the jury was affected by passion or prejudice
against corporations. They were carefully cautioned against this. While damages in such cases are largely
discretionary with a jury, still that discretion is always within the control of the court. The pain and suffering in
this case was not of long continuance, the disfigurement is confined to the one hand, the arm is not injured,
the plaintiff can pick up and handle articles and handle all ordinary tools. I am of the opinion that the damages
were excessive, all things considered, and that they should be reduced to $3,000.

Plaintiff, as stated, was a young man twenty-one years old at that time of the accident, and as far as appears
he made his living by work similar to that he was doing when hurt; he was not a mechanic, but a common
laborer. He testified that he had done no work from the date of the injury to the time of the trial; that prior to
said time he had been earning nine dollars a week, and in his opinion he was unable to do the same kind of
work he had been doing theretofore. We think it is a matter of general knowledge that a laboring man who has
the thumb and forefinger of his right hand mashed has suffered a diminution of earning power.
Similar holdings appear in Olsen vs. Tacoma Smelting Co. (50 Wash., 128); Rommen vs. Empire Furniture
Mfg. Co. ([1911] 118 Pac., 924); Duskey vs. Green Lake Shingle Co. (51 Wash., 145); Barclay vs. Puget
Sound Lumber Co. (48 Wash., 241); Adams vs. Peterman Mfg. Co. (47 Wash., 484); Ball vs. Peterman Mfg.
Co. (47 Wash., 653); Johnson vs. City of Bay City (164 Mich., 251).
This opinion is quite long, necessarily made so by the importance of the questions raised. The judgment being
strictly in accordance with law and the merits of the case, the same is hereby affirmed, with costs against the
appellant. So ordered.
Torres, Carson and Araullo, JJ., concur.
Separate Opinion

In "City of Panama" vs. Phelps (101 U. S., 453) the court said:

MORELAND, J., dissenting:

Damages, in such a case, must depend very much upon the facts and circumstances proved at the trial. When
the suit is brought by the party for personal injuries, there cannot be any fixed measure of compensation for
the pain and anguish of body and mind, nor for the permanent injury to health and constitution, but the result
must be left to turn mainly upon the good sense and deliberate judgment of the tribunal assigned by law to
ascertain what is a just compensation for the injuries inflicted.

The proposition stated in the decision of the court in this case to which I propose to direct my attention is that
the Employers' Liability Act was intended by the Legislature of the Philippine Islands to be not only a law
enunciating the principles of legal liability resulting from negligent acts and omissions in certain cases, but a
law governing the measure of damages in such cases also. The process of reasoning by which the court
reached this conclusion is, in the main, this: the Employers' Liability Act of the Philippine Islands is a copy of
the Employers' Liability Act of the State of Massachusetts; and, says the court, that being so, it necessarily
follows that the Legislature of the Philippine Islands, when it copied and passed the Employers' Liability Act of
the State of Massachusetts, intended, by virtue of the mere act of copying, to bring to the Islands not only the
Employers' Liability Act of the state of Massachusetts but the law of that State governing the measure of
damages also.

In Gahagan vs. Aeromotor Co. (67 Minn., 252) the plaintiff was awarded $1,800. this was reduced to $1,200,
the court saying:
The only remaining question is whether the damages awarded are excessive. The boy, one of eight children,
was between 8 and 9 years of age. Aside from doing such chores about the house as he was bidden by his
parents, the only work he had ever engaged in was selling newspapers on the village streets. His father was a
buthcer, whose occupation was to peddle through the country the flesh of animals which he bought and
slaughtered. The injury to the boy consisted of the mangling of the ends of the ring and middle fingers of the
left hand so as to require their amputation, the one at the first joint, and the other just below the first joint.
This was successfully done at one operation, and the fingers healed satisfactorily. Of course, this was
necessarily accompanied by considerable pain; and there is some evidence to the effect that the ends of the
finger may always be somewhat more sensitive to heat and cold than if not amputated. There was, also, the
opinion of a physician that the muscles supplying those fingers will not develop as fully as they would if the
whole fingers were there. It is also true that the amputation of the ends of these fingers constitutes something
of a disfigurement of the person. We have no desire to belittle the right which every one, even in the humblest
walks of life, has to the possession of all his faculties, both mental and physical, unimpaired. but we are
compelled to the conclusion that, in any view of the case, the damages awarded to the boy are excessive.

I cannot bring myself to agree either with the position or with the arguments adduced to support it. nothing far
short of an express declaration of the Philippine Legislature to that effect ought to be held to abrogate the
settled principles of law governing the measure of damages in personal injury cases laid down in the Civil
Code and to substitute in place thereof the law of a foreign country. There is no such declaration in the
Employers' Liability Act. I can find nothing in the Act which, in the remotest way, would suggest in my opinion,
an intention to that effect.
The question under consideration arises in this way: A young boy working with dangerous machinery had the
ends of some of his fingers of one hand cut off. On the trial he proved no pecuniary or actual damages. No
one disputes this. The sole question is whether he can recover damages other than pecuniary or actual
damages. The Supreme Court in its opinion states expressly that, under the law of the Philippine Islands as
found in the Civil Code, he would not be entitled to recover damages for pain, suffering or mental anguish; and

that, therefore, under the Civil Code, he could not maintain this action as he could prove no damages apart
from those arising from pain and suffering. The court has, however, met this difficulty by asserting, as I have
before indicated, that the law of damages of the Philippine Islands does not govern the case at bar for the
reason that, the Employers' Liability Act having been taken bodily for the state of Massachusetts and brought
to the Philippine Islands, it necessarily follows that the law of the State of Massachusetts governing the
measure of damages was brought along to the Islands with it; and that it is the law of the state of
Massachusetts and not the Civil Code which governs the measure of damages in the Philippine Islands.
As I have already stated the Supreme Court holds in this very case that, under the law of the Philippine
Islands, the plaintiff is not entitled to damages, as he proved no damages except those arising from pain and
suffering. It says:
We now come to the consideration of damages. As above stated, the record fails to disclose to what extent, if
any, the earning capacity of Braulio Tamayo has been diminished by reason of the injuries. He could not,
therefore, recover any amount if this action had been brought under the Civil Code, as the services for medical
attendance and salary during the confinement have been paid by the defendant. (Marcelo vs. Velasco, 11 Phil.
Rep., 287; Algarra vs. Sandejas, 27 Phil. Rep., 284). But this court has never held that slight lameness or
permanent injuries and pain and suffering are not elements of damages, but simply that damages cannot be
allowed for the former, unless the extent of the diminution of the earning power or capacity is shown, and that
the Civil Code does not include damages for the latter.
Before going forward with the discussion, I regard it necessary to examine the statement contained in the last
sentence of the quotation. I confess that I cannot grasp its meaning except in part. The portion of the
statement which I can not understand is this: "But this court has never held that. . . . pain and suffering are not
element of damages, but
simply . . . that the Civil Code does not include damages for the latter," that is, pain and suffering. If the court
has held that the Civil Code does not authorize, and, therefore, does not permit, damages for pain and
suffering, and, if the Civil Code contains all the law of the Philippine Islands on the subject of damages, which
no one denies, how can it be said that "this court has never held that . . . pain and suffering are not elements
of damages?" This court has held again and again that pain and suffering are not an element of damage under
the law of the Philippine Islands; and has again and again refused to allow damages therefor.
(Marcelo vs. Velasco, 11 Phil. Rep., 287; Algarra vs. Sandejas, 27 Phil. Rep., 284) The refusal was based on
the finding that there was no law in the Philippine Islands authorizing damages to be given upon that ground.
The court admits in the statement quoted that it has heretofore held "that the Civil Code does not include
damages for the latter," that is, for pain and suffering. How, then, is it possible for the court now to hold that
pain and suffering are elements of damage? And how can it say that the court has not held that pain and
suffering are not element of damage? The mere holding that there was no law in the Philippine Islands
authorizing damages on such ground is of itself a declaration that pain and suffering are not an element of
damage. If the court has declared that there is no law authorizing relief of a certain kind, it is equivalent to a
declaration that the courts are not authorized to grant such relief.
I proceed with the discussion of the position taken by the court on the main question.
It must be said at the outset that the court rests its decision mainly on the statement that the law of damages
of Massachusetts came here by virtue of the mechanical act of the draftsman of the Legislature of copying a
statute of that State a statute, by the way, entirely different from the one which this court holds was brought
over. So far as I can see, there is no discussion of the grounds of this statement; no examination of the Act
copied; no quotation of or even reference to any provision of law or statute to support the allegations; nothing
except a naked statement of the court that itwas brought over. The contention that the mere mechanical act of
the copying of the Employers' Liability Act of the State of Massachusetts by the Philippine Legislature
produced necessarily the momentous result of repealing the law of this country regulating an important subject
and of introducing in place thereof the law of Massachusetts, appears on its face, it seems to me, so unsound,
that the most agent and powerful reason should be assigned to support it. The court has neglected to refer to
any Act of the Philippine Legislature, to any statue, or to any other law to sustain its assertion. It simply says
that the mere act of copying the Massachusetts Employers' Liability Act is all that was necessary to enact into
law not the Massachusetts Employers' Liability Act by the Massachusetts law of damages.

There is possibly one exception to the statement that the court has neither cited nor referred to any statute,
law, decision, principle or custom to support so strange a theory. It has referred to the word "damages" which it
found in the Employers' Liability Act. But that is all. It does not even quote or cite the sentence in which the
word appears. It is wrenched from its setting and torn form the context and examined as a thing separate and
apart, a species with no family or genus, something for a philologist, but not for a court. This reference by the
court to the word "damages" and the argument based upon that isolated word, may be called an exception to
or a qualification of my statement. I hesitate to admit it; for the reference is of such a nature that it serves only
to prove the correctness of the statement. If the court could find nothing more in the Act of the Philippine
Legislature to support its contention than a lone word taken from the statute, then is my statement, I believe,
more than justified.
The quotation made from the opinion of the court is the opening statement in its argument to support the
proposition that the Philippine Legislature brought from the State of Massachusetts with the Employers'
Liability Act the Massachusetts law of damages in negligence cases. As I regard this conclusion as erroneous I
propose to follow the steps of the court in its argument for the purpose of determining where the difficulty lies.
Immediately after the statement quoted comes a discussion of the rule of damages in negligence cases in
England and in the various States of the Union and as set down by the Federal courts. Cases are cited to
show that pain and suffering are element of damage under the common law. The court quotes from the
Federal Employers' Liability Act of the United States in cases arising under it to show that the rule of damages
as laid down by the Federal courts includes compensation for pain and suffering. It is to be noted, however,
that, when the Supreme Court was discussing and applying the law of damages in those cases it was not
discussing, interpreting or applying the Federal Employers; Liability Act. It was construing and applying the
lawgoverning the measure of damage; and the law of damage has no more relation to the law governing the
principles of legal liability than the law of bailments has to the law property. It must be said, therefore, that the
whole discussion of the court concerning the measure of damages at common law, and its citations of and
quotations from decisions of courts on that subject, are immaterial to the discussion of the very first proposition
necessary to be established in this case to sustain the decision of this court; and that is that the
Massachusetts law governing the measure of damages in personal injury cases was brought to the Philippine
Islands by and along with the Employers' Liability Act and is now force here. Until it is established that the
Massachusetts law is here, it is idle to discuss what that law is. Now, what is the proof offered to demonstrate
the correctness of the contention that the Massachusetts law of damages is a part of the Philippine law? Until
that contention is shown to be correct beyond question, what good, I repeat, can result from a disquisition on
the measure of damage at common law? Again, I ask, what has been offered on that subject?
Proceeding with its argument, the court says:
What is the scope of the word damages as used in Act No. 1874 (the Employers' Liability Act)? Did the
Legislature intend that the measure of damages should be the same as that in the United States, from which
country the Act was copied, or did it intend that the recovery should be limited to those elements of damages
provided for by the Civil Code in personal injury cases?
With this inquiry before me I see no reason for the existence of the previous steps in the discussion taken by
the court. What may have been the law of damages as laid down by the Federal courts, the State courts, or
the English courts has nothing to do with the discussion as to whether the Legislature of the Philippine Islands
introduced into this country the law of damages of the State of Massachusetts. The discussion as to what is
the measure of damages in England and in the various States of the Union would be material, as I have
already said, only after the proposition had been established that the law of damages of England and of the
United States had been imported into the Philippine Islands. But the question whether that law was actually
imported into the Philippine Islands has nothing to do with the question as to what that law really is.
I note what I have before intimidated, that the court does not cite the provision or provisions of the Employers'
Liability Act of the Philippine Islands which shows that the law of damages of the State of Massachusetts or of
England or of the United States was brought over to the Islands along with the Act itself. I should be interested
to have the court point out the particular provision on which it relies to accomplish the striking result which its
decision produces. I confess I can find no provision which I can even remotely construe into producing such
an effect. In order that the whole Act be before us I have reproduced it in a footnote, including the title; 1 and an
examination of it discloses instantly that there is not a provision in it which, so far as I can judge, can be held
to introduce into the Philippine Islands the law of damages of the State of Massachusetts or of any other state
or country. Nor can I obtain such a result by viewing the Act as a whole. The title says that it is "An Act to

extend and regulate the responsibility of employers for personal injuries and deaths suffered by their
employees while at work." In the marginal note of the official Act it is called "Employers' Liability Act." All the
Act does or purports to do is to alter in some particular the principles of legal liability governing negligent acts
or omissions then operative in the Philippine Islands. It does not touch and does not profess to touch the legal
principles upon which damages are assessed in such cases, that is, the law governing the measure
of damage. The law governing legal liability is quite distinct and separate from the law governing damages.
The former tells us whether an action will lie or not; the latter tells us how much plaintiff's judgment will be. The
former tells us what must be proved to establish liability; the latter how to prove the amount to recovered.
While the former lays down the foundation for the latter, they are, nevertheless, separate branches of the law,
wholly unlike, wholly apart from each other, and governed by principles which have nothing in common. They
are treated separately by courts, text books and encyclopedias. They have no more relation to each other than
the law of wills and the law of waters.
This being so, how do the following remarks of the court, which immediately follow the last quotation, assist it
to the conclusion that the law of damages of the State of Massachusetts came to the Philippine Islands with
the Employers' Liability Act?.
In determining these questions it must be borne in mind that the intent of the Legislature is the law; that the
legislative meaning is to be extracted from the statute as a whole. Its clauses are not to be segregated, but
every part of a statute is to be construed with reference to every other part and every word and phrase in
connection with its context, and that construction sought gives effect to the whole of the statute its every
word.
Speaking generally, I have no objection to the principles enunciated in this quotation. But, it seems to me, the
court has not applied them. It would seem, rather, that the court has disregarded them. Let us examine Act
and admit that "the intent of the Legislature is the law," that "the legislative meaning is to be extracted from the
statute as a whole," that "its clauses are not to be segregated," and that we must give effect to "its every
word," and what is the result? Are we, in the light of these principles, to say that the Legislature intended to
enact a law governing the measure of damages in the Philippine Islands when the title which the Legislature
itself gave to the Act for the express purpose of telling us in a summary way what it proposed to do, shows that
it tended to deal solely with the principles of legal liability and not with a distinct and separate branch of the law
known as the measure of damage? Are we to say this when, so far as my judgment goes, the provisions of the
Act are in absolute conformity with its title and both which seem to refute the contention that the Legislature
intended that the Act, in addition to being a liability Act, should also be an Act dealing with the measure of
damage which should change in a marked degree the present law on that subject? Can the Legislature be
said to have intended such a sweeping change? Is there anything in the Act which justifies the repeal of
numerous and important articles of the Civil Code, and the reversal of the decisions of the Supreme Court
interpreting and supplying them? Where is the provision in the Act which declares that this country, a country
of the Roman law, of the civil law, of the Spanish law, shall be agitated and confounded by a fundamental
change in its century old system of damages in personal injury cases? Read the law, "its every word," and
then say whether the Legislature intended that one law of damages should apply to personal injuries sustained
by one class of persons and a different law to injuries sustained by another class of persons; or that a person
who had both legs cut off through the negligence of his employer should be able to obtain damages for pain
and suffering, while his brother, who had both legs cut off through the negligence of a railroad company not his
employer, should not be able to recover such damages?
It seems to me that such results should not be held to have been produced except upon the clear and explicit
provisions of the statute. Where are these provision? Is not the invasion of an established and settled system,
by a foreign law, of sufficient importance to require at least a reference to the specific authority under which
the invasion occurs? And if there is any doubt about the authority should the invasion be permitted to
succeed?
But the court seems to think that it has found a sufficient reason for the invasion. It says, as I have already
intimated, that it finds somewhere in the statute the word damages." The discovery of this word is that which
provoked the question put by the court, already quoted, in which it asks "What is the scope of the word
damages as used in Act No. 1874? Did the Legislature intend that the measure of damages should be the
same as that in the United States, from which country the Act was copied, or did it intend that the recovery
should be limited to those elements of damages provided for by the Civil Code in personal injury cases?"

These questions are immediately followed by the statement, also quoted, of the principles governing the
conduct of one who desires to ascertain the intent of the Legislature; but I am afraid that the court did not
follow those principles when it seized upon the lone word "damages," discovered in the Act as the talisman
which would disclose the intent which governed the Philippine Legislature when it passed the Employers'
Liability Act; for, while the court has just declared that the intent of the Legislature "is to be extracted from the
statute as a whole," that its words and clauses "are not to be segregated," that "every part . . . is to be
construed with reference to every other part and every word and phrase in common with its neighbors,"
nevertheless, it seizes upon the single word "damages," and, upon this word segregated from its "context,"
and, without even a reference to any other line or word in the statute, bases a doctrine which changes in large
part the nature of the Act. The result thus obtained violates, it seems to me, the enacting clause, destroys the
distinction between legal liability and measure of damage which the Act respects, introduces into the Philippine
Islands a new system of law, repeals important provisions of the Civil Code, and makes unjust distinctions
between employees and other classes of persons equally deserving.
I cannot agree to this reasoning which is, in my judgment, the only item of argument or discussion in the
opinion which is directed to the point to which my dissent and discussion refer:
If references must be made to the Anglo-American common law to define the rights and duties of master and
servants as above indicated, what reasons exist for saying that the Legislature intended that the courts must
look to the Civil Code for the meaning and scope of the word "damages," a word, according to the origin and
history of the Act, of purely English origin, different in its scope from the Spanish word "dao?" It is said that
the Act is an Employers' Liability Act and not a law of damages. This contention is without foundation in law
because "to extend and regulate the responsibility of employers" means to enlarge their pecuniary liability,
otherwise the phrase would be meaningless. One's responsibility is his liability or obligation. The Act is
remedial. By remedial is not meant that it pertains to a remedy in the sense of procedure such as the
character and form of the action, the admissibility of evidence, etc. The act defines certain rights which it will
aid, and specified the way in which it will aid them. So far as it define, thereby creating, it is "substantive law."
So far as it provides a method of aiding and protecting, it is "adjective law," or procedure. The right to damage
is the essence of the cause of action. It is a substantive right granted by the Act. Take this away and the
injured employee has nothing of value left. No one in this country has a vested interest in any rule of the Civil
Code and the great office of the Act is to remedy defects in the Civil Code rules as they are developed.
Let us examine the argument in detail. We may start out by doubting the correctness of the inferential
statement found in the very first sentence of the quotation. I did not know that it was necessary to refer "to the
Anglo-American common law to define the rights and duties of master and servant, as indicated above," I had
supposed that the very purpose of the Employers' Liability Act was to define those rights and duties, so far as
they relate to injuries occuring to employees while at work. I had believed that the precise object of employers'
liability acts in the States was the abrogation of the so-called Anglo-American common law, and of the
Employers' Liability Act of the Philippine Islands to abrogate the civil law as contained in the Civil Code by
substituting in its place a statute which specifically and in detail defines those rights and duties. While the
statute may be held to have given an additional remedy, certainly, when the remedy conferred by the statute is
selected by the employee the common law in the States, the civil law here, ceases to operate. I had supposed,
also, that where there is a statute dealing with a given subject, and which completely covers it, the statute is
exclusively that to which we must look to ascertain the law on that subject. It is true that, if any word or
provision of the statute is ambiguous and needs interpretation or construction before it can be applied, then we
might, under certain circumstances, go to the decisions of the courts of a foreign state to ascertain what ideas
they have expressed under similar conditions. But no such reference is permitted unless the provisions of the
statute to be applied in the particular case are so ambiguous and uncertain as to require interpretation of
construction before application is possible. The statute is the law and the only law concerning the matter of
which it treats.
I must, therefore, doubt the correctness of the first sentence of the court's only argument. There is no
ambiguity in those provisions of the statute applicable to the case at bar. No one claims there is. The court
asserts none. Until we know what provisions the court has held applicable we cannot know whether they are
ambiguous or not. The case before us is a simple one, only three questions being involved (First.) Was the
defendant's superintendent negligent in placing a child at work with dangerous machinery? (Second.) Was the
child guilty of contributory negligence? (Third.) Was there damage proved and how much? The statute
specifically covers every question of law in this case. It does not, of course, cover the questions of fact.
Neither does the common law nor the civil law. But it covers every legal aspect of he case and clearly and
definitely and without ambiguity lays down the rules which govern it; and I believe it to be erroneous to say that

"reference must be made to the Anglo-American common law to define the rights and duties of master and
servants." The Employers' Liability Act is the sole source of authority on that subject in the Philippine Islands in
cases where it is invoked and is applicable. Reference to the common law is unnecessary. Aside from the fact
that, in the absence of the Act, we would refer to the Civil Code and not to the common law, it may be said that
the Act is itself sufficient for every purpose and the courts have no right to go outside of it on the assumption
that interpretation is necessary. As we said in the case of Lizarraga Hermanos vs. Yap Tico (24 Phil. Rep.,
504, 513):
The first and fundamental duty of courts, in our judgment, is to apply the law. Construction and interpretation
come only after it has been demonstrated that application is impossible or inadequate without them. They are
the very last functions which a court should exercise. The majority of the laws need no interpretation or
construction. They require only application, and if there were more application and less construction, there
would be more stability in the law, and more people would know what the law is.
Let us proceed to the next sentence. "It is said," continues the court, "that the act is an Employers' Liability Act
and not a law of damages. This contention is without foundation in law because 'to extend and regulate the
responsibility of employers' means to enlarge their pecuniary liability, otherwise the phrase would be
meaningless."
It seems to me that there is here a failure to grasp the difference between extending one's liability and
increasing the amount one must pay after liability is established. All that the Act does is toincrease the number
of occasions on which the employer will have to respond in damages. In other words, it makes it easier for his
injured employee to establish his liability. It removes from his path certain hindrances and obstructions. Where
the employer would not have been liable before the act was passed, he is liable now. Where, before the act
was passed, a certain amount of proof was required, now less is required. The act changes the source from
which the injured employee draws his rights; and, in changing the source, it at the same time increases the
number of rights and the ease with which they may be exercised. But the change in the source of rights and
the increase in the ease with which they may be exercised is very far from an increase in the amount of the
judgment the employee will get as the ultimate result of an exercise of those rights. A right of action has
nothing whatever to do with the amount of recovery; yet these are precisely the two things the court has
confused to such an extent as to call them the same. To increase the number of occasions in which an
employer will be liable is an entirely different thing from increasing the amount of damageswhich he will have
to pay on each of the increased occasions. 2 Moreover, looked at from a standpoint other than principle, it
would be mulcting the employer from both pockets at the same time. The occasions of his liability would be
increased and the amount he would have to pay on each of those increased occasions would also be
augmented by the amount of damages allowed for pain and suffering. That the Legislature did not intend such
a result is evident from the fact that, while the Act increased the occasions on which employers would be liable
and the ease with which the employee might take advantage of those occasions, at the same time and as a
partial compensation, the act limited the amount of the latter's recovery in certain cases.
I pass over the intervening sentence of the quotation and come at once to these: "The right to damages is the
essence of the cause of action. It is a substantive right and granted by the Act. Take this away and the injured
employee has nothing of value left." "One's responsibility is his liability or obligation." Let all this be admitted,
and still we may properly put the question, what has it to do with the matter in hand? Here again, it seems to
me, is the confusion between a right of action and the amount of the recovery. No one is denying the
employee his right of action. Indeed, as for myself, I am contending that the Act increases the number of
occasions on which he will have a right of action. All I am doing is combating the proposition that an increase
in the number of occasionson which the employer is liable means an increase in the amount of the recovery in
any given occasion. I desire to maintain the distinction between a right of action and the amount of the
recovery; the liability and the amount to be paid; the principles governing legal liability and those governing the
measure of damages.
Having arrived at the conclusion that no damages was proved, I do not pass on the other questions discussed
by the court.
Footnotes

[[ ]]

1 No. 1874. AN ACT TO EXTEND AND REGULATE THE RESPONSIBILITY OF EMPLOYERS FOR
PERSONAL INJURIES AND DEATHS SUFFERED BY THEIR EMPLOYEES WHILE AT WORK.
By authority of the United States, be it enacted by the Philippine Legislature, that:
SECTION 1. If personal injury is caused to an employee, who, at the time of the injury, is in the exercise of due
care, by reason of
First, a defect in the condition of the ways, works, or machinery connected with or used in the business of the
employer, which arose from, or had not been discovered or remedied in consequence of, the negligence of the
employer or of a person in his service who had been intrusted by him with the duty of seeing that the ways,
works, or machinery were in proper condition; or
Second, the negligence of a person in the service of the employer who was intrusted with and was exercising
superintendence and whose sole or principal duty was that of superintendence, or, in the absence of such
superintendent, of a person acting as superintendent with the authority or consent of such employer; or
Third, the negligence of a person in the service of the employer who was incharge or control of a signal,
switch, locomotive engine, or train upon a railroad; the employee, or his legal representatives, shall, subject to
the provisions of this Act, have the same rights to compensation and of action against the employer as if he
had not been an employee, nor in the service, nor engaged in the work, of the employer.
A car which is in use by, or which is in possession of, a railroad corporation shall be considered as part of the
ways, works, or machinery of the corporation which uses or has it in possession, within the meaning of clause
on of this section, whether it is owned by such corporation or by some other company or person. One or more
cars which are in motion, whether attached to an engine or not, shall constitute a train within their meaning of
clause three of this section, and whoever, as part of his duty for the time being, physically controls or directs
the movements of a signal, switch, locomotive engine, or train shall be deemed to be a person in charge or
control of a signal, switch, locomotive engine, or train within the meaning of said clause.
SEC. 2. If, as the result of the negligence of the employer or that of a person for whose negligence the
employer is liable under the provisions of section one, an employee is killed or dies by reason of injuries
received, his widow, or legal heirs, or next of kin who at the time of his death were dependent upon his wages
for support, shall have a right of action for damages against the employer.
SEC. 3. If, under the provisions of this Act, damages are awarded for the death, they shall be assessed with
reference to the degree of culpability of the employer or of the person for whose negligence the employer is
liable.
The amount of damages which may be awarded in an action under the provisions of section one for a
personal injury to an employee, in which no damages for his death are awarded under the provisions of
section two, shall not exceed two thousand pesos.
The amount damages which may be awarded in such action, if damages for his death are awarded under the
provisions of section two, shall not be less than five thousand pesos nor more than two thousand five hundred
pesos for both the injury and the death.
SEC. 4. No action for damages for injuries or death under this Act shall be maintained if a report thereof is not
furnished to the employer within ninety days of the date, place, and cause of the injury or in the action is not
brought within one year from the time of the accident causing the injury or death. The report required by this
section shall be made in writing and signed by the person injured or by another in his name, or if, on account
of physical or mental disability, it is impossible for the person injured to give the notice within the time provided
by this section, the same may be given within ten days after such disability shall have been removed, and in
case of death without said report having been given and without the person having for ten days at any time
after the period above mentioned been able to give such notice, the widow, legal heirs, or next of kin

dependent upon his wages for support, may give such notice within thirty days following the death of the
laborer. No report given under the provisions of this Act shall be considered void or insufficient by reason only
of some inaccuracy sa regards the date, place, or cause of the injury, if there was no intention to mislead or
the employer has not been misled by reason of such inaccuracy.
SEC. 5. All actions for damages which may be brought under this Act shall have preference over all other
matters save and except criminal cases and habeas corpus matters on the dockets of the courts of first
instance, and shall be promptly tried by the court and decided within fifteen days after final submission of the
case to the court for decision.

"This, as will be seen at a glance, simply confers the right to bring a civil action to obtain the relief which,
formerly, could be secured only in a criminal action. No rule or measure of damages is laid down by the Act;
and the statute having for its only purpose the giving of an `additional remedy' and not revoking, repealing or
modifying `any other civil remedy which the existing law may afford,' affects in no way the law of the land
relating to the rule or measure of damages in such cases. The statute really affects method only. It does not
interfere with the substantive law. The right always existed in all cases. The statute simply offers another
method of making that right effective. The nature of the right and the results flowing therefrom, both criminally
and civilly, are unaffected by the Act."

On application to the court by the party injured or by his duly authorized representatives, the court may make a
proper allowance for food and medical attendance during the pendency of the action and while medical
attendance is till necessary by reason of the injury: Provided, however, That the defendant in the action shall
be given an opportunity to be heard before any such allowance is made.
SEC. 6. If an employer enters into a contract, written or verbal, with an independent contractor to do part of
such employer's work, or if such contractor enters into a contract with a subcontractor to do all or any part of
the work comprised in such contractor's contract with the employer, such contract or subcontract shall not bar
the liability of the employer for injuries to the employees of such contractor or subcontractor caused by any
defect in the condition of the ways, works, machinery, or plant, if they are the property of the employer or are
furnished by him and if such defect arose or had not been discovered or remedied through the negligence of
the employer or of some person intrusted by him with the duty of seeing that they were in proper condition.
SEC. 7. An employer who shall have contributed to an insurance fund created and maintained for the mutual
purpose of indemnifying an employee for personal injuries for which compensation may be recovered under
the provisions of this Act or who shall have contributed to any relief society for the same purpose may prove in
mitigation of the damages recoverable by an employee under the provisions of this Act such proportion of the
pecuniary benefit which has been received by such employee from any fund or society on account of such
contribution of said employer as the contribution of such employer to such fund or society bears to the whole
contribution thereto.
SEC. 8. An employee or his legal representatives shall not be entitled under the provisions of this Act to any
right of action for damages against his employer if such employee knew of the defect or negligence which
caused the injury and failed within a reasonable time to give or cause to be given information thereof to the
employer or to some person superior to himself in the service of the employer who was intrusted with general
superintendence.
SEC. 9. This Act shall not be applicable to domestic servants or agricultural laborers.
SEC. 10. Any agreement to renounce the benefits of this Act made by the laborer prior to the occurrence of
any accident resulting in his injury or death shall be null and void.
SEC. 11. This Act shall take effect on its passage.
Enacted, June 19, 1908.
[[ ]]

2 This principle was expressly applied in the recent case of Dharamdas vs. Haroomall (35 Phil. Rep., 183),
where the headnote reads:
"Where a statute deals exclusively with the principles touching the liability of persons in a specified class of
cases it will not be held to affect the law of the land governing damages applicable in such cases when liability
has been established."
In the body of the opinion the court said:

August 23, 1909

G.R. No. 4045
ILDEFONSO DORONILLA, plaintiff-appellee,
vs.
GRACIANO GONZAGA, defendant-appellant.
Jose Lopez Vito for appellant.
Montinola and De la Rama for appellee.
JOHNSON, J.:
It appears from the record that some time prior to the commencement of this action the plaintiff herein had
been tutor of the minor heirs of one Pablo Ledesma (see Doronilla vs. Lopez, 3 Phil., Rep., 360;
Jalbuena vs. Ledesma, 8 Phil. Rep., 601; Ledesma vs. Doronila, 9 Phil. Rep., 119); that, after Doronila had
administered the property of said minor heirs for a number of years, a settlement was made between him and
the said minor heirs, which was acceded to and accepted by the family council by which agreement he
(Doronila) became obligated to pay to the said minor heirs a certain sum covering all of his obligation to the
said minor heirs, by virtue of his management of their estate; that by virtue of this agreement, Doronila
became the owner of all uncollected in favor of the estate of the said Pablo Ledesma.

It appears that among the accounts of which the said Doronila became the owner by virtue of his settlement
with the said the minor heirs, was the account upon which the present action is based. This action was
brought in the month of May, 1905.
After hearing the evidence adduced during the trial of the cause, the lower court rendered a judgment in favor
of the plaintiff and against the defendant for the sum of P5,117.55 and costs. From this judgment the
defendant duly excepted and presented a motion for a new trial in the lower court, which was denied; to which
ruling the defendant also excepted.
The defendant presents three assignments of error in this court. They are as follows:
1. The court below erred in considering that the plaintiff had legal capacity to bring the present action against
the defendant.
2. The court below erred in holding that the defendant is indebted to the plaintiff in the sum of P3,208.50 as
capital.
3. The court blow erred in sentencing the defendant to pay the legal interest on the capital of P3,208.50 from
January 1, 1897.
While the defendant presented a motion for a new trial in the lower court, he has not brought the proof to this
court. In our conclusions, therefore, we are governed by the facts stated in the decision of the lower court, for
the reason that the defendant filed, among his other defenses, a general denial.
The lower court in its decision made the following findings:
In view of all the evidence offered in this case I find that at the time of the death of Ledesma, the sum of
P3,208.50 was due his estate. This balance has never been paid, and was due the estate together with
interest thereon at the rate of 6 per cent from the 1st of January, 1897, making a grand total of P5,117.55 on
December 1, 1900.
Inasmuch as the papers were lost by the plaintiff in the manner mentioned above, he was required to account
for the property received by him as guardian of the heirs. Extensive litigation followed before the superior
provost court under the military government of the United States in this Islands, which practically resulted in a
settlement of the claim of the estate against the plaintiff herein, as shown by Exhibit 1 which is attached to the
record. Under the conditions of said settlement the plaintiff agreed to pay to said estate the sum of P16,000 in
order to extinguish his liability. Said agreement was made by the president of the family council who, in
accordance with the Spanish regulations, had charge of the settlement. It was subsequently approved by the
superior provost court, and since the inauguration of the civil government has been ratified in a suit in
connection with said Exhibit 1 which resulted in a judgement, in favor of the said estate for the amount
stipulated in said agreement, together with interest thereon.
At the trial of the case the defendant alleged that the plaintiff had no legal capacity to bring this action,
because the said president of the family council had no authority to enter into such an agreement, but I believe
that the actions of the representatives of the estate have repeatedly ratified the said agreement, even though
the president of the family council had no authority to make it, and that this defendant is so connected with the
events that he is not entitled to question the legal capacity of this plaintiff to maintain an action against him.

With reference to the first assignment of error to wit, that the court committed an error in deciding that the
plaintiff was the proper person to bring the present action it appears that the lower court held that the
agreement above referred to, by which the plaintiff became the owner of the account upon which the present
action was based, was agreed to an accepted not only by the heir of Pablo Ledesma, but also by the family
council. By this agreement the account was transferred to and became the property of the plaintiff herein, he
having settled his responsibility to the heirs by paying an amount agreed upon. He being the owner, therefore,
by reason of this agreement, he certainly was entitled to maintain an action to cover the said account. The
lower court, therefore, committed no error in holding that the plaintiff was the proper party to maintain the
present action.
With reference to the second assignment of error to wit, that the lower court committed an error in deciding
that the defendant was indebted to the plaintiff in the sum of P3,208.50 the lower court made an express
finding upon this question in the first paragraph of the decision above quoted. The appellant not having
brought the evidence to this court, we are bound by this finding of fact.
With reference to the third assignment of error to wit, that the lower court committed an error in rendering a
judgment against the defendant for the payment of interest upon the said amount of P3,208.50, from the 1st of
January, 1897 we are of the opinion, and so hold, that there are no facts in the decision to justify this
conclusion. Under the provisions of the Civil Code, the contract itself containing no provision for the payment
of interest, no interest could be collected upon the same until after a judicial or extrajudicial demand had been
made for the payment of the same. (Arts. 1755 and 1100, Civil Code; Manresa's Commentaries on the Civil
Code, vol. 8, page 56; La Compaia General de Tabacos de Filipinas vs. Araza, 7 Phil. Rep., 455.)
In the present case it does not appear that the account bore interest; neither does it appear that there was any
judicial or extrajudicial demand made by for the payment of the same until the commencement of the present
action, which was in the month of May, 1905. Therefore the plaintiff is not entitled to interest for any period
prior to the demand made by the commencement of the present action. (Bautista vs. Calixto, 7 Phil. Rep.,
733.)
The facts set out by the judge in his decision are not sufficient, therefore, to justify his conclusion that the
plaintiff was entitled to interest upon the said amount of P3,208.50, from the 1st of January, 1897.
The judgment of the lower court is, therefore, hereby modified, and it is hereby directed that a judgment be
entered in favor of the plaintiff and against the defendant for the sum of P3,208.50, with interest at the rate of 6
per cent per annum, from the 31st day of May, 1905, and costs.

G.R. No. 77648 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and ONG TENG, respondents.
G.R. No. 77647 August 7, 1989

CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and EDERLINA NAVALTA, respondents.
G.R. No. 77649 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and JOSE LIWANAG, respondents.
G.R. No. 77650 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and LEANDRO CANLAS, respondents.
G.R. No. 77651 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and VICTORIA SUDARIO respondents.
G.R. No.77652 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and FLORA NAGBUYA respondents.

MEDIALDEA, J.:
This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of Appeals in CAGR Nos. SP-07945-50 entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado T. Limcaoco, Presiding
Judge, Regional Trial Court of Manila, Branch Ederlina Navalta, et. al., respondents.

On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that they vacate
the subject premises and to pay the back rentals for the months of July, August and September, 1984, within
fifteen (15) days from the receipt thereof. Immediately upon the receipt of the said demand letters on October
10, 1984, the private respondents paid their respective arrearages in rent which were accepted by the
petitioner subject to the unilateral condition that the acceptance was without prejudice to the filing of an
ejectment suit. Subsequent monthly rental payments were likewise accepted by the petitioner under the same
condition.
For failure of the private respondents to vacate the premises as demanded in the letter dated October 9, 1984,
the petitioner filed with the Metropolitan Trial Court of Manila complaints for ejectment against the manner, as
follows: (1) 105972-CV, against Ederlina Navalta (2) 105973-CV, against Jose Liwanag; (3) 105974-CV,
against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976-CV, against Victoria Sudario and
(6) 105977-CV, against Ong Teng.
In their respective answers, the six (6) private respondents interposed a common defense. They claimed that
since the occupancy of the premises they paid their monthly rental regularly through a collector of the lessor;
that their non-payment of the rentals for the months of July, August and September, 1984, was due to the
failure of the petitioner (as the new owner) to send its collector; that they were at a loss as to where they
should pay their rentals; that sometime later, one of the respondents called the office of the petitioner to
inquire as to where they would make such payments and he was told that a collector would be sent to receive
the same; that no collector was ever sent by the petitioner; and that instead they received a uniform demand
letter dated October 9, 1984.
The private respondents, thru counsel, later filed a motion for consolidation of the six cases and as a result
thereof, the said cases were consolidated in the Metropolitan Trial Court of Manila, Branch XII, presided over
by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision dismissing the six
cases, a pertinent portion of which reads, as follows:
The records of this case show that at the time of the filing of this complaint, the rentals
had all been paid. Hence, the plaintiff cannot eject the defendants from the leased
premises, because at the time these cases were instituted, there are no rentals in
arrears.
The acceptance of the back rental by the plaintiff before the filing of the complaint, as
in these case, the alleged rental arrearages were paid immediately after receipt of the
demand letter, removes its cause of action in an unlawful detainer case, even if the
acceptance was without prejudice.
x x x.

The following facts appear in the records:

The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria Sudario, and
Flora Nagbuya were the lessees of the premises located at No. 512 Quezon Boulevard, Quiapo, Manila,
originally owned by the Susana Realty. These individual verbal leases were on a month-to month basis at the
following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the rate of P96.10; Jose Liwanag at the
rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria Sudario at the rate of P50.45 and Flora
Nagbuya at the rate of P80.55. The payments of the rentals were paid by the lessees to a collector of the
Susana Realty who went to the premises monthly.
Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus Development,
Inc., a corporation duly organized and existing under the laws of the Philippines. From April to June, 1984, the
private respondents continued to pay their monthly rentals to a collector sent by the petitioner. In the
succeeding months of July, August and September 1984, the respondents failed to pay their monthly individual
rentals as no collector came.

Furthermore, the court has observed that the account involved which constitutes the
rentals of the tenants are relatively small to which the ejectment may not lie on grounds
of equity and for humanitarian reasons.
Defendants' counterclaim for litigation expenses has no legal and factual basis for
assessing the same against plaintiff.
WHEREFORE, judgment is hereby rendered dismissing these cases, without
pronouncement as to costs.
Defendants' counterclaim is likewise dismissed.
SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)

Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional Trial
Court of Manila and the same was assigned to Branch IX thereof presided over by Judge Conrado T.
Limcaoco (now Associate Justice of the Court of Appeals).lwph1.t In its decision dated November 19,
1985, the Regional Trial Court dismissed the appeal for lack of merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner with the
Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition, assigning the
following errors:
ASSIGNMENT OF ERRORS
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN
HOLDING THAT THE CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE
CASES DID NOT EXIST WHEN THE COMPLAINTS WERE FILED BECAUSE
PRIVATE RESPONDENTS TENDERED, AND PETITIONER ACCEPTED, THE
PAYMENT OF THE THREE (3) MONTHS RENTAL IN ARREARS WITHIN THE
FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT OF
PETITIONER'S DEMAND LETTERS TO VACATE THE SUBJECT PREMISES AND TO
PAY THE RENTALS IN ARREARS.
II
RESPONDENT COURT OF APPEALS COMMITTED A GRAVEABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION COMMITTED A GRAVE
WHEN IT ERRED IN AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE
CASES NOTWITHSTANDING THE EXISTENCE OF VALID GROUNDS FOR THE
JUDICIAL EJECTMENT OF PRIVATE RESPONDENT.
III
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN
HOLDING THAT THESE CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE
RENT CONTROL LAW. (pp. 164-165, Rollo, G.R. No. 77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a cause of
action when the complaints for unlawful detainer were filed considering the fact that upon demand by
petitioner from private respondents for payment of their back rentals, the latter immediately tendered payment
which was accepted by petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the Rules of
Court, which provides:
Sec. 2. Landlord to proceed against tenant only after demand. No landlord or his
legal representative or assign, shall be such action against a tenant for failure to pay
rent due or to comply with the conditions of his lease, unless the tenant shall have
failed to pay such rent or comply with such conditions for a period of fifteen (15) days
or five (5) days in case of building, after demand therefor, made upon qqqm personally,
or by serving written notice of such demand upon the person found on the premises, or
by posting such notice on the premises if no persons be found thereon.

It interpreted the said provision as follows:

.....the right to bring an action of ejectment or unlawful detainer must be counted from
the time the defendants failed to pay rent after the demand therefor. It is not the failure
per se to pay rent as agreed in the contract, but the failure to pay the rent after a
demand therefor is made, that entitles the lessor to bring an action for unlawful
detainer. In other words, the demand contemplated by the above-quoted provision is
not a demand to vacate, but a demand made by the landlord upon his tenant for the
latter to pay the rent due if the tenant fails to comply with the said demand with the
period provided, his possession becomes unlawful and the landlord may then bring the
action for ejectment. (p. 28, , G.R. No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional requirement
for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with the conditions of
lease. It partakes of an extrajudicial remedy that must be pursued before resorting for judicial action so much
so that when there is full compliance with the demand, there arises no necessity for court action.
As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease or also a
demand to vacate, the answer can be gleaned from said Section 2. This section presupposes the existence of
a cause of action for unlawful detainer as it speaks of "failure to pay rent due or comply with the conditions of
the lease." The existence of said cause of action gives the lessor the right under Article 1659 of the New Civil
Code to ask for the rescission of the contract of lease and indemnification for damages, or only the latter,
allowing the contract to remain in force. Accordingly, if the option chosen is for specific performance, then the
demand referred to is obviously to pay rent or to comply with the conditions of the lease violated. However, if
rescission is the option chosen, the demand must be for the lessee to pay rents or to comply with the
conditions of the lease and to vacate. Accordingly, the rule that has been followed in our jurisprudence where
rescission is clearly the option taken, is that both demands to pay rent and to vacate are necessary to make a
lessee a deforciant in order that an ejectment suit may be filed (Casilan et al. vs. Tomassi, L-16574, February
28,1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423, Dikit vs. Icasiano, 89 Phil. 44).lwph1.t
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must be
failure to pay rent or comply with the conditions of the lease and (2) there must be demand both to pay or to
comply and vacate within the periods specified in Section 2, Rule 70, namely 15 days in case of lands and 5
days in case of buildings. The first requisite refers to the existence of the cause of action for unlawful detainer
while the second refers to the jurisdictional requirement of demand in order that said cause of action may be
pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no failure yet
on the part of private respondents to pay rents for three consecutive months. As the terms of the individual
verbal leases which were on a month-to-month basis were not alleged and proved, the general rule on
necessity of demand applies, to wit: there is default in the fulfillment of an obligation when the creditor
demands payment at the maturity of the obligation or at anytime thereafter. This is explicit in Article 1169, New
Civil Code which provides that "(t)hose obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation." Petitioner has not
shown that its case falls on any of the following exceptions where demand is not required: (a) when the
obligation or the law so declares; (b) when from the nature and circumstances of the obligation it can be
inferred that time is of the essence of the contract; and (c) when demand would be useless, as when the
obligor has rendered it beyond his power to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be proved. The
proof of this demand lies upon the creditor. Without such demand, oral or written, the effects of default do not
arise. This demand is different from the demand required under Section 2, Rule 70, which is merely a
jurisdictional requirement before an existing cause of action may be pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals when the obligation
matured. Coupled with the fact that no collector was sent as previously done in the past, the private
respondents cannot be held guilty of mora solvendi or delay in the payment of rentals. Thus, when petitioner
first demanded the payment of the 3-month arrearages and private respondents lost no time in making tender

and payment, which petitioner accepted, no cause of action for ejectment accrued. Hence, its demand to
vacate was premature as it was an exercise of a non-existing right to rescind.

DECISION
QUISUMBING, J.:

In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the demand
to pay and to vacate under Section 2, Rule 70 does not extinguish the cause of action for ejectment as the
lessor is not only entitled to recover the unpaid rents but also to eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the cause of
action for ejectment especially when accepted with the written condition that it was "without prejudice to the
filing of an ejectment suit". Indeed, it is illogical or ridiculous not to accept the tender of payment of rentals
merely to preserve the right to file an action for unlawful detainer. However, this line of argument presupposes
that a cause of action for ejectment has already accrued, which is not true in the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered a valid
defense for the reason that sending a collector is not one of the obligations of the lessor under Article 1654.
While it is true that a lessor is not obligated to send a collector, it has been duly established that it has been
customary for private respondents to pay the rentals through a collector. Besides Article 1257, New Civil Code
provides that where no agreement has been designated for the payment of the rentals, the place of payment is
at the domicile of the defendants. Hence, it could not be said that they were in default in the payment of their
rentals as the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's
omission or neglect to collect.
Petitioner also argues that neither is its refused to accept the rentals a defense for non-payment as Article
1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses without just cause
to accept it, the debtor shall be released from responsibility by the consignation of the thing due." It bears
emphasis that in this case there was no unjustified refusal on the part of petitioner or non-acceptance without
reason that would constitute mora accipiendi and warrant consignation. There was simply lack of demand for
payment of the rentals.

This petition for review assails the Decision [1] dated August 19, 1992, of the Court of Appeals, which set
aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case stemmed from a complaint
filed by the buyer (herein petitioner) against the seller (private respondent) for alleged breach of
contract. Although petitioner prevailed in the trial court, the appellate court reversed and instead found
petitioner guilty of delay and therefore liable for damages, as follows:
WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the
complaint with costs against the plaintiff (herein petitioner) and, on the counterclaim, ordering the plaintiff
Aerospace Chemical Industries, Inc. to pay the defendant, Philippine Phosphate Fertilizer Corporation the sum
of P324,516.63 representing the balance of the maintenance cost and tank rental charges incurred by the
defendant for the failure of the plaintiff to haul the rest of the sulfuric acid on the designated date.
Costs against plaintiff-appellee. [2]
As gleaned from the records, the following are the antecedents:
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500)
metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation
(Philphos). The contract[3] was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.

In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion amounting to lack
of jurisdiction in its conclusion affirming the trial court's decision dismissing petitioner's complaint for lack of
cause of action. We do not agree, however, with the reasons relied upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the decision dated
January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED.

203 E. Fernandez St.

San Juan, Metro Manila
Attention : Mr. Melecio Hernandez

SO ORDERED.
Manager.
Subject

: Sulfuric Acid Shipment

Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms and
conditions:
A. Commodity

[G.R. No. 108129. September 23, 1999]

AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs. COURT OF APPEALS, PHILIPPINE
PHOSPHATE FERTILIZER, CORP., respondents.

: Sulfuric Acid in Bulk

B. Concentration

: 98-99% H2SO4

C. Quantity

: 500MT -100 MT Ex-Basay

400 MT Ex-Sangi

D. Price

: US$50.00/MT - FOB Cotcot, Basay, Negros Or.

US$54.00/MT - FOB Sangi, Cebu

E. Payment
: Cash in Philippine currency payable to Philippine Phosphate Fertilizer Corp.
(MAKATI) at PCIB selling rate at the time of payment at least five (5) days prior to shipment date

areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said vessel heavily
tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter, the vessel
underwent repairs.
In a demand letter[5] dated December 12, 1986, private respondent asked petitioner to retrieve the
remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December 15,
1986. Private respondent said that it would charge petitioner the storage and consequential costs for the
Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to comply.

F. Shipping Conditions
1. Laycan

: July

2. Loadport

: Cotcot, Basay, Negros Or. and

On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51 MT
of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports conducted by the
Societe Generale de Surveillance (SGS) Far East Limited, dated December 17, 1986 and January 2, 1987,
attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of
sulfuric acid on board.

Atlas Pier, Sangi, Cebu

xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,

Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT.[6] On
January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to private
respondent, concerning additional orders of sulfuric acid to replace its sunken purchases, which letters are
hereunder excerpted:
January 26, 1987

Philippine Phosphate Fertilizer Corp.

Signed: Herman J. Rustia

xxx
We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the balance
approximately 272.49 MT.

Sr. Manager, Materials & Logistics

CONFORME:

We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and we are
willing to pay the additional order at the prevailing market price, provided the lifting of the total 500 MT be
centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu.[7]

AEROSPACE INDUSTRIES, INC.

March 20, 1987
Signed: Mr. Melecio Hernandez
Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in
equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer committed to
secure the means of transport to pick-up the purchases from private respondents loadports. Per agreement,
one hundred metric tons (100 MT) of sulfuric acid should be taken from Basay, Negros Oriental storage tank,
while the remaining four hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter [4] to petitioner to withdraw the sulfuric
acid purchased at Basay because private respondent had been incurring incremental expense of two
thousand (P2,000.00) pesos for each day of delay in shipment.
On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head
Services. The vessel was assigned to carry the agreed volumes of freight from designated loading

This refers to the remaining balance of the above product quantity which were not loaded to the authorized
cargo vessel, M/T Sultan Kayumanggi at your loadport - Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the month of April 1987 and we are
arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49 MT an additional
product quantity thereof of 227.51 MT.[8]
Petitioners letter[9] dated May 15, 1987, reiterated the same request to private respondent.
On January 25, 1988, petitioners counsel, Atty. Pedro T. Santos, Jr., sent a demand letter [10] to private
respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the return of the purchase
price of three hundred seven thousand five hundred thirty (P307,530.00) pesos. Private respondent in reply,
[11]
on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric acid from Basay, or pay
maintenance and storage expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of
272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner it had paid the chartered
vessel for the full capacity of 500 MT, stating that:

With regard to our balance of sulfuric acid - product at your shore tank/plant for 272.49 metric ton that was left
by M/T Sultana Kayumanggi due to her sinking, we request for an additional quantity of 227.51 metric ton of
sulfuric acid, 98% concentration.
The additional quantity is requested in order to complete the shipment, as the chartered vessel schedule to lift
the high grade sulfuric acid product is contracted for her full capacity/load which is 500 metric tons more or
less.

Sangi - Tank Rental

from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.)

384,000.00

Receivable/Counterclaim
We are willing to pay the additional quantity - 227.51 metric tons high grade sulfuric acid in the prevailing price
of the said product.[12]

(628,000.00)
(P324,516.63)

Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioners favor,
disposing as follows:

xxx
By telephone, petitioner requested private respondents Shipping Manager, Gil Belen, to get its
additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. [13] Belen relayed the information to his associate,
Herman Rustia, the Senior Manager for Imports and International Sales of private respondent. In a letter
dated July 22, 1988, Rustia replied:
Subject:

Sulfuric Acid Ex-Isabel

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the latter to
pay the former the following sums:
1. P306,060.77 - representing the value of the undelivered 272.49 metric tons of sulfuric acid
plaintiff paid to defendant;
2. P91,818.23 - representing unrealized profits, both items with 12% interest per annum from
May 4, 1989, when the complaint was filed until fully paid;

Gentlemen:
3. P30,000.00 - as exemplary damages; and
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot
accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed
arrival of imported Sulfuric Acid from Japan. [14]
On July 25, 1988, petitioners counsel wrote to private respondent another demand letter for the
delivery of the purchases remaining, or suffer tedious legal action his client would commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the
Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with counterclaim, stating that it
was the petitioner who was remiss in the performance of its obligation in arranging the shipping requirements
of its purchases and, as a consequence, should pay damages as computed below:
Advanced Payment by Aerospace (Oct. 3, 1986)

P553,280.00

P 72,830.36

151.51 MT sulfuric acid

176,966.27

Balance

Defendants counterclaims are hereby dismissed for lack of merit.

Costs against defendant.[15]
In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to pickup the remaining sulfuric acid because its failure was due to force majeure. According to the trial court, it was
private respondent who committed a breach of contract when it failed to accommodate the additional order of
the petitioner, to replace those that sank in the sea, thus:
To begin with, even if we assume that it is incumbent upon the plaintiff to lift the sulfuric acid it ordered from
defendant, the fact that force majeure intervened when the vessel which was previouly (sic) listing, but which
the parties, including a representative of the defendant, did not mind, sunk, has the effect of absolving plaintiff
from lifting the sulfuric acid at the designated load port. But even assuming the plaintiff cannot be held
entirely blameless, the allegation that plaintiff agreed to a payment of a 2,000-peso incremental expenses per
day to defendant for delayed lifting has not been proven. ...

Less Shipments
70.009 MT sulfuric acid

4. P30,000.00 - as attorneys fees and litigation expenses, both last items also with 12% interest
per annum from date hereof until fully paid.

(249,796.63)

P303,483.37

Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second additional order
after the transaction in litigation? Why also, did defendant not send plaintiff statements of account until after 3
years?

Less Charges
All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods which
the latter did not actually receive. [16]

Basay Maintenance Expense

On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as
follows:

from Aug. 15 to Dec. 15, 1986

(P2,000.00/day x 122 days)

P244,000.00

Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation to
withdraw the full amount of 500 MT of sulfuric acid from the defendants loadport at Basay and Sangi on or
before August 15, 1986. As early as August 6, 1986 it had been accordingly warned by the defendant that any
delay in the hauling of the commodity would mean expenses on the part of the defendant amounting to
P2,000.00 a day. The plaintiff sent its vessel, the M/T Sultan Kayumanggi, only on November 19, 1987. The
vessel, however, was not capable of loading the entire 500 MT and in fact, with its load of only 227.519 MT, it
sank.
Contrary to the position of the trial court, the sinking of the M/T Sultan Kayumanggi did not absolve the
plaintiff from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It was the
plaintiffs duty to charter another vessel for the purpose. It did contract for the services of a new vessel, the
M/T Don Victor, but did not want to lift the balance of 272.481 MT only but insisted that its additional order of
227.51 MT be also given by the defendant to complete 500 MT. apparently so that the vessel may be availed
of in its full capacity.
xxx
We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only for the
cost of the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as well as
exemplary damages and attorneys fees. [17]

RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN THE SALE
INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE AND MAINTENANCE
ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR PETITIONER
AFFIRMING THE DECISION OF THE TRIAL COURT.
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows:
1. Did the respondent court err in holding that the petitioner committed breach of contract,
considering that:
a)
the petitioner allegedly paid the full value of its purchases, yet received only a
portion of said purchases?
b)
petitioner and private respondent allegedly had also agreed for the purchase and
supply of an additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been
waived?

Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of
its obligation. It dismissed the complaint of petitioner and ordered it to pay damages representing the
counterclaim of private respondent.

2. Did the respondent court err in awarding damages to private respondent?

The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution
dated December 21, 1992, for lack of merit.

3. Should expenses for the storage and preservation of the purchased fungible goods, namely
sulfuric acid, be on sellers account pursuant to Article 1504 of the Civil Code?

Petitioner now comes before us, assigning the following errors:

I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO HAVE
COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER PAID IN FULL
THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE RESPONDENT BUT THE LATTER WAS ABLE
TO DELIVER TO PETITIONER ONLY 227.51 M.T.
II.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE FOR
DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN ALLEGED
AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY WHEN PRIVATE
RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION OF THE RULES ON
EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED FACTS THAT
PETITIONERS PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE RESPONDENT WITHOUT ANY
QUALIFICATION AND THAT PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT TO SUPPLY
PETITIONER 227.519 MT OF SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS
PROOF THAT ANY DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.

To resolve these issues, petitioner urges us to review factual findings of respondent court and its
conclusion that the petitioner was guilty of delay in the performance of its obligation. According to petitioner,
that conclusion is contrary to the factual evidence. It adds that respondent court disregarded the rule that
findings of the trial court are given weight, with the highest degree of respect. Claiming that respondent
courts findings conflict with those of the trial court, petitioner prays that the trial courts findings be upheld over
those of the appellate court.
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal
thereof, or on October 3, 1986, hence, it had complied with the primary condition set in the sales
contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to a storm, a force
majeure, which sank the vessel. It thus claims exemption from liability to pay damages. Petitioner also
contends that it was actually the private respondents shipping officer, who advised petitioner to buy the
additional 227.51 MT of sulfuric acid, so as to fully utilize the capacity of the vessel it chartered. Petitioner
insists that when its ship was ready to pick-up the remaining balance of 272.49 MT of sulfuric acid, private
respondent could not comply with the contract commitment due to pyrite limitation.
While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of
the trial court,[18] this Court may review those findings, we find the appellate courts conclusion that petitioner
violated the subject contract amply supported by preponderant evidence. Petitioners claim was predicated
merely on the allegations of its employee, Melecio Hernandez, that the storm or force majeure caused the
petitioners delay and failure to lift the cargo of sulfuric acid at the designated loadports. In contrast, the
appellate court discounted Hernandez assertions. For on record, the storm was not the proximate cause of
petitioners failure to transport its purchases on time. The survey report submitted by a third party surveyor,
SGS Far East Limited, revealed that the vessel, which was unstable, was incapable of carrying the full load of
sulfuric acid. Note that there was a premature termination of loading in Basay, Negros Oriental. The vessel
had to undergo several repairs before continuing its voyage to pick-up the balance of cargo at Sangi,
Cebu. Despite repairs, the vessel still failed to carry the whole lot of 500 MT of sulfuric acid due to ship
defects like listing to one side. Its unfortunate sinking was not due to force majeure. It sunk because it was,
based on SGS survey report, unstable and unseaworthy.

Witness surveyor Eugenio Rabes incident report, dated December 13, 1986 in Basay, Negros Oriental,
elucidated this point:
Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was
temporarily stopped by the vessels master due to ships stability was heavily tilted to port side, ships had tried
to transfer the loaded acid to stbdside but failed to do so, due to their auxiliary pump on board does not work
out for acid.
xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel Declared
quantity loaded onboard based on datas provided by PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay to assist the situation, at 1300Hrs
repairing and/or welding of tank number 5 started at 1000Hrs November 27, repairing and/or welding was
suspended due to the explosion of tank no. 5. Explosion ripped about two feet of the double bottom tank.

Respondent court found petitioners default unjustified, and on this conclusion we agree:
It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance of the
original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as early as August 15,
1986. What the defendant could not sell to the plaintiff was the additional 227.51 MT which said plaintiff was
ordering, for the reason that the defendant was short of the supply needed. The defendant, however, had no
obligation to agree to this additional order and may not be faulted for its inability to meet the said additional
requirements of the plaintiff. And the defendants incapacity to agree to the delivery of another 227.51 MT is
not a legal justification for the plaintiffs refusal to lift the remaining 272.481.
It is clear from the plaintiffs letters to the defendant that it wanted to send the M/T Don Victor only if the
defendant would confirm that it was ready to deliver 500 MT. Because the defendant could not sell another
227.51 MT to the plaintiff, the latter did not send a new vessel to pick up the balance of the 500 MT originally
contracted for by the parties. This, inspite the representations made by the defendant for the hauling thereof
as scheduled and its reminders that any expenses for the delay would be for the account of the plaintiff. [24]
We are therefore constrained to declare that the respondent court did not err when it absolved private
respondent from any breach of contract.

November 27 up to date no progress of said vessel[19]

While at Sangi, Cebu, the vessels condition (listing) did not improve as the survey report therein noted:
Declared quantity loaded on board was based on shore tank withdrawal due to ships incomplete tank
calibration table. Barge displacement cannot be applied due to ship was listing to Stboard side which has
been loaded with rocks to control her stability. [20]
These two vital pieces of information were totally ignored by trial court. The appellate court correctly
took these into account, significantly. As to the weather condition in Basay, the appellate court accepted
surveyor Rabes testimony, thus:
Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the loading
operation of sulfuric acid on board the Sultana Kayumanggi?
A. Fair, sir.[21]
Since the third party surveyor was neither petitioners nor private respondents employee, his
professional report should carry more weight than that of Melecio Hernandez, an employee of
petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping requirements of
the cargo from the private respondents loadports to the petitioners designated warehouse. It was petitioner
which chartered M/T Sultan Kayumanggi. The vessel was petitioners agent. When it failed to comply with the
necessary loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T
Sultan Kayumanggi with another seaworthy vessel. However, despite repeated demands, petitioner did not
comply seasonably.
Additionally, petitioner claims that private respondents employee, Gil Belen, had recommended to
petitioner to fully utilize the vessel, hence petitioners request for an additional order to complete the vessels
500 MT capacity. This claim has no probative pertinence nor solid basis. A party who asserts that a contract
of sale has been changed or modified has the burden of proving the change or modification by clear and
convincing evidence.[22] Repeated requests and additional orders were contained in petitioners letters to
private respondent. In contrast, Belens alleged action was only verbal; it was not substantiated at all during
the trial. Note that, using the vessel to full capacity could redound to petitioners advantage, not the other
partys. If additional orders were at the instance of private respondent, the same must be properly proved
together with its relevance to the question of delay. Settled is the principle in law that proof of verbal
agreements offered to vary the terms of written agreements is inadmissible, under the parol evidence rule.
[23]
Belens purported recommendation could not be taken at face value and, obviously, cannot excuse
petitioners default.

Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified
delay in the performance of its obligation under the contract. Where there has been breach of contract by the
buyer, the seller has a right of action for damages. Following this rule, a cause of action of the seller for
damages may arise where the buyer refuses to remove the goods, such that buyer has to remove them.
[25]
Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in
any manner contravene the tenor thereof, are liable for damages.
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation.[26] Art. 1169 states:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
In order that the debtor may be in default, it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that
the creditor requires the performance judicially or extrajudicially.[27]
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed,
otherwise petitioner would be charged for the consequential damages owing to any delay. As stated in private
respondents letter to petitioner, dated December 12, 1986:
Subject

M/T KAYUMANGGI

Gentlemen:
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986
regarding your sulfuric acid vessel, M/T KAYUMANGGI.
As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th
December 1986 as we are expecting the arrival of our chartered vessel purportedly to haul
our equipments and all other remaining assets in Basay. This includes our sulfuric acid
tanks. We regret, therefore, that if these tanks are not emptied on or before the 15th of
December, we either have to charge you for the tanks waiting time at Basay and its

consequential costs (i.e. chartering of another vessel for its second pick-up at Basay,
handling, etc.) as well as all other incremental costs on account of the protracted loading
delay.[28] (Italics supplied)

But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come in to
make it liable for the damages sought by the defendant.
Article 1170 of the Civil Code provides:

Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such delay
begin? The above letter constitutes private respondents extrajudicial demand for the petitioner to fulfill its
obligation, and its dateline is significant. Given its date, however, we cannot sustain the finding of the
respondent court that petitioners delay started on August 6, 1986. The Court of Appeals had relied on private
respondents earlier letter to petitioner of that date for computing the commencement of delay. But as averred
by petitioner, said letter of August 6th is not a categorical demand. What it showed was a mere statement of
fact, that [F]for your information any delay in Sulfuric Acid withdrawal shall cost us incremental expenses of
P2,000.00 per day. Noteworthy, private respondent accepted the full payment by petitioner for purchases on
October 3, 1986, without qualification, long after the August 6th letter. In contrast to the August 6th letter, that
of December 12th was a categorical demand.
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the
remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to travel
between Basay and Sangi. Logically, the computation of damages arising from the shipping delay would then
have to be from December 15, 1986, given said reasonable period after the December 12th letter. More
important, private respondent was forced to vacate Basay wharf only on December 15th. Its Basay expenses
incurred before December 15, 1986, were necessary and regular business expenses for which the petitioner
should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August
31, 1987, solely for petitioners sulfuric acid. It stands to reason that petitioner should reimburse private
respondents rental expenses of P32,000 monthly, commencing December 15, 1986, up to August 31, 1987,
the period of the extended lease. Note further that there is nothing on record refuting the amount of expenses
abovecited. Private respondent presented in court two supporting documents: first, the lease agreement
pertaining to the equipment, and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to
private respondent representing the rental charges incurred. Private respondent is entitled to recover the
payment for these charges. It should be reimbursed the amount of two hundred seventy two thousand
(P272,000.00)[29] pesos, corresponding to the total amount of rentals from December 15, 1986 to August 31,
1987 of the Sangi, Cebu storage tank.
Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other
damages by arguing that expenses for the preservation of fungible goods must be assumed by the
seller. Rental expenses of storing sulfuric acid should be at private respondents account until ownership is
transferred, according to petitioner. However, the general rule that before delivery, the risk of loss is borne by
the seller who is still the owner, is not applicable in this case because petitioner had incurred delay in the
performance of its obligation. Article 1504 of the Civil Code clearly states:
Unless otherwise agreed, the goods remain at the sellers risk until the ownership therein is transferred to the
buyer, but when the ownership therein is transferred to the buyer the goods are at the buyers risk whether
actual delivery has been made or not, except that:

Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those who in
any manner contravene the tenor thereof, are liable for damages..
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its obligation
to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its letter-contract with the
defendant.[30]
As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary
extrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. When petitioner failed
to comply with its obligations under the contract it became liable for its shortcomings. Petitioner is indubitably
liable for proven damages.
Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the
amount of three hundred three thousand, four hundred eighty three pesos and thirty seven centavos
(P303,483.37), it is proper to set-off this amount against the rental expenses initially paid by private
respondent. It is worth noting that the adjustment and allowance of private respondents counterclaim or setoff in the present action, rather than by another independent action, is encouraged by the law. Such practice
serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and unwarranted consumption
of the courts time.[31] The trend of judicial decisions is toward a liberal extension of the right to avail of
counterclaims or set-offs.[32] The rules on counterclaims are designed to achieve the disposition of a whole
controversy involving the conflicting claims of interested parties at one time and in one action, provided all
parties can be brought before the court and the matter decided without prejudicing the right of any party.
[33]
Set-off in this case is proper and reasonable. It involves deducting P272,000.00 (rentals) from P303,483.37
(advance payment), which will leave the amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA
G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor of
private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is also
ORDERED that said amount of damages be OFFSET against petitioners advance payment of Three hundred
three thousand four hundred eighty three pesos and thirty-seven centavos (P303,483.37) representing the
price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one
thousand, four hundred eighty three pesos and thirty seven centavos (P31,483.37) be RETURNED soonest by
private respondent to herein petitioner.
Costs against the petitioner.
SO ORDERED.

xxx

[G.R. No. 153004. November 5, 2004]

(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the
risk of the party at fault. (italics supplied)

SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner, vs. ERNESTO V. SANTOS and
RIVERLAND, INC., respondents
DECISION

On this score, we quote with approval the findings of the appellate court, thus:
. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would have to
bear the said expenses for failure to lift the commodity for an unreasonable length of time.

QUISUMBING, J.:

Subject of the present petition for review on certiorari is the Decision,[1] dated January 30, 2002, as well
as the April 12, 2002, Resolution[2] of the Court of Appeals in CA-G.R. CV No. 55122. The appellate court
reversed the Decision,[3] dated October 4, 1996, of the Regional Trial Court of Makati City, Branch 148, in Civil
Case No. 95-811, and likewise denied petitioners Motion for Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were the plaintiff and
defendant, respectively, in several civil cases filed in different courts in the Philippines. On October 26, 1990,
the parties executed a Compromise Agreement[4] which amicably ended all their pending litigations. The
pertinent portions of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in the following manner:
a.

P1.5 Million immediately upon the execution of this agreement;

b.

The balance of P13 Million shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a period of not more
than two (2) years from the execution of this agreement; provided, however,
that in the event that the Foundation does not pay the whole or any part of
such balance, the same shall be paid with the corresponding portion of the
land or real properties subject of the aforesaid cases and previously covered
by the notices of lis pendens, under such terms and conditions as to area,
valuation, and location mutually acceptable to both parties; but in no case
shall the payment of such balance be later than two (2) years from the date of
this agreement; otherwise, payment of any unpaid portion shall only be in the
form of land aforesaid;

2. Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million),
plaintiff Santos shall cause the dismissal with prejudice of Civil Cases Nos. 88-743,
1413OR, TC-1024, 45366 and 18166 and voluntarily withdraw the appeals in Civil Cases
Nos. 4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No. 24304) respectively and for
the immediate lifting of the aforesaid various notices of lis pendens on the real properties
aforementioned (by signing herein attached corresponding documents, for such lifting) ;
provided, however, that in the event that defendant Foundation shall sell or dispose of any
of the lands previously subject of lis pendens, the proceeds of any such sale, or any part
thereof as may be required, shall be partially devoted to the payment of the Foundations
obligations under this agreement as may still be subsisting and payable at the time of any
such sale or sales;
...
5. Failure of compliance of any of the foregoing terms and conditions by either or both parties to
this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a
writ of execution for the enforcement of this agreement. [Emphasis supplied][5]
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13
million.

On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay
the balance of P13 million. There was no response from petitioner. Consequently, respondent Santosapplied
with the Regional Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of its
compromise judgment dated September 30, 1991. The RTC granted the writ. Thus, on March 10, 1993, the
Sheriff levied on the real properties of petitioner, which were formerly subjects of the lis pendens. Petitioner,
however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of
the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile.
On November 22, 1994, petitioners real properties located in Mabalacat, Pampanga were auctioned. In
the said auction, Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale
covering the real properties subject of the auction sale. Subsequently, another auction sale was held
on February 8, 1995, for the sale of real properties of petitioner in Bacolod City. Again, Riverland, Inc. was the
highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption within
one year from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and
Damages[7]alleging that there was delay on the part of petitioner in paying the balance of P13 million. They
further alleged that under the Compromise Agreement, the obligation became due on October 26, 1992, but
payment of the remaining P12 million was effected only on November 22, 1994. Thus, respondents prayed
that petitioner be ordered to pay legal interest on the obligation, penalty, attorneys fees and costs of
litigation. Furthermore, they prayed that the aforesaid sales be declared final and not subject to legal
redemption.
In its Answer,[8] petitioner countered that respondents have no cause of action against it since it had
fully paid its obligation to the latter. It further claimed that the alleged delay in the payment of the balance was
due to its valid exercise of its rights to protect its interests as provided under the Rules. Petitioner
counterclaimed for attorneys fees and exemplary damages.
On October 4, 1996, the trial court rendered a Decision[9] dismissing herein respondents complaint and
ordering them to pay attorneys fees and exemplary damages to petitioner. Respondents then appealed to the
Court of Appeals. The appellate court reversed the ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed Decision is hereby REVERSED and judgment is
hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal interest on
the principal amount of P13 million at the rate of 12% per annum from the date of demand on October 28,
1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as attorneys fees and costs of
suit.
SO ORDERED.
Hence this petition for review on certiorari where petitioner assigns the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN
IT AWARDED LEGAL INTEREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT NEITHER IN THE COMPROMISE
AGREEMENT NOR IN THE COMPROMISE JUDGEMENT OF HON. JUDGE DIOKNO
PROVIDES FOR PAYMENT OF INTEREST TO THE RESPONDENT
II

Subsequently, petitioner SVHFI sold to Development Exchange Livelihood Corporation two real
properties, which were previously subjects of lis pendens. Discovering the disposition made by the petitioner,
respondent Santos sent a letter to the petitioner demanding the payment of the remaining P13 million, which
was ignored by the latter. Meanwhile, on September 30, 1991, the Regional Trial Court ofMakati City, Branch
62, issued a Decision[6] approving the compromise agreement.

WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING LEGAL IN[T]EREST

IN FAVOR OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC.,
NOTWITHSTANDING THE FACT THAT THE OBLIGATION OF THE PETITIONER TO

RESPONDENT SANTOS TO PAY A SUM OF MONEY HAD BEEN CONVERTED TO AN

OBLIGATION TO PAY IN KIND DELIVERY OF REAL PROPERTIES OWNED BY THE
PETITIONER WHICH HAD BEEN FULLY PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING PAYMENT OF
INTEREST BY REASON OF THE WAIVER PROVISION IN THE COMPROMISE
AGREEMENT, WHICH BECAME THE LAW AMONG THE PARTIES[10]
The only issue to be resolved is whether the respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise agreement or compromise judgment does not
provide for the payment of interest, the legal interest by way of penalty on account of fault or delay shall not be
due and payable, considering that the obligation or loan, on which the payment of legal interest could be
based, has been superseded by the compromise agreement. [11] Furthermore, the petitioner argues that the
respondents are barred by res judicata from seeking legal interest on account of the waiver clause in the duly
approved compromise agreement.[12] Article 4 of the compromise agreement provides:
Plaintiff Santos waives and renounces any and all other claims that he and his family may have on the
defendant Foundation arising from and in connection with the aforesaid civil cases, and defendant Foundation,
on the other hand, also waives and renounces any and all claims that it may have against plaintiff Santos in
connection with such cases.[13] [Emphasis supplied.]
Lastly, petitioner alleges that since the compromise agreement did not provide for a period within which
the obligation will become due and demandable, it is incumbent upon respondent Santos to ask for judicial
intervention for purposes of fixing the period. It is only when a fixed period exists that the legal interests can
be computed.
Respondents profer that their right to damages is based on delay in the payment of the obligation
provided in the Compromise Agreement. The Compromise Agreement provides that payment must be made
within the two-year period from its execution. This was approved by the trial court and became the law
governing their contract. Respondents posit that petitioners failure to comply entitles them to damages, by
way of interest.[14]
The petition lacks merit.
A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or
put an end to one already commenced. [15] It is an agreement between two or more persons, who, for
preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they
agree on, and which everyone of them prefers in the hope of gaining, balanced by the danger of losing. [16]
The general rule is that a compromise has upon the parties the effect and authority of res judicata, with
respect to the matter definitely stated therein, or which by implication from its terms should be deemed to have
been included therein.[17] This holds true even if the agreement has not been judicially approved. [18]
In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990.[19]It
was judicially approved on September 30, 1991.[20] Applying existing jurisprudence, the compromise
agreement as a consensual contract became binding between the parties upon its execution and not upon its
court approval. From the time a compromise is validly entered into, it becomes the source of the rights and
obligations of the parties thereto. The purpose of the compromise is precisely to replace and terminate
controverted claims.[21]
In accordance with the compromise agreement, the respondents asked for the dismissal of the pending
civil cases. The petitioner, on the other hand, paid the initial P1.5 million upon the execution of the

agreement. This act of the petitioner showed that it acknowledges that the agreement was immediately
executory and enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and
unambiguous. It provides:
...
b. The balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the
Foundation, within a period of not more than two (2) years from the execution of this agreement
[22]
[Emphasis supplied.]
...
The two-year period must be counted from October 26, 1990, the date of execution of the compromise
agreement, and not on the judicial approval of the compromise agreement on September 30, 1991. When
respondents wrote a demand letter to petitioner on October 28, 1992, the obligation was already due and
demandable. When the petitioner failed to pay its due obligation after the demand was made, it incurred
delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation. [Emphasis supplied]
Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of
obligations. It is the non-fulfillment of the obligation with respect to time. [23]
In order for the debtor to be in default, it is necessary that the following requisites be present: (1) that
the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or extrajudicially.[24]
In the case at bar, the obligation was already due and demandable after the lapse of the two-year
period from the execution of the contract. The two-year period ended on October 26, 1992. When the
respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and
demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to
pay and when he is to pay it.
The second requisite is also present. Petitioner delayed in the performance. It was able to fully settle
its outstanding balance only on February 8, 1995, which is more than two years after the extra-judicial
demand. Moreover, it filed several motions and elevated adverse resolutions to the appellate court to hinder
the execution of a final and executory judgment, and further delay the fulfillment of its obligation.
Third, the demand letter sent to the petitioner on October 28, 1992, was in accordance with an extrajudicial demand contemplated by law.
Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This is
provided for in Article 1170[25] of the New Civil Code.
When the debtor knows the amount and period when he is to pay, interest as damages is generally
allowed as a matter of right. [26] The complaining party has been deprived of funds to which he is entitled by
virtue of their compromise agreement. The goal of compensation requires that the complainant be
compensated for the loss of use of those funds. This compensation is in the form of interest. [27] In the absence

of agreement, the legal rate of interest shall prevail. [28] The legal interest for loan as forbearance of money is
12% per annum[29] to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.[30]
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the
Court of Appeals and its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against
petitioner.

Under the MOA, Ayala was to develop the entire property, less what was defined as the "Retained
Area" consisting of 18,736 square meters. This "Retained Area" was to be retained by the Vazquez
spouses. The area to be developed by Ayala was called the "Remaining Area". In this "Remaining
Area" were 4 lots adjacent to the "Retained Area" and Ayala agreed to offer these lots for sale to
the Vazquez spouses at the prevailing price at the time of purchase. The relevant provisions of the
MOA on this point are:
"5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to
complete the first phase under its amended development plan within three (3) years from the date
of this Agreement. x x x"

SO ORDERED.

5.15. The BUYER agrees to give the SELLERS a first option to purchase four developed lots next
to the "Retained Area" at the prevailing market price at the time of the purchase."
The parties are agreed that the development plan referred to in paragraph 5.7 is not Conduit's
development plan, but Ayala's amended development plan which was still to be formulated as of
the time of the MOA. While in the Conduit plan, the 4 lots to be offered for sale to the Vasquez
Spouses were in the first phase thereof or Village 1, in the Ayala plan which was formulated a year
later, it was in the third phase, or Phase II-c.
G.R. No. 149734

November 19, 2004

Under the MOA, the Vasquez spouses made several express warranties, as follows:

DR. DANIEL VAZQUEZ and MA. LUIZA M. VAZQUEZ, petitioners,

vs.
AYALA CORPORATION, respondent.

"3.1. The SELLERS shall deliver to the BUYER:

xxx

DECISION

3.1.2. The true and complete list, certified by the Secretary and Treasurer of the Company
showing:
xxx

TINGA, J.:

D. A list of all persons and/or entities with whom the Company has pending contracts, if any.

The rise in value of four lots in one of the country's prime residential developments, Ayala Alabang Village in
Muntinlupa City, over a period of six (6) years only, represents big money. The huge price difference lies at the
heart of the present controversy. Petitioners insist that the lots should be sold to them at 1984 prices while
respondent maintains that the prevailing market price in 1990 should be the selling price.
Dr. Daniel Vazquez and Ma. Luisa Vazquez1 filed this Petition for Review on Certiorari 2 dated October 11, 2001
assailing the Decision3 of the Court of Appeals dated September 6, 2001 which reversed the Decision 4 of the
Regional Trial Court (RTC) and dismissed their complaint for specific performance and damages against Ayala
Corporation.
Despite their disparate rulings, the RTC and the appellate court agree on the following antecedents: 5
On April 23, 1981, spouses Daniel Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez
spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation (hereafter,
AYALA) with AYALA buying from the Vazquez spouses, all of the latter's shares of stock in Conduit
Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in
Ayala Alabang, Muntinlupa, which was then being developed by Conduit under a development
plan where the land was divided into Villages 1, 2 and 3 of the "Don Vicente Village." The
development was then being undertaken for Conduit by G.P. Construction and Development Corp.
(hereafter, GP Construction).

xxx
3.1.5. Audited financial statements of the Company as at Closing date.
4. Conditions Precedent
All obligations of the BUYER under this Agreement are subject to fulfillment prior to or at the
Closing, of the following conditions:
4.1. The representations and warranties by the SELLERS contained in this Agreement shall be
true and correct at the time of Closing as though such representations and warranties were made
at such time; and
xxx
6. Representation and Warranties by the SELLERS

The SELLERS jointly and severally represent and warrant to the BUYER that at the time of the
execution of this Agreement and at the Closing:
xxx
6.2.3. There are no actions, suits or proceedings pending, or to the knowledge of the SELLERS,
threatened against or affecting the SELLERS with respect to the Shares or the Property; and
7. Additional Warranties by the SELLERS
7.1. With respect to the Audited Financial Statements required to be submitted at Closing in
accordance with Par. 3.1.5 above, the SELLER jointly and severally warrant to the BUYER that:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company
shall own the "Remaining Property", free from all liens and encumbrances and that the Company
shall have no obligation to any party except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in
accordance with Par. 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date thereof, has
no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in
respect of the Company's income prior to Closing or arising out of transactions or state of facts
existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at closing or any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative body, nor
do the SELLERS know or have reasonable grounds to know of any basis for any such action or
proceeding or of any governmental investigation relative to the Company.
7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement to
which the company is a party or by which it is bound, and no condition exists which, with notice or
lapse of time or both, will constitute such default or breach."
After the execution of the MOA, Ayala caused the suspension of work on Village 1 of the Don
Vicente Project. Ayala then received a letter from one Maximo Del Rosario of Lancer General
Builder Corporation informing Ayala that he was claiming the amount of P1,509,558.80 as the
subcontractor of G.P. Construction...
G.P. Construction not being able to reach an amicable settlement with Lancer, on March 22, 1982,
Lancer sued G.P. Construction, Conduit and Ayala in the then Court of First Instance of Manila in
Civil Case No. 82-8598. G.P. Construction in turn filed a cross-claim against Ayala. G.P.
Construction and Lancer both tried to enjoin Ayala from undertaking the development of the
property. The suit was terminated only on February 19, 1987, when it was dismissed with prejudice
after Ayala paid both Lancer and GP Construction the total of P4,686,113.39.

Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area" within
3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters of the
approaching so-called deadline. However, no demand after April 23, 1984, was ever made by the
Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by their
authorized agent, Engr. Eduardo Turla, categorically stated that they expected "development of
Phase 1 to be completed by February 19, 1990, three years from the settlement of the legal
problems with the previous contractor."
By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale. The
four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This
was rejected by the Vasquez spouses who wanted to pay at 1984 prices, thereby leading to the
suit below.
After trial, the court a quo rendered its decision, the dispositive portion of which states:
"THEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant, ordering
defendant to sell to plaintiffs the relevant lots described in the Complaint in the Ayala Alabang
Village at the price of P460.00 per square meter amounting to P1,349,540.00; ordering defendant
to reimburse to plaintiffs attorney's fees in the sum of P200,000.00 and to pay the cost of the suit."
In its decision, the court a quo concluded that the Vasquez spouses were not obligated to disclose
the potential claims of GP Construction, Lancer and Del Rosario; Ayala's accountants should have
opened the records of Conduit to find out all claims; the warranty against suit is with respect to "the
shares of the Property" and the Lancer suit does not affect the shares of stock sold to Ayala; Ayala
was obligated to develop within 3 years; to say that Ayala was under no obligation to follow a time
frame was to put the Vasquezes at Ayala's mercy; Ayala did not develop because of a slump in the
real estate market; the MOA was drafted and prepared by the AYALA who should suffer its
ambiguities; the option to purchase the 4 lots is valid because it was supported by consideration as
the option is incorporated in the MOA where the parties had prestations to each other. [Emphasis
supplied]
Ayala Corporation filed an appeal, alleging that the trial court erred in holding that petitioners did not breach
their warranties under the MOA 6 dated April 23, 1981; that it was obliged to develop the land where the four (4)
lots subject of the option to purchase are located within three (3) years from the date of the MOA; that it was in
delay; and that the option to purchase was valid because it was incorporated in the MOA and the
consideration therefor was the commitment by Ayala Corporation to petitioners embodied in the MOA.
As previously mentioned, the Court of Appeals reversed the RTC Decision. According to the appellate court,
Ayala Corporation was never informed beforehand of the existence of the Lancer claim. In fact, Ayala
Corporation got a copy of the Lancer subcontract only on May 29, 1981 from G.P. Construction's lawyers. The
Court of Appeals thus held that petitioners violated their warranties under the MOA when they failed to
disclose Lancer's claims. Hence, even conceding that Ayala Corporation was obliged to develop and sell the
four (4) lots in question within three (3) years from the date of the MOA, the obligation was suspended during
the pendency of the case filed by Lancer.
Interpreting the MOA's paragraph 5.7 above-quoted, the appellate court held that Ayala Corporation committed
to develop the first phase of its own amended development plan and not Conduit's development plan.
Nowhere does the MOA provide that Ayala Corporation shall follow Conduit's development plan nor is Ayala
Corporation prohibited from changing the sequence of the phases of the property it will develop.
Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners never made a
demand for Ayala Corporation to sell the subject lots to them. According to the appellate court, what petitioners
sent were mere reminder letters the last of which was dated prior to April 23, 1984 when the obligation was not
yet demandable. At any rate, the Court of Appeals found that petitioners in fact waived the three (3)-year
period when they sent a letter through their agent, Engr. Eduardo Turla, stating that they "expect that the
development of Phase I will be completed by 19 February 1990, three years from the settlement of the legal
problems with the previous contractor."7

The appellate court likewise ruled that paragraph 5.15 above-quoted is not an option contract but a right of first
refusal there being no separate consideration therefor. Since petitioners refused Ayala Corporation's offer to
sell the subject lots at the reduced 1990 price of P5,000.00 per square meter, they have effectively waived
their right to buy the same.
In the instant Petition, petitioners allege that the appellate court erred in ruling that they violated their
warranties under the MOA; that Ayala Corporation was not obliged to develop the "Remaining Property" within
three (3) years from the execution of the MOA; that Ayala was not in delay; and that paragraph 5.15 of the
MOA is a mere right of first refusal. Additionally, petitioners insist that the Court should review the factual
findings of the Court of Appeals as they are in conflict with those of the trial court.
Ayala Corporation filed a Comment on the Petition 8 dated March 26, 2002, contending that the petition raises
questions of fact and seeks a review of evidence which is within the domain of the Court of Appeals. Ayala
Corporation maintains that the subcontract between GP Construction, with whom Conduit contracted for the
development of the property under a Construction Contract dated October 10, 1980, and Lancer was not
disclosed by petitioners during the negotiations. Neither was the liability for Lancer's claim included in the
Audited Financial Statements submitted by petitioners after the signing of the MOA. These justify the
conclusion that petitioners breached their warranties under the afore-quoted paragraphs of the MOA. Since
the Lancer suit ended only in February 1989, the three (3)-year period within which Ayala Corporation
committed to develop the property should only be counted thence. Thus, when it offered the subject lots to
petitioners in 1990, Ayala Corporation was not yet in delay.
In response to petitioners' contention that there was no action or proceeding against them at the time of the
execution of the MOA on April 23, 1981, Ayala Corporation avers that the facts and circumstances which gave
rise to the Lancer claim were already extant then. Petitioners warranted that their representations under the
MOA shall be true and correct at the time of "Closing" which shall take place within four (4) weeks from the
signing of the MOA.9 Since the MOA was signed on April 23, 1981, "Closing" was approximately the third week
of May 1981. Hence, Lancer's claims, articulated in a letter which Ayala Corporation received on May 4, 1981,
are among the liabilities warranted against under paragraph 7.1.2 of the MOA.
Moreover, Ayala Corporation asserts that the warranties under the MOA are not just against suits but against
all kinds of liabilities not reflected in the Audited Financial Statements. It cannot be faulted for relying on the
express warranty that except for billings payable to GP Construction and advances made by petitioner Daniel
Vazquez in the amount of P38,766.04, Conduit has no other liabilities. Hence, petitioners cannot claim that
Ayala Corporation should have examined and investigated the Audited Financial Statements of Conduit and
should now assume all its obligations and liabilities including the Lancer suit and the cross-claim of GP
Construction.
Furthermore, Ayala Corporation did not make a commitment to complete the development of the first phase of
the property within three (3) years from the execution of the MOA. The provision refers to a mere declaration
of intent to develop the first phase of its (Ayala Corporation's) own development plan and not Conduit's. True
to its intention, Ayala Corporation did complete the development of the first phase (Phase II-A) of its amended
development plan within three (3) years from the execution of the MOA. However, it is not obliged to develop
the third phase (Phase II-C) where the subject lots are located within the same time frame because there is no
contractual stipulation in the MOA therefor. It is free to decide on its own the period for the development of
Phase II-C. If petitioners wanted to impose the same three (3)-year timetable upon the third phase of the
amended development plan, they should have filed a suit to fix the time table in accordance with Article
119710 of the Civil Code. Having failed to do so, Ayala Corporation cannot be declared to have been in delay.
Ayala Corporation further contends that no demand was made on it for the performance of its alleged
obligation. The letter dated October 4, 1983 sent when petitioners were already aware of the Lancer suit did
not demand the delivery of the subject lots by April 23, 1984. Instead, it requested Ayala Corporation to keep
petitioners posted on the status of the case. Likewise, the letter dated March 4, 1984 was merely an inquiry as
to the date when the development of Phase 1 will be completed. More importantly, their letter dated June 27,
1988 through Engr. Eduardo Turla expressed petitioners' expectation that Phase 1 will be completed by
February 19, 1990.

Lastly, Ayala Corporation maintains that paragraph 5.15 of the MOA is a right of first refusal and not an option
contract.
Petitioners filed their Reply11 dated August 15, 2002 reiterating the arguments in their Petition and contending
further that they did not violate their warranties under the MOA because the case was filed by Lancer only on
April 1, 1982, eleven (11) months and eight (8) days after the signing of the MOA on April 23, 1981. Ayala
Corporation admitted that it received Lancer's claim before the "Closing" date. It therefore had all the time to
rescind the MOA. Not having done so, it can be concluded that Ayala Corporation itself did not consider the
matter a violation of petitioners' warranty.
Moreover, petitioners submitted the Audited Financial Statements of Conduit and allowed an acquisition audit
to be conducted by Ayala Corporation. Thus, the latter bought Conduit with "open eyes."
Petitioners also maintain that they had no knowledge of the impending case against Conduit at the time of the
execution of the MOA. Further, the MOA makes Ayala Corporation liable for the payment of all billings of GP
Construction. Since Lancer's claim was actually a claim against GP Construction being its sub-contractor, it is
Ayala Corporation and not petitioners which is liable.
Likewise, petitioners aver that although Ayala Corporation may change the sequence of its development plan,
it is obliged under the MOA to develop the entire area where the subject lots are located in three (3) years.
They also assert that demand was made on Ayala Corporation to comply with their obligation under the MOA.
Apart from their reminder letters dated January 24, February 18 and March 5, 1984, they also sent a letter
dated March 4, 1984 which they claim is a categorical demand for Ayala Corporation to comply with the
provisions of the MOA.
The parties were required to submit their respective memoranda in the Resolution 12 dated November 18,
2002. In compliance with this directive, petitioners submitted their Memorandum 13 dated February 14, 2003 on
even date, while Ayala Corporation filed its Memorandum 14 dated February 14, 2003 on February 17, 2003.
We shall first dispose of the procedural question raised by the instant petition.
It is well-settled that the jurisdiction of this Court in cases brought to it from the Court of Appeals by way of
petition for review under Rule 45 is limited to reviewing or revising errors of law imputed to it, its findings of fact
being conclusive on this Court as a matter of general principle. However, since in the instant case there is a
conflict between the factual findings of the trial court and the appellate court, particularly as regards the issues
of breach of warranty, obligation to develop and incurrence of delay, we have to consider the evidence on
record and resolve such factual issues as an exception to the general rule. 15 In any event, the submitted issue
relating to the categorization of the right to purchase granted to petitioners under the MOA is legal in character.
The next issue that presents itself is whether petitioners breached their warranties under the MOA when they
failed to disclose the Lancer claim. The trial court declared they did not; the appellate court found otherwise.
Ayala Corporation summarizes the clauses of the MOA which petitioners allegedly breached when they failed
to disclose the Lancer claim:
a) Clause 7.1.1. that Conduit shall not be obligated to anyone except to GP Construction for
P38,766.04, and for advances made by Daniel Vazquez;
b) Clause 7.1.2. that except as reflected in the audited financial statements Conduit had no other
liabilities whether accrued, absolute, contingent or otherwise;
c) Clause 7.2. that there is no basis for any assertion against Conduit of any liability of any value
not reflected or reserved in the financial statements, and those disclosed to Ayala;

d) Clause 7.6.3. that Conduit is not threatened with any legal action or other proceedings; and
e) Clause 7.6.4. that Conduit had not breached any term, condition, or covenant of any
instrument or agreement to which it is a party or by which it is bound. 16
The Court is convinced that petitioners did not violate the foregoing warranties.
The exchanges of communication between the parties indicate that petitioners substantially apprised Ayala
Corporation of the Lancer claim or the possibility thereof during the period of negotiations for the sale of
Conduit.
In a letter17 dated March 5, 1984, petitioner Daniel Vazquez reminded Ayala Corporation's Mr. Adolfo Duarte
(Mr. Duarte) that prior to the completion of the sale of Conduit, Ayala Corporation asked for and was given
information that GP Construction sub-contracted, presumably to Lancer, a greater percentage of the project
than it was allowed. Petitioners gave this information to Ayala Corporation because the latter intimated a
desire to "break the contract of Conduit with GP." Ayala Corporation did not deny this. In fact, Mr. Duarte's
letter18 dated March 6, 1984 indicates that Ayala Corporation had knowledge of the Lancer subcontract prior to
its acquisition of Conduit. Ayala Corporation even admitted that it "tried to explorelegal basis to discontinue
the contract of Conduit with GP" but found this "not feasible when information surfaced about the tacit consent
of Conduit to the sub-contracts of GP with Lancer."
At the latest, Ayala Corporation came to know of the Lancer claim before the date of Closing of the MOA.
Lancer's letter19 dated April 30, 1981 informing Ayala Corporation of its unsettled claim with GP Construction
was received by Ayala Corporation on May 4, 1981, well before the "Closing" 20 which occurred four (4) weeks
after the date of signing of the MOA on April 23, 1981, or on May 23, 1981.
The full text of the pertinent clauses of the MOA quoted hereunder likewise indicate that certain matters
pertaining to the liabilities of Conduit were disclosed by petitioners to Ayala Corporation although the specifics
thereof were no longer included in the MOA:
7.1.1 The said Audited Financial Statements shall show that on the day of Closing, the Company
shall own the "Remaining Property", free from all liens and encumbrances and that the Company
shall have no obligation to any party except for billings payable to GP Construction & Development
Corporation and advances made by Daniel Vazquez for which BUYER shall be responsible in
accordance with Paragraph 2 of this Agreement.
7.1.2 Except to the extent reflected or reserved in the Audited Financial Statements of the
Company as of Closing, and those disclosed to BUYER, the Company as of the date hereof, has
no liabilities of any nature whether accrued, absolute, contingent or otherwise, including, without
limitation, tax liabilities due or to become due and whether incurred in respect of or measured in
respect of the Company's income prior to Closing or arising out of transactions or state of facts
existing prior thereto.
7.2 SELLERS do not know or have no reasonable ground to know of any basis for any assertion
against the Company as at Closing of any liability of any nature and in any amount not fully
reflected or reserved against such Audited Financial Statements referred to above, and those
disclosed to BUYER.
xxx xxx xxx
7.6.3 Except as otherwise disclosed to the BUYER in writing on or before the Closing, the
Company is not engaged in or a party to, or to the best of the knowledge of the SELLERS,
threatened with, any legal action or other proceedings before any court or administrative body, nor
do the SELLERS know or have reasonable grounds to know of any basis for any such action or
proceeding or of any governmental investigation relative to the Company.

7.6.4 To the knowledge of the SELLERS, no default or breach exists in the due performance and
observance by the Company of any term, covenant or condition of any instrument or agreement to
which the Company is a party or by which it is bound, and no condition exists which, with notice or
lapse of time or both, will constitute such default or breach." 21 [Emphasis supplied]
Hence, petitioners' warranty that Conduit is not engaged in, a party to, or threatened with any legal action or
proceeding is qualified by Ayala Corporation's actual knowledge of the Lancer claim which was disclosed to
Ayala Corporation before the "Closing."
At any rate, Ayala Corporation bound itself to pay all billings payable to GP Construction and the advances
made by petitioner Daniel Vazquez. Specifically, under paragraph 2 of the MOA referred to in paragraph 7.1.1,
Ayala Corporation undertook responsibility "for the payment of all billings of the contractor GP Construction &
Development Corporation after the first billing and any payments made by the company and/or SELLERS shall
be reimbursed by BUYER on closing which advances to date is P1,159,012.87." 22
The billings knowingly assumed by Ayala Corporation necessarily include the Lancer claim for which GP
Construction is liable. Proof of this is Ayala Corporation's letter 23 to GP Construction dated before "Closing" on
May 4, 1981, informing the latter of Ayala Corporation's receipt of the Lancer claim embodied in the letter
dated April 30, 1981, acknowledging that it is taking over the contractual responsibilities of Conduit, and
requesting copies of all sub-contracts affecting the Conduit property. The pertinent excerpts of the letter read:

In this connection, we wish to inform you that this morning we received a letter from Mr. Maximo D.
Del Rosario, President of Lancer General Builders Corporation apprising us of the existence of
subcontracts that they have with your corporation. They have also furnished us with a copy of their
letter to you dated 30 April 1981.
Since we are taking over the contractual responsibilities of Conduit Development, Inc., we believe
that it is necessary, at this point in time, that you furnish us with copies of all your subcontracts
affecting the property of Conduit, not only with Lancer General Builders Corporation, but all
subcontracts with other parties as well24
Quite tellingly, Ayala Corporation even attached to its Pre-Trial Brief 25 dated July 9, 1992 a copy of the
letter26dated May 28, 1981 of GP Construction's counsel addressed to Conduit furnishing the latter with copies
of all sub-contract agreements entered into by GP Construction. Since it was addressed to Conduit, it can be
presumed that it was the latter which gave Ayala Corporation a copy of the letter thereby disclosing to the
latter the existence of the Lancer sub-contract.
The ineluctable conclusion is that petitioners did not violate their warranties under the MOA. The Lancer subcontract and claim were substantially disclosed to Ayala Corporation before the "Closing" date of the MOA.
Ayala Corporation cannot disavow knowledge of the claim.
Moreover, while in its correspondence with petitioners, Ayala Corporation did mention the filing of the Lancer
suit as an obstacle to its development of the property, it never actually brought up nor sought redress for
petitioners' alleged breach of warranty for failure to disclose the Lancer claim until it filed its Answer 27 dated
February 17, 1992.
We now come to the correct interpretation of paragraph 5.7 of the MOA. Does this paragraph express a
commitment or a mere intent on the part of Ayala Corporation to develop the property within three (3) years
from date thereof? Paragraph 5.7 provides:
5.7. The BUYER hereby commits that it will develop the 'Remaining Property' into a first class
residential subdivision of the same class as its New Alabang Subdivision, and that it intends to

complete the first phase under its amended development plan within three (3) years from the date
of this Agreement.28

Q: This Exhibit "D-5" was the plan that was being followed by GP Construction in 1981?
A: Yes, sir.

Notably, while the first phrase of the paragraph uses the word "commits" in reference to the development of
the "Remaining Property" into a first class residential subdivision, the second phrase uses the word "intends"
in relation to the development of the first phase of the property within three (3) years from the date of the
MOA. The variance in wording is significant. While "commit" 29 connotes a pledge to do something,
"intend"30 merely signifies a design or proposition.

Q: And point of fact during your direct examination as of the date of the agreement, this amended
development plan was still to be formulated by Ayala?
A: Yes, sir.32

Atty. Leopoldo Francisco, former Vice President of Ayala Corporation's legal division who assisted in drafting
the MOA, testified:
COURT
You only ask what do you mean by that intent. Just answer on that point.
ATTY. BLANCO
Don't talk about standard.

As correctly held by the appellate court, this admission is crucial because while the subject lots to be sold to
petitioners were in the first phase of the Conduit development plan, they were in the third or last phase of the
Ayala Corporation development plan. Hence, even assuming that paragraph 5.7 expresses a commitment on
the part of Ayala Corporation to develop the first phase of its amended development plan within three (3) years
from the execution of the MOA, there was no parallel commitment made as to the timeframe for the
development of the third phase where the subject lots are located.
Lest it be forgotten, the point of this petition is the alleged failure of Ayala Corporation to offer the subject lots
for sale to petitioners within three (3) years from the execution of the MOA. It is not that Ayala Corporation
committed or intended to develop the first phase of its amended development plan within three (3) years.
Whether it did or did not is actually beside the point since the subject lots are not located in the first phase
anyway.

WITNESS
We now come to the issue of default or delay in the fulfillment of the obligation.
A Well, the word intent here, your Honor, was used to emphasize the tentative character of the
period of development because it will be noted that the sentence refers to and I quote "to complete
the first phase under its amended development plan within three (3) years from the date of this
agreement, at the time of the execution of this agreement, your Honor." That amended
development plan was not yet in existence because the buyer had manifested to the seller that the
buyer could amend the subdivision plan originally belonging to the seller to conform with its own
standard of development and second, your Honor, (interrupted) 31

Article 1169 of the Civil Code provides:

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:

It is thus unmistakable that this paragraph merely expresses an intention on Ayala Corporation's part to
complete the first phase under its amended development plan within three (3) years from the execution of the
MOA. Indeed, this paragraph is so plainly worded that to misunderstand its import is deplorable.
More focal to the resolution of the instant case is paragraph 5.7's clear reference to the first phase of Ayala
Corporation's amended development plan as the subject of the three (3)-year intended timeframe for
development. Even petitioner Daniel Vazquez admitted on cross-examination that the paragraph refers not to
Conduit's but to Ayala Corporation's development plan which was yet to be formulated when the MOA was
executed:
Q: Now, turning to Section 5.7 of this Memorandum of Agreement, it is stated as follows: "The Buyer hereby
commits that to develop the remaining property into a first class residential subdivision of the same class as
New Alabang Subdivision, and that they intend to complete the first phase under its amended development
plan within three years from the date of this agreement."
Now, my question to you, Dr. Vasquez is that there is no dispute that the amended development plan here is
the amended development plan of Ayala?

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins.
In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or extrajudicially.33

A: Yes, sir.
Q: In other words, it is not Exhibit "D-5" which is the original plan of Conduit?
A: No, it is not.

Under Article 1193 of the Civil Code, obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes. However, no such day certain was fixed in the MOA. Petitioners,
therefore, cannot demand performance after the three (3) year period fixed by the MOA for the development of
the first phase of the property since this is not the same period contemplated for the development of the
subject lots. Since the MOA does not specify a period for the development of the subject lots, petitioners

should have petitioned the court to fix the period in accordance with Article 1197 34 of the Civil Code. As no
such action was filed by petitioners, their complaint for specific performance was premature, the obligation not
being demandable at that point. Accordingly, Ayala Corporation cannot likewise be said to have delayed
performance of the obligation.
Even assuming that the MOA imposes an obligation on Ayala Corporation to develop the subject lots within
three (3) years from date thereof, Ayala Corporation could still not be held to have been in delay since no
demand was made by petitioners for the performance of its obligation.
As found by the appellate court, petitioners' letters which dealt with the three (3)-year timetable were all dated
prior to April 23, 1984, the date when the period was supposed to expire. In other words, the letters were sent
before the obligation could become legally demandable. Moreover, the letters were mere reminders and not
categorical demands to perform. More importantly, petitioners waived the three (3)-year period as evidenced
by their agent, Engr. Eduardo Turla's letter to the effect that petitioners agreed that the three (3)-year period
should be counted from the termination of the case filed by Lancer. The letter reads in part:
I. Completion of Phase I
As per the memorandum of Agreement also dated April 23, 1981, it was undertaken by your
goodselves to complete the development of Phase I within three (3) years. Dr. & Mrs. Vazquez
were made to understand that you were unable to accomplish this because of legal problems with
the previous contractor. These legal problems were resolved as of February 19, 1987, and Dr. &
Mrs. Vazquez therefore expect that the development of Phase I will be completed by February 19,
1990, three years from the settlement of the legal problems with the previous contractor. The
reason for this is, as you know, that security-wise, Dr. & Mrs. Vazquez have been advised not to
construct their residence till the surrounding area (which is Phase I) is developed and occupied.
They have been anxious to build their residence for quite some time now, and would like to receive
assurance from your goodselves regarding this, in compliance with the agreement.
II. Option on the adjoining lots
We have already written your goodselves regarding the intention of Dr. & Mrs. Vazquez to exercise
their option to purchase the two lots on each side (a total of 4 lots) adjacent to their "Retained
Area". They are concerned that although over a year has elapsed since the settlement of the legal
problems, you have not presented them with the size, configuration, etc. of these lots. They would
appreciate being provided with these at your earliest convenience. 35
Manifestly, this letter expresses not only petitioners' acknowledgement that the delay in the development of
Phase I was due to the legal problems with GP Construction, but also their acquiescence to the completion of
the development of Phase I at the much later date of February 19, 1990. More importantly, by no stretch of
semantic interpretation can it be construed as a categorical demand on Ayala Corporation to offer the subject
lots for sale to petitioners as the letter merely articulates petitioners' desire to exercise their option to purchase
the subject lots and concern over the fact that they have not been provided with the specifications of these
lots.
The letters of petitioners' children, Juan Miguel and Victoria Vazquez, dated January 23, 1984 36 and February
18, 198437 can also not be considered categorical demands on Ayala Corporation to develop the first phase of
the property within the three (3)-year period much less to offer the subject lots for sale to petitioners. The letter
dated January 23, 1984 reads in part:
You will understand our interest in the completion of the roads to our property, since we cannot
develop it till you have constructed the same. Allow us to remind you of our Memorandum of
Agreement, as per which you committed to develop the roads to our property "as per the original
plans of the company", and that

1. The back portion should have been developed before the front portion which has not been the
case.
2. The whole project front and back portions be completed by 1984. 38
The letter dated February 18, 1984 is similarly worded. It states:
In this regard, we would like to remind you of Articles 5.7 and 5.9 of our Memorandum of Agreement which
states respectively:39
Even petitioner Daniel Vazquez' letter40 dated March 5, 1984 does not make out a categorical demand for
Ayala Corporation to offer the subject lots for sale on or before April 23, 1984. The letter reads in part:
and that we expect from your goodselves compliance with our Memorandum of Agreement, and
a definite date as to when the road to our property and the development of Phase I will be
completed.41
At best, petitioners' letters can only be construed as mere reminders which cannot be considered demands for
performance because it must appear that the tolerance or benevolence of the creditor must have ended. 42
The petition finally asks us to determine whether paragraph 5.15 of the MOA can properly be construed as an
option contract or a right of first refusal. Paragraph 5.15 states:
5.15 The BUYER agrees to give the SELLERS first option to purchase four developed lots next to
the "Retained Area" at the prevailing market price at the time of the purchase. 43
The Court has clearly distinguished between an option contract and a right of first refusal. An option is a
preparatory contract in which one party grants to another, for a fixed period and at a determined price, the
privilege to buy or sell, or to decide whether or not to enter into a principal contract. It binds the party who has
given the option not to enter into the principal contract with any other person during the period designated, and
within that period, to enter into such contract with the one to whom the option was granted, if the latter should
decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon
the consummation of the option. It must be supported by consideration. 44
In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the
right would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that are yet to be firmed up. 45
Applied to the instant case, paragraph 5.15 is obviously a mere right of first refusal and not an option contract.
Although the paragraph has a definite object, i.e., the sale of subject lots, the period within which they will be
offered for sale to petitioners and, necessarily, the price for which the subject lots will be sold are not specified.
The phrase "at the prevailing market price at the time of the purchase" connotes that there is no definite period
within which Ayala Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to
purchase. Neither is there a fixed or determinable price at which the subject lots will be offered for sale. The
price is considered certain if it may be determined with reference to another thing certain or if the
determination thereof is left to the judgment of a specified person or persons. 46
Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the subject lots at
the price which Ayala Corporation would be willing to accept when it offers the subject lots for sale. It is not
supported by an independent consideration. As such it is not governed by Articles 1324 and 1479 of the Civil
Code, viz:

Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or promised.

Antonio T. Carrascoso, Jr. for appellant.

Camus and Delgado for appellee.
AVANCEA, C.J.:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.

Defendant Guillermo B. Francisco purchased from the Government on installments, lots 937 to 945 of the Tala
Estate in Novaliches, Caloocan, Rizal. He was in arrears for some of these installments. On the 31st of
October, 1928, he signed the following document:
MANILA, October 31, 1928

Consequently, the "offer" may be withdrawn anytime by communicating the withdrawal to the other party. 47
In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square
meter, the prevailing market price for the property when the offer was made on June 18, 1990. 48 Insisting on
paying for the lots at the prevailing market price in 1984 of P460.00/square meter, petitioners rejected the
offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners rejected the offer
and instead made a counter-offer in the amount of P2,000.00/square meter. 49 Ayala Corporation rejected
petitioners' counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.
It cannot, therefore, be said that Ayala Corporation breached petitioners' right of first refusal and should be
compelled by an action for specific performance to sell the subject lots to petitioners at the prevailing market
price in 1984.
WHEREFORE, the instant petition is DENIED. No pronouncement as to costs.
SO ORDERED.

Received from Mr. Julio C. Abella the amount of five hundred pesos (P500), payment on account of lots Nos.
937, 938, 939, 940, 941, 942, 943, 924, and 945 of the Tala Estate, barrio of Novaliches, Caloocan, Rizal,
containing an area of about 221 hectares, at the rate of one hundred pesos (P100) per hectare, the balance
being due on or before the fifteenth day of December, 1928, extendible fifteen days thereafter. (Sgd.) G. B.
FRANCISCO P500 Phone 67125.
After having made this agreement, the plaintiff proposed the sale of these lots at a higher price to George C.
Sellner, collecting P10,000 on account thereof on December 29, 1928.
Besides the P500 which, according to the instrument quoted above, the plaintiff paid, he made another
payment of P415.31 on November 13, 1928, upon demand made by the defendant. On December 27th of the
same year, the defendant, being in the Province of Cebu, wrote to Roman Mabanta of this City of Manila,
attaching a power of attorney authorizing him to sign in behalf of the defendant all the documents required by
the Bureau of Lands for the transfer of the lots to the plaintiff. In that letter the defendant instructed Roman
Mabanta, in the event that the plaintiff failed to pay the remainder of the selling price, to inform him that the
option would be considered cancelled, and to return to him the amount of P915.31 already delivered. On
January 3, 1929, Mabanta notified the plaintiff that he had received the power of attorney to sign the deed of
conveyance of the lots to him, and that he was willing to execute the proper deed of sale upon payment of the
balance due. The plaintiff asked for a few days' time, but Mabanta, following the instructions he had received
from the defendant, only gave him until the 5th of that month. The plaintiff did not pay the rest of the price on
the 5th of January, but on the 9th of the month attempted to do so; Mabanta, however, refused to accept it,
and gave him to understand that he regarded the contract as rescinded. On the same day, Mabanta returned
by check the sum of P915.31 which the plaintiff had paid.
The plaintiff brought this action to compel the defendant to execute the deed of sale of the lots in question,
upon receipt of the balance of the price, and asks that he be judicially declared the owner of said lots and that
the defendant be ordered to deliver them to him.
The court below absolved the defendant from the complaint, and the plaintiff appealed.
In rendering that judgment, the court relied on the fact that the plaintiff had failed to pay the price of the lots
within the stipulated time; and that since the contract between plaintiff and defendant was an option for the
purchase of the lots, time was an essential element in it.

December 20, 1930

G.R. No. 32336
JULIO C. ABELLA, plaintiff-appellant,
vs.
GUILLERMO B. FRANCISCO, defendant-appellee.

It is to be noted that in the document signed by the defendant, the 15th of December was fixed as the date,
extendible for fifteen days, for the payment by the plaintiff of the balance of the selling price. It has been
admitted that the plaintiff did not offer to complete the payment until January 9, 1929. He contends that
Mabanta, as attorney-in-fact for the defendant in this transaction, granted him an extension of time until the 9th
of January. But Mabanta has stated that he only extended the time until the 5th of that month. Mabanta's
testimony on this point is corroborated by that of Paz Vicente and by the plaintiff's own admission to Narciso
Javier that his option to purchase those lots expired on January 5, 1929.
In holding that the period was an essential element of the transaction between plaintiff and defendant, the trial
court considered that the contract in question was an option for the purchase of the lots, and that in an

agreement of this nature the period is deemed essential. The opinion of the court is divided upon the question
of whether the agreement was an option or a sale, but even supposing it was a sale, the court holds that time
was an essential element in the transaction. The defendant wanted to sell those lots to the plaintiff in order to
pay off certain obligations which fell due in the month of December, 1928. The time fixed for the payment of
the price was therefore essential for the defendant, and this view is borne out by his letter to his representative
Mabanta instructing him to consider the contract rescinded if the price was not completed in time. In
accordance with article 1124 of the Civil Code, the defendant is entitled to resolve the contract for failure to
pay the price within the time specified.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
G.R. No. L-8024

November 29, 1955

EUSEBIO DE LA CRUZ, plaintiff-appellee,

vs.
APOLONIO LEGASPI and CONCORDIA SAMPEROY, defendants-appellants.
Jose A. Fornier for appellants.
Ramon Maza for appellee.
BENGZON, J.:

However, he found that defendants' allegations constituted no defense. He read the law correctly, as we shall
forthwith explain.
On the second proposition, appellants rightly say that the Civil Code not the New Civil Code regulates
the transaction, which occurred in 1949. Yet they err in the assertion that as plaintiff failed to pay the price after
the execution of the document of sale as agreed previously, the contract became null and void for lack of
consideration. It cannot be denied that when the document was signed the cause or consideration existed:
P450. The document specifically said so; and such was undoubtedly the agreement. Subsequent nonpayment of the price at the time agreed upon did not convert the contract into one without cause or
consideration: a nudum pactum. (Levy vs. Johnson, 4 Phil. 650; Puato vs. Mendoza, 64 Phil, 457.) The
situation was rather one in which there is failure to pay the consideration, with its resultant consequences. In
other words, when after the notarization of the contract, plaintiff fialed to hand the money to defendants as he
previously promised, there was default on his part at most, and defendants' right was to demand interest
legal interest for the delay, pursuant to article 1501 (3) of the Civil Code (Villaruel vs. Tan King, 43 Phil.
251), or to demand rescission in court. (Escueta vs. Pardo, 42 Off. Gaz. 2759; Cortes vs. Bibano, 41 Phil.
298.) Such failure, however, did not ipso facto resolve the contract, no stipulation to that effect having been
alleged. (Cf. Warner Barnes & Co. vs. Inza, 43 Phil., 505.) Neither was there any agreement nor allegation
that payment on time was essential. (Cf. Abella vs. Francisco, 55 Phil., 447; Berg vs. Magdalena Estate, 92
Phil., 110.
Indeed, even if the contract of sale herein question had expressly provided for "automatic rescission upon
failure to pay the price," the trial judge could allow plaintiff to enforce the contract, as the judgment does, in
effect because defendants had not made a previous demand on him, by suit or notarial act.

In the Court of First Instance of Antique, in November, 1950, Eusebio de la Cruz sued Apolonio Legaspi and
his wife to compel delivery of the parcel of land they had sold to him in December, 1949. The complaint
alleged the execution of the contract, the terms thereof, the refusal of defendants to accept payment of the
purchse price of P450 which he had tendered, and undue retention of the realty.
The defendants, in their answer, admitted the sale and the price; but they alleged that before the document (of
sale) "was made, the plaintiff agreed to pay the defendants the amount of P450 right after the document is
executed that very day December 5, 1949, but after the document was signed and ratified by the Notary Public
and after the plaintiff has taken the original of the said document, the sad plaintiff refused to pay the sum of
P450 which is the purchase price of the said land in question." They asserted that for lack of consideration and
for deceit, the document of sald should be annulled.

In the sale of real property, even though it may have been stipulated that in default of the price
within the time agreed upon, the resolution of the contract shall take place ipso facto, the vendee
may pay even after the expiration of the period, at any time before demand has been made upon
him either by suit or by notarial act. After such demand has been made the judge cannot grant him
further time. (Art. 1504 Civil Code.).
By the way, this previous demand, Manresa explains, is a demand for rescission. (Manresa Civil Code, Vol.
10, p. 288, 2d Ed.; Villaruel vs. Tan King, 43 Phil. 251.).
The appealed judgment will therefore be affirmed, with costs against appellants. So ordered.

Plaintiff's next move was a petition for judgment on the pleadings, contending that the allegations of the
answer gave the defendants no excuse to retain the property, rejecting the price.

Republic of the Philippines

SUPREME COURT
Manila

Joining the motion for judgment on the pleadings, the defendants maintained that the sale should be annulled
pursuant to their answer's allegatios.

EN BANC

The Honorable F. Imperial Reyes, Judge, rendered judgment (a) ordering plaintiff to pay the price of P450 to
defendants: (b) ordering the latter to receive such price and immediately after such receipt, to deliver
possession of the property to plaintiff.

December 13, 1958

Having failed in a motion to reconsider, defendants appealed in due time. The seven errors assigned in their
printed brief, assail the correctness of the judgment, maintaining two principal propositions, namely: (1) the
trial judge erroneously disregarded their allegations, in their answer, of non-payment of the price, as
hereinbefore quoted; (2) such allegations which must be deemed admitted by plaintiff when he moved for
judgment on the pleadings established a good defense, because the contract was without consideration,
and was resolved by plaintiff's failure to pay the price "right after the document was executed.
As to the first proposition, the decision does not say so, but there is no reason to doubt that as requested in
the plaintiff's motion, His Honor considered the allegations made both in the complaint and in the answer.

G.R. No. L-10394

CLAUDINA VDA. DE VILLARUEL, ET AL., plaintiffs-appellees,
vs.
MANILA MOTOR CO., INC. and ARTURO COLMENARES, defendants-appellants.
Hilado and Hilado for appellees.
Ozaeta, Gibbs and Ozaeta for appellant company.
Jose L. Gamboa and Napoleon Garcia for appellant Arturo Colmenares.
REYES, J. B. L., J.:

Manila Motor Co., Inc., and Arturo Colmenares interpose this appeal against the decision of the Court of First
Instance of Negros Occidental, in its Civil Case No. 648, ordering the defendant Manila Motor Co., Inc. to pay
to the plaintiffs Villaruel the sum of (a) P11,900 with legal rest from May 18, 1953, on which date, the court
below declared invalid the continued operation of the Debt Moratorium, under the first cause of action; (b)
P38,395 with legal interest from the date of filing of the original complaint on April 26, 1947, on the second
cause of action; and against both the Manila Motor Co., Inc. and its co-defendant, Arturo Colmenares, the sum
of P30,000 to be paid, jointly and severally, with respect to the third cause of action.
On May 31, 1940, the plaintiffs Villaruel and the defendant Manila Motor Co., Inc. entered into a contract
(Exhibit "A") whereby, the former agreed to convey by way of lease to the latter the following described
premises;
(a) Five hundred (500) square meters of floor space of a building of strong materials for automobile showroom,
offices, and store room for automobile spare parts;
(b) Another building of strong materials for automobile repair shop; and
(c) A 5-bedroom house of strong materials for residence of the Bacolod Branch Manager of the defendant
company.
The term of the lease was five (5) years, to commence from the time that the building were delivered and
placed at the disposal of the lessee company, ready for immediate occupancy. The contract was renewable for
an additional period of five (5) years. The Manila Motor Company, in consideration of the above covenants,
agreed to pay to the lessors, or their duly authorized representative, a monthly rental of Three Hundred (P300)
pesos payable in advance before the fifth day of each month, and for the residential house of its branch
manager, a monthly rental not to exceed Fifty (P50) pesos "payable separately by the Manager".
The leased premises were placed in the possession of the lessee on the 31st day of October, 1940, from
which date, the period of the lease started to run under their agreement.
This situation, the Manila Motor Co., Inc. and its branch manager enjoying the premises, and the lessors
receiving the corresponding rentals as stipulated, continued until the invasion of 1941; and shortly after the
Japanese military occupation of the Provincial Capital of Bacolod the enemy forces held and used the
properties leased as part of their quarters from June 1, 1942 to March 29, 1945, ousting the lessee therefrom.
No payment of rentals were made at any time during the said period.
Immediately upon the liberation of the said city in 1945, the American Forces occupied the same buildings that
were vacated by the Japanese, including those leased by the plaintiffs, until October 31, 1945. Monthly rentals
were paid by the said occupants to the owners during the time that they were in possession, as the same rate
that the defendant company used to pay.
Thereafter, when the United States Army finally gave up the occupancy the premises, the Manila Motor Co.,
Inc., through their branch manager, Rafael B. Grey, decided to exercise their option to renew the contract for
the additional period of five (5) years, and the parties, agreed that the seven months occupancy by the U. S.
Army would not be counted as part of the new 5-year term. Simultaneously with such renewal, the company
sublet the same buildings, except that used for the residence of the branch manager, to the other defendant,
Arturo Colmenares.
However, before resuming the collection of rentals, Dr. Alfredo Villaruel, who was entrusted with the same,
consulted Atty. Luis Hilado on whether they (the lessors) had the right to collect, from the defendant company,
rentals corresponding to the time during which the Japanese military forces had control over the leased
premises. Upon being advised that they had such a right, Dr. Villaruel demanded payment thereof, but the
defendant company refused to pay. As a result, Dr. Villaruel gave notice seeking the rescission of the contract
of lease and the payment of rentals from June 1, 1942 to March 31, 1945 totalling P11,900. This was also
rejected by the defendant company in its letter to Villaruel, dated July 27, 1946.

Sometime on that same month of July, Rafael B. Grey offered to pay to Dr. Villaruel the sum of P350, for
which, tenderer requested a receipt that would state that it was in full payment for the said month. The latter
expressed willingness to accept the tendered amount provided, however, that his acceptance should be
understood to be without prejudice to their demand for the rescission of the contract, and for increased rentals
until their buildings were returned to them. Later, Dr. Villaruel indicated his willingness to limit the condition of
his acceptance to be that "neither the lessee nor the lessors admit the contention of the other by the mere fact
of payment". As no accord could still be reached between the parties as to the context of the receipt, no
payment was thereafter tendered until the end of November, 1946. On December 4, 1946 (the day after the
defendant company notified Dr. Villaruel by telegram, that it cancelled the power of attorney given to Grey, and
that it now authorized Arturo Colmenares, instead, to pay the rent of P350 each month), the Manila Motor Co.,
Inc. remitted to Dr. Villaruel by letter, the sum of P350.00. For this payment, the latter issued a receipt stating
that it was "without prejudice" to their demand for rents in arrears and for the rescission of the contract of
lease.
After it had become evident that the parties could not settle their case amicably, the lessors commenced this
action on April 26, 1947 with the Court of First Instance of Negros Occidental against the appellants herein.
During the pendency of the case, a fire originating from the projection room of the City Theatre, into which
Arturo Colmenares, (the sublessee) had converted the former repair shop of the Manila Motor Co. Inc.,
completely razed the building, engulfing also the main building where Colmenares had opened a soda
fountain and refreshment parlor, and made partitions for store spaces which he rented to other persons.
Because of the aforesaid occurrence, plaintiffs demanded reimbursement from the defendants, but having
been refused, they filed a supplemental complaint to include as their third cause of action, the recovery of the
value of the burned buildings.
Defendants filed their amended answer and also moved for the dismissal of the plaintiffs' first and second
causes of action invoking the Debt Moratorium that was then in force. The dismissal was granted by the trial
court on February 5, 1951, but hearing was set as regards the third cause of action.
On August 11, 1952, the defendant company filed a motion for summary judgment dismissing the plaintiffs,
third cause of action, to which plaintiffs registered objection coupled with a petition for reconsideration of the
order of the court dismissing the first and second causes of action. Pending the resolution of this incident,
plaintiffs, on October 2, 1953, called the court's attention to the decision in the case of Rutter vs. Esteban (93
Phil., 68; 49 Off. Gaz. [5] 1807) invalidating the continued effectivity of the Moratorium Law (R. A. 342). On
November 25, 1953, the trial court denied the defendant company's motion for summary judgment and set
aside its previous order dismissing the first and second causes of action. The case was accordingly heard and
thereafter, judgment was rendered in plaintiffs' favor in the terms set in the opening paragraph of this decision.
Thereafter, the defendants regularly appealed to this Court.
The defendants-appellants raise a number of procedural points. The first of these relates to their contention
that the supplemental complaint which included a third cause of action, should not have been admitted, as it
brought about a change in the original theory of the case and that it raised new issues not theretofore
considered. This argument cannot be sustained under the circumstances. This action was inceptionally
instituted for the rescission of the contract of lease and for the recovery of unpaid rentals before and after
liberation. When the leased buildings were destroyed, the plaintiffs-lessors demanded from the defendantslessees, instead, the value of the burned premises, basing their right to do so on defendants' alleged default in
the payment of post-liberation rentals (which was also their basis in formerly seeking for rescission). This
cannot be considered as already altering the theory of the case which is merely a change in the relief prayed
for, brought about by circumstances occurring during the pendency of the action, and is not improper.
(Southern Pacific Co. vs. Conway, 115 F. 2d 746; Suburban Improvement Company vs. Scott Lumber Co., 87
A.L.R. 555, 59 F. 2d 711). The filing of the supplements complaint can well be justified also under section 2,
Rule 17 of the Rules of Court (on amendments) "to the end that the real matter in dispute and all matters in
the action in dispute between the parties may, as far as possible be completely determined in a single
proceedings". It is to be noted furthermore, that the admission or rejection of this kind of pleadings is within the
sound discretion of the court that will not be disturbed on appeal in the absence of abuse thereof (see Sec. 5,
Rule 17, Rules of Court), especially so, as in this case, where no substantial procedural prejudice is caused to
the adverse party.

It is urged that the dismissal of the first and second causes of action on February 5, 1951 had the effect of a
dismissal "with prejudice" as the court did not make any qualification in its dismissal order. Appellants,
apparently, lost sight of the fact that the dismissal was premised on the existence of the "Debt Moratorium"
which suspended the enforcement of the obligation up to a certain time. The reference thereto by the lower
court amounted to a dismissal "without prejudice", since in effect it ruled that the plaintiffs could not, at the
time they sought it, enforce their right of action against the defendants, but plaintiffs must wait until the
moratorium was lifted. In this way, the court qualified its dismissal.

Upon the basis of the distinction thus established between the perturbacion de hecho and theperturbacion de
derecho, it is demonstrable that the ouster of the appellant by the Japanese occupying forces belongs to the
second class of disturbances, de derecho. For under the generally accepted principles of international law
(and it must be remembered that those principles are made by our Constitution a part of the law of our
nation[[1]]) a belligerent occupant (like the Japanese in 1942-1945) may legitimately billet or quarter its troops
in privately owned land and buildings for the duration of its military operations, or as military necessity should
demand. The well known writer Oppenheim, discoursing on the laws of war on land, says upon this topic;

Taking up the case on its merits, it is readily seen that the key to the entire dispute is the question whether the
defendant-appellant Manila Motor Co., Inc. should be held liable for the rentals of the premises leased
corresponding to the lapse of time that they were occupied as quarters or barracks by the invading Japanese
army, and whether said appellant was placed in default by its refusal to comply with the demand to pay such
rents. For if the Motor Company was not so liable, then it never was in default nor was it chargeable for the
accidental lose of the buildings, nor for any damages except the rental at the contract rate from its
reoccupation of the premises leased until the same were accidentally destroyed by fire on March 2, 1948.

Immovable private enemy property may under no circumstances or conditions be appropriated by an invading
belligerent. Should he confiscate and sell private land or buildings, the buyer would acquire no right whatever
to the property. Article 46 of the Hague Regulations expressly enacts that "private property may not be
confiscated." But confiscation differs from the temporary use of private land and building for all kinds of
purposes demanded by the necessities of war. What has been said above with regard to utilization of public
buildings applied equally to private buildings. If necessary, they maybe converted into hospital barracks, and
stables without compensation for the proprietors, and they may also be converted into fortifications. A humane
belligerent will not drive the wretched inhabitants into the street if he can help it. But under the pressure of
necessity he may be obliged to do this, and he is certainly not prohibited from doing it. (Emphasis supplied)
(Oppenheim & Lauterpach, International Law, Vol. II, p. 312, 1944 Ed.)

The appellees contended, and the court below has held, that the ouster of the least company by the Japanese
occupation forces from 1942 until liberation, while operating to deprive the lessee of the enjoyment of the thing
leased, was, nevertheless, a mere act of trespass ("perturbacion de mero hecho") that, under the Spanish
Civil Code of 1889 (in force here until 1950), did not exempt the lessee from the duty to pay rent. We find that
contention and ruling erroneous and untenable.
The pertinent articles of the Civil Code of Spain of 1889 provide:
ART. 1554. It shall be the duty of the lessor;
1. To deliver to the lessee the thing which is the subject matter of the contract;
2. To make thereon, during the lease, all repairs necessary in order to keep it in serviceable condition for the
purpose for which it was intended;
3. To maintain the lessee in the peaceful enjoyment of the lease during the entire term of the contract.
ART. 1560. The lessor shall not be liable for any act of mere disturbance of a third person of the use of the
leased property; but the lessee shall have a direct action against the trespasser.
It the third person, be it the Government or a private individual, has acted in reliance upon a right, such action
shall not be deemed a mere act of disturbance. (Emphasis supplied)
Under the first paragraph of article 1560 the lessor does not answer for a mere act of trespass (perturbacion
de mero hecho) as distinguished from trespass under color of title (perturbacion de derecho). As to what would
constitute a mere act of trespass, this Court in the case of Goldstein vs. Roces (34 Phil. 562), made this
pronouncement:
Si el hecho perturbador no va acompaado ni precedido de nada que revele una intencion
propiamente juridica en el que lo realiza, de tal suerte que el arrendatario solo pueda apreciar el hecho
material desnudo de toda forma o motivacion de derecho, entendemos que se trata de una perturbacion de
mero hecho.

The view thus expressed is concurred in by other writers. Hyde (International Law, Vol. 3, p. 1893, 2nd Rev.
Ed.) quotes the U. S. War Department 1940 Rules of Land Warfare (Rule No. 324) to the effect that
The measure of permissible devastation is found in the strict necessities of war. As an end in itself, as a
separate measure of war, devastation is not sanctioned by the law of war. There must be some reasonably
close connection between the destruction of property and the overcoming of the enemy's army. Thus the rule
requiring respect for private property is not violated through damage resulting from operations, movements, or
combats of the army; that is, real estate may be utilized for marches, camp sites, construction of trenches,
etc. Buildings may be used for shelter for troops, the sick and wounded, for animals, for reconnaissance, cover
defense, etc. Fence, woods, crops, buildings, etc., may be demolished, cut down, and removed to clear a field
of fire, to construct bridges, to furnish fuel if imperatively needed for the army. (Emphasis supplied)
Reference may also be made to Rule 336:
What may be requisitioned. Practically everything may be requisitioned under this article (art. LII of the
regulations above quoted) that is necessary for the maintenance of the army and not of direct military use,
such as fuel, food, forage, clothing, tobacco, printing presses, type, leather, cloth, etc. Billeting of troops for
quarters and subsistence is also authorized. (Emphasis supplied)
And Forest and Tucker state:
The billegerent occupant may destroy or appropriate public property which may have a hostile purpose, as
forts, arms, armories, etc. The occupying force may enjoy the income from the public sources. Strictly private
property should be inviolable, except so far as the necessity of war requires contrary action. (Forest and
Tucker, International Law, 9th Ed., p. 277) (Emphasis supplied)
The distinction between confiscation and temporary sequestration of private property by a belligerent occupant
was also passed upon by this Court in Haw Pia vs. China Banking Corporation, 80 Phil. 604, wherein the right
of Japan to sequester or take temporary control over enemy private property in the interest of its military effort
was expressly recognized.
We are thus forced to conclude that in evicting the lessee, Manila Motor Co., Inc. from the leased buildings
and occupying the same as quarters for troops, the Japanese authorities acted pursuant to a right recognized
by international and domestic law. Its act of dispossession, therefore, did not constitute perturbacion de
hecho but a perturbacion de derecho for which the lessors Villaruel (and not the appellants lessees) were
liable (Art. 1560, supra) and for the consequences of which said lessors must respond, since the result of the

disturbance was the deprivation of the lessee of the peaceful use and enjoyment of the property leased.
Wherefore, the latter's corresponding obligation to pay rentals ceased during such deprivation.
The Supreme Court of Spain, in its Sentencia of 6 December 1944, squarely declared the resolutory effect of
the military sequestration of properties under lease upon the lessee's obligation to pay rent (Jurisprudencia
Civil, Segunda Serie, Tomo 8, pp. 583, 608):
Considerando que para resolver acerca de la procedencia del presente recurso es preciso partir de las bases
de hecho sentadas en la sentencia recurrida, y no impugnadas al amparo del numero 7. del articulo 1.692 de
la Ley de Enjuiciamiento civil, es decir, de que hallandose vigente el contrato de arrendamiento celebrado
entre actor y demandada, en fecha que no se precisa, entre los dias del 18 al 31 de julio de 1936, los locales
objeto de dicho contrato de arrendamiento, y en los que no funcionaba de tiempo anterior la industria para
cuyo ejercicio se arrendaron, fueron requisados por el Ejercito Nacional, con motivo de la guerra civil, para
que se instalara en los mismos la Junta de Donativos al Ejercito del Sur, aun cundo en dicha incautacion, que
se hizo a la propiedad de la finca, no se observaron las formalidades legales, a causa de las circunstancias
extraordinarias por que a la sazon atravesaba Sevilla, hecho que no consta se hiciera saber por los
arrendatarios demandados al actor, pero que fue notorio en aquella capital, donde residia el actor, que de el
debio tener conocimiento. Se estima igualmente por la Sala que el hecho de que la industria no funcionara en
el local no tuvo influencia alguna sobre su incautacion por el Ejercito.
Considerando que sobre tales bases de hecho es de desestimar el primer motivo del recurso: violacion de los
articulos 1.254, 1.278 y 1.091 del Codigo civil, que sancionan, en terminos generales, la eficacia de los
contratos, puesto que en el presente caso de los que se trata en definitiva es de determinar si por virtud de
fuerza mayor, la requisa a que se hace referencia, ajena, por lo tanto, a culpa, asi del arrendatario como del
arrendador, se vio aquel privado del posible disfrute de la finca arrendada, y de si por virtud de esta
circunstancia esta o no exento de la obligacion de abonar la renta pactada durante el tiempo que subsistio la
incautacion; y es indudable la afirmativa en cuanto al primer extremo, puesto que la sentencia recurrida
establece que el hecho de que no funcionase la industria y estuvieran los locales cerrados no actuo como
causa de la requisa de estos por el Ejercito.
Considerando que la sentencia recurrida, en cuanto no da lugar al pago de las rentas correspondientes al
tiempo que duro la incautacion, lejos de infringir, por aplicacion indebida, el art. 1.568 del Codigo civil, se
ajusta la orientacion marcada en el mismo, puesto que este precepto legal dispone que el arrendatario tiene
accion contra el tercero perturbador de mero hecho en la posesion de la finca arrendada, pero no contra la
Administracion o contra los que obran en virtud de un derecho que les corresponde; y aqui la perturbacion
que experimento el arrendador en su posesion, como consecuencia de la requisa, no puede calificarse como
de mero hecho, conforme al citado articulo, puesto que la finca fue requisada por la autoridad militar para
fines de guerra, de donde se sigue que el arrendatario tenia que soportar la privacion de su tenencia material
a traves del arrendador, con quien ha de entenderse la requisa de la cosa arrendada.
In addition, the text of Art. 1560, in its first paragraph (jam quot.) assumes that in case of mere disturbance
(perturbacion de mero hecho) "the lessee shall have a direct action against the trespasser." This assumption
evidently does not contemplate the case of dispossession of the lessee by a military occupant, as pointed out
by Mr. Chief Justice Paras in his dissenting opinion in Reyes vs. Caltex (Phil.) Inc., 84 Phil. 669; for the reason
that the lessee could not have a direct action against the military occupant. It would be most unrealistic to
expect that the occupation courts, place under the authority of the occupying belligerent, should entertain at
the time a suit for forcible entry against the Japanese army. The plaintiffs, their lawyers, and in all probability,
the Judge and court personnel, would face "severest penalties" for such defiance of the invader.
The present case is distinguishable from Lo Ching vs. Archbishop of Manila (81 Phil., 601) in that the act of
the Japanese military involved in the latter case clearly went beyond the limits set by the Hague Conventions,
in seizing the property and delivering it to another private party; and from Reyes vs. Caltex (Phil.) Inc., 84 Phil.
654, in that the rights of the military occupant under international law were not raised or put in issue in said
case; and moreover, the lessee there, by failing to rescind the lease upon seizure of the premises by the
Japanese military, despite the stipulated power to do so, resumed business and decided to hold unto the long
term lease for the balance of its 20-year period, starting from December 23, 1940. In the case before us, the
occupation of the leased property by the Japanese army covered the major portion of the five-year contractual
period, without any option to rescind by the lessee.

The lessor's position is not improved by regarding the military seizure of the property under lease as a case
of force majeure or fortuitous event. Ordinarily, a party may not be held responsible therefor, despite the fact
that it prevented compliance of its obligations. But lease being a contract that calls for prestations that are both
reciprocal and repetitive (tractum successivum), the obligations of either party are not discharged at any given
moment, but must be fulfilled all throughout the term of the contract. As a result, any substantial failure by one
party to fulfill its commitments at any time during the contract period gives rise to a failure of consideration
(causa) for the obligations of the other party and excuses the latter from the correlative performance, because
the causa in lease must exist not only at the perfection but throughout the term of the contract. No lessee
would agree to pay rent for premises he could not enjoy. As expressed by Marcel Planiol (quoted in 4 Castan,
Derecho Civil, 7th Edition, p. 264)
Como la obligacion del arrendador es sucesiva y se renueva todos los dias, la subsistencia del arrendamiento
se hace imposible cuando, por cualquier razon, el arrendador no puede ya procurar al arrendatario el disfrute
de la cosa.
This effect of the failure of reciprocity appears whether the failure is due to fault or to fortuitous event; the only
difference being that in case of fault, the other party is entitled to rescind the contract in toto, and collect
damages, while in casual non-performance it becomes entitled only to a suspension pro tanto of its own
commitments. This rule is recognized in par. 2 of Art. 1558, authorizing the lessee to demand reduction of the
rent in case of repairs depriving him of the possession of part of the property; and in Art. 1575, enabling the
lessee of rural property to demand reduction of the rent if more than one-half of the fruits are lost by
extraordinary fortuitous event. Of course, where it becomes immediately apparent that the loss of possession
or enjoyment will be permanent, as in the case of accidental destruction of a leased building, the lease
contract terminates.
Applying these principles, the Sentencia of December 1944, already adverted to, ruled as follows:
Considerando que privado el arrendador, por tal hecho, del disfrute de esta, es manifiesta la imposibilidad en
que se vio de cumplir la tercera de las obligaciones que el impone el articulo 1.554 del Codigo Civil,
obligacion (la de mantener al arrendatario en el disfrute de la cosa arrendada) que ha de entenderse
reciproca de la de pago de renta pactada, que impone al arrendatario el numero primero del art. 1.555 de
dicho Cuerpo legal, y por ello no puede ser exigida.
Considerando que, aunque no sean estrictamente aplicables al caso los articulos 1.124, 1.556 y 1.568, que se
citan como infringidos por el recurrente, suponiendo que a ellos ha entendido referirse la Audiencia (lo que
impediria, en todo caso, la estimacion del recurso por este motivo, ya que dichos articulos no se citan en la
sentencia de instancia), es evidente que ellos proclaman la reciprocidad de las obligaciones entre
arrendatario y arrendador, y en este sentido, tratandose de un incumplimiento inculpable decontrato, pueden
servir, como tambien el 1.558, en cuanto preven la reduccion de rentas o posible restriccion del contrato
cuando el arrendatario se ve privado, por obras realizadas en la finca arrendada, del disfrute de este, de
fundamento, con los demas preceptos invocados, a una extencion de renta mientras subsiste la imposibilidad
de utilizar la cosa arrendada, sobre todo cuando los articulos 157 y 158 del Reglamento de Requisas de 13
de enero de 1921 estatuyen claramente que las requisas de edificio se hacen a la propiedad, y es el
propietario el que puede pedir indemnization, uno de cuyos elementos es el precio del alquiler que le sea
satisfecho por el inmueble incautado.
We are aware that the rule in the common law is otherwise, due to its regarding a lease as a conveyance to
the lessee of a temporary estate or title to the leased property so that loss of possession due to war or other
fortuitous event leaves the tenant liable for the rent in the absence of stipulation. The fundamental difference
between the common law and the civil law concepts has been outlined by the United States in Viterbo vs.
Friedlander, 30 L. Ed. (U.S.) pp. 776, 778, in this wise:
But as to the nature and effect of a lease for years, at a certain rent which the lessee agrees to pay, and
containing no express covenant on the part of the lessor, the two systems differ materially. The common law
regards such a lease as the grant of an estate for years, which the lessee takes a title in, and is bound to pay
the stipulated rent for, notwithstanding any injury by flood, fire or external violence, at least unless the injury is
such a destruction of the land as to amount to an eviction; and by that law the lessor is under no implied
covenant to repair, or even that the premises shall be fit for the purpose for which they are leased. Fowler vs.

Bott, 6 Mass. 63; 3 Kent, Com. 465, 466; Broom, Legal Maxims, 3d ed. 213, 214; Doupe vs. Genin, 45 N. Y.
119; Kingbury vs. Westfall, 61 N. Y. 356. Naumberg vs. Young, 15 Vroom, 331; Bowe vs. Hunking, 135 Mass.
380; Manchester Warehouse Co. vs. Carr, L.R. 5 C.P.D. 507.
The civil law, on the other hand, regards a lease for years as a mere transfer of the use and enjoyment of the
property; and holds the landlord bound, without any express covenant, to keep it in repair and otherwise fit for
use and enjoyment for the purpose for which it is leased, even when the need of repair or the unfitness is
caused by an inevitable accident, and if he does not do so, the tenant may have the lease annulled, or the rent
abated. Dig. 19, 2, 9, 2; 19, 2, 15, 1, 2; 19, 2, 25, 2; 19, 2, 39; 2 Gomez, Variae Resolutiones c. 3, secs. 1-3,
18, 19: Gregorio Lopez in 5 Partidas, tit. 8, 11. 8, 22; Domat, Droit Civil, pt. 1, lib. 1, tit. 4, sec. 1, no. 1; sec. 3
nos. 1, 3, 6, Pothier, Contract de Louage, nos. 3, 6, 11, 22, 53, 103, 106, 139-155.

Clearly, then, the lessor' insistence upon collecting the occupation rentals for 1942-1945 was unwarranted in
law. Hence, their refusal to accept the current rentals without qualification placed them in default (mora
creditoris or accipiendi) with the result that thereafter, they had to bear all supervening risks of accidental injury
or destruction of the leased premises. While not expressly declared by the Code of 1889, this result is clearly
inferable from the nature and effects of mora, and from Articles 1185, 1452 [par. 3] and 1589).
ART. 1185. When the obligation to deliver a certain and determinate thing arises from the commission of a
crime or misdemeanor the obligor shall not be exempted from the payment of its value, whatever the cause of
its loss may have been, unless, having offered the thing to the person entitled to receive it, the latter should
have refused without reason to accept it.
Art. 1452. . . .

It is accordingly laid down in the Pandects, on the authority of Julian, "If anyone has let an estate, that, even if
anything happens by vis major, he must make it good, he must stand by his contract," si quis fundum
locaverit, ut, etiamsi quid vi majore accidisset, hoc ei praestaretur, pacto standum esse; Dig. 19, 2, 9, 2; and
on the authority of Ulpian, that "A lease does not change the ownership," non solet locatio dominiun mutare;
Dig. 19, 2, 39; and that the lessee has a right of action, if he cannot enjoy the thing which he has hired, si re
quam conduxit frui non liceat, whether because his possession, either of the whole or of part of the field, is not
made good, or a house, or stable or sheepfold, is not repaired; and the landlord ought to warrant the tenant,
dominum colono praestare debere, against every irresistible force, omnim vim cui resisti non potest, such
as floods, flocks of birds, or any like cause, or invasion of enemies; and if the whole crop should be destroyed
by a heavy rainfall, or the olives should be spoiled by blight, or by extraordinary heat of the sun, solis fervore
non assueto, it would be the loss of the landlord, damnum domini futurum; and so if the field falls in by an
earthquake, for there must be made good to the tenant a field that he can enjoy, oportere enim agrum
praestari conductori, ut frui possit; but if any loss arises from defects in the thing itself, si qua tamen vitia ex
ipsa re oriantur, as if wine turns sour, or standing corn is spoiled by worms or weeds, or if nothing
extraordinary happens, si vero nihil extra consuetudinem acciderit, it is the loss of the tenant, damnum coloni
esse. Dig. 19, 2; 15, 1, 2. (Emphasis supplied)
In short, the law applies to leases the rule enunciated by the Canonists and the Bartolist School of Post
glossatorse, that "contractus qui tractum successivum habent et dependentiam de futuro, sub conditione
rebus sic stantibus intelliguntur," they are understood entered subject to the condition that things will remain
as they are, without material change.
It is also worthy of note that the lessors, through Dr. Javier Villaruel, agreed after liberation to a renewal of the
contract of lease for another five years (from June 1, 1946 to May 31 of 1951) without making any reservation
regarding the alleged liability of the lessee company for the rentals corresponding to the period of occupancy
of the premises by the Japanese army, and without insisting that the non-payment of such rental was a breach
of the contract of lease. This passivity of the lessors strongly supports the claim of the lessees that the rentals
in question were verbally waived. The proffered explanation is that the lessors could not refuse to renew the
lease, because the privilege of renewal had been granted to the lessees in the original contract. Such excuse
is untenable: if the lessors deemed that the contract had been breached by the lessee's non-payment of the
occupation rents how could they admit the lessee's right to renew a contract that the lessee itself had
violated?
But this is not all. The lessors accepted payment of current rentals from October 1945 to June 1946. It was
only in July 1946 that they insisted upon collecting also the 1942-1945 rents, and refused to accept further
payments tendered by the lessee unless their right to collect the occupation rental was recognized or
reserved. After refusing the rents from July to November 1946, unless the lessee recognized their right to
occupation rentals, the appellees (lessors) demanded rescission of the contract and a rental of P1,740
monthly in lieu of the stipulated P350 per month. (Exhibit "C").
This attitude of the lessors was doubly wrongful: first, because as already shown, the dispossession by the
Japanese army exempted the lessee from his obligation to pay rent for the period of its ouster; and second,
because even if the lessee had been liable for that rent, its collection in 1946 was barred by the moratorium
order, Executive Order No. 32, that remained in force until replaced by Rep. Act 342 in 1948. To apply the
current rentals to the occupation obligations would amount to enforcing them contrary to the moratorium
decreed by the government.

If fungible things should be sold for a price fixed with relation to weight, number, or measure, they shall not be
at the purchaser's risk until they have been weighed, counted, or measured, unless the purchaser should be in
default.
ART. 1589. If the person who contracted to do the work bound himself to furnish the materials, he shall bear
the loss in case of the destruction of the work before it is delivered, unless its acceptance has been delayed by
the default of the other party.
While there is a presumption that the loss of the thing leased is due to the fault of the lessee (Civil Code of
1889, Art. 1563), it is noteworthy that the lessor have not invoked that presumption either here or in the court
below. On the contrary, the parties and the trial court have all proceeded and discussed the issues taking for
granted that the destruction of the leased buildings was purely fortuitous. We see no reason for departing from
that assumption and further prolonging this litigation.
That the lessee and sublessee did not consign or deposit in court the rentals tendered to and improperly
rejected by the lessors, did not render the debtor liable for default (mora solvendi) nor answerable for
fortuitous events because, as explained by the Supreme Court of Spain in itsSentencia of 5 June 1944
Al exigir el art. 1176 del Codigo Civil la consignacion para liberar al deudor no quiere decir que
necesariamente haya de practicarse, y no baste el ofrecimiento de pago que de aquella no fuere seguido, a
efectos de exclusion de las consecuencias de la mora solvendi. (8 Manresa, Comentarios, 5th Ed., Vol. 1, p.
136).
In other words, the only effect of the failure to consign the rentals in court was that the obligation to pay them
subsisted (P.N.B. vs. Relativo, 92 Phil., 203) and the lessee remained liable for the amount of the unpaid
contract rent, corresponding to the period from July to November, 1946; it being undisputed that, from
December 1946 up to March 2, 1948, when the commercial buildings were burned, the defendants-appellants
have paid the contract rentals at the rate of P350 per month. But the failure to consign did not eradicate the
default (mora) of the lessors nor the risk of loss that lay upon them. (3 Castan, Der. Civ., 8th Ed., p. 145; 4
Puig Pea, Der. Civ., part. 1, p. 234; Diaz Pairo, Teoria Gen. de las Obligaciones [3rd Ed.], Vol. 1, pp. 192193).
In view of the foregoing, we hold:
(a) That the dispossession of the lessee from the premises by the Japanese army of occupation was not an
act of mere trespass ( perturbacion de mero hecho) but one de derecho chargeable to the lessors;
(b) That such dispossession, though not due to fault of lessors or lessee, nevertheless resulted in the
exemption of the lessee from its obligation to pay rent during the period that it was deprived of the possession
and enjoyment of the premises leased;
(c) That the insistence of the lessors to collect such rentals was unwarranted;

(d) That the lessors were not justified in refusing to accept the tender of current rentals unless the lessee
should recognize their right to the rents corresponding to the period that the lessee was not in possession;
(e) That by their improper refusal to accept the current rents tendered by the lessee, the lessors incurred in
default (mora) and they must shoulder the subsequent accidental loss of the premises leased;
(f) That the mora of the lessors was not cured by the failure of the lessee to make the consignation of the
rejected payments, but the lessee remained obligated to pay the amounts tendered and not consigned by it in
court.
Consequently, it was reversible error to sentence the appellants to pay P2,165 a month as reasonable value of
the occupation of the premises from July 1946, and the value of the destroyed buildings amounting to
P30,000.
Wherefore, the decision appealed from is modified in the sense that the appellant Manila Motor Company
should pay to the appellees Villaruel only the rents for the leased premises corresponding to the period from
July up to November 1946, at the rate of P350 a month, or a total of P1,750. Costs against appellees in both
instances. So ordered.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and
Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual
interest, payable within 3 years from the date of execution of the contract at semi-annual installments of
P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded
to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet
available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its
deposit liabilities, the Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in
government securities] excluding extensions or renewals of already approved loans,
provided that such extensions or renewals shall be subject to review by the
Superintendent of Banks, who may impose such limitations as may be necessary to
insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx

G.R. No. L-45710 October 3, 1985

(p. 46, rec.).
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in
C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court
of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction,
specific performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the
loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by
TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3
years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely
as an additional capital to develop his other property into a subdivision.

On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required
capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing
business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of
Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the
promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the
100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages with preliminary injunction, alleging that since
Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from
April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining
order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition
of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the
Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the
petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal
interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First
Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it

ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan
pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory
note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate
mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28,
1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is
the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29
SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part of the contract,
the other party who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the
Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island
Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on
April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank
issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00
balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the
protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the
validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank
in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited
the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from
releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill
an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a
decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere
fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken
as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting
to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his
right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6
months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the
P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the
receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does
not affect, much less neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that
bank officials and employees are expected to exercise caution and prudence in the discharge of their functions
(Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and
employees that before they approve the loan application of their customers, they must investigate the
existence and evaluation of the properties being offered as a loan security. The recent rush of events where
collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this

responsibility. The mere reliance by bank officials and employees on their customer's representation regarding
the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever bank
officials and employees totally reIy on the representation of their customers as to the valuation of the loan
collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The representation
made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore,
the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the
alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept.
15. 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived."
Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement,
Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or
rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further
business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M,
Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00
balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as
there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio
M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article
1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party,
that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot
possibly be in default as there was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to
comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for
damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt.
The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is
just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to
satisfy his P 17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal
contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to
pay is the existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the
debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in
relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in
existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does
not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration
should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122
[1983]). lt may either be a prior or subsequent matter. But when the consideration is subsequent to the
mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to
pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And,

when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such
failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the
indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the
mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol.
19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00,
hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00 debt.

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD

BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where the time for
compliance had expired and there was breach of contract by non-performance, it was academic for the plaintiff
to have first petitioned the court to fix a period for the performance of the contract before filing his complaint.

The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable
to the facts of this case.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.
Where the defendant virtually admitted non-performance of the contract by returning the typewriter that he
was obliged to repair in a non-working condition, with essential parts missing, Article 1197 of the Civil Code of
the Philippines cannot be invoked. The fixing of a period would thus be a mere formality and would serve no
purpose than to delay.

Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be divided among the
successors in interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of
the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot
apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendant-appellee contravened the
tenor of his obligation because he not only did not repair the typewriter but returned it "in shambles, he is
liable for the cost of the labor or service expended in the repair of the typewriter, which is in the amount of
P58.75, because the obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170 of
the Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter
he was bound, but failed or neglected, to return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT RECOVERABLE; NOT ALLEGED OR
PROVED IN INSTANT CASE. Claims for damages and attorneys fees must be pleaded, and the existence
of the actual basis thereof must be proved. As no findings of fact were made on the claims for damages and
attorneys fees, there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY
QUESTIONS OF LAW REVIEWABLE. Where the appellant directly appeals from the decision of the trial
court to the Supreme Court on questions of law, he is bound by the judgment of the court a quo on its findings
of fact.

DECISION

REYES, J.B.L., J.:

1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE
SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE
PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT
COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25
HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages
but was unsatisfied with the decision rendered by the Court of First Instance of Manila, in its Civil Case No.
65138, because it awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral
damages and attorneys fees.
The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time
despite repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply
with the same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of
spare parts, which amount the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated
with the delay of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the
return of the typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the
plaintiff examined the typewriter returned to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws missing. On October 29, 1963. the plaintiff sent a
letter to the defendant formally demanding the return of the missing parts, the interior cover and the sum of
P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of the missing parts, the
interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job
cost him a total of P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages,
P500.00 for moral damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this court, the defendant made no denials of the facts
narrated above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a
certain Julio Bocalin, which the defendant denied allegedly because the typewriter was delivered to him
personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not,
however, be fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts
had a total value of only P31.10.

the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages
and attorneys fees must be pleaded, and the existence of the actual basis thereof must be proved. 2 The
appealed judgment thus made no findings on these claims, nor on the fraud or malice charged to the appellee.
As no findings of fact were made on the claims for damages and attorneys fees, there is no factual basis upon
which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his
having resorted directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the
defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with
interest at the legal rate from the filing of the complaint. Costs in all instances against appellee Fructuoso
Gonzales.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10,
and the costs of suit.

G.R. No. 73867 February 29, 1988

"SO ORDERED."cralaw virtua1aw library

TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,

vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA CASTRO, SALVADOR
CASTRO, MARIO CASTRO, CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO,
ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE
APPELLATE COURT, respondents.

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only
the value of the missing parts of the typewriter, instead of the whole cost of labor and materials that went into
the repair of the machine, as provided for in Article 1167 of the Civil Code, reading as
follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it
may be decreed that what has been poorly done he undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all,
not even for the sum of P31.10, because his contract with plaintiff-appellant did not contain a period, so that
plaintiff-appellant should have first filed a petition for the court to fix the period, under Article 1197 of the Civil
Code, within which the defendant appellee was to comply with the contract before said defendant-appellee
could be held liable for breach of contract.

PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate Appellate Court, dated 11 February 1986,
in AC-G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees, versus Telefast
Communication/Philippine Wireless, Inc., Defendant-Appellant."

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal,
the facts, as found by the trial court, are now conclusive and non-reviewable. 1

The facts of the case are as follows:

The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine
cleaning and servicing" ; that the defendant was not able to finish the job after some time despite repeated
reminders made by the plaintiff" ; that the "defendant merely gave assurances, but failed to comply with the
same" ; and that "after getting exasperated with the delay of the repair of the typewriter", the plaintiff went to
the house of the defendant and asked for its return, which was done. The inferences derivable from these
findings of fact are that the appellant and the appellee had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to finish it at some future time although such time was
not specified; and that such time had passed without the work having been accomplished, far the defendant
returned the typewriter cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for the work he had already
done. The time for compliance having evidently expired, and there being a breach of contract by nonperformance, it was academic for the plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of
the Civil Code for he virtually admitted non-performance by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).

On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and mother of the other
plaintiffs, passed away in Lingayen, Pangasinan. On the same day, her daughter Sofia C. Crouch, who was
then vacationing in the Philippines, addressed a telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda,
Scottsburg, Indiana, U.S.A., 47170 announcing Consolacion's death. The telegram was accepted by the
defendant in its Dagupan office, for transmission, after payment of the required fees or charges.

It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not
repair the typewriter but returned it "in shambles", according to the appealed decision. For such contravention,
as appellant contends, he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing the
obligation in a proper manner. The cost of the execution of the obligation in this case should be the cost of the
labor or service expended in the repair of the typewriter, which is in the amount of P58.75. because the
obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing
parts, in the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees were, however, correctly rejected by

The telegram never reached its addressee. Consolacion was interred with only her daughter Sofia in
attendance. Neither the husband nor any of the other children of the deceased, then all residing in the United
States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had caused the defendant to send,
had not been received. She and the other plaintiffs thereupon brought action for damages arising from
defendant's breach of contract. The case was filed in the Court of First Instance of Pangasinan and docketed
therein as Civil Case No. 15356. The only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its control." 1 No evidence appears on record
that defendant ever made any attempt to advise the plaintiff Sofia C. Crouch as to why it could not transmit the
telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now petitioner) to pay the
plaintiffs (now private respondents) damages, as follows, with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and
P20,000.00 as moral damages.

2. Ignacio Castro Sr., P20,000.00 as moral damages.

3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.

This liability is not limited to actual or quantified damages. To sustain petitioner's contrary position in this
regard would result in an inequitous situation where petitioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral damages include physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate results of the defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the
suffering private respondents had to undergo.
As the appellate court properly observed:

8. Esmeralda C. Floro, P20,000.00 moral damages.

[Who] can seriously dispute the shock, the mental anguish and the sorrow that the
overseas children must have suffered upon learning of the death of their mother after
she had already been interred, without being given the opportunity to even make a
choice on whether they wanted to pay her their last respects? There is no doubt that
these emotional sufferings were proximately caused by appellant's omission and
substantive law provides for the justification for the award of moral damages. 4

9. Agerico Castro, P10,000.00 moral damages.

10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the amount of P1,000.00
to each of the plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's decision but eliminated the
award of P16,000.00 as compensatory damages to Sofia C. Crouch and the award of P1,000.00 to each of the
private respondents as exemplary damages. The award of P20,000.00 as moral damages to each of Sofia C.
Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P120,000. 00 for each. 3

We also sustain the trial court's award of P16,000.00 as compensatory damages to Sofia C. Crouch
representing the expenses she incurred when she came to the Philippines from the United States to testify
before the trial court. Had petitioner not been remiss in performing its obligation, there would have been no
need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore, sustained in the amount
of P1,000.00 for each of the private respondents, as a warning to all telegram companies to observe due
diligence in transmitting the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so that petitioner is held liable
to private respondents in the following amounts:
(1) P10,000.00 as moral damages, to each of private respondents;

Petitioner appeals from the judgment of the appellate court, contending that the award of moral damages
should be eliminated as defendant's negligent act was not motivated by "fraud, malice or recklessness."

(2) P1,000.00 as exemplary damages, to each of private respondents;

In other words, under petitioner's theory, it can only be held liable for P 31.92, the fee or charges paid by Sofia
C. Crouch for the telegram that was never sent to the addressee thereof.

(3) P16,000.00 as compensatory damages, to private respondent Sofia C. Crouch;

Petitioner's contention is without merit.

Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art.
2176 also provides that "whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a contract whereby, for a
fee, petitioner undertook to send said private respondent's message overseas by telegram. This, petitioner did
not do, despite performance by said private respondent of her obligation by paying the required charges.
Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for
damages.

(4) P5,000.00 as attorney's fees; and

(5) Costs of suit.
SO ORDERED.
Yap (Chairman), Paras and Sarmiento, JJ., concur.
Separate Opinions
MELENCIO-HERRERA, J., concurring.

[I] concur.In addition to compensatory and exemplary damages, moral damages are recoverable in actions for
breach of contract, as in this case, where the breach has been wanton and reckless, tantamount to bad faith.
Separate Opinions
MELENCIO-HERRERA, J., concurring.
[I] concur.In addition to compensatory and exemplary damages, moral damages are recoverable in actions for
breach of contract, as in this case, where the breach has been wanton and reckless, tantamount to bad faith.
G.R. No. L-15645

January 31, 1964

On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, advised the appellant corporation of the
extreme necessity for the immediate opening of the letter credit since she had by then made a tender to her
supplier in Rangoon, Burma, "equivalent to 5% of the F.O.B. price of 20,000 tons at $180.70 and in
compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not
received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the appellant corporation that its application, "for a
letter of credit for $3,614,000.00 in favor of Thiri Setkya has been approved by the Board of Directors with the
condition that marginal cash deposit be paid and that drafts are to be paid upon presentment." (Exh. J-pl.;
Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the Bank represented that it "will hold your application in
abeyance pending compliance with the above stated requirement."

PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,

vs.
NATIONAL RICE AND CORN CORPORATION, defendant-appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-appellee.

As it turned out, however, the appellant corporation not in any financial position to meet the condition. As
matter of fact, in a letter dated August 2, 1952, the NARIC bluntly confessed to the appellee its dilemma: "In
this connection, please be advised that our application for opening of the letter of credit has been presented to
the bank since July 30th but the latter requires that we first deposit 50% of the value of the letter amounting to
aproximately $3,614,000.00 which we are not in a position to meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1Pe., p. 18, Folder of Exhibits)

Teehankee and Carreon for plaintiffs-appellees.

The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.

Consequently, the credit instrument applied for was opened only on September 8, 1952 "in favor of Thiri
Setkya, Rangoon, Burma, and/or assignee for $3,614,000.00," (which is more than two months from the
execution of the contract) the party named by the appellee as beneficiary of the letter of credit.1wph1.t

REGALA, J.:

As a result of the delay, the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit,
amounting to 524,000 kyats or approximately P200,000.00 was forfeited. In this connection, it must be made
of record that although the Burmese authorities had set August 4, 1952, as the deadline for the remittance of
the required letter of credit, the cancellation of the allocation and the confiscation of the 5% deposit were not
effected until August 20, 1952, or, a full half month after the expiration of the deadline. And yet, even with the
15-day grace, appellant corporation was unable to make good its commitment to open the disputed letter of
credit.

This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20,
1958, awarding to the plaintiffs-appellees the amount of $286,000.00 as damages for breach of contract and
dismissing the counterclaim and third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the National Rice and Corn Administration (NARIC)
is hereby abolished and all its assets, liabilities, functions, powers which are not inconsistent with the
provisions of this Act, and all personnel are transferred "to the Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must accordingly be adjusted and read as RCA
pursuant to the aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding called by the NARIC for the supply of
20,000 metric tons of Burmese rice. As her bid of $203.00 per metric ton was the lowest, she was awarded the
contract for the same. Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and the appellant
corporation entered into a Contract of Sale of Rice, under the terms of which the former obligated herself to
deliver to the latter 20,000 metric tons of Burmess Rice at $203.00 per metric ton, CIF Manila. In turn, the
defendant corporation committed itself to pay for the imported rice "by means of an irrevocable, confirmed and
assignable letter of credit in U.S. currency in favor of the plaintiff-appellee and/or supplier in Burma,
immediately." Despite the commitment to pay immediately "by means of an irrevocable, confirmed and
assignable Letter of Credit," however, it was only on July 30, 1952, or a full month from the execution of the
contract, that the defendant corporation, thru its general manager, took the first to open a letter of credit by
forwarding to the Philippine National Bank its Application for Commercial Letter Credit. The application was
accompanied by a transmittal letter, the relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with your institution with which to cover the
amount required to be deposited as a condition for the opening of letters of credit, we will
appreciate it if this application could be considered special case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a deadline to meet which is August 4,
1952, and in order to comply therewith, it is imperative that the L/C be opened prior to that date.
We would therefore request your full cooperation on this matter.

The appellee endeavored, but failed, to restore the cancelled Burmese rice allocation. When the futility of
reinstating the same became apparent, she offered to substitute Thailand rice instead to the defendant
NARIC, communicating at the same time that the offer was "a solution which should be beneficial to the
NARIC and to us at the same time." (Exh. X-Pe., Exh. 25Def., p. 38, Folder of Exhibits). This offer for
substitution, however, was rejected by the appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant, demanding compensation for the damages
caused her in the sum of $286,000.00, U.S. currency, representing unrealized profit. The demand having been
rejected she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the Manila Underwriters Insurance Company was
brought to the suit as a third party defendant to hold it liable on the performance bond it executed in favor of
the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted
by the appellee herein in Rangoon, Burma, was the failure of the letter of credit to be opened with the
contemplated period. This failure must, therefore, be taken as the immediate cause for the consequent
damage which resulted. As it is then, the disposition of this case depends on a determination of who was
responsible for such failure. Stated differently, the issue is whether appellant's failure to open immediately the
letter of credit in dispute amounted to a breach of the contract of July 1, 1952 for which it may be held liable in
damages.

Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. On the
contrary, it insists that the fault lies with the appellee. Appellant contends that the disputed negotiable
instrument was not promptly secured because the appellee , failed to seasonably furnish data necessary and
required for opening the same, namely, "(1) the amount of the letter of credit, (2) the person, company or
corporation in whose favor it is to be opened, and (3) the place and bank where it may be negotiated."
Appellant would have this Court believe, therefore, that had these informations been forthwith furnished it,
there would have been no delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place, the explanation reaches into an area of
the proceedings into which We are not at liberty to encroach. The explanation refers to a question of fact.
Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation
of the ruling. His conclusion on the matter is sufficiently borne out by the evidence presented. We are denied,
therefore, the prerogative to disturb that finding, consonant to the time-honored tradition of this Tribunal to hold
trial judges better situated to make conclusions on questions of fact. For the record, We quote hereunder the
lower court's ruling on the point:
The defense that the delay, if any in opening the letter of credit was due to the failure of plaintiff to
name the supplier, the amount and the bank is not tenable. Plaintiff stated in Court that these facts
were known to defendant even before the contract was executed because these facts were
necessarily revealed to the defendant before she could qualify as a bidder. She stated too that she
had given the necessary data immediately after the execution of Exh. "A" (the contract of July 1,
1952) to Mr. GABRIEL BELMONTE, General Manager of the NARIC, both orally and in writing and
that she also pressed for the opening of the letter of credit on these occasions. These statements
have not been controverted and defendant NARIC, notwithstanding its previous intention to do so,
failed to present Mr. Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which form part of the record of this case, it is clear
that what singularly delayed the opening of the stipulated letter of credit and which, in turn, caused the
cancellation of the allocation in Burma, was the inability of the appellant corporation to meet the condition
importation by the Bank for granting the same. We do not think the appellant corporation can refute the fact
that had it been able to put up the 50% marginal cash deposit demanded by the bank, then the letter of credit
would have been approved, opened and released as early as August 4, 1952. The letter of the Philippine
National Bank to the NARIC was plain and explicit that as of the said date, appellant's "application for a letter
of credit ... has been approved by the Board of Directors with the condition that 50% marginal cash deposit be
paid and that drafts are to be paid upon presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from this failure or inability to satisfy the requirements
of the bank. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it
was well aware of its financial incapacity to undertake the prestation. We base this judgment upon the letter
which accompanied the application filed by the appellant with the bank, a part of which letter was quoted
earlier in this decision. In the said accompanying correspondence, appellant admitted and owned that it did
"not have sufficient deposit with your institution (the PNB) with which to cover the amount required to be
deposited as a condition for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the aforementioned admission. First, that the appellant
knew the bank requirements for opening letters of credit; second, that appellant also knew it could not meet
those requirement. When, therefore, despite this awareness that was financially incompetent to open a letter
of credit immediately, appellant agreed in paragraph 8 of the contract to pay immediately "by means of an
irrevocable, confirm and assignable letter of credit," it must be similarly held to have bound itself to answer for
all and every consequences that would result from the representation. aptly observed by the trial court:

... Having called for bids for the importation of rice involving millions, $4,260,000.00 to be exact, it
should have a certained its ability and capacity to comply with the inevitably requirements in cash
to pay for such importation. Having announced the bid, it must be deemed to have impliedly
assured suppliers of its capacity and facility to finance the importation within the required period,
especially since it had imposed the supplier the 90-day period within which the shipment of the rice
must be brought into the Philippines. Having entered in the contract, it should have taken steps
immediately to arrange for the letter of credit for the large amount involved and inquired into the
possibility of its issuance.
In relation to the aforequoted observation of the trial court, We would like to make reference also to Article 11
of the Civil Code which provides:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or default in the performance of obligations a
decreed liable; in general, every debtor who fails in performance of his obligations is bound to indemnify for
the losses and damages caused thereby (De la Cruz Seminary of Manila, 18 Phil. 330; Municipality of
Moncada v. Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v. Enriquez, 46 Phil.
916; Pasumil v. Chong, 49 Phil. 1003; Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63
Phil. 657). The phrase "any manner contravene the tenor" of the obligation includes any illicit act which impairs
the strict and faithful fulfillment of the obligation or every kind or defective performance. (IV Tolentino, Civil
Code of the Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the
originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have
derived from the breach of the contract. We disagree. Waivers are not presumed, but must be clearly and
convincingly shown, either by express stipulation or acts admitting no other reasonable explanation. (Ramirez
v. Court of Appeals, 52 O.G. 779.) In the case at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary evidence presented in this case and upon
which the lower court based its award. Under the contract, the NARIC bound itself to buy 20,000 metric tons of
Burmese rice at "$203.00 U.S. Dollars per metric ton, all net shipped weight, and all in U.S. currency, C.I.F.
Manila ..." On the other hand, documentary and other evidence establish with equal certainty that the plaintiffappellee was able to secure the contracted commodity at the cost price of $180.70 per metric ton from her
supplier in Burma. Considering freights, insurance and charges incident to its shipment here and the forfeiture
of the 5% deposit, the award granted by the lower court is fair and equitable. For a clearer view of the equity of
the damages awarded, We reproduce below the testimony of the appellee, adequately supported by the
evidence and record:
Q. Will you please tell the court, how much is the damage you suffered?
A. Because the selling price of my rice is $203.00 per metric ton, and the cost price of my rice is
$180.00 We had to pay also $6.25 for shipping and about $164 for insurance. So adding the cost
of the rice, the freight, the insurance, the total would be about $187.99 that would be $15.01 gross
profit per metric ton, multiply by 20,000 equals $300,200, that is my supposed profit if I went
through the contract.
The above testimony of the plaintiff was a general approximation of the actual figures involved in the
transaction. A precise and more exact demonstration of the equity of the award herein is provided by Exhibit
HH of the plaintiff and Exhibit 34 of the defendant, hereunder quoted so far as germane.
It is equally of record now that as shown in her request dated July 29, 1959, and other
communications subsequent thereto for the opening by your corporation of the required letter of
credit, Mrs. Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred Eighty
Dollars and Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight Dollars ($8.00) in the

same currency per ton for shipping and other handling expenses, so that she is already assured of
a net profit of Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency, per ton or a total of Two
Hundred and Eighty Six Thousand Dollars ($286,000.00), U.S. Currency, in the aforesaid
transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has suffered, likewise by way of unrealized profit
damages in the total sum of $406,000.00 from the failure of the projected contract to materialize. This
counterclaim was supported by a cost study made and submitted by the appellant itself and wherein it was
illustrated how indeed had the importation pushed thru, NARIC would have realized in profit the amount
asserted in the counterclaim. And yet, the said amount of P406,000.00 was realizable by appellant despite a
number of expenses which the appellee under the contract, did not have to incur. Thus, under the cost study
submitted by the appellant, banking and unloading charges were to be shouldered by it, including an Import
License Fee of 2% and superintendence fee of $0.25 per metric ton. If the NARIC stood to profit over P400
000.00 from the disputed transaction inspite of the extra expenditures from which the herein appellee was
exempt, we are convicted of the fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in the dispositive portion of the decision
appeal from insofar as it expresses the amount of damages in U.S. currency and not in Philippine Peso.
Republic Act 529 specifically requires the discharge of obligations only "in any coin or currency which at the
time of payment is legal tender for public and private debts." In view of that law, therefore, the award should be
converted into and expressed in Philippine Peso.
[G.R. No. L-37120. April 20, 1983.]
This brings us to a consideration of what rate of exchange should apply in the conversion here decreed.
Should it be at the time of the breach, at the time the obligation was incurred or at the rate of exchange
prevailing on the promulgation of this decision.

VICTORINO D. MAGAT, Petitioner, v. HON. LEO D. MEDIALDEA and SANTIAGO A.

GUERRERO,Respondents.
Sinesio S. Vergara for Petitioner.

In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in an action for recovery of damages for
breach of contract, even if the obligation assumed by the defendant was to pay the plaintiff a sum of money
expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at
the rate of exchange at the time of the judgment rather than at the rate of exchange prevailing on the date of
defendant's breach. This ruling, however, can neither be applied nor extended to the case at bar for the same
was laid down when there was no law against stipulating foreign currencies in Philippine contracts. But now
we have Republic Act No. 529 which expressly declares such stipulations as contrary to public policy, void and
of no effect. And, as We already pronounced in the case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co.,
Inc., G.R. No. L-9090, September 10, 1957, if there is any agreement to pay an obligation in a currency other
than Philippine legal tender, the same is null and void as contrary to public policy (Republic Act 529), and the
most that could be demanded is to pay said obligation in Philippine currency "to be measured in the prevailing
rate of exchange at the time the obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby affirmed, with the sole modification that
the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the
obligation was incurred or on July 1, 1952 when the contract was executed. The appellee insurance company,
in the light of this judgment, is relieved of any liability under this suit. No pronouncement as to costs.

Eladio B. Samson for Respondents.

SYLLABUS

1. REMEDIAL LAW; ACTION; CAUSE OF ACTION; SUFFICIENCY THEREOF DETERMINED ON BASIS OF

FACTS ALLEGED IN THE COMPLAINT; REQUISITES; CASE AT BAR. Both parties are in accord with the
view that when a motion to dismiss is based on the ground of lack of cause of action, the sufficiency of the
cause of action can only be determined on the basis of the facts alleged in the complaint; that the facts alleged
are deemed hypothetically admitted, including those which are fairly deducible therefrom; and that, admitting
the facts as alleged, whether or not the court can render a valid judgment against the defendant upon said
facts in accordance with the prayer in the complaint. After a thorough examination of the complaint at bar, the
Supreme Court finds the test of legal sufficiency of the cause of action adequately satisfied. In a methodical
and logical sequence, the complaint recites the circumstances that led to the perfection of the contract entered
into by the parties. It further avers that while petitioner had fulfilled his part of the bargain (paragraph 8 of the
Complaint), private respondent failed to comply with his correlative obligation by refusing to open a letter of
credit to cover payment of the goods ordered by him (paragraphs 11 & 12 of the Complainant), and that
consequently, petitioner suffered not only loss of his expected profits, but moral and exemplary damages as
well. From these allegations, the essential elements of a cause of action are present, to wit: (1) the existence
of a legal right of the plaintiff; (2) a correlative duty of the defendant; and (3) an act or omission of the
defendant in violation of the plaintiffs right, with consequent injury or damage to the latter for which he may
maintain an action for recovery of damages or other appropriate relief. In fine, the Supreme Court holds that
on the basis of the facts alleged in the complaint, the Court could render a valid judgment in accordance with
the prayer thereof.
2. CIVIL LAW; DAMAGES; BREACH OF CONTRACT; LOSS SUFFERED BY VIRTUE THEREOF BECOMES
REAL, FIXED AND VESTED AT THE VERY MOMENT OF BREACH. Indisputably, the parties, both
businessman, entered into the aforesaid contract with the evident intention of deriving some profits therefrom.
Upon breach of the contract by either of them, the other would necessarily suffer loss of his expected profits.
Since the loss comes into being at the very moment of breach, such loss is real, "fixed and vested and
therefore, recoverable under the law.
3. ID.; ID.; ARTICLE 11700 of N.C.C.; PROVIDES FOR RECOVERY OF DAMAGES; PHRASE "IN ANY

MANNER CONTRAVENE THE TENOR" CONSTRUED. Article 1170 of the Civil Code provides: "Those
who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any
manner contravene the tenor thereof are liable for damages." The phrase "in any manner contravene the
tenor" of the obligation includes any illicit act or omission which impairs the strict and faithful fulfillment of the
obligation and every kind of defective performance.
4. ID.; ID.; EXTENT OF DAMAGES RECOVERABLE DEPENDS ON THE PRESENCE OR ABSENCE OF
BAD FAITH ATTENDANT IN THE BREACH. The damages which the obligor is liable for includes not only
the value of the loss suffered by the obligee (dao emergente) but also the profits which the latter failed to
obtain (lucro cesante). If the obligor acted in good faith, he shall be liable for those damages that are the
natural and probable consequences of the breach of the obligation and which the parties have foreseen or
could have reasonably foreseen at the time the obligation was constituted; and in case of fraud, bad faith,
malice or wanton attitude, he shall be liable for all damages which may be reasonably attributed to the nonperformance of the obligation.
5. ID.; ID.; MORAL AND EXEMPLARY DAMAGES; RECOVERABLE IN CASES OF BAD FAITH. The same
is true with respect to moral and exemplary damages. The applicable legal provisions on the matter, Articles
2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the
defendant acted in bad faith. The Supreme Court finds that the complaint sufficiently alleges bad faith on the
part of the defendant.

therein offered for sale by the plaintiff to the defendant to be delivered sixty to ninety [60-90] days after receipt
of advice from the defendant of the radio frequency assigned to the defendant by the proper authorities;
"7. That the plaintiff received notice of the fact that the defendant accepted plaintiffs offer to sell to the
defendant the items specified in Annex A, as well as the terms and conditions of said offer, as shown by the
signed conformity of the defendant appearing on Annex A which was duly delivered by the defendants agent
to the plaintiff herein, whereupon all that the plaintiff had to do in the meantime was to await advice from the
defendant as to the radio frequency to be assigned by the proper authorities to the defendant;
"8. That believing that the defendant would faithfully fulfill his contract with the plaintiff herein, considering his
signed conformity appearing in Annex A hereof as well as the letter dated October 4, 1972, of his agent
aforementioned which is attached hereto and marked as Annex B and made an integral part of this complaint,
and in order that plaintiffs promised delivery would not be delayed, the plaintiff herein took steps to advise the
Japanese entity entrusted with the manufacture of the items listed in Annex A to the effect that the contract
between the defendant herein and the plaintiff has been perfected and that advice with regards to radio
frequency would follow as soon as same is received by the plaintiff from the defendant;
"9. That in his letter dated October 6, 1972, a copy of which is hereto attached marked as Annex C, the
defendant advised his aforementioned agent to the effect that the U.S. Navy provided him with the radio
frequency of 34.2 MHZ [Megahertz] and defendant requested his said agent to proceed with his order placed
with the plaintiff herein, which fact was duly communicated to the plaintiff by the defendants aforementioned
agent;
"10. That by his letter dated October 7, 1972, addressed to the plaintiff by the defendants agent, a copy of
which is hereto attached and marked as Annex D, defendants agent qualified defendants instructions
contained in his letter of October 6, 1972 [Annex C] in the sense that plaintiff herein should proceed to fulfill
defendants order only upon receipt by the plaintiff of the defendants letter of credit;

DECISION

ESCOLIN, J.:

Put to test in this petition for review on certiorari is the sufficiency of the averments contained in the complaint
for alleged breach of contract filed by petitioner Victorino D. Magat against respondent Santiago A. Guerrero in
Civil Case No. 17827 of the Court of First Instance of Rizal, presided by respondent Judge Leo D. Medialdea,
now Deputy Judicial Administrator, which complaint was dismissed for failure to state a cause of
action.chanrobles virtual lawlibrary
The pertinent allegations in the complaint, subject of inquiry, are as follows: 1
"3. That sometime in September 1972, the defendant entered into a contract with the U.S. Navy Exchange,
Subic Bay, Philippines, for the operation of a fleet of taxicabs, each taxicab to be provided with the necessary
taximeter and a radio transceiver for receiving and sending of messages from mobile taxicab to fixed base
stations within the Naval Base at Subic Bay, Philippines;
"4. That Isidro Q. Aligada, acting as agent of the defendant herein conducted the necessary project studies on
how best the defendant may meet the requirements of his contract with the U.S. Navy Exchange, Subic Bay,
Philippines, and because of the experience of the plaintiff in connection with his various contracts with the U.S.
Navy, Subic Bay, Philippines, and his goodwill already established with the Naval personnel of Subic Bay,
Philippines, especially in providing the U.S. Navy with needed materials or goods on time as specified by the
U.S. Navy, be they of local origin or imported either from the United States or from Japan, the said Isidro Q.
Aligada approached the plaintiff herein in behalf of the defendant and proposed to import from Japan thru the
plaintiff herein or thru plaintiffs Japanese business associates, all taximeters and radio transceivers needed
by the defendant in connection with his contract with the U.S. Navy Exchange, Subic Bay, Philippines;
"5. That the defendant herein and his aforesaid agent Isidro Q. Aligada were able to import from Japan with
the assistance of the plaintiff and his Japanese business associates the necessary taximeters for defendants
taxicabs in partial fulfillment of defendants commitments with the U.S. Navy Exchange, Subic Bay,
Philippines, the plaintiffs assistance in this matter having been given to the defendant gratis et amore;
"6. That Isidro Q. Aligada, also acting as agent of the defendant, made representations with the plaintiff herein
to the effect that defendant desired to procure from Japan thru the plaintiff herein the needed radio
transceivers and to this end, Isidro Q. Aligada secured a firm offer in writing dated September 25, 1972, a copy
of which is hereto attached marked as Annex A and made an integral part of this complaint, wherein the
plaintiff quoted in his offer a total price of $77,620.59 [U.S. dollars] FOB Yokohama, the goods or articles

"11. That it being normal business practice in case of foreign importation that the buyer opens a letter of credit
in favor of the foreign supplier before delivery of the goods sold, the plaintiff herein awaited the opening of
such a letter of credit by the defendant;
"12. That the defendant and his agent have repeatedly assured plaintiff herein of the defendants financial
capabilities to pay for the goods ordered by him and in fact he accomplished the necessary application for a
letter of credit with his banker, but he subsequently instructed his banker not to give due course to his
application for a letter of credit and that for reasons only known to the defendant, he fails and refuses to open
the necessary letter of credit to cover payment of the goods ordered by him;
"13. That it has come to the knowledge of the plaintiff herein that the defendant has been operating his
taxicabs without the required radio transceivers and when the U.S. Navy Authorities of Subic Bay, Philippines,
were pressing defendant for compliance with his commitments with respect to the installations of radio
transceivers on his taxicabs, he impliedly laid the blame for the delay upon the plaintiff herein, thus destroying
the reputation of the plaintiff herein with the said Naval Authorities of Subic Bay, Philippines, with whom
plaintiff herein transacts business;
"14. That on March 27, 1973, plaintiff wrote a letter thru his counsel, copy attached marked as Annex E, to
ascertain from the defendant as to whether it is his intention to fulfill his part of the agreement with the plaintiff
herein or whether he desired to have the contract between them definitely cancelled, but defendant did not
even have the courtesy to answer plaintiffs demand;
"15. That the defendant herein entered into a contract with the plaintiff herein as set forth in Annex A without
the least intention of faithfully complying with his obligations thereunder, but he did so only in order to obtain
the concession from the U.S. Navy Exchange, Subic Bay, Philippines, of operating a fleet of taxicabs inside
the U.S. Naval Base to hi financial benefit and at the expense and prejudice of third parties such as the
plaintiff herein;
"16. That in view of the defendants failure to fulfill his contractual obligations with the plaintiff herein, the
plaintiff will suffer the following damages:.
[a] As the radio transceivers ordered by the defendant are now in the hands of the plaintiffs Japanese
representative, the plaintiff will have to pay for them, thus he will have to suffer as total loss to him the amount
of P523,938.98 (converting the amount of $77,620.59 to pesos at the rate of P6.75 to the dollar) as said radio
transceivers were purposely made or manufactured solely for the use of the defendant herein and cannot
possibly be marketed by the plaintiff herein to the general public;
[b] The amount of P52,393.89 or 10% of the purchase price by way of loss of expected profits from the
transaction or contract between plaintiff and the defendant;

[c] Loss of confidence in him and goodwill of the plaintiff which will result in the impairment of his business
dealings with Japanese firms, thereby resulting also in loss of possible profits in the future which plaintiff
assess at no less than P200,000.00;
[d] That in view of the defendants bad faith in inducing plaintiff to enter into the contract with him as set forth
hereinabove, defendant should be assessed by this Honorable Court in favor of the plaintiff the sum of
P200,000.00 as moral and exemplary damages;
[e] That in view of the defendants fault and to protect his interests, plaintiff herein is constrained to retain the
services of counsel with whom he agreed to pay by way of attorneys fees the sum of P50,000.00."
Respondent Guerrero filed a motion to dismiss said complaint for lack of cause of action, which ground is
propounded by respondents counsel thus: 2

obligation was constituted; and in case of fraud, bad faith, malice or wanton attitude, he shall be liable for all
damages which may be reasonably attributed to the nonperformance of the obligation 10
The same is true with respect to moral and exemplary damages. The applicable legal provisions on the matter,
Articles 2220 and 2232 of the Civil Code, allow the award of such damages in breaches of contract where the
defendant acted in bad faith. To Our mind, the complaint sufficiently alleges bad faith on the part of the
defendant.
In fine, We hold that on the basis of the facts alleged in the complaint, the court could render a valid judgment
in accordance with the prayer thereof.chanrobles law library
ACCORDINGLY, the questioned order of dismissal is hereby set aside and the case ordered remanded to the
court of origin for further proceedings. No costs.
SO ORDERED.

". . . it is clear that plaintiff was merely anticipating his loss or damage which might result from the alleged
failure of defendant to comply with the terms of the alleged contract. Hence, plaintiffs right of recovery under
his cause of action is premised not on any loss or damage which he is expecting to incur in the near future.
Plaintiffs right therefore under his cause of action is not yet fixed or vested.
"Inasmuch as there is no other allegation in the present Complaint wherein the same could be maintained
against defendant, the present Complaint should be dismissed for its failure to state a cause of action against
defendant."
The respondent judge, over petitioners opposition, issued a minute order dismissing the complaint as follow:
3
"Acting upon the Motion to Dismiss filed by the defendant, through counsel, date June 7, 1973, as well as the
opposition thereto filed by the plaintiff, through counsel, dated June 14, 1973, for the reasons therein alleged,
this Court hereby grants said motion and, as prayed for, the complaint in the above-entitled case is dismissed.
"SO ORDERED."
Both parties are in accord with the view that when a motion to dismiss is based on the ground of lack of cause
of action, the sufficiency of the case of action can only be determined on the basis of the facts alleged in the
complaint 4; that the facts alleged are deemed hypothetically admitted, including those which are fairly
deducible therefrom 5; and that, admitting the facts as alleged, whether or not the Court can render a valid
judgment against the defendant upon said facts in accordance with the prayer in the complaint 6
After a thorough examination of the complaint at bar, We find the test of legal sufficiency of the cause of action
adequately satisfied. In a methodical and logical sequence, the complaint recites the circumstances that led to
the perfection of the contract entered into by the parties. It further avers that while petitioner had fulfilled his
part of the bargain [paragraph 8 of the Complaint], private respondent failed to comply with his correlative
obligation by refusing to open a letter of credit to cover payment of the goods ordered by him [paragraphs 11 &
12 of the Complaint], and that consequently, petitioner suffered not only loss of his expected profits, but moral
and exemplary damages as well. From these allegations, the essential elements of a cause of action are
present, to wit: [1] the existence of a legal right to the plaintiff; [2] a correlative duty of the defendant and [3] an
act or omission of the defendant in violation of the plaintiffs right, with consequent injury or damage to the
latter for which he may maintain an action for recovery of damages or other appropriate relief. 7
Indisputably, the parties, both businessmen, entered into the aforesaid contract with the evident intention of
deriving some profits therefrom. Upon breach of the contract by either of them, the other would necessarily
suffer loss of his expected profits. Since the loss comes into being at the very moment of breach, such loss is
real, "fixed and vested" and, therefore, recoverable under the law.chanrobles.com:cralaw:red

G.R. No. L-47851 April 15, 1988

JUAN F. NAKPIL & SONS and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the
PHILIPPINE BAR ASSOCIATION, respondents.
G.R. No. L-47863 April 15, 1988
THE UNITED CONSTRUCTION CO., INC. and JUAN J. CARLOS, petitioners,
vs.
THE COURT OF APPEALS, THE PHILIPPINE BAR ASSOCIATION, JUAN F. NAKPIL & SONS, and JUAN
F. NAKPIL, respondents.
G.R. No. L-47896 April 15, 1988
PHILIPPINE BAR ASSOCIATION, petitioner,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., and JUAN J. CARLOS, and
JUAN F. NAKPIL & SONS and JUAN F. NAKPIL, respondents.
RESOLUTION

Article 1170 of the Civil Code provides:jgc:chanrobles.com.ph

"Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof are liable for damages."cralaw virtua1aw library
The phrase "in any manner contravene the tenor" of the obligation includes any illicit act or omission which
impairs the strict and faithful fulfillment of the obligation and every kind of defective performance. 8
The damages which the obligor is liable for includes not only the value of the loss suffered by the obligee
[dao emergente] but also the profits which the latter failed to obtain [lucro cesante] 9 . If the obligor acted in
good faith, he shall be liable for those damages that are the natural and probable consequences of the breach
of the obligation and which the parties have foreseen or could have reasonably foreseen at the time the

PARAS, J.:
This is a motion for reconsideration of the October 3, 1986 decision of this Court, filed by the United
Construction Co., Inc., the decretal portion of which reads:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the
special and environmental circumstances of this case, we deem it reasonable to render
a decision imposing, as We do hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code,
Supra, p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception of attorney's fees)
occasioned by the loss of the building (including interest charges and lost rentals) and
an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's
fees, the total sum being payable upon the finality of this decision. Upon failure to pay
on such finality, twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (except Roman Ozaeta).
SO ORDERED. (G.R. No. 47851, Rollo, p. 635)
Plaintiff-appellant Philippine Bar Association (PBA for short) decided to construct an office building on its 840
square meters lot located at the corner of Aduana and Arzobispo Streets, Intramuros, Manila. For the plans,
specifications and design, PBA contracted the services of third-party defendants-appellants Juan F. Nakpil &
Sons and Juan F. Nakpil (NAKPILS for short). For the construction of the building, PBA contracted the services
of United Construction Company, Inc. (UNITED for short) on an administration basis. The building was
completed in June 1966.
On August 2, 1968, an unusually strong earthquake hit Manila and its environs and the building in question
sustained major damage. The front columns of the building buckled causing the building to tilt forward
dangerously. As a temporary remedial measure, the building was shored up by UCCI at the expense of
P13,661.28.
On November 29, 1968, PBA commenced this action for recovery of damages against UCCI and its President
and General Manager Juan J. Carlos, claiming that the collapse of the building was caused by defects in the
construction. UNITED, in turn, filed a third-party complaint against the NAKPILS, alleging in essence that the
collapse of the building was due to the defects in the architects" plans, specifications and design. Roman
Ozaeta, the then President of PBA, was included as a third-party defendant for damages for having included
Juan J. Carlos, President of UNITED as party defendant.
At the pre-trial, the parties agreed to refer the technical issues in the case to a commissioner. Andres O.
Hizon, a lawyer and structural engineer, was appointed by the Court as commissioner.
Meanwhile, PBA moved twice for the demolition of the building on the ground that it might topple down in case
of a strong earthquake. The motions were opposed by the defendants and the matter was referred to the
Commissioner. Finally, on April 30, 1979, the building was authorized to be demolished at the expense of PBA,
but not before another earthquake of high intensity on April 7, 1970 followed by other strong earthquakes on
April 9 and 12, 1970, caused further damage to the property. The actual demolition was undertaken by the
buyer of the damaged buiding.
After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970 with
the findings that while the damage sustained by the PBA building was caused directly by the August 2, 1968
earthquake, they were also caused by the defects in the plans and specifications prepared by the NAKPILS;
UNITED"s deviations from said plans and specifications and its failure to observe the requisite workmanship in
the construction of the building; and failure of PBA to exercise the requisite degree of supervision in the
construction of the building.
All the parties registered their objections to aforesaid findings which in turn were answered by the
Commissioner.

The court agreed with the findings of the Commissioner except as to the holding that the owner is charged
with full time supervision of the construction. The court saw no legal or contractual basis for such conclusion.
Thus, on September 21, 1971, the lower court rendered a decision, the decretal portion of which, reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-party defendants
(except Roman Ozaeta), the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendants" and third-party defendants" counterclaim for lack of
merit;
(e) Ordering defendant United Construction Co., Inc. and third-party defendants
(except Roman Ozaeta) to pay the cost in equal shares.
SO ORDERED.
On appeal, the Court of Appeals modified the abovesaid decision of the lower court. The dispositive portion of
the decision of the Court of Appeals, reads:
WHEREFORE, the judgment appealed from is modified to include an award of
P200,000.00 in favor of plaintiff-appellant Philippine Bar Association, with interest at
the legal rate from November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third-party defendants (except
Roman Ozaeta). In all other respects, the judgment dated September 21,1971 as
modified in the December 8, 1971 Order of the lower court is hereby dated with
COSTS to be paid by the defendant and third Patty defendant (except Roman Ozaeta)
in equal shares.
SO ORDERED.
All the parties herein appealed the aforestated decision of the Court of Appeals.
This Court promulgated on October 3, 1986 a decision in favor of the Philippine Bar Association which
modified the appealed decision of the Court of Appeals, as abovequoted (Rollo of G.R. No. L-47851, pp. 634662).
On December 24,1986, UNITED filed a Motion for Reconsideration (Rollo of L-47863, pp. 683-707). On the
other hand, on January 15,1987, the NAKPILS filed a Motion to Refer Case to Supreme Court En Banc and
for Reconsideration of aforesaid decision (Rollo of L-47851, pp. 717-751).
On February 11, 1987, UNITED filed a Manifestation (Rollo of L-47863, pp. 796-797) that it is joining the
NAKPILS in regard to their prayer to refer the present case to the Court En Banc.
The Second Division of this Court, in a Resolution dated April 1, 1987 (Rollo of L-47851, p. 788) denied the
NAKPILS" Motion for Reconsideration.

On April 15, 1987, PBA filed its Comment to UNITED's Motion for Reconsideration (Rollo of L-47896, pp. 828835) while on April 24, 1987, the NAKPILS filed a Motion For Leave To File Second Motion For Reconsideratio
(En Banc) (Rollo of L-47851, pp. 791-797). On May 7, 1987, PBA filed its Comment to the NAKPILS" Motion
for Leave To File Second Motion For Reconsideration (En Banc) (Rollo of L-47851, pp. 790-795). On May
14,1987, UNITED filed a Reply to PBA's comment (Rollo of L-47863, pp. 844-853), while the NAKPILS filed a
Reply to the same comment on May 22,1987 (Rollo of L-47851, pp. 798-801).
The issues raised in subject motion for reconsideration of UCCI of the decision of this Court of October 3,
1986, are as follows:
I
THE FINDINGS OF THE COMMISSIONER, AS ADOPTED BY THE TRIAL COURT, AND AFFIRMED BOTH
BY THE COURT OF APPEALS AND THIS HONORABLE COURT NEGATE THE PREMISE THAT, THE
SUBJECT BUILDING COLLAPSED; HENCE, ARTICLE 1723 DOES NOT APPLY.
II
THE LEGAL DUTY OF PBA TO PROVIDE FULLTIME AND ACTIVE SUPERVISION IN THE
CONSTRUCTION OF THE SUBJECT BUILDING IS IMIPOSED BY PUBLIC INTTEREST USAGE AND
CUSTOM; FAILING IN THAT DUTY, PBA MUST BEAR AND/OR SHARE IN ANY LIABILITY FOR DAMAGES
IN THE PREMISES.

I
United Construction Co., Inc. (UNITED for short), gave considerable emphasis on the fact that the PBA
building did not collapse as found by the trial court and affirmed by the Court of Appeals. Otherwise stated,
UNITED wishes to stress that subject building did not disintegrate completely as the term "collapse" is
supposed to connote.
Be that as it may, it will be observed that in the assasiled decision, this Court is in complete accord with the
findings of the trial court and affirmed by the Court of Appeals, that after the April 2, 1968 earthquake the
building in question was not totally lost, the collapse was only partial and the building could still be restored at
the expense of P900,000.00. But after the subsequent earthquake on April 7, 9, and 12, 1970 there was no
question that further damage was caused to the property resulting in an eventual and unavoidable collapse or
demolition (compete collapse). In fact, on April 30, 1970 the building was authorized by the trial court to be
demolished at the expense of the plaintiff. Note that a needed demolition is in fact a form of "collapse".
The bone of contention is therefore, not on the fact of collapse but on who should shoulder the damages
resulting from the partial and eventual collapse. As ruled by this Court in said decision, there should be no
question that the NAKPILS and UNITED are liable for the damage.
Citing the case of Tucker v. Milan (49 O.G. 4379, 4380) as the case in point, the pertinent portion of the
decision reads:
One who negligently creates a dangerous condition cannot escape hability for the
natural and probable consequences thereof, although the act of a third person, or an
act of God for which he is not responsible, intervenes to precipitate the loss.

III
LIABILITY, IF ANY, FOR THE DAMAGE OF THE SUBJECT BUILDING MUST BE BORNE BY ALL THE
PARTIES IN ACCORDANCE WITH THE COMMISSIONER'S FINDINGS AND WITH DUE REGARD TO THE
CONDITION OF THE BUILDING PRIOR TO PBA'S DEMOLITION THEREOF.
IV
THE FINDING OF BAD FAITH IS NOT WARRANTED IN FACT AND IS WITHOUT BASIS IN LAW.
V
THE AWARD OF DAMAGES COUCHED IN GENERAL TERMS IS DEFECTIVE; MOREOVER IT IS
UNWARRANTED BY THE FACTS AND THE LAW.
VI
THE AWARD OF ATTORNEYS FEES IN THE AMOUNT OF P100,000.00 IS UWARRANTED.

II
UNITED argues that it is the legal duty of PBA to provide full-time and active supervision in the co on of
subject building. Failing to cite any provision of law to support its arguments, UNITED insists on the inherent
legal duty of the owner, reinforced by practice, usage and custom, to exercise such supervision. Apart from the
fact that UNITED seems to have completely contradicted its own view that this construction involves highly
technical matters and therefore beyond the ambit of ordinary understanding and experience, the contrary
appears to be more in accord with ordinary practice, which is to avail oneself of the services of architects and
engineers whose training and expertise make them more qualified to provide effective supervision of the
construction. In fact, it was on the suggestion of Juan F. Nakpil, one of the petitioners herein, that the
construction was undertaken on an administration basis (Decision, p. 3). Thus, the trial court did not err in
holding that charging the owner with fun time supervision of the construction has no legal or contractual basis
(Decision, p. 7).
III
UNITED points out that bad faith is a question of fact which was not established. The Commissioner, the trial
court and the Court of Appeals, all of which are triers of fact, allegedly concede that there was negligence but
not bad faith.

VII
THE INTEREST OF TWELVE PER CENT (12%) PER ANNUM IMPOSED ON THE TOTAL AMOUNT OF THE
MONETARY AWARD IS IN CONTRAVENTION OF LAW.
It will be noted that not unlike the motion for reconsideration filed by petitioner Juan F. Nakpil and Sons, which
was denied in the resolution of April 1, 1987, there is nothing in the motion for reconsideration filed by the
United Construction Co., Inc. that was not fully discussed in the assailed decision of October 3, 1986.

A careful study of the decision will show that there is no contradiction between the above finding of negligence
by the trial court which was formed by the Court of Appeals and the ruling of this Court. On the contrary, on the
basis of such finding, it was held that such wanton negligence of both the defendant and the third-party
defendants in effecting the plans, designs, specifications, and construction of the PBA building is equivalent to
bad faith in the performance of their respective tasks (Decision, p. 28).
IV & V

UNITED takes exception to the five (5) fold increase in the award of damages from P1,189,335.00 to P5
million pesos. It is claimed that the report of the Commissioner speaks of only P1,100,000.00 so that there is
no basis for such award. It will be recalled that the estimate of the Commissioner was limited to P1,100,000.00
for cost of repairs after the partial collapse of the building on April 2, 1968 but not after its total collapse
reswting from the subsequent earthquakes. It is therefore evident that the actual cost of total reconstruction of
the building him question was not considered by the commissioner in the computation. Considering further the
present cost of reconstruction, the new amount (arrived at almost 20 years later) is far from being excessive. It
is indeed a very conservative estimate.
Any allegation that PBA could have mitigated its loss by executing an offer to purchase the building prior to its
complete demolition loses sight of the fact, that the offer was very low, considering the combined value of the
building and the lot.
In addition, there is merit in the PBA claim that the unrealized rental income awarded to it should not be limited
to a period of one-half year but should be computed on a continuing basis at the rate of P178,671.76 a year
until judgment for the principal amount shag have been satisfied. Thus, this Court awarded an "indemnity in
favor of the Philippine Bar Assodation of FIVE MILLION (P5,000,000.00) Pesos to cover damages (with the
exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals)
...
As for the award of attorney's fees, there is no question that the size of attorney's fees as well as the amount
of damages, is subject to the sound discretion of the court (Magbanua v. IAC, 137 SCRA 332 [1985]). Earlier,
this Court has ruled that an award of 10% of the amount of total recovery, for attomey's fees, is reasonable.
(Central Bank of the Phil. v. Court of Appeals, 63 SCRA 435 (1975]).

VI
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416
(passed pursuant to the authority granted to the Central Bank by P.D. No. 116 which amended Act No. 2655,
otherwise known as the Usury Law) is applicable only in the following: (1) loans; (2) forbearance of any
money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving
loans or forbearance of any money, goods or credits). (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA
160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 (1985)). It is true that in the instant case, there is
neither a loan or a forbearance, but then no interest is actually being imposed provided the sums referred to in
the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that
will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum from the
filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly they are not
applicable to the instant case.
PREMISES CONSIDERED, UNITED's motion for reconsideration is hereby DENIED; the NAKPILS" motion for
leave to file second motion for reconsideration is also DENIED, the latters" first motion on the same grounds
having been already denied with finality in the resolution of April 3, 1987. Needless to say, the Motion to Refer
this case to the Court En Banc is DENIED, in view of all the things stated in this Resolution.
SO ORDERED.