JOSE B.

LEDESMA, petitioner,
vs.
HON. COURT OF APPEALS, Spouses
PACIFICO DELMO and SANCHA DELMO (as
private respondents),respondents.
The Solicitor General for petitioner.
Luzel D. Demasu-ay for respondent.

GUTIERREZ, JR., J.:

This petition seeks to reverse the decision of the
respondent Court of Appeals which afirmed the
decision of the Court of First Instance of Iloilo,
adjudging the petitioner, who was then the
President of the West Visayas College liable for
damages under Article 27 of the Civil Code of the
Philippines for failure to graduate a student with
honors.
The facts are not disputed.
An organization named Student Leadership Club
was formed by some students of the West
Visayas College. They elected the late Violets
Delmo as the treasurer. In that capacity, Delmo
extended loans from the funds of the club to
some of the students of the school. "the
petitioner claims that the said act of extending
loans was against school rules and regulations.
Thus, the petitioner, as President of the School,
sent a letter to Delmo informing her that she was
being dropped from the membership of the club
and that she would not be a candidate for any
award or citation from the school.
Delmo asked for a reconsideration of the decision
but the petitioner denied it. Delmo, thus,
appealed to the Office of the Director of the
Bureau of Public Schools.
The Director after due investigation, rendered a
decison on April 13, 1966 which provided:
Records
of
the
preliminary
investigation
conducted by one of the legal officers of this
Office disclosed the following: That Violeta Delmo
was the treasurer of the Student Leadership Club,
an exclusive student organization; that pursuant
to Article IX of the of the Constitution and ByLaws of the club, it passed Resolution No. 2,
authorizing the treasurer to disburse funds of the
Club to student for financial aid and other
humanitarian purposes; that in compliance with

ARTICLE 1170

1
Page

G.R. No. L-54598 April 15, 1988

said resolution and as treasurer of the Club,

Violeta Delmo extended loans to some officers
and members of the Club upon proper application
duly approved by the majority of the members of
the Executive Board; and that upon receiving the
report from Mr. Jesse Dagoon, adviser of the
funds of the Club, that Office conducted an
investigation on the matter and having been
convinced of the guilt of Violets Delmo and the
other officers and members of the Club, that
Office rendered the order or decision in question.
In justifying that Office's order or decision, it is
contended that approval by that Office of the
Constitution and By-Laws of the Club is necessary
for its effectivity and validity and since it was
never submitted to that Office, the Club had no
valid constitution and By-Laws and that as a
consequence, Resolution No. 2 which was passed
based on the Constitution and By-Laws- is without
any force and effect and the treasurer, Violeta
Delmo, who extended loans to some officers and
members of the Club pursuant thereto are illegal
(sic), hence, she and the other students involved
are deemed guilty of misappropriating the funds
of the Club. On the other hand, Raclito
Castaneda, Nestor Golez and Violeta Delmo,
President, Secretary and Treasurer of the Club,
respectively, testified that the Club had adopted
its Constitution and By-Laws in a meeting held
last October 3, 1965, and that pursuant to Article
I of said Constitution and By-Laws, the majority of
the members of the Executive Board passed
Resolution No. 2, which resolution became the
basis for the extension on of loans to some
officers and members of the Club, that the Club
honestly believed that its Constitution and ByLaws has been approved by the superintendent
because the adviser of the Club, Mr. Jesse
Dagoon, assured the President of the Club that he
will cause the approval of the Constitution and
By-Laws by the Superintendent; the officers of
the Club have been inducted to office on October
9,1965 by the Superintendent and that the Club
had been likewise allowed to cosponsor the
Education Week Celebration.
After a careful study of the records, this Office
sustains the action taken by the Superintendent
in penalizing the adviser of the Club as well as
the officers and members thereof by dropping
them from membership therein. However, this
Office is convinced that Violets M. Delmo had
acted in good faith, in her capacity as Club
Treasurer, in extending loans to the officers and
members of the Student partnership Club.
Resolution No. 2 authorizing the Club treasurer to

In view of all the foregoing, this Office believes

and so holds and hereby directs that appellant
Violeta. M. Delmo, and for that matter all other
Club members or officers involved in this case, be
not deprived of any award, citation or honor from
the school, if they are otherwise entitled thereto.
(Rollo, pp. 28-30)
On April 27, 1966, the petitioner received by mail
the decision of the Director and all the records of
the case. On the same day, petitioner received a
telegram stating the following:
"AIRMAIL RECORDS DELMO CASE MISSENT THAT
OFFICE"
The Director asked for the return only of the
records but the petitioner allegedly mistook the
telegram as ordering him to also send the
decision back. On the same day, he returned by
mail all the records plus the decision of the
Director to the Bureau of Public Schools.
The next day, the petitioner received another
telegram from the Director order him to furnish
Delmo with a copy of the decision. The petitioner,
in turn, sent a night letter to the Director
informing the latter that he had sent the decision
back and that he had not retained a copy
thereof..

ARTICLE 1170

2
Page

discharge finds to students in need of financial

assistance and other humanitarian purposes had
been approved by the Club adviser, Mr. Jesse
Dagoon, with the notation that approval was
given in his capacity as adviser of the Club and
extension of the Superintendent's personality.
Aside from misleading the officers and members
of the Club, Mr. Dagoon, had unsatisfactorily
explained why he failed to give the Constitution
and By-Laws of the Club to the Superintendent for
approval despite his assurance to the Club
president that he would do so. With this finding of
negligence on the part of the Club adviser, not to
mention laxity in the performance of his duties as
such, this Office considers as too severe and
unwarranted that portion of the questioned order
stating that Violeta Delmo "shall not be a
candidate for any award or citation from this
school or any organization in this school." Violeta
Delmo, it is noted, has been a consistent full
scholar of the school and she alone has
maintained her scholarship. The decision in
question would, therefore, set at naught all her
sacrifice and frustrate her dreams of graduating
with honors in this year's commencement
exercises.

On May 3, 1966, the day of the graduation, the

petitioner received another telegram from the
Director ordering him not to deprive Delmo of any
honors due her. As it was impossible by this time
to include Delmo's name in the program as one of
the honor students, the petitioner let her
graduate as a plain student instead of being
awarded the Latin honor of Magna Cum Laude.
To delay the matter further, the petitioner on May
5, 1966, wrote the Director for a reconsideration
of the latters" decision because he believed that
Delmo should not be allowed to graduate with
honors. The Director denied the petitioner's
request.
On July 12, 1966, the petitioner finally instructed
the Registrar of the school to enter into the
scholastic records of Delmo the honor, "Magna
Cum Laude."
On July 30, 1966, Delmo, then a minor, was
joined by her parents in flag action for damages
against the petitioner. During the pendency of the
action, however, Delmo passed away, and thus,
an Amended and Supplemental Complaint was
filed by her parents as her sole and only heirs.
The trial court after hearing rendered judgment
against the petitioner and in favor of the spouses
Delmo. The court said:
Let us go to specific badges of the defendants
(now petitioners) bad faith. Per investigation of
Violeta Delmo's appeal to Director Vitaliano
Bernardino of the Bureau of Public Schools
(Exhibit L it was the defendant who inducted the
officers of the Student Leadership Club on
October 9, 1965. In fact the Club was allowed to
cosponsor the Education Week Celebration. (Exh.
"L"). If the defendant he not approve of the
constitution and by-laws of the Club, why did he
induct the officers into office and allow the Club
to sponsor the Education Week Celebration"? It
was through his own act that the students were
misled to do as they did. Coupled with the
defendants tacit recognition of the Club was the
assurance of Mr. Jemm Dagoon, Club Adviser, who
made the students believe that he was acting as
an extension of Mr. Ledesma's personality.
(Exhibit "L").
Another badge of the defendan'ts want of good
faith is the fact that, although, he kaew as early
as April 27,1966 that per on of r Bernardino,
Exhibit "L," he was directed to give honors to Miss
Delmo, he kept Id information to . He told the

Defendants actuations regarding Miss Delmo's

cam had been one of bias and prejudice. When
his action would favor him, he was deliberate and
aspect to the utter prejudice and detriment of
Miss Delmo. Thus, although, as early as April 27,
1966, he knew of the exoneration of Miss Delino
by Director Bernardino, he withheld the
information from Miss Delmo. This is eloquently
dramatized by Exh. "11" and Exh. "13" On April
29,1966, Director Bernardino cabled him to
furnish Violeta Delmo copy of the Decision, Exh.
"L," but instead of informing Miss Delmo about
the decision, since he said he mailed back the
decision on April 28,1966, he sent a night letter
on April 29,1966, to Director Bernardino,
informing the latter that he had returned the
decision (Exh. "l3"), together with the record.
Why a night letter when the matter was of utmost
urgency to the parties in the case, because
graduation day was only four days ahead? An
examination of the telegrams sent by the
defendant shows that he had been sending
ordinary telegram and not night letters. (Exh. "5",
Exhibit "7"). At least, if the defendant could not
furnish a copy of the decision, (Exh. "L"), to Miss
Delmo, he should have told her about it or that
Miss Delmo's honors and citation in the
commencement be announced or indicated. But
Mr. Ledesma is one who cannot admit a mistake.
Very ungentlemanly this is home out by his own
testimony despite his knowledge that his decision
to deprive Miss Delmo of honors due to her was
overturned by Director Bernardino, he on his
wrong belief. To quote the defendant,1 believed
that she did not deserve those honors(Tsn Feb. 5,
1974, p. 43,Empasized supplied). Despite the
telegram of Director Bernardino which the
defendant
received
hours
before
the
commencement executory on May 3-4,1966, he
did not obey Director Bernardino because he said

ARTICLE 1170

3
Page

Court that he knew that the letter of Director

Bernardino directed him not to deprive Miss
Delmo the honors due her, but she (sic) says that
he has not finished reading the letter-decision,
Exhibit "L," of Director Bernardino 0, him to give
honors to Miss Delmo. (Tsn, Feb. 5, 1974,
testimony of Mr. Ledesma, pp. .33-35). It could
not be true that he has not finished reading the
letter-decision, Exh. "L," because said letter
consisted of only three pages, and the portion
which directed that Miss Delmo "be not deprived
of any award, citation or honor from the school, if
otherwise entitled thereto is found at the last
paragraph of the same. How did he know the last
paragraph if he did not read the letter.

in his testimony that he would be embarrassment

. Tan Feb 5,1974, P. 46). Evidently, he knew only
his embarrassment and not that of r Bernardino
whose order was being flagrantly and wantonly
disregarded by bim And certainly, not the least of
Miss Delmo's embarrassment. His acts speak
eloquently of ho bad faith and unjust of
mindwarped by his delicate sensitivity for having
been challenged by Miss Delmo, a mere student.
xxx xxx xxx
Finally the defendant's behaviour relative to Miss
s case smacks of contemptuous arrogance,
oppression and abuse of power. Come to think of
it. He refused to obey the directive of Be o and
instead, chose to feign ignorance of it." (Reward
on Appeal, p. 72-76).
The trial court awarded P20,000.00 to the estate
of Violeta Delmo and P10,000.00 to her parents
for moral damages; P5,000.00 for nominal
damages to Violeta's estate; exemplary damages
of P10,000.00 and P2,000.00 attorney's fees.
On appeal, the Court of Appeals affirmed the
decision. Hence, this petition.
The issues raised in this petition can be reduced
to the sole question of whether or not the
respondent Court of Appeals erred in affirming
the trial court's finding that petitioner is liable for
damages under Article 27 of the New Civil Code.
We find no reason why the findings of the trial
and appellate courts should be reversed. It
cannot be disputed that Violeta Delmo went
through a painful ordeal which was brought about
by the petitioner's neglect of duty and
callousness. Thus, moral damages are but proper.
As we have affirmed in the case of (Prudenciado
v. Alliance Transport System, Inc., 148 SCRA 440,
448):
There is no argument that 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 result of defendant's
wrongly act or omission." (People v. Baylon, 129
SCRA 62 (1984).
The Solicitor-General tries to cover-up the
petitioner's deliberate omission to inform Miss
Delmo by stating that it was not the duty of the
petitioner to furnish her a copy of the Director's

Third, assuming that defendant could not furnish

Miss Delmo of a copy of the decision, he could
have used his discretion and plain common sense
by informing her about it or he could have
directed the inclusion of Miss Delmo's honor in
the
printed
commencement
program
or
announced it during the commencement
exercises.
Fourth, defendant despite receipt of the telegram
of Director Benardino hours before the
commencement exercises on May 3-4, 1966,
disobeyed his superior by refusing to give the
honors due Miss Delmo with a lame excuse that
he would be embarrassed if he did so, to the
prejudice of and in complete disregard of Miss
Delmo's rights.
Fifth, defendant did not even extend the courtesy
of meeting Mr. Pacifico Delmo, father of Miss
Delmo, who tried several times to see defendant
in his office thus Mr. Delmo suffered extreme
disappointment and humiliation.
xxx xxx xxx
Defendant, being a public officer should have
acted with circumspection and due regard to the
rights of Miss Delmo. Inasmuch as he exceeded
the scope of his authority by defiantly disobeying
the lawful directive of his superior, Director
Bernardino, defendant is liable for damages in his
personal capacity. . . . (Rollo, pp- 57-58)
Based on the undisputed facts, exemplary
damages are also in order. In the same case
of Prudenciado v. Alliance Transport System,
Inc., supra., at p. 450, we ruled:
The rationale behind exemplary or corrective
damages is, as the name implies, to provide an
example or correction for the public good (Lopez,

ARTICLE 1170

4
Page

decision. Granting this to be true, it was

nevertheless the petitioner's duty to enforce the
said decision. He could have done so considering
that he received the decision on April 27, 1966
and even though he sent it back with the records
of the case, he undoubtedly read the whole of it
which consisted of only three pages. Moreover,
the petitioner should have had the decency to
meet with Mr. Delmo, the girl's father, and inform
the latter, at the very least of the decision. This,
the petitioner likewise failed to do, and not
without the attendant bad faith which the
appellate court correctly pointed out in its
decision, to wit:

et al. v. Pan American World Airways, 16 SCRA

431).
However, we do not deem it appropriate to award
the spouses Delmo damages in the amount of
P10,000.00 in their individual capacity, separately
from and in addition to what they are already
entitled to as sole heirs of the deceased Violeta
Delmo. Thus, the decision is modified insofar as
moral damages are awarded to the spouses in
their own behalf.
WHEREFORE, the petition is DISMISSED for lack of
merit. The decision of the Court of Appeals is
AFFIRMED with the slight modification as stated
in the preceding paragraph. This decision is
immediately executory.
SO ORDERED.

5
Page

G.R. No. 90926 July 6, 1990

ALEX G. LEE, petitioner,
vs.
HON. SALVADOR P. DE GUZMAN, JR.,
Regional Trial Court of Makati, Branch 142
and MOTORCARS,
INCORPORATED, respondents.
Doroteo A. Dadal for petitioner.
Benjamin S. Benito & Associates for private
respondents.

PARAS, J.:
On November 8, 1983, a free-lance salesman of
respondent Motorcars, Inc., (then Delta Motors
Corporation) named Arsenio Tumibay signed in
behalf of Domingo Tupaz its Branch Manager in
Makati, a price quotation (Exhibit "A") and
delivered to petitioner Alex B. Lee for the sale of
one (1) unit Toyota Corolla Liftback, 1983 model,
with the quoted price of P149,700.00 plus
miscellaneous expenses of P10,033.00. On the
same date, petitioner Lee as customer, signed
the vehicle sales order (Exhibit "C") The delivery
of the subject vehicle was within the month of
November, 1983.
In view of such order, petitioner Lee deposited
the amount of P1,000.00 on November 10, 1983
as required in the aforesaid price quotation, to
which Tumibay wrote petitioner the information
that the Motorcars Inc., had acknowledged
receipt of the delivery receipt for petitioner.
Thereupon, on December 15, 1983, petitioner's
counsel, Atty. Doroteo A. Dadal, wrote Mr. Nicolas
O. Carranceja, Jr., Executive Vice-President of
Motorcars, demanding for delivery of the said
Toyota car. The respondent car company replied
on December 19, 1983, through its counsel Atty.
Benjamin S. Benito, that due to the sudden
change of prices by the car manufacturer, they
had decided to exercise the option contained in
the vehicle sales order, (Exhibits "C") which
states:
Whenever deposits are made by customers for
vehicles, parts and services ordered, the sales for
such vehicles, parts or services shall be at the
option of Motorcars, Inc., and refund of the
deposits shall be made upon request and without

ARTICLE 1170

The respondent car company thus offered to

refund petitioner's deposit of P1,000.00. Part of
the vehicle sales order also reads, viz:
This order is not valid unless signed and accepted
by the dealer principal, President, Executive Vice
President or General Sales Manager of the
dealership . . . (supra)
The trial court rendered judgment in favor of
respondent car company ruling as follows:
Exhibit "A" is merely a quotation offered by
defendant's sales representative. Exhibit "C", the
vehicle sales order, was not signed and accepted
by
defendant's
President,
Executive
Vice
President, nor its General Sales Manager, hence,
not valid because it exercised the option in Exh.
"1" beforestated due to sudden change of prices
by the car manufacturer (Exh. "2"). Exhibit "C"
which contains; Exhibits "1" and "1-A", having
been signed by plaintiff binds him alone There
was no perfected contract in accordance with
Article 1318, Civil Code. (p. 21, Rollo)
Petitioner was ordered to pay respondent P5,000
for damages and attorney's fees.
Expectedly dissatisfied with the aforesaid court's
ruling, petitioner appealed to the Court of
Appeals which reversed the decision appealed
from ruling that there was a perfected contract of
sale, and that there was the undisputed signature
of one Mr. Domingo Tapas, the branch manager of
Motorcars. Thereupon, the Court of Appeals
ordered respondent company to deliver to
petitioner the subject vehicle upon payment by
the latter of the amount of P149,700.00 and the
amount of P8,833.00 for Miscellaneous Expenses
and/or Incidental Charges. Thus, respondent
appealed to this Court, docketed as G.R. No.
77992.
In this Court's resolution dated August 31, 1987,
through the Third Division, the decision appealed
from was affirmed, and the petition was denied.
This Court ruled:
The issue of whether or not there was a perfected
contract of sale appears to have been correctly
decided by the respondent court. This Court also
finds no reason to disturb the ruling of the
respondent court on the factual issue of whether
or not the branch manager could bind the
petitioner.

ARTICLE 1170

6
Page

undue delay should such option be exercised (p.

21, Rollo)

It appearing that the findings of fact of the

respondent court are supported by substantial
evidence and there being no showing that its
decision is not in accord with law or
jurisprudence, the COURT RESOLVED to DENY the
petition. (p. 32, Rollo)
When the case was remanded to the trial Court,
petitioner filed a Motion for Writ of Execution.
Instead of complying with the Order of the court,
respondent company filed a motion to quash writ
of execution. Said motion was anchored on the
premise that the obligation has become
impossible to comply on the ground that the
Delta Motors Corporation has closed shop.
Petitioner opposed the quashal of the Writ of
execution and consequently, the motion to quash
was denied. An alias writ of execution was filed
by petitioner, but respondent company continued
to defy the Order of the Court. Petitioner filed a
motion for contempt of court for the stance of the
respondent company was contumacious in
nature. Respondent company filed an opposition
thereto reiterating the grounds relied on in the
Motion to quash writ of execution. Respondent
trial court issued the questioned Order, dated
August 10, 1989, which was adjudged favorably
for the respondent company, which order as
alleged by the petition, was totally at war with
the previous order granting the alias writ of
execution.
Hence, this petition for certiorari with mandamus.
Two issues are presented by both parties for Our
consideration. They are:
1. Whether or not the decision rendered by the
Court of Appeals and affirmed by the Supreme
Court is capable of performance and can by
judiciously executed; and
2. Whether or not the corporation officers are
liable for contempt.
The Court takes notice of the fact that as alleged
in the Comment and Memorandum of respondent
company and contained in the questioned order,
which is not disputed by the petitioner, that while
the Motion for Contempt was pending before the
respondent trial court, petitioner indicated his
willingness to accept a second-hand car but failed
to show its availability as the classified ads refer
to 1984 Models and could not be said that they
are the same models as what appears in Exhibit
"C", the sales order. In addition, respondent car

It is the contention of the petitioner that the

obligation is not impossible for the 1983 Toyota
cars are still available in the market today. It is
however the contention of respondent company
that the obligation is impossible for the car
manufacturer had closed shop and no longer
manufacturing 1983 models of Toyota much less
deliver the car specified in Exhibit "C".
The question is, should respondent Motorcars be
made liable to fulfill a seemingly impossible
obligation?
It is well-settled that when after a judgment has
become
final
and
executory,
facts
and
circumstances
transpire
which
render
its
execution impossible or unjust, the interested
party may ask a competent court to stay its
execution or prevent its enforcement. 1

7
Page

company even offered the amount of P20,000 as

a gesture to buy peace.

Considering the circumstances attendant to this

case, a total amount of damages worth Fifty
Thousand
Pesos
(P50,000.00)
would
be
reasonable, twenty thousand pesos (P20,000.00)
of which as temperate damages 2inclusive of
attorney's fees and the remaining thirty thousand
pesos (P30,000.00) as exemplary damages. 3
PREMISES CONSIDERED, insofar as the denial of
the motion for contempt by the lower court,
dated August 10, 1989 is concerned, the petition
for certiorari with mandamus is
hereby
DISMISSED, but the respondent is ordered to give
to the petitioner the amount of damages
adverted to in the next preceding paragraph.
SO ORDERED.

We find that respondent Court did not act with

grave abuse of discretion in denying the motion
for contempt.
Unfortunately it is not possible for Motorcars to
comply with the writ of execution since
admittedly, the then Delta Motors who
manufactured 1983 models of Toyota Liftback had
already closed shop, but be this as it may, there
is no question that indeed there was a perfected
contract of sale between petitioner Lee and
private respondent Motorcars pursuant to this
Court's (through the Third Division) resolution
dated August 31, 1987.
The relief left for petitioner Lee is that found
under Article 1170 of the Civil Code which
provides: "(T)hose 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."
The reply letter of private respondent company
dated December 19, 1983 which said that "due to
the sudden change of prices by the car
manufacturer, they have decided to exercise the
option . . ." did not relieve Motorcars from the
contract had entered into with petitioner Lee.
There was therefore delay in the delivery of the
subject vehicle which entitles petitioner to be
awarded damages. The records show that the
subject vehicle should have been delivered within
the month of November, 1983. (Annex C,
Records).

ARTICLE 1170

G.R. No. L-22415

March 30, 1966

FERNANDO
LOPEZ,
ET
AL., plaintiffsappellants,
vs.
PAN AMERICAN WORLD AIRWAYS, defendantappellant.
Ross, Selph and Carrascoso for the defendantappellant.
Vicente J. Francisco for the plaintiffs-appellants.
BENGZON, J.P., J.:
Plaintiffs and defendant appeal from a decision of
the Court of First Instance of Rizal. Since the
value in controversy exceeds P200,000 the
appeals were taken directly to this Court upon all
questions involved (Sec. 17, par. 3[5], Judiciary
Act).
Stated briefly the facts not in dispute are as
follows:
Reservations
for
first
class
accommodations in Flight No. 2 of Pan American

First class tickets for the abovementioned flight

were
subsequently
issued
by
PAN-AM on May 21 and 23, 1960, in favor of
Senator Lopez and his party. The total fare of
P9,444 for all of them was fully paid before the
tickets were issued.
As scheduled Senator Lopez and party left Manila
by Northwest Airlines on May 24, 1960, arriving in
Tokyo at 5:30 P.M. of that day. As soon as they
arrived Senator Lopez requested Minister
Busuego of the Philippine Embassy to contact
PAN-AM's Tokyo office regarding their first class
accommodations for that evening's flight. For the
given reason that the first class seats therein
were all booked up, however, PAN-AM's Tokyo
office informed Minister Busuego that PAN-AM
could not accommodate Senator Lopez and party
in that trip as first class passengers. Senator
Lopez thereupon gave their first class tickets to
Minister Busuego for him to show the same to
PAN-AM's Tokyo office, but the latter firmly
reiterated that there was no accommodation for
them in the first class, stating that they could not
go in that flight unless they took the tourist class
therein.
Due to pressing engagements awaiting Senator
Lopez and his wife, in the United States he had
to attend a business conference in San Francisco
the next day and she had to undergo a medical
check-up in Mayo Clinic, Rochester, Minnesota, on
May 28, 1960 and needed three days rest before
that in San Francisco Senator Lopez and party
were constrained to take PAN-AM's flight from
Tokyo to San Francisco as tourist passengers.
Senator Lopez however made it clear, as
indicated in his letter to PAN-AM's Tokyo office on
that date (Exh. A), that they did so "under
protest" and without prejudice to further action
against the airline.1wph1.t
Suit for damages was thereafter filed by Senator
Lopez and party against PAN-AM on June 2, 1960
in the Court of First Instance of Rizal. Alleging

ARTICLE 1170

8
Page

World Airways hereinafter otherwise called

PAN-AM from Tokyo to San Francisco on May
24,
1960
were
made
with
PAN-AM on March 29, 1960, by "Your Travel
Guide" agency, specifically, by Delfin Faustino, for
then Senator Fernando Lopez, his wife Maria J.
Lopez, his son-in-law Alfredo Montelibano, Jr., and
his daughter, Mrs. Alfredo Montelibano, Jr.,
(Milagros Lopez Montelibano). PAN-AM's San
Francisco head office confirmed the reservations
on March 31, 1960.

breach of contracts in bad faith by defendant,

plaintiffs asked for P500,000 actual and moral
damages,
P100,000
exemplary
damages,
P25,000 attorney's fees plus costs. PAN-AM filed
its answer on June 22, 1960, asserting that its
failure to provide first class accommodations to
plaintiffs was due to honest error of its
employees. It also interposed a counterclaim for
attorney's fees of P25,000.
Subsequently, further pleadings were filed, thus:
plaintiffs' answer to the counterclaim, on July 25,
1960; plaintiffs' reply attached to motion for its
admittance, on December 2, 1961; defendant's
supplemental answer, on March 8, 1962;
plaintiffs' reply to supplemental answer, on March
10,
1962;
and
defendant's
amended
supplemental answer, on July 10, 1962.
After trial which took twenty-two (22) days
ranging from November 25, 1960 to January 5,
1963 the Court of First Instance rendered its
decision on November 13, 1963, the dispositive
portion stating:
In view of the foregoing considerations, judgment
is hereby rendered in favor of the plaintiffs and
against the defendant, which is accordingly
ordered to pay the plaintiffs the following: (a)
P100,000.00 as moral damages; (b) P20,000.00
as exemplary damages; (c) P25,000.00 as
attorney's fees, and the costs of this action.
So ordered.
Plaintiffs, however, on November 21, 1963,
moved for reconsideration of said judgment,
asking that moral damages be increased to
P400,000 and that six per cent (6%) interest per
annum on the amount of the award be granted.
And defendant opposed the same. Acting thereon
the trial court issued an order on December 14,
1963, reconsidering the dispositive part of its
decision to read as follows:
In view of the foregoing considerations, judgment
is hereby rendered in favor of the plaintiffs and
against the defendant, which is accordingly
ordered to pay the plaintiffs the following: (a)
P150,000.00 as moral damages; (b) P25,000.00
as exemplary damages; with legal interest on
both from the date of the filing of the complaint
until paid; and (c) P25,000.00 as attorney's fees;
and the costs of this action.
So ordered.

Defendant, as stated, has from the start admitted

that it breached its contracts with plaintiffs to
provide them with first class accommodations in
its Tokyo-San Francisco flight of May 24, 1960. In
its appeal, however, it takes issue with the finding
of the court a quo that it acted in bad faith in the
branch of said contracts. Plaintiffs, on the other
hand, raise questions on the amount of damages
awarded in their favor, seeking that the same be
increased to a total of P650,000.
Anent the issue of bad faith the records show the
respective contentions of the parties as follows.
According to plaintiffs, defendant acted in bad
faith because it deliberately refused to comply
with its contract to provide first class
accommodations to plaintiffs, out of racial
prejudice against Orientals. And in support of its
contention that what was done to plaintiffs is an
oftrepeated practice of defendant, evidence was
adduced relating to two previous instances of
alleged racial discrimination by defendant against
Filipinos in favor of "white" passengers. Said
previous occasions are what allegedly happened
to (1) Benito Jalbuena and (2) Cenon S. Cervantes
and his wife.
And from plaintiffs' evidence this is what
allegedly happened; Jalbuena bought a first class
ticket from PAN-AM on April 13, 1960; he
confirmed it on April 15, 1960 as to the TokyoHongkong flight of April 20, 1960; PAN-AM
similarly confirmed it on April 20, 1960. At the
airport he and another Oriental Mr. Tung
were asked to step aside while other passengers including "white" passengers boarded PANAM's plane. Then PAN-AM officials told them that
one of them had to stay behind. Since Mr. Tung
was going all the way to London, Jalbuena was
chosen to be left behind. PAN-AM's officials could
only explain by saying there was "some mistake".
Jalbuena thereafter wrote PAN-AM to protest the
incident (Exh. B).
As to Cenon S. Cervantes it would appear that in
Flight No. 6 of PAN-AM on September 29, 1958
from Bangkok to Hongkong, he and his wife had
to take tourist class, although they had first class
tickets, which they had previously confirmed,
because their seats in first class were given to
"passengers from London."

ARTICLE 1170

9
Page

It is from said judgment, as thus reconsidered,

that both parties have appealed.

Against the foregoing, however, defendant's

evidence would seek to establish its theory of
honest mistake, thus:
The first class reservations of Senator Lopez and
party were made on March 29, 1960 together
with those of four members of the Rufino family,
for a total of eight (8) seats, as shown in their
joint reservation card (Exh. 1). Subsequently on
March 30, 1960, two other Rufinos secured
reservations and were given a separate
reservation card (Exh. 2). A new reservation card
consisting of two pages (Exhs. 3 and 4) was then
made for the original of eight passengers,
namely, Senator Lopez and party and four
members of the Rufino family, the first page (Exh.
3) referring to 2 Lopezes, 2 Montelibanos and 1
Rufino and the second page (Exh. 4) referring to 3
Rufinos. On April 18, 1960 "Your Travel Guide"
agency cancelled the reservations of the Rufinos.
A telex message was thereupon sent on that date
to PAN-AM's head office at San Francisco by
Mariano
Herranz,
PAN-AM's
reservations
employee at its office in Escolta, Manila. (Annex
A-Acker's to Exh. 6.) In said message, however,
Herranz mistakenly cancelled all the seats that
had been reserved, that is, including those of
Senator Lopez and party.
The next day April 1960 Herranz discovered
his mistake, upon seeing the reservation card
newly prepared by his co-employee Pedro Asensi
for Sen. Lopez and party to the exclusion of the
Rufinos (Exh. 5). It was then that Herranz sent
another telex wire to the San Francisco head
office, stating his error and asking for the
reinstatement of the four (4) first class seats
reserved for Senator Lopez and party (Annex AVelasco's to Exh. 6). San Francisco head office
replied on April 22, 1960 that Senator Lopez and
party are waitlisted and that said office is unable
to reinstate them (Annex B-Velasco's to Exh. 6).
Since the flight involved was still more than a
month away and confident that reinstatement
would be made, Herranz forgot the matter and
told no one about it except his co-employee,
either Armando Davila or Pedro Asensi or both of
them (Tsn., 123-124, 127, Nov. 17, 1961).
Subsequently, on April 27, 1960, Armando Davila,
PAN-AM's reservations employee working in the
same Escolta office as Herranz, phoned PAN-AM's
ticket sellers at its other office in the Manila
Hotel, and confirmed the reservations of Senator
Lopez and party.

Expecting that some cancellations of bookings

would be made before the flight time, Jose
decided to withhold from Senator Lopez and
party, or their agent, the information that their
reservations had been cancelled.
Armando Davila having previously confirmed
Senator Lopez and party's first class reservations
to PAN-AM's ticket sellers at its Manila Hotel
office, the latter sold and issued in their favor the
corresponding first class tickets on the 21st and
23rd of May, 1960.
From the foregoing evidence of defendant it is in
effect admitted that defendant through its
agents first cancelled plaintiffs, reservations by
mistake
and
thereafter deliberately
and
intentionally withheld from plaintiffs or their
travel agent the fact of said cancellation, letting
them go on believing that their first class
reservations stood valid and confirmed. In so
misleading plaintiffs into purchasing first class
tickets in the conviction that they had confirmed
reservations for the same, when in fact they had
none, defendant wilfully and knowingly placed
itself into the position of having to breach its a
foresaid contracts with plaintiffs should there be
no last-minute cancellation by other passengers
before flight time, as it turned out in this case.

ARTICLE 1170

10
Page

PAN-AM's reservations supervisor Alberto Jose,

discovered Herranz's mistake after "Your Travel
Guide" phone on May 18, 1960 to state that
Senator Lopez and party were going to depart as
scheduled. Accordingly, Jose sent a telex wire on
that date to PAN-AM's head office at San
Francisco to report the error and asked said office
to continue holding the reservations of Senator
Lopez and party (Annex B-Acker's to Exh. 6). Said
message was reiterated by Jose in his telex wire
of May 19, 1960 (Annex C-Acker's to Exh. 6). San
Francisco head office replied on May 19, 1960
that it regrets being unable to confirm Senator
Lopez and party for the reason that the flight was
solidly booked (Exh. 7). Jose sent a third telex
wire on May 20, 1960 addressed to PAN-AM's
offices at San Francisco, New York (Idlewild
Airport), Tokyo and Hongkong, asking all-out
assistance towards restoring the cancelled spaces
and for report of cancellations at their end (Annex
D-Acker's to Exh. 6). San Francisco head office
reiterated on May 20, 1960 that it could not
reinstate the spaces and referred Jose to the
Tokyo and Hongkong offices (Exh. 8). Also on May
20, the Tokyo office of PAN-AM wired Jose stating
it will do everything possible (Exh. 9).

Such actuation of defendant may indeed have

been prompted by nothing more than the
promotion of its self-interest in holding on to
Senator Lopez and party as passengers in its
flight and foreclosing on their chances to seek the
services of other airlines that may have been able
to afford them first class accommodations. All the
time, in legal contemplation such conduct already
amounts to action in bad faith. For bad faith
means a breach of a known duty through some
motive ofinterest or ill-will (Spiegel vs. Beacon
Participations, 8 NE 2d 895, 907). As stated in
Kamm v. Flink, 113 N.J.L. 582, 175 A. 62, 99 A.L.R.
1, 7: "Self-enrichment or fraternal interest, and
not personal ill-will, may well have been the
motive; but it is malice nevertheless."
As of May 18, 1960 defendant's reservations
supervisor, Alberto Jose knew that plaintiffs'
reservations had been cancelled. As of May 20 he
knew that the San Francisco head office stated
with finality that it could not reinstate plaintiffs'
cancelled reservations. And yet said reservations
supervisor made the "decision" to use his own,
word to withhold the information from the
plaintiffs. Said Alberto Jose in his testimony:
Q Why did you not notify them?
A Well, you see, sir, in my fifteen (15) years of
service with the air lines business my experience
is that even if the flights are solidly booked
months in advance, usually the flight departs with
plenty of empty seats both on the first class and
tourist class. This is due to late cancellation of
passengers, or because passengers do not show
up in the airport, and it was our hope others
come in from another flight and, therefore, are
delayed and, therefore, missed their connections.
This experience of mine, coupled with that wire
from Tokyo that they would do everything
possible
prompted
me
to
withhold
the
information, but unfortunately, instead of the first
class seat that I was hoping for and which I
anticipated only the tourists class was open on
which Senator and Mrs. Lopez, Mr. and Mrs.
Montelibano were accommodated. Well, I fully
realize now the gravity of my decision in not
advising Senator and Mrs. Lopez, Mr. and Mrs.
Montelibano nor their agents about the erroneous
cancellation and for which I would like them to
know that I am very sorry.
xxx

xxx

xxx

A As I said before it was my duty. It was my duty

but as I said again with respect to that duty I
have the power to make a decision or use my
discretion and judgment whether I should go
ahead and tell the passenger about the
cancellation. (Tsn., pp. 17-19, 28-29, March 15,
1962.)
At the time plaintiffs bought their tickets,
defendant, therefore, in breach of its known duty,
made plaintiffs believe that their reservation
had not been cancelled. An additional indication
of this is the fact that upon the face of the two
tickets of record, namely, the ticket issued to
Alfredo Montelibano, Jr. on May 21, 1960 (Exh. 22)
and that issued to Mrs. Alfredo Montelibano, Jr.,
on May 23, 1960 (Exh. 23), the reservation status
is stated as "OK". Such willful-non-disclosure of
the cancellation or pretense that the reservations
for plaintiffs stood and not simply the
erroneous cancellation itself is the factor to
which is attributable the breach of the resulting
contracts. And, as above-stated, in this respect
defendant clearly acted in bad faith.
As if to further emphasize its bad faith on the
matter, defendant subsequently promoted the
employee who cancelled plaintiffs' reservations
and told them nothing about it. The record shows
that said employee Mariano Herranz was not
subjected to investigation and suspension by
defendant but instead was given a reward in the
form of an increase of salary in June of the
following year (Tsn., 86-88, Nov. 20, 1961).
At any rate, granting all the mistakes advanced
by the defendant, there would at least be
negligence so gross and reckless as to amount to
malice or bad faith (Fores vs. Miranda, L-12163,
March 4, 1959; Necesito v. Paras, L-10605-06,
June 30, 1958). Firstly, notwithstanding the
entries in the reservation cards (Exhs. 1 & 3) that
the reservations cancelled are those of the
Rufinos only, Herranz made the mistake, after
reading said entries, of sending a wire cancelling
all the reservations, including those of Senator
Lopez and party (Tsn., pp. 108-109, Nov. 17,
1961). Secondly, after sending a wire to San
Francisco head office on April 19, 1960 stating his
error and asking for reinstatement, Herranz
simply forgot about the matter. Notwithstanding
the reply of San Francisco head Office on April 22,
1960 that it cannot reinstate Senator Lopez and

ARTICLE 1170

11
Page

Q So it was not your duty to notify Sen. Lopez and

parties that their reservations had been cancelled
since May 18, 1960?

party (Annex B-Velasco's to Exh. 6), it was

assumed
and
taken
for
granted
that
reinstatement would be made. Thirdly, Armando
Davila confirmed plaintiff's reservations in a
phone call on April 27, 1960 to defendant's ticket
sellers, when at the time it appeared in plaintiffs'
reservation card (Exh. 5) that they were only
waitlisted passengers. Fourthly, defendant's
ticket sellers issued plaintiffs' tickets on May 21
and 23, 1960, without first checking their
reservations just before issuing said tickets. And,
finally, no one among defendant's agents notified
Senator Lopez and party that their reservations
had been cancelled, a precaution that could have
averted their entering with defendant into
contracts that the latter had already placed
beyond its power to perform.
Accordingly, there being a clear admission in
defendant's evidence of facts amounting to a bad
faith on its part in regard to the breach of its
contracts with plaintiffs, it becomes unnecessary
to further discuss the evidence adduced by
plaintiffs to establish defendant's bad faith. For
what is admitted in the course of the trial does
not need to be proved (Sec. 2, Rule 129, Rules of
Court).
Addressing ourselves now to the question of
damages, it is well to state at the outset those
rules and principles. First, moral damages are
recoverable in breach of contracts where the
defendant acted fraudulently or in bad faith (Art.
2220, New Civil Code). Second, in addition to
moral
damages,
exemplary
or
corrective
damages may be imposed by way of example or
correction for the public good, in breach of
contract where the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent
manner (Articles 2229, 2232, New Civil Code).
And, third, a written contract for an attorney's
services shall control the amount to be paid
therefor unless found by the court to be
unconscionable or unreasonable (Sec. 24, Rule
138, Rules of Court).
First, then, as to moral damages. As a proximate
result of defendant's breach in bad faith of its
contracts with plaintiffs, the latter suffered social
humiliation, wounded feelings, serious anxiety
and mental anguish. For plaintiffs were travelling
with first class tickets issued by defendant and
yet they were given only the tourist class. At
stop-overs, they were expected to be among the
first-class passengers by those awaiting to
welcome them, only to be found among the

Senator Lopez was then Senate President Pro

Tempore. International carriers like defendant
know the prestige of such an office. For the
Senate is not only the Upper Chamber of the
Philippine Congress, but the nation's treatyratifying body. It may also be mentioned that in
his aforesaid office Senator Lopez was in a
position to preside in impeachment cases should
the Senate sit as Impeachment Tribunal. And he
was former Vice-President of the Philippines.
Senator Lopez was going to the United States to
attend a private business conference of the
Binalbagan-Isabela Sugar Company; but his
aforesaid rank and position were by no means left
behind, and in fact he had a second engagement
awaiting him in the United States: a banquet
tendered by Filipino friends in his honor as Senate
President Pro Tempore (Tsn., pp. 14-15, Nov. 25,
1960). For the moral damages sustained by him,
therefore,
an
award
of
P100,000.00
is
appropriate.
Mrs. Maria J. Lopez, as wife of Senator Lopez,
shared his prestige and therefore his humiliation.
In addition she suffered physical discomfort
during the 13-hour trip,(5 hours from Tokyo to
Honolulu and 8 hours from Honolulu to San
Francisco). Although Senator Lopez stated that
"she was quite well" (Tsn., p. 22, Nov. 25, 1960)
he obviously meant relatively well, since the
rest of his statement is that two months before,
she was attackedby severe flu and lost 10 pounds
of weight and that she was advised by Dr. Sison
to go to the United States as soon as possible for
medical check-up and relaxation, (Ibid). In fact,
Senator Lopez stated, as shown a few pages after
in the transcript of his testimony, that Mrs. Lopez
was sick when she left the Philippines:
A. Well, my wife really felt very bad during the
entire trip from Tokyo to San Francisco. In the first
place, she was sick when we left the Philippines,
and then with that discomfort which she
[experienced] or suffered during that evening, it
was her worst experience. I myself, who was not
sick, could not sleep because of the discomfort.
(Tsn., pp. 27-28, Nov. 25, 1960).
It is not hard to see that in her condition then a
physical discomfort sustained for thirteen hours
may well be considered a physical suffering. And

ARTICLE 1170

12
Page

tourist passengers. It may not be humiliating to

travel as tourist passengers; it is humiliating to
be compelled to travel as such, contrary to what
is rightfully to be expected from the contractual
undertaking.

even without regard to the noise and trepidation

inside the plane which defendant contends,
upon the strengh of expert testimony, to be
practically the same in first class and tourist class
the fact that the seating spaces in the tourist
class are quite narrower than in first class, there
beingsix seats to a row in the former as against
four to a row in the latter, and that in tourist class
there is very little space for reclining in view of
the closer distance between rows (Tsn., p. 24,
Nov. 25, 1960), will suffice to show that the
aforesaid passenger indeed experienced physical
suffering during the trip. Added to this, of course,
was the painfull thought that she was deprived by
defendant after having paid for and expected
the same of the most suitable, place for her,
the first class, where evidently the best of
everything would have been given her, the best
seat, service, food and treatment. Such difference
in comfort between first class and tourist class is
too obvious to be recounted, is in fact the reason
for the former's existence, and is recognized by
the airline in charging a higher fare for it and by
the passengers in paying said higher rate
Accordingly, considering the totality of her
suffering and humiliation, an award to Mrs. Maria
J. Lopez of P50,000.00 for moral damages will be
reasonable.
Mr. and Mrs. Alfredo Montelibano, Jr., were
travelling as immediate members of the family of
Senator Lopez. They formed part of the Senator's
party as shown also by the reservation cards of
PAN-AM. As such they likewise shared his prestige
and humiliation. Although defendant contends
that a few weeks before the flight they had asked
their reservations to be charged from first class to
tourist class which did not materialize due to
alleged full booking in the tourist class the
same does not mean they suffered no shared in
having to take tourist class during the flight. For
by that time they had already been made to pay
for first class seats and therefore to expect first
class accommodations. As stated, it is one thing
to take the tourist class by free choice; a far
different thing to be compelled to take it
notwithstanding having paid for first class seats.
Plaintiffs-appellants now ask P37,500.00 each for
the two but we note that in their motion for
reconsideration filed in the court a quo, they were
satisfied with P25,000.00 each for said persons.
(Record on Appeal, p. 102). For their social
humiliation, therefore, the award to them of
P25,000.00 each is reasonable.

In view of its nature, it should be imposed in such

an amount as to sufficiently and effectively deter
similar breach of contracts in the future by
defendant or other airlines. In this light, we find it
just to award P75,000.00 as exemplary or
corrective damages.
Now, as to attorney's fees, the record shows a
written contract of services executed on June 1,
1960 (Exh. F) whereunder plaintiffs-appellants
engaged the services of their counsel Atty.
Vicente J. Francisco and agreedto pay the sum
of P25,000.00 as attorney's fees upon the
termination of the case in the Court of First
Instance, and an additional sum of P25,000.00 in
the event the case is appealed to the Supreme
Court. As said earlier, a written contract for
attorney's services shall control the amount to be
paid therefor unless found by the court to be
unconscionable or unreasonable. A consideration
of the subject matter of the present controversy,
of the professional standing of the attorney for
plaintiffs-appellants, and of the extent of the
service rendered by him, shows that said amount
provided for in the written agreement is
reasonable. Said lawyer whose prominence in
the legal profession is well known studied the
case, prepared and filed the complaint, conferred
with witnesses, analyzed documentary evidence,
personally appeared at the trial of the case in
twenty-two days, during a period of three years,
prepared four sets of cross-interrogatories for
deposition taking, prepared several memoranda
and the motion for reconsideration, filed a joint
record on appeal with defendant, filed a brief for
plaintiffs as appellants consisting of 45 printed
pages and a brief for plaintiffs as appellees
consisting of 265 printed pages. And we are
further convinced of its reasonableness because
defendant's
counsel
likewise
valued
at
P50,000.00 the proper compensation for his
services rendered to defendant in the trial court
and on appeal.
In concluding, let it be stressed that the amount
of damages awarded in this appeal has been
determined by adequately considering the
official, political, social, and financial standing of

ARTICLE 1170

13
Page

The rationale behind exemplary or corrective

damages is, as the name implies, to provide an
example or correction for public good. Defendant
having breached its contracts in bad faith, the
court, as stated earlier, may award exemplary
damages in addition to moral damages (Articles
2229, 2232, New Civil Code).

the offended parties on one hand, and the

business and financial position of the offender on
the other (Domingding v. Ng, 55 O.G. 10). And
further considering the present rate of exchange
and the terms at which the amount of damages
awarded would approximately be in U.S. dollars,
this Court is all the more of the view that said
award is proper and reasonable.
Wherefore, the judgment appealed from is hereby
modified so as to award in favor of plaintiffs and
against defendant, the following: (1) P200,000.00
as moral damages, divided among plaintiffs, thus:
P100,000.00
for
Senate
President Pro
Tempore Fernando Lopez; P50,000.00 for his wife
Maria J. Lopez; P25,000.00 for his son-in-law
Alfredo Montelibano, Jr.; and P25,000.00 for his
daughter Mrs. Alfredo Montelibano, Jr.; (2)
P75,000.00 as exemplary or corrective damages;
(3) interest at the legal rate of 6% per annum on
the moral and exemplary damages aforestated,
from December 14, 1963, the date of the
amended decision of the court a quo, until said
damages are fully paid; (4) P50,000.00 as
attorney's fees; and (5) the costs. Counterclaim
dismissed.So ordered.
G.R. No. L-37120 April 20, 1983
VICTORINO D. MAGAT, petitioner,
vs.
HON. LEO D. MEDIALDEA and SANTIAGO A.
GUERRERO, respondents.
Sinesio S. Vergara for petitioner.
Eladio B. Samson for respondents.

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.
The pertinent allegations in the
subject of inquiry, are as follows: 1

complaint,

3. That sometime in September 1972, the

defendant entered into a contract with the U.S.
Navy Exchange, Subic Bay, Philippines, for the

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 plaintiff's 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 defendant's taxicabs in partial
fulfillment of defendant's commitments with the
U.S. Navy Exchange, Subic Bay, Philippines, the
plaintiff's 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 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;

ARTICLE 1170

14
Page

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;

7. That the plaintiff received notice of the fact

that the defendant accepted plaintiff's 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 defendant's 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 plaintiff's
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 defendant's aforementioned agent;
10. That by his letter dated October 7, 1972,
addressed to the plaintiff by the defendant's
agent, a copy of which is hereto attached and
marked as Annex 'D', defendant's agent qualified
defendant's instructions contained in his letter of
October 6, 1972 [Annex 'C'] in the sense that
plaintiff herein should proceed to fulfill
defendant's order only upon receipt by the
plaintiff of the defendant's letter of credit;
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;

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 plaintiff's demand;

15
Page

12. That the defendant and his agent have

repeatedly assured plaintiff herein of the
defendant's 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;

(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 P 52,393.89 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 defendant's bad faith in
inducing plaintiff to enter into the contract with
him as set forth hereinabove, defendant should
be assessed by his Honorable Court in favor of
the plaintiff the sum of P200,000.00 as moral and
exemplary damages;
[e] That in view of the defendant's 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 attorney's 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 respondent's counsel
thus: 2

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 obligation is 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 his financial benefit and at
the expense and prejudice of third parties such as
the plaintiff herein;

... 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, plaintiff's
right of recovery under his cause of action is
premised not on any loss or damage actually
suffered by him but on a non-existing loss or
damage which he is expecting to incur in the near
future. Plaintiff's right therefore under his cause
of action is not yet fixed or vested.

16. That in view of the defendant's failure to fulfill

his contractual obligations with the plaintiff
herein, the plaintiff will suffer the following
damages:

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.

[a] As the radio transceivers ordered by the

defendant are now in the hands of the plaintiff's
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

ARTICLE 1170

The
respondent
judge,
over
petitioner's
opposition, issued a minute order dismissing the
complaint as follows: 3

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 complaints
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
plaintiff's 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.

ARTICLE 1170

16
Page

Acting upon the 'Motion to Dismiss' filed by the

defendant, through counsel, dated 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.

Article 1170 of the Civil Code provides:

Those who
are guilty
those who
thereof are

in the performance of their obligation

of fraud, negligence, or delay, and
in any manner contravene the tenor
liable for damages.

The phrase "in any manner contravene the tenor"

of the obligation includes any ilicit 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
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 non-performance 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.
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.

17
Page

Chaves, Jr. and Rosendo O. Chaves. Isaac Sr. and

Isaac Jr. and Rosendo were members of the
Philippine Bar; Isaac, Sr. and Isaac, Jr. were
practicing lawyers and Rosendo was a Legal
Officer
at
the
Agricultural
Productivity
Commission. Juana O. Chaves was a public school
teacher.
The facts as found by the trial court and adopted
by the Court of Appeals are as follows:

SECOND DIVISION
G.R. No. L-39019 January 22, 1988
MANILA ELECTRIC COMPANY and PEDRO
YAMBAO, petitioners-appellants,
vs.
THE HONORABLE COURT OF APPEALS and
ISAAC CHAVEZ, SR., ISAAC O. CHAVEZ, JR.,
ROSENDO
O.
CHAVES,
and
JUAN
O.
CHAVES, respondents-appellees.

YAP, J.:
In an action for recovery of damages for
embarassment, humiliation, wounded feelings
and hurt pride, caused to herein private
respondents, by reason of the disconnection of
their electrical service by the petitioners, the then
Court of First Instance of Manila, Sixth Judicial
District, Branch XXIV, rendered a decision dated
December 13,1967, ordering herein petitioners
jointly and severally to pay private respondents
the sum of Ten Thousand (P10,000.00) Pesos as
moral damages, Two Thousand (P2,000.00) Pesos
as exemplary damages and, One Thousand
(P1,000.00) Pesos as attorney's fees, and
dismissing petitioners' counterclaim.
On appeal, the Court of Appeals and in toto the
trial
court's
decision.
Their
Motion
for
Reconsideration having been denied, petitioners
filed the instant petition for certiorari.
Petitioner Manila Electric Company (MERALCO) is
a public utility corporation providing electric
power for the consumption of the general public
in Metro Manila. Petitioner Pedro Yambao is a bill
collector of MERALCO.
Private respondents Isaac Chaves and Juana O.
Chaves, husband and wife, filed the complaint for
damages, together with their children, Isaac O.

ARTICLE 1170

Plaintiff Isaac Chaves became a customer of

defendant MERALCO in the year 1953 when he
and his family were residing at No. 211-D Rubi,
Manila. In connection with the contract for
electrical service, he deposited the sum of P5.00
(Exh. "A") with defendant MERALCO on February
12, 1953. This deposit in the name of plaintiff
Isaac Chaves was retained by MERALCO and
made to apply to subsequent contracts for
electrical service entered into after subsequent
transfers of the Chaves family to other residences
and up to the time this family went to reside at
the place aforementioned, at No. 2656 Mercedes
Street, Singalong, Manila. ...
At or about the end of March, 1965, defendant
Pedro Yambao went to the residence of plaintiffs
and presented two overdue bills, one for January
11 to February 9,1965, for the sum of P7.90
(Exhibit "C"), and the other for February 9 to
March 10, 1965, for the amount of P7.20 (Exhibit
"C"). Juana O. Chaves, however, informed Yambao
that these bills would be paid at the MERALCO
main office.
Accordingly, on April 2, 1965, Isaac Chaves went
to the defendant's main office at San Marcelino,
Manila, but paid only the bill marked as Exhibit
'C" leaving the other bill Identified as Exhibit "C-l"
unpaid.
Past 2:30 o'clock in the afternoon of April
21,1965, MERALCO caused the electric service in
plaintiff's residence to be discontinued and the
power line cut off.
The next day, April 22, 1965, at about 9:00 a.m.,
plaintiff Rosendo O. Chaves went to the MERALCO
main office and paid the amount of P7.20 for the
bill marked as Exhibit "C-l", and the sum of P7.00
for the subsequent bill corresponding to the
period from March 10 up to April 8, 1965 (Exhibit
"C-2") after his attention was called to the latter
account. Rosendo O. Chaves then sought the help
of Atty. Lourdy Torres, one of the defendants'
counsel, and, thereafter, the power line was

Petitioners dispute the finding that there was no

notice given to herein respondent. However,
since only questions of law may be raised in a
petition for certiorari under Rule 45 of the
Revised Rules of Court, petitioners, 'for the sake
of argument and for the purpose of giving focus
on the legal issues', do not take issue with such
finding.
Petitioners contend that in the absence of bad
faith, they could not be held liable for moral and
exemplary damages as well as attorney's fees.
The failure to give a notice of disconnection to
private respondents might have been a breach of
duty or breach of contract, but by itself does not
constitute bad faith or fraud; it must be shown
that such a failure was motivated by in or done
with fraudulent intent.Petitioners also maintain
that ' private respondents were in arrears in the
payment of their electricity bills when their
electric service was connected, no moral
damages may be recovered by them under the
'clean hands' doctrine enunciated in Mabutas vs.
Calapan Electric Company, CA-G.R. No. L-9683-R,
May 26, 1964.
In its decision, the respondent Court of Appeals
held that MERALCO's right to disconnect the
electric service of a delinquent customer "is an
absolute one, subject only to the requirement
that defendant MERALCO should give the
customer a written notice of disconnection 48
hours in advance." This requirement is embodied
in Section 97 of the Revised Order No. 1 of the
Public Service Commission which provides as
follows:
Section 97. Payment of bills. A public service,
may require that bills for service be paid within a
specified time after rendition. When the billing
period covers a month or more, the minimum
time allowed will be ten days and upon expiration
of the specified time, service may be
discontinued for the non-payment of bills,
provided that a 48 hours' written notice of such
disconnection has been given the customer:
Provided, however, that disconnections of service
shall not be made on Sundays and official
holidays and never after 2 p.m. of any working
day: Provided, further, that if at the moment the
disconnection is to be made the customer
tenders payment of the unpaid bill to the agent or
employee of the operator who is to effect the

ARTICLE 1170

18
Page

reconnected and electric service restored to the

Chaves residence at about 7:00 p.m. of that same
day. 1

disconnection, the said agent or employee shall

be obliged to accept tender of payment and issue
a temporary receipt for the amount and shall
desist from disconnecting the service. 2
The respondent court stressed the importance
and necessity of the 48-hour advance written
notification before a disconnection of service may
be effected. Said the court:
... It sets in motion the disconnection of an
electrical service of the customer by giving the
notice, determining the expiration date thereof,
and executing the disconnection. It, therefore,
behooves the defendant MERALCO that before it
disconnects a customer's electrical service, there
should
be
sufficient
evidence
that
the
requirements for the disconnection had been duly
complied with, otherwise, the poor consumer can
be subjected to the whims and caprices of the
defendant, by the mere pretension that the
written notice had been duly served upon the
customer. 3
We find no reversible error in the decision
appealed from. One can not deny the vital role
which a public utility such as MERALCO, having a
monopoly of the supply of electrical power in
Metro Manila and some nearby municipalities,
plays in the life of people living in such areas.
Electricity has become a necessity to most people
in these areas justifying the exercise by the State
of its regulatory power over the business of
supplying electrical service to the public, in which
petitioner MERALCO is engaged. Thus, the state
may regulate, as it has done through Section 97
of the Revised Order No. 1 of the Public Service
Commission, the conditions under which and the
manner by which a public utility such as
MERALCO may effect a disconnection of service
to a delinquent customer. Among others, a prior
written notice to the customer is required before
disconnection of the service. Failure to give such
prior notice amounts to a tort, as held by us in a
similar case, 4 where we said:
... petitioner's act in 'disconnecting respondent
Ongsip's gas service without prior notice
constitutes breach of contract amounting to an
independent tort. The prematurity of the action is
indicative of an intent to cause additional mental
and moral suffering to private respondent. This is
a clear violation of Article 21 of the Civil Code
which provides that any person who wilfully
causes loss or injury to another in a manner that
is contrary to morals, good customs or public
policy shall compensate the latter for damages.

Likewise, we find no merit in petitioners'

contention that being in arrears in the payment of
their bills, the private respondents are not
entitled to moral damages under the doctrine
that "he who comes to court in demand of equity,
must come with clean hands." We rejected this
argument in the Manila Gas Corporation case,
supra, wherein we held that respondents' default
in the payment of his bills "cannot be utilized by
petitioner to defeat or null the claim for damages.
At most, this circumstance can be considered as
a mitigating factor in ascertaining the amount of
damages to which respondent ... is entitled."
Accordingly, we find no grave abuse of discretion
committed by respondent court in affirming the
trial court's decision. The petition is hereby
DISMISSED for lack of merit.
SO ORDERED.

19
Page

This is reiterated by paragraph 10 of Article 2219

of the Code. Moreover, the award of moral
damages is sanctioned by Article 2220 which
provides that wilfull 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.

Humberto A. Jambora for private respondent.

BIDIN, J.:
Petitioner Maersk Line is engaged in the
transportation of goods by sea, doing business in
the Philippines through its general agent
Compania General de Tabacos de Filipinas.
Private respondent Efren Castillo, on the other
hand, is the proprietor of Ethegal Laboratories, a
firm
engaged
in
the
manutacture
of
pharmaceutical products.
On November 12, 1976, private respondent
ordered from Eli Lilly. Inc. of Puerto Rico through
its (Eli Lilly, Inc.'s) agent in the Philippines, Elanco
Products, 600,000 empty gelatin capsules for the
manufacture of his pharmaceutical products. The
capsules were placed in six (6) drums of 100,000
capsules each valued at US $1,668.71.
Through a Memorandum of Shipment (Exh. "B";
AC GR CV No.10340, Folder of Exhibits, pp. 5-6),
the shipper Eli Lilly, Inc. of Puerto Rico advised
private respondent as consignee that the 600,000
empty gelatin capsules in six (6) drums of
100,000 capsules each, were already shipped on
board MV "Anders Maerskline" under Voyage No.
7703 for shipment to the Philippines via Oakland,
California. In said Memorandum, shipper Eli Lilly,
Inc. specified the date of arrival to be April 3,
1977.
For reasons unknown, said cargo of capsules were
mishipped and diverted to Richmond, Virginia,
USA and then transported back Oakland,
Califorilia. The goods finally arrived in the
Philippines on June 10, 1977 or after two (2)
months from the date specified in the
memorandum. As a consequence, private
respondent as consignee refused to take delivery
of the goods on account of its failure to arrive on
time.

G.R. No. 94761 May 17, 1993

MAERSK LINE, petitioner,
vs.
COURT OF APPEALS AND EFREN V.
CASTILLO, doing business under the name
and style of Ethegal
Laboratories, respondents.
Bito, Lozada, Ortega & Castillo for petitioner.

ARTICLE 1170

Private respondent alleging gross negligence and

undue delay in the delivery of the goods, filed an
action before the court a quo for rescission of
contract with damages against petitioner and Eli
Lilly, Inc. as defendants.
Denying that it committed breach of contract,
petitioner alleged in its that answer that the
subject shipment was transported in accordance
with the provisions of the covering bill of lading
and that its liability under the law on

Defendant Eli Lilly, Inc., on the other hand, filed

its answer with compulsory and cross-claim. In its
cross-claim, it alleged that the delay in the arrival
of the the subject merchandise was due solely to
the gross negligence of petitioner Maersk Line.
The
issues having been joined,
private
respondent moved for the dismissal of the
complaint against Eli Lilly, Inc.on the ground that
the evidence on record shows that the delay in
the delivery of the shipment was attributable
solely to petitioner.
Acting on private respondent's motion, the trial
court dismissed the complaint against Eli Lilly,
Inc. Correspondingly, the latter withdraw its
cross-claim against petitioner in a joint motion
dated December 3, 1979.
After trial held between respondent and
petitioner, the court a quo rendered judgment
dated January 8, 1982 in favor of respondent
Castillo, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court believe
(sic) and so hold (sic) that there was a breach in
the performance of their obligation by the
defendant Maersk Line consisting of their
negligence to ship the 6 drums of empty Gelatin
Capsules which under their own memorandum
shipment would arrive in the Philippines on April
3, 1977 which under Art. 1170 of the New Civil
Code, they stood liable for damages.
Considering that the only evidence presented by
the defendant Maersk line thru its agent the
Compania de Tabacos de Filipinas is the
testimony of Rolando Ramirez who testified on
Exhs. "1" to "5" which this Court believe (sic) did
not change the findings of this Court in its
decision rendered on September 4, 1980, this
Court hereby renders judgment in favor of the
plaintiff Efren Castillo as against the defendant
Maersk Line thru its agent, the COMPANIA
GENERAL DE TABACOS DE FILIPINAS and ordering:
(a) Defendant to pay the plaintiff Efren V. Castillo
the amount of THREE HUNDRED SIXTY NINE
THOUSAND PESOS, (P369,000.00) as unrealized
profit;.

ARTICLE 1170

20
Page

transportation of good attaches only in case of

loss, destruction or deterioration of the goods as
provided for in Article 1734 of Civil Code (Rollo, p.
16).

(b) Defendant to pay plaintiff the sum of TWO

HUNDRED THOUSAND PESOS (P200,000.00), as
moral damages;
(c) Defendant to pay plaintiff the sum of TEN
THOUSAND PESOS (P10,000.00) as exemplary
damages;
(d) Defendant to pay plaintiff the sum of ELEVEN
THOUSAND SIX HUNDRED EIGHTY PESOS AND
NINETY SEVEN CENTAVOS (P11,680.97) as cost of
credit line; and
(e) Defendant to pay plaintiff the sum of FIFTY
THOUSAND PESOS (P50,000.00), as attorney's
fees and to pay the costs of suit.
That the above sums due to the plaintiff will bear
the legal rate of interest until they are fully paid
from the time the case was filed.
SO ORDERED. (AC-GR CV No. 10340, Rollo, p. 15).
On appeal, respondent court rendered its decision
dated August 1, 1990 affirming with modifications
the lower court's decision as follows:
WHEREFORE, the decision appealed from is
affirmed with a modification, and, as modified,
the judgment in this case should read as follows:
Judgment is hereby rendered ordering defendantappellant Maersk Line to pay plaintiff-appellee (1)
compensatory damages of P11,680.97 at 6%
annual interest from filing of the complaint until
fully paid, (2) moral damages of P50,000.00, (3)
exemplary damages of P20,000,00, (3) attorney's
fees, per appearance fees, and litigation
expenses of P30,000.00, (4) 30% of the total
damages awarded except item (3) above, and the
costs of suit.
SO ORDERED. (Rollo, p. 50)
In its Memorandum, petitioner submits the
following "issues" for resolution of the court :
I
Whether or not the respondent Court of Appeals
committed an error when it ruled that a
defendant's cross-claim against a co-defendant
survives or subsists even after the dismissal of
the complaint against defendant-cross claimant.
II
Whether or not respondent Castillo is entitled to
damages resulting from delay in the delivery of

III
Whether or not the respondent appellate court
erred in awarding actual, moral and exemplary
damages and attorney's fees despite the absence
of factual findings and/or legal bases in the text
of the decision as support for such awards.
IV
Whether or not the respondent Court of Appeals
committed an error when it rendered an
ambiguous and unexplained award in the
dispositive portion of the decision which is not
supported by the body or the text of the decision.
(Rollo, pp.94-95).
With regard to the first issue raised by petitioner
on whether or not a defendant's cross-claim
against co-defendant (petitioner herein) survives
or subsists even after the dismissal of the
complaint
against
defendant-cross-claimant
(petitioner herein), we rule in the negative.
Apparently this issue was raised by reason of the
declaration made by respondent court in its
questioned decision, as follows:
Re the first assigned error: What should be
rescinded in this case is not the "Memorandum of
Shipment" but the contract between appellee and
defendant Eli Lilly (embodied in three documents,
namely: Exhs. A, A-1 and A-2) whereby the former
agreed to buy and the latter to sell those six
drums of gelatin capsules. It is by virtue of the
cross-claim by appellant Eli Lilly against
defendant Maersk Line for the latter's gross
negligence in diverting the shipment thus
causing the delay and damage to appellee that
the trial court found appellant Maersk Line
liable. . . .
xxx xxx xxx
Re the fourth assigned error: Appellant Maersk
Line's insistence that appellee has no cause of
action against it and appellant Eli Lilly because
the shipment was delivered in good order and
condition, and the bill of lading in question
contains "stipulations, exceptions and conditions"
Maersk Line's liability only to the "loss,
destruction or deterioration," indeed, this issue of
lack of cause of action has already been
considered in our foregoing discussion on the
second assigned error, and our resolution here is

ARTICLE 1170

21
Page

the shipment in the absence in the bill of lading

of a stipulation on the period of delivery.

still that appellee has a cause of action against

appellant Eli Lilly. Since the latter had filed a
cross-claim against appellant Maersk Line, the
trial court committed no error, therefore, in
holding the latter appellant ultimately liable to
appellee. (Rollo, pp. 47-50; Emphasis supplied)
Reacting to the foregoing declaration, petitioner
submits that its liability is predicated on the
cross-claim filed its co-defendant Eli Lilly, Inc.
which cross-claim has been dismissed, the
original complaint against it should likewise be
dismissed. We disagree. It should be recalled that
the complaint was filed originally against Eli Lilly,
Inc. as shipper-supplier and petitioner as carrier.
Petitioner being an original party defendant upon
whom the delayed shipment is imputed cannot
claim that the dismissal of the complaint against
Eli Lilly, Inc. inured to its benefit.
Respondent court, erred in declaring that the trial
court based petitioner's liability on the crossclaim of Eli Lilly, Inc. As borne out by the record,
the trial court anchored its decision on
petitioner's delay or negligence to deliver the six
(6) drums of gelatin capsules within a reasonable
time on the basis of which petitioner was held
liable for damages under Article 1170 of the New
Civil Code which 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.
Nonetheless, petitioner maintains that it cannot
be held for damages for the alleged delay in the
delivery of the 600,000 empty gelatin capsules
since it acted in good faith and there was no
special contract under which the carrier
undertook to deliver the shipment on or before a
specific date (Rollo, p. 103).
On the other hand, private respondent claims
that during the period before the specified date of
arrival of the goods, he had made several
commitments
and
contract
of
adhesion.
Therefore, petitioner can be held liable for the
damages suffered by private respondent for the
cancellation of the contracts he entered into.
We have carefully reviewed the decisions of
respondent court and the trial court and both of
them show that, in finding petitioner liable for
damages for the delay in the delivery of goods,
reliance was made on the rule that contracts of
adhesion are void. Added to this, the lower court
stated that the exemption against liability for

The bill of lading covering the subject shipment

among others, reads:
6. GENERAL
(1) The Carrier does not undertake that the goods
shall arive at the port of discharge or the place of
delivery at any particular time or to meet any
particular market or use and save as is provided
in clause 4 the Carrier shall in no circumstances
be liable for any direct, indirect or consequential
loss or damage caused by delay. If the Carrier
should nevertheless be held legally liable for any
such direct or indirect or consequential loss or
damage caused by delay, such liability shall in no
event exceed the freight paid for the transport
covered by this Bill of Lading. (Exh. "1-A"; AC-G.R.
CV No. 10340, Folder of Exhibits, p. 41)
It is not disputed that the aforequoted provision
at the back of the bill of lading, in fine print, is a
contract of adhesion. Generally, contracts of
adhesion are considered void since almost all the
provisions of these types of contracts are
prepared and drafted only by one party, usually
the carrier (Sweet Lines v. Teves, 83 SCRA 361
[1978]). The only participation left of the other
party in such a contract is the affixing of his
signature thereto, hence the term "Adhesion" (BPI
Credit Corporation v. Court of Appeals, 204 SCRA
601 [1991]; Angeles v. Calasanz, 135 SCRA 323
[1985]).
Nonetheless, settled is the rule that bills of lading
are contracts not entirely prohibited (Ong Yiu v.
Court of Appeals, et al., 91 SCRA 223 [1979];
Servando, et al. v. Philippine Steam Navigation
Co., 117 SCRA 832 [1982]). One who adheres to
the contract is in reality free to reject it in its
entirety; if he adheres, he gives his consent
(Magellan Manufacturing Marketing Corporation v.
Court of Appeals, et al., 201 SCRA 102 [1991]).
In Magellan, (supra), we ruled:
It is a long standing jurisprudential rule that a bill
of lading operates both as a receipt and as
contract to transport and deliver the same a
therein stipulated. As a contract, it names the
parties, which includes the consignee, fixes the
route, destination, and freight rates or charges,
and stipulates the rights and obligations assumed

ARTICLE 1170

22
Page

delay is against public policy and is thus, void.

Besides, private respondent's action is anchored
on Article 1170 of the New Civil Code and not
under the law on Admiralty (AC-GR CV No.
10340, Rollo, p. 14).

by the parties. Being a contract, it is the law

between the parties who are bound by its terms
and conditions provided that these are not
contrary to law, morals, good customs, public
order and public policy. A bill of lading usually
becomes effective upon its delivery to and
acceptance by the shipper. It is presumed that
the stipulations of the bill were, in the absence of
fraud, concealment or improper conduct, known
to the shipper, and he is generally bound by his
acceptance whether he reads the bill or not.
(Emphasis supplied)
However, the aforequoted ruling applies only if
such contracts will not create an absurd situation
as in the case at bar. The questioned provision in
the subject bill of lading has the effect of
practically leaving the date of arrival of the
subject shipment on the sole determination and
will of the carrier.
While it is true that common carriers are not
obligated by law to carry and to deliver
merchandise, and persons are not vested with
the right to prompt delivery, unless such common
carriers previously assume the obligation to
deliver at a given date or time (Mendoza v.
Philippine Air Lines, Inc., 90 Phil. 836 [1952]),
delivery of shipment or cargo should at least be
made within a reasonable time.
In Saludo, Jr. v. Court of Appeals (207 SCRA 498
[1992]) this Court held:
The oft-repeated rule regarding a carrier's liability
for delay is that in the absence of a special
contract, a carrier is not an insurer against delay
in transportation of goods. When a common
carrier undertakes to convey goods, the law
implies a contract that they shall be delivered at
destination within a reasonable time, in the
absence, of any agreement as to the time of
delivery. But where a carrier has made an
express contract to transport and deliver properly
within a specified time, it is bound to fulfill its
contract and is liable for any delay, no matter
from what cause it may have arisen. This result
logically follows from the well-settled rule that
where the law creates a duty or charge, and the
default in himself, and has no remedy over, then
his own contract creates a duty or charge upon
himself, he is bound to make it good
notwithstanding any accident or delay by
inevitable necessity because he might have
provided against it by contract. Whether or not
there has been such an undertaking on the part
of the carrier is to be determined from the

An examination of the subject bill of lading (Exh.

"1"; AC GR CV No. 10340, Folder of Exhibits, p.
41) shows that the subject shipment was
estimated to arrive in Manila on April 3, 1977.
While there was no special contract entered into
by the parties indicating the date of arrival of the
subject shipment, petitioner nevertheless, was
very well aware of the specific date when the
goods were expected to arrive as indicated in the
bill of lading itself. In this regard, there arises no
need to execute another contract for the purpose
as it would be a mere superfluity.
In the case before us, we find that a delay in the
delivery of the goods spanning a period of two (2)
months and seven (7) days falls was beyond the
realm of reasonableness. Described as gelatin
capsules for use in pharmaceutical products,
subject shipment was delivered to, and left in, the
possession and custody of petitioner-carrier for
transport to Manila via Oakland, California. But
through petitioner's negligence was mishipped to
Richmond, Virginia. Petitioner's insitence that it
cannot be held liable for the delay finds no merit.
Petition maintains that the award of actual, moral
and exemplary dames and attorney's fees are not
valid since there are no factual findings or legal
bases stated in the text of the trial court's
decision to support the award thereof.
Indeed,
it
is
settled
that
actual
and
compensataory damages requires substantial
proof (Capco v. Macasaet. 189 SCRA 561 [1990]).
In the case at bar, private respondent was able to
sufficiently prove through an invoice (Exh. 'A-1'),
certification from the issuer of the letter of credit
(Exh.'A-2') and the Memorandum of Shipment
(Exh. "B"), the amount he paid as costs of the
credit line for the subject goods. Therefore,
respondent court acted correctly in affirming the
award of eleven thousand six hundred eighty
pesos and ninety seven centavos (P11,680.97) as
costs of said credit line.
As to the propriety of the award of moral
damages, Article 2220 of the Civil Code provides
that moral damages may be awarded in
"breaches of contract where the defendant acted
fraudulently or in bad faith" (Pan American World
Airways v. Intermediate Appellate Court, 186
SCRA 687 [1990]).

ARTICLE 1170

23
Page

circumstances surrounding the case and by

application of the ordinary rules for the
interpretation of contracts.

In the case before us, we that the only evidence

presented by petitioner was the testimony of Mr.
Rolando Ramirez, a claims manager of its agent
Compania General de Tabacos de Filipinas, who
merely testified on Exhs. '1' to '5' (AC-GR CV No.
10340, p. 2) and nothing else. Petitioner never
even bothered to explain the course for the
delay, i.e. more than two (2) months, in the
delivery of subject shipment. Under the
circumstances of the case, we hold that petitioner
is liable for breach of contract of carriage through
gross negligence amounting to bad faith. Thus,
the award of moral damages if therefore proper in
this case.
In line with this pronouncement, we hold that
exemplary damages may be awarded to the
private respondent. In contracts, exemplary
damages may be awarded if the defendant acted
in a wanton, fraudulent, reckless, oppresive or
malevolent manner. There was gross negligence
on the part of the petitioner in mishiping the
subject goods destined for Manila but was
inexplicably shipped to Richmond, Virginia, U.S.A.
Gross carelessness or negligence contitutes
wanton misconduct, hence, exemplary damages
may be awarded to the aggrieved party (Radio
Communication of the Phils., Inc. v. Court of
Appeals, 195 SCRA 147 [1991]).
Although attorney's fees are generally not
recoverable, a party can be held lible for such if
exemplary damages are awarded (Artice 2208,
New Civil Code). In the case at bar, we hold that
private respondent is entitled to reasonable
attorney`s fees since petitioner acte with gross
negligence amounting to bad faith.
However, we find item 4 in the dispositive portion
of respondent court`s decision which awarded
thirty (30) percent of the total damages awarded
except item 3 regarding attorney`s fees and
litigation expenses in favor of private respondent,
to be unconsionable, the same should be deleted.
WHEREFORE, with the modification regarding the
deletion of item 4 of respondent court`s decision,
the appealed decision is is hereby AFFIRMED in all
respects.
SO ORDERED.

24
Page
G.R. No. 102316 June 30, 1997
VALENZUELA HARDWOOD AND INDUSTRIAL
SUPPLY INC., petitioner,
vs.
COURT OF APPEALS AND SEVEN BROTHERS
SHIPPING CORPORATION, respondents.

PANGANIBAN, J.:
Is a stipulation in a charter party that the
"(o)wners shall not be responsible for loss, split,
short-landing, breakages and any kind of
damages to the cargo" 1 valid? This is the main
question raised in this petition for review
assailing the Decision of Respondent Court of
Appeals 2 in CA-G.R. No. CV-20156 promulgated
on October 15, 1991. The Court of Appeals
modified the judgment of the Regional Trial Court
of Valenzuela, Metro Manila, Branch 171, the
dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered
ordering South Sea Surety and Insurance Co., Inc.
to pay plaintiff the sum of TWO MILLION PESOS
(P2,000,000.00) representing the value of the
policy of the lost logs with legal interest thereon
from the date of demand on February 2, 1984
until the amount is fully paid or in the alternative,
defendant Seven Brothers Shipping Corporation
to pay plaintiff the amount of TWO MILLION
PESOS (2,000,000.00) representing the value of
lost logs plus legal interest from the date of
demand on April 24, 1984 until full payment
thereof; the reasonable attorney's fees in the
amount equivalent to five (5) percent of the
amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant
Seven Brothers Shipping Corporation the sum of
TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00) representing the balance of the
stipulated freight charges.
Defendant South Sea Surety and Insurance
Company's counterclaim is hereby dismissed.
In its assailed Decision, Respondent Court of
Appeals held:

ARTICLE 1170

WHEREFORE, the appealed judgment is hereby

AFFIRMED except in so far (sic) as the liability of
the Seven Brothers Shipping Corporation to the
plaintiff is concerned which is hereby REVERSED
and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated
in the Court of Appeals Decision are as follows:
It appears that on 16 January 1984, plaintiff
(Valenzuela Hardwood and Industrial Supply, Inc.)
entered into an agreement with the defendant
Seven Brothers (Shipping Corporation) whereby
the latter undertook to load on board its vessel
M/V Seven Ambassador the former's lauan round
logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs
against loss and/or damage with defendant South
Sea Surety and Insurance Co., Inc. for
P2,000,000.00 and the latter issued its Marine
Cargo Insurance Policy No. 84/24229 for
P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check
in payment of the premium on the insurance
policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven
Ambassador sank on 25 January 1984 resulting in
the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh.
"E") to cover payment of the premium and
documentary stamps due on the policy was
tendered due to the insurer but was not
accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy
it issued as of the date of the inception for nonpayment of the premium due in accordance with
Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from
defendant South Sea Surety and Insurance Co.,
Inc. the payment of the proceeds of the policy but
the latter denied liability under the policy. Plaintiff
likewise filed a formal claim with defendant Seven
Brothers Shipping Corporation for the value of the
lost logs but the latter denied the claim.
After due hearing and trial, the court a
quo rendered judgment in favor of plaintiff and
against defendants. Both defendants shipping
corporation and the surety company appealed.

A. The lower court erred in holding that the

proximate cause of the sinking of the vessel
Seven Ambassadors, was not due to fortuitous
event but to the negligence of the captain in
stowing and securing the logs on board, causing
the iron chains to snap and the logs to roll to the
portside.
B. The lower court erred in declaring that the nonliability clause of the Seven Brothers Shipping
Corporation from logs (sic) of the cargo stipulated
in the charter party is void for being contrary to
public policy invoking article 1745 of the New
Civil Code.
C. The lower court erred in holding defendantappellant Seven Brothers Shipping Corporation
liable in the alternative and ordering/directing it
to pay plaintiff-appellee the amount of two million
(2,000,000.00) pesos representing the value of
the logs plus legal interest from date of demand
until fully paid.
D. The lower court erred in ordering defendantappellant Seven Brothers Shipping Corporation to
pay appellee reasonable attorney's fees in the
amount equivalent to 5% of the amount of the
claim and the costs of the suit.
E. The lower court erred in not awarding
defendant-appellant Seven Brothers Corporation
its counter-claim for attorney's fees.
F. The lower court erred in not dismissing the
complaint against Seven Brothers Shipping
Corporation.

25
Page

Defendant-appellant Seven Brothers Shipping

Corporation impute (sic) to the court a quo the
following assignment of errors, to wit:

D. The trial court erred in disregarding the

"receipt of payment clause" attached to and
forming part of the Marine Cargo Insurance Policy
No. 84/24229.
E. The trial court in disregarding the statement of
account or bill stating the amount of premium
and documentary stamps to be paid on the policy
by the plaintiff-appellee.
F. The trial court erred in disregarding the
endorsement of cancellation of the policy due to
non-payment of premium and documentary
stamps.
G. The trial court erred in ordering defendantappellant South Sea Surety and Insurance
Company,
Inc.
to
pay
plaintiff-appellee
P2,000,000.00 representing value of the policy
with legal interest from 2 February 1984 until the
amount is fully paid,
H. The trial court erred in not awarding to the
defendant-appellant the attorney's fees alleged
and proven in its counterclaim.
The primary issue to be resolved before us is
whether defendants shipping corporation and the
surety company are liable to the plaintiff for the
latter's lost logs. 4
The Court of Appeals affirmed in part the RTC
judgment by sustaining the liability of South Sea
Surety and Insurance Company ("South Sea"), but
modified it by holding that Seven Brothers
Shipping Corporation ("Seven Brothers") was not
liable for the lost cargo. 5 In modifying the RTC
judgment, the respondent appellate court
ratiocinated thus:

Defendant-appellant South Sea Surety and

Insurance Co., Inc. assigns the following errors:

It appears that there is a stipulation in the charter

party that the ship owner would be exempted
from liability in case of loss.

A. The trial court erred in holding that Victorio

Chua was an agent of defendant-appellant South
Sea Surety and Insurance Company, Inc. and
likewise erred in not holding that he was the
representative of the insurance broker Columbia
Insurance Brokers, Ltd.

The court a quo erred in applying the provisions

of the Civil Code on common carriers to establish
the liability of the shipping corporation. The
provisions on common carriers should not be
applied where the carrier is not acting as such but
as a private carrier.

B. The trial court erred in holding that Victorio

Chua received compensation/commission on the
premiums paid on the policies issued by the
defendant-appellant South Sea Surety and
Insurance Company, Inc.

Under American jurisprudence, a common carrier

undertaking to carry a special cargo or chartered
to a special person only, becomes a private
carrier.

C. The trial court erred in not applying Section 77

of the Insurance Code.

ARTICLE 1170

As a private carrier, a stipulation exempting the

owner from liability even for the negligence of its

agent is valid (Home Insurance Company, Inc. vs.

American Steamship Agencies, Inc., 23 SCRA 24).

26

The shipping corporation should not therefore be

held liable for the loss of the logs. 6

Page

South Sea and herein Petitioner Valenzuela

Hardwood
and
Industrial
Supply,
Inc.
("Valenzuela") filed separate petitions for review
before this Court. In a Resolution dated June 2,
1995, this Court denied the petition of South
Sea. 7 There the Court found no reason to reverse
the factual findings of the trial court and the
Court of Appeals that Chua was indeed an
authorized agent of South Sea when he received
Valenzuela's premium payment for the marine
cargo insurance policy which was thus binding on
the insurer. 8
The Court is now called upon to resolve the
petition for review filed by Valenzuela assailing
the CA Decision which exempted Seven Brothers
from any liability for the lost cargo.
The Issue
Petitioner Valenzuela's arguments resolve around
a single issue: "whether or not respondent Court
(of Appeals) committed a reversible error in
upholding the validity of the stipulation in the
charter party executed between the petitioner
and the private respondent exempting the latter
from liability for the loss of petitioner's logs
arising from the negligence of its (Seven
Brothers') captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and
private respondent stipulated that the "(o)wners
shall not be responsible for loss, split, shortlanding, breakages and any kind of damages to
the cargo." 10 The validity of this stipulation is
the lis mota of this case.
It should be noted at the outset that there is no
dispute between the parties that the proximate
cause
of
the
sinking
of M/V
Seven
Ambassadors resulting in the loss of its cargo was
the "snapping of the iron chains and the
subsequent rolling of the logs to the portside due
to the negligence of the captain in stowing and
securing the logs on board the vessel and not due
to fortuitous event." 11 Likewise undisputed is the
status of Private Respondent Seven Brothers as a

ARTICLE 1170

private carrier when it contracted to transport the

cargo of Petitioner Valenzuela. Even the latter
admits this in its petition. 12
The trial court deemed the charter party
stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code
which provides:
Art. 1745. Any of the following or similar
stipulations shall be considered unreasonable,
unjust and contrary to public policy:
(1) That the goods are transported at the risk of
the owner or shipper;
(2) That the common carrier will not be liable for
any loss, destruction, or deterioration of the
goods;
(3) That the common carrier need not observe
any diligence in the custody of the goods;
(4) That the common carrier shall exercise a
degree of diligence less than that of a good father
of a family, or of a man of ordinary prudence in
the vigilance over the movables transported;
(5) That the common carrier shall not be
responsible for the acts or omissions of his or its
employees;
(6) That the common carrier's liability for acts
committed by thieves, or of robbers who do not
act with grave or irresistible threat, violence or
force, is dispensed with or diminished;
(7) That the common carrier is not responsible for
the loss, destruction, or deterioration of goods on
account of the defective condition of the car,
vehicle, ship, airplane or other equipment used in
the contract of carriage.
Petitioner Valenzuela adds that the stipulation is
void for being contrary to Articles 586 and 587 of
the Code of Commerce 14 and Articles 1170 and
1173 of the Civil Code. Citing Article 1306 and
paragraph 1, Article 1409 of the Civil
Code,15 petitioner further contends that said
stipulation "gives no duty or obligation to the
private respondent to observe the diligence of a
good father of a family in the custody and
transportation of the cargo."
The Court is not persuaded. As adverted to
earlier, it is undisputed that private respondent
had acted as aprivate carrier in transporting
petitioner's lauan logs. Thus, Article 1745 and
other Civil Code provisions on common carriers

In a contract of private carriage, the parties may

validly stipulate that responsibility for the cargo
rests solely on the charterer, exempting the
shipowner from liability for loss of or damage to
the cargo caused even by the negligence of the
ship captain. Pursuant to Article 1306 17 of the
Civil Code, such stipulation is valid because it is
freely entered into by the parties and the same is
not contrary to law, morals, good customs, public
order, or public policy. Indeed, their contract of
private carriage is not even a contract of
adhesion. We stress that in a contract of private
carriage, the parties may freely stipulate their
duties and obligations which perforce would be
binding on them. Unlike in a contract involving a
common carrier, private carriage does not involve
the general public. Hence, the stringent
provisions of the Civil Code on common carriers
protecting the general public cannot justifiably be
applied to a ship transporting commercial goods
as a private carrier. Consequently, the public
policy embodied therein is not contravened by
stipulations in a charter party that lessen or
remove the protection given by law in contracts
involving common carriers.
The issue posed in this case and the arguments
raised by petitioner are not novel; they were
resolved long ago by this Court in Home
Insurance Co. vs. American Steamship Agencies,
Inc. 18 In that case, the trial court similarly
nullified a stipulation identical to that involved in
the present case for being contrary to public
policy based on Article 1744 of the Civil Code and
Article 587 of the Code of Commerce.
Consequently, the trial court held the shipowner
liable for damages resulting for the partial loss of
the cargo. This Court reversed the trial court and
laid down, through Mr. Justice Jose P. Bengzon, the
following well-settled observation and doctrine:
The provisions of our Civil Code on common
carriers were taken from Anglo-American law.
Under American jurisprudence, a common carrier
undertaking to carry a special cargo or chartered
to a special person only, becomes a private
carrier. As a private carrier, a stipulation
exempting the owner from liability for the
negligence of its agent is not against public
policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code
provisions on common carriers should not be

ARTICLE 1170

27
Page

which were cited by petitioner may not be

applied unless expressly stipulated by the parties
in their charter party. 16

applied where the carrier is not acting as such

but as a private carrier. The stipulation in the
charter party absolving the owner from liability
for loss due to the negligence of its agent would
be void if the strict public policy governing
common carriers is applied. Such policy has no
force where the public at large is not involved, as
in this case of a ship totally chartered for the
used of a single party. 19 (Emphasis supplied.)
Indeed, where the reason for the rule ceases, the
rule itself does not apply. The general public
enters into a contract of transportation with
common carriers without a hand or a voice in the
preparation thereof. The riding public merely
adheres to the contract; even if the public wants
to, it cannot submit its own stipulations for the
approval of the common carrier. Thus, the law on
common carriers extends its protective mantle
against one-sided stipulations inserted in tickets,
invoices or other documents over which the
riding public has no understanding or, worse, no
choice. Compared to the general public, a
charterer in a contract of private carriage is not
similarly situated. It can and in fact it usually
does enter into a free and voluntary
agreement. In practice, the parties in a contract
of private carriage can stipulate the carrier's
obligations and liabilities over the shipment
which, in turn, determine the price or
consideration of the charter. Thus, a charterer, in
exchange for convenience and economy, may opt
to set aside the protection of the law on common
carriers. When the charterer decides to exercise
this option, he takes a normal business risk.
Petitioner contends that the rule in Home
Insurance is not applicable to the present case
because it "covers only a stipulation exempting a
private carrier from liability for the negligence of
his agent, but it does not apply to a stipulation
exempting a private carrier like private
respondent from the negligence of his employee
or servant which is the situation in this
case." 20 This contention of petitioner is bereft of
merit, for it raises a distinction without any
substantive
difference.
The
case Home
Insurance specifically dealt with "the liability of
the shipowner for acts or negligence of its captain
and crew" 21 and a charter party stipulation which
"exempts the owner of the vessel from any loss
or damage or delay arising from any other
source, even from the neglect or fault of the
captain or crew or some other person employed
by
the
owner
on
board, for whose acts the owner would ordinarily

The naked assertion of petitioner that the

American rule enunciated in Home Insurance is
not the rule in the Philippines 23 deserves scant
consideration. The Court there categorically held
that said rule was "reasonable" and proceeded to
apply it in the resolution of that case. Petitioner
miserably failed to show such circumstances or
arguments which would necessitate a departure
from a well-settled rule. Consequently, our ruling
in said case remains a binding judicial precedent
based on the doctrine of stare decisis and Article
8 of the Civil Code which provides that "(j)udicial
decisions applying or interpreting the laws or the
Constitution shall form part of the legal system of
the Philippines."
In fine, the respondent appellate court aptly
stated that "[in the case of] a private carrier, a
stipulation exempting the owner from liability
even for the negligence of its agents is valid." 24
Other Arguments
On the basis of the foregoing alone, the present
petition may already be denied; the Court,
however, will discuss the other arguments of
petitioner for the benefit and satisfaction of all
concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party
stipulation is contrary to Articles 586 and 587 of
the Code of Commerce which confer on petitioner
the right to recover damages from the shipowner
and ship agent for the acts or conduct of the
captain. 25 We are not persuaded. Whatever
rights
petitioner
may
have
under
the
aforementioned statutory provisions were waived
when it entered into the charter party.
Article 6 of the Civil Code provides that "(r)ights
may be waived, unless the waiver is contrary to
law, public order, public policy, morals, or good
customs, or prejudicial to a person with a right
recognized by law." As a general rule, patrimonial
rights may be waived as opposed to rights to
personality and family rights which may not be
made the subject of waiver. 26 Being patently and
undoubtedly
patrimonial,
petitioner's
right
conferred under said articles may be waived.
This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible
or any damage to the cargo, thereby exempting

ARTICLE 1170

28
Page

be
liable
except
for
said
paragraph." 22 Undoubtedly, Home
Insurance is
applicable to the case at bar.

the private carrier from any responsibility for loss

or damage thereto. Furthermore, as discussed
above, the contract of private carriage binds
petitioner and private respondent alone; it is not
imbued with public policy considerations for the
general public or third persons are not affected
thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation
subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil
Code 27 which read:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages
Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the
persons, of the time and of the place. When
negligence shows bad faith, the provisions of
articles 1171 and 2201, shall apply.
If the law does not state the diligence which is to
be observed in the performance, that which is
expected of a good father of a family shall be
required.
The Court notes that the foregoing articles are
applicable only to the obligor or the one with an
obligation to perform. In the instant case, Private
Respondent Seven Brothers is not an obligor in
respect of the cargo, for this obligation to bear
the loss was shifted to petitioner by virtue of the
charter party. This shifting of responsibility, as
earlier observed, is not void. The provisions cited
by petitioner are, therefore, inapplicable to the
present case.
Moreover, the factual milieu of this case does not
justify the application of the second paragraph of
Article 1173 of the Civil Code which prescribes
the standard of diligence to be observed in the
event the law or the contract is silent. In the
instant case, Article 362 of the Code of
Commerce 28 provides the standard of ordinary
diligence for the carriage of goods by a carrier.
The standard of diligence under this statutory
provision may, however, be modified in a contract
of private carriage as the petitioner and private
respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable

The cases of Shewaram and Ysmael both involve

a common carrier; thus, they necessarily justify
the application of such policy considerations and
concomitantly stricter rules. As already discussed
above, the public policy considerations behind
the rigorous treatment of common carriers are
absent in the case of private carriers. Hence, the
stringent laws applicable to common carriers are
not applied to private carries. The case of Manila
Railroad is also inapplicable because the action
for damages there does not involve a contract for
transportation. Furthermore, the defendant
therein made a "promise to use due care in the
lifting operations" and, consequently, it was
"bound by its undertaking"'; besides, the
exemption was intended to cover accidents due
to hidden defects in the apparatus or other
unforseeable occurrences" not caused by its
"personal negligence." This promise was thus
constructed to make sense together with the
stipulation against liability for damages. 34 In the
present case, we stress that the private
respondent made no such promise. The
agreement of the parties to exempt the
shipowner from responsibility for any damage to
the cargo and place responsibility over the same
to petitioner is the lone stipulation considered
now by this Court.
Finally, petitioner points to Standard Oil Co. of
New York vs. Lopez Costelo, 35 Walter A. Smith &
Co. vs.Cadwallader
Gibson
Lumber
Co., 36 N. T . Hashim and Co. vs. Rocha and
Co., 37 Ohta
Development
Co. vs. Steamship
38
"Pompey" and Limpangco
Sons
vs. Yangco
Steamship Co. 39 in support of its contention that
the
shipowner
be
held
liable
for
damages. 40 These however are not on all fours
with the present case because they do not
involve a similar factual milieu or an identical
stipulation in the charter party expressly

ARTICLE 1170

29
Page

Petitioner cites Shewaram vs. Philippine Airlines,

Inc. 29 which, in turn, quoted Juan Ysmael &
Co. vs. Gabino Barreto & Co. 30 and argues that
the public policy considerations stated there visa-vis contractual stipulations limiting the carrier's
liability be applied "with equal force" to this
case. 31 It
also
cites Manila
Railroad
Co. vs. Compaia Transatlantica 32 and contends
that stipulations exempting a party from liability
for damages due to negligence "should not be
countenanced" and should be "strictly construed"
against the party claiming its benefit. 33 We
disagree.

exempting the shipowner form responsibility for

any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that
petitioner has no cause of action against it
because this Court has earlier affirmed the
liability of South Sea for the loss suffered by
petitioner. Private respondent submits that
petitioner is not legally entitled to collect twice
for a single loss. 41 In view of the above
disquisition upholding the validity of the
questioned charter party stipulation and holding
that petitioner may not recover from private
respondent, the present issue is moot and
academic. It suffices to state that the Resolution
of this Court dated June 2, 1995 42 affirming the
liability of South Sea does not, by itself,
necessarily
preclude
the
petitioner
from
proceeding against private respondent. An
aggrieved party may still recover the deficiency
for the person causing the loss in the event the
amount paid by the insurance company does not
fully cover the loss. Article 2207 of the Civil Code
provides:
Art. 2207. If the plaintiff's property has been
insured, and he has received indemnity for the
insurance company for the injury or loss arising
out of the wrong or breach of contract
complained of, the insurance company shall be
subrogated to the rights of the insured against
the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance
company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover
the deficiency form the person causing the loss or
injury.
WHEREFORE, premises considered, the petition is
hereby DENIED for its utter failure to show any
reversible error on the part of Respondent Court.
The assailed Decision is AFFIRMED.
SO ORDERED.

30
Page
G.R. No. 126780

February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ

and ANICIA PAYAM, petitioners,
vs.
THE COURT OF APPEALS and MAURICE
McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court
is the only legal issue in the case: It is whether a
hotel may evade liability for the loss of items left
with it for safekeeping by its guests, by having
these guests execute written waivers holding the
establishment or its employees free from blame
for such loss in light of Article 2003 of the Civil
Code which voids such waivers.

ARTICLE 1170

The factual backdrop of the case follow.

Private respondent McLoughlin, an Australian
businessman-philanthropist, used to stay at
Sheraton Hotel during his trips to the Philippines
prior to 1984 when he met Tan. Tan befriended
McLoughlin by showing him around, introducing
him to important people, accompanying him in
visiting impoverished street children and
assisting him in buying gifts for the children and
in distributing the same to charitable institutions
for poor children. Tan convinced McLoughlin to
transfer from Sheraton Hotel to Tropicana where
Lainez, Payam and Danilo Lopez were employed.
Lopez served as manager of the hotel while
Lainez and Payam had custody of the keys for the
safety deposit boxes of Tropicana. Tan took care
of McLoughlin's booking at the Tropicana where
he started staying during his trips to the
Philippines from December 1984 to September
1987.3
On 30 October 1987, McLoughlin arrived from
Australia and registered with Tropicana. He rented
a safety deposit box as it was his practice to rent
a safety deposit box every time he registered at
Tropicana in previous trips. As a tourist,
McLoughlin was aware of the procedure observed
by Tropicana relative to its safety deposit boxes.
The safety deposit box could only be opened
through the use of two keys, one of which is given
to the registered guest, and the other remaining
in the possession of the management of the
hotel. When a registered guest wished to open his
safety deposit box, he alone could personally
request the management who then would assign
one of its employees to accompany the guest and
assist him in opening the safety deposit box with
the two keys.4
McLoughlin allegedly placed the following in his
safety deposit box: Fifteen Thousand US Dollars
(US$15,000.00) which he placed in two

ARTICLE 1170

31
Page

Before this Court is a Rule 45 petition for review

of the Decision1 dated 19 October 1995 of the
Court
of
Appeals
which
affirmed
the Decision2 dated 16 December 1991 of the
Regional Trial Court (RTC), Branch 13, of Manila,
finding YHT Realty Corporation, Brunhilda MataTan (Tan), Erlinda Lainez (Lainez) and Anicia
Payam (Payam) jointly and solidarily liable for
damages in an action filed by Maurice McLoughlin
(McLoughlin) for the loss of his American and
Australian dollars deposited in the safety deposit
box of Tropicana Copacabana Apartment Hotel,
owned and operated by YHT Realty Corporation.

envelopes,
one
envelope
containing
Ten
Thousand US Dollars (US$10,000.00) and the
other envelope Five Thousand US Dollars
(US$5,000.00); Ten Thousand Australian Dollars
(AUS$10,000.00) which he also placed in another
envelope; two (2) other envelopes containing
letters and credit cards; two (2) bankbooks; and a
checkbook, arranged side by side inside the
safety deposit box.5
On 12 December 1987, before leaving for a brief
trip to Hongkong, McLoughlin opened his safety
deposit box with his key and with the key of the
management and took therefrom the envelope
containing
Five
Thousand
US
Dollars
(US$5,000.00), the envelope containing Ten
Thousand Australian Dollars (AUS$10,000.00), his
passports and his credit cards. 6 McLoughlin left
the other items in the box as he did not check out
of his room at the Tropicana during his short visit
to Hongkong. When he arrived in Hongkong, he
opened the envelope which contained Five
Thousand
US
Dollars
(US$5,000.00)
and
discovered upon counting that only Three
Thousand US Dollars (US$3,000.00) were
enclosed therein.7 Since he had no idea whether
somebody else had tampered with his safety
deposit box, he thought that it was just a result of
bad accounting since he did not spend anything
from that envelope.8
After returning to Manila, he checked out of
Tropicana on 18 December 1987 and left for
Australia. When he arrived in Australia, he
discovered that the envelope with Ten Thousand
US Dollars (US$10,000.00) was short of Five
Thousand US Dollars (US$5,000). He also noticed
that the jewelry which he bought in Hongkong
and stored in the safety deposit box upon his
return to Tropicana was likewise missing, except
for a diamond bracelet.9
When McLoughlin came back to the Philippines on
4 April 1988, he asked Lainez if some money
and/or jewelry which he had lost were found and
returned to her or to the management. However,
Lainez told him that no one in the hotel found
such things and none were turned over to the
management. He again registered at Tropicana
and rented a safety deposit box. He placed
therein one (1) envelope containing Fifteen
Thousand US Dollars (US$15,000.00), another
envelope containing Ten Thousand Australian
Dollars (AUS$10,000.00) and other envelopes
containing his traveling papers/documents. On 16
April 1988, McLoughlin requested Lainez and

When McLoughlin discovered the loss, he

immediately confronted Lainez and Payam who
admitted that Tan opened the safety deposit box
with the key assigned to him. 11 McLoughlin went
up to his room where Tan was staying and
confronted her. Tan admitted that she had stolen
McLoughlin's key and was able to open the safety
deposit box with the assistance of Lopez, Payam
and Lainez.12 Lopez also told McLoughlin that Tan
stole the key assigned to McLoughlin while the
latter was asleep.13
McLoughlin requested the management for an
investigation of the incident. Lopez got in touch
with Tan and arranged for a meeting with the
police and McLoughlin. When the police did not
arrive, Lopez and Tan went to the room of
McLoughlin at Tropicana and thereat, Lopez wrote
on a piece of paper a promissory note dated 21
April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the
amount of AUS$4,000.00 and US$2,000.00 or its
equivalent in Philippine currency on or before May
5, 1988.14
Lopez requested Tan to sign the promissory note
which the latter did and Lopez also signed as a
witness. Despite the execution of promissory note
by Tan, McLoughlin insisted that it must be the
hotel who must assume responsibility for the loss
he suffered. However, Lopez refused to accept
the responsibility relying on the conditions for
renting
the
safety
deposit
box
entitled "Undertaking For the Use Of Safety
Deposit Box,"15specifically paragraphs (2) and (4)
thereof, to wit:
2. To release and hold free and blameless
TROPICANA APARTMENT HOTEL from any liability
arising from any loss in the contents and/or use of
the said deposit box for any cause whatsoever,
including but not limited to the presentation or
use thereof by any other person should the key
be lost;
...

ARTICLE 1170

32
Page

Payam to open his safety deposit box. He noticed

that in the envelope containing Fifteen Thousand
US Dollars (US$15,000.00), Two Thousand US
Dollars (US$2,000.00) were missing and in the
envelope previously containing Ten Thousand
Australian
Dollars
(AUS$10,000.00),
Four
Thousand Five Hundred Australian Dollars
(AUS$4,500.00) were missing.10

4. To return the key and execute the RELEASE in

favor of TROPICANA APARTMENT HOTEL upon
giving up the use of the box.16
On 17 May 1988, McLoughlin went back to
Australia and he consulted his lawyers as to the
validity of the abovementioned stipulations. They
opined that the stipulations are void for being
violative of universal hotel practices and customs.
His lawyers prepared a letter dated 30 May 1988
which was signed by McLoughlin and sent to
President Corazon Aquino.17 The Office of the
President referred the letter to the Department of
Justice (DOJ) which forwarded the same to the
Western Police District (WPD).18
After receiving a copy of the indorsement in
Australia, McLoughlin came to the Philippines and
registered again as a hotel guest of Tropicana.
McLoughlin went to Malacaang to follow up on
his letter but he was instructed to go to the DOJ.
The DOJ directed him to proceed to the WPD for
documentation. But McLoughlin went back to
Australia as he had an urgent business matter to
attend to.
For several times, McLoughlin left for Australia to
attend to his business and came back to the
Philippines to follow up on his letter to the
President but he failed to obtain any concrete
assistance.19
McLoughlin left again for Australia and upon his
return to the Philippines on 25 August 1989 to
pursue his claims against petitioners, the WPD
conducted an investigation which resulted in the
preparation of an affidavit which was forwarded
to the Manila City Fiscal's Office. Said affidavit
became the basis of preliminary investigation.
However, McLoughlin left again for Australia
without receiving the notice of the hearing on 24
November 1989. Thus, the case at the Fiscal's
Office was dismissed for failure to prosecute.
Mcloughlin requested the reinstatement of the
criminal charge for theft. In the meantime,
McLoughlin and his lawyers wrote letters of
demand to those having responsibility to pay the
damage. Then he left again for Australia.
Upon his return on 22 October 1990, he
registered at the Echelon Towers at Malate,
Manila. Meetings were held between McLoughlin
and his lawyer which resulted to the filing of a
complaint for damages on 3 December 1990
against YHT Realty Corporation, Lopez, Lainez,
Payam and Tan (defendants) for the loss of
McLoughlin's money which was discovered on 16

After defendants had filed their Pre-Trial Brief

admitting that they had previously allowed and
assisted Tan to open the safety deposit box,
McLoughlin
filed
an Amended/Supplemental
Complaint20 dated 10 June 1991 which included
another incident of loss of money and jewelry in
the safety deposit box rented by McLoughlin in
the same hotel which took place prior to 16 April
1988.21 The
trial
court
admitted
the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been
in and out of the country to attend to urgent
business in Australia, and while staying in the
Philippines to attend the hearing, he incurred
expenses for hotel bills, airfare and other
transportation expenses, long distance calls to
Australia, Meralco power expenses, and expenses
for food and maintenance, among others.22
After trial, the RTC of Manila rendered judgment
in favor of McLoughlin, the dispositive portion of
which reads:
WHEREFORE,
above
premises
considered,
judgment is hereby rendered by this Court in
favor of plaintiff and against the defendants, to
wit:
1. Ordering defendants, jointly and severally, to
pay plaintiff the sum of US$11,400.00 or its
equivalent in Philippine Currency of P342,000.00,
more or less, and the sum of AUS$4,500.00 or its
equivalent in Philippine Currency of P99,000.00,
or a total of P441,000.00, more or less, with 12%
interest from April 16 1988 until said amount has
been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to
pay plaintiff the sum of P3,674,238.00 as actual
and consequential damages arising from the loss
of his Australian and American dollars and
jewelries complained against and in prosecuting
his claim and rights administratively and judicially
(Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to
pay plaintiff the sum of P500,000.00 as moral
damages (Item X, Exh. "CC");

33
Page

April 1988. After filing the complaint, McLoughlin

left again for Australia to attend to an urgent
business matter. Tan and Lopez, however, were
not served with summons, and trial proceeded
with only Lainez, Payam and YHT Realty
Corporation as defendants.

4. Ordering defendants, jointly and severally, to

pay plaintiff the sum of P350,000.00 as
exemplary damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally,
to pay litigation expenses in the sum
of P200,000.00 (Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to
pay plaintiff the sum of P200,000.00 as attorney's
fees, and a fee of P3,000.00 for every
appearance; and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations
as to the fact of loss and as to the amount of
money he lost were sufficiently shown by his
direct and straightforward manner of testifying in
court and found him to be credible and worthy of
belief as it was established that McLoughlin's
money, kept in Tropicana's safety deposit box,
was taken by Tan without McLoughlin's consent.
The taking was effected through the use of the
master key which was in the possession of the
management. Payam and Lainez allowed Tan to
use the master key without authority from
McLoughlin. The trial court added that if
McLoughlin had not lost his dollars, he would not
have gone through the trouble and personal
inconvenience of seeking aid and assistance from
the Office of the President, DOJ, police authorities
and the City Fiscal's Office in his desire to recover
his losses from the hotel management and Tan.24
As regards the loss of Seven Thousand US Dollars
(US$7,000.00) and jewelry worth approximately
One Thousand Two Hundred US Dollars
(US$1,200.00) which allegedly occurred during
his stay at Tropicana previous to 4 April 1988, no
claim was made by McLoughlin for such losses in
his complaint dated 21 November 1990 because
he was not sure how they were lost and who the
responsible persons were. But considering the
admission of the defendants in their pre-trial brief
that on three previous occasions they allowed Tan
to open the box, the trial court opined that it was
logical and reasonable to presume that his
personal assets consisting of Seven Thousand US
Dollars (US$7,000.00) and jewelry were taken by
Tan from the safety deposit box without
McLoughlin's consent through the cooperation of
Payam and Lainez.25
The trial court also found that defendants acted
with gross negligence in the performance and

ARTICLE 1170

Moreover, the trial court ruled that paragraphs (2)

and (4) of the "Undertaking For The Use Of Safety
Deposit Box" are not valid for being contrary to
the express mandate of Article 2003 of the New
Civil Code and against public policy. 27 Thus, there
being fraud or wanton conduct on the part of
defendants, they should be responsible for all
damages which may be attributed to the nonperformance of their contractual obligations.28
The Court of Appeals affirmed the disquisitions
made by the lower court except as to the amount
of damages awarded. The decretal text of the
appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed
Decision is hereby AFFIRMED but modified as
follows:
The appellants are directed jointly and severally
to pay the plaintiff/appellee the following
amounts:
1) P153,200.00 representing the peso equivalent
of US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for
the air fares from Sidney [sic] to Manila and back
for a total of eleven (11) trips;
3)
One-half
of P336,207.05
or P168,103.52
representing payment to Tropicana Apartment
Hotel;
4)
One-half
of P152,683.57
or P76,341.785
representing payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the
taxi xxx transportation from the residence to
Sidney [sic] Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips;
6)
One-half
of P7,801.94
or P3,900.97
representing Meralco power expenses;
7)
One-half
of P356,400.00
or P178,000.00
representing expenses for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29

ARTICLE 1170

34
Page

exercise of their duties and obligations as

innkeepers and were therefore liable to answer
for the losses incurred by McLoughlin.26

Unperturbed, YHT Realty Corporation, Lainez and

Payam went to this Court in this appeal
by certiorari.
Petitioners submit for resolution by this Court the
following issues: (a) whether the appellate court's
conclusion on the alleged prior existence and
subsequent loss of the subject money and jewelry
is supported by the evidence on record; (b)
whether the finding of gross negligence on the
part of petitioners in the performance of their
duties as innkeepers is supported by the
evidence on record; (c) whether the "Undertaking
For The Use of Safety Deposit Box" admittedly
executed by private respondent is null and void;
and (d) whether the damages awarded to private
respondent, as well as the amounts thereof, are
proper under the circumstances.30
The petition is devoid of merit.
It is worthy of note that the thrust of Rule 45 is
the resolution only of questions of law and any
peripheral factual question addressed to this
Court is beyond the bounds of this mode of
review.
Petitioners point out that the evidence on record
is insufficient to prove the fact of prior existence
of the dollars and the jewelry which had been lost
while deposited in the safety deposit boxes of
Tropicana, the basis of the trial court and the
appellate court being the sole testimony of
McLoughlin as to the contents thereof. Likewise,
petitioners dispute the finding of gross
negligence on their part as not supported by the
evidence on record.
We are not persuaded.l^vvphi1.net We adhere to
the findings of the trial court as affirmed by the
appellate court that the fact of loss was
established by the credible testimony in open
court by McLoughlin. Such findings are factual
and therefore beyond the ambit of the present
petition.1awphi1.nt
The trial court had the occasion to observe the
demeanor of McLoughlin while testifying which
reflected the veracity of the facts testified to by
him. On this score, we give full credence to the
appreciation of testimonial evidence by the trial
court especially if what is at issue is the
credibility of the witness. The oft-repeated
principle is that where the credibility of a witness
is an issue, the established rule is that great
respect is accorded to the evaluation of the
credibility of witnesses by the trial court.31 The

We are also not impressed by petitioners'

argument that the finding of gross negligence by
the lower court as affirmed by the appellate court
is not supported by evidence. The evidence
reveals that two keys are required to open the
safety deposit boxes of Tropicana. One key is
assigned to the guest while the other remains in
the possession of the management. If the guest
desires to open his safety deposit box, he must
request the management for the other key to
open the same. In other words, the guest alone
cannot open the safety deposit box without the
assistance of the management or its employees.
With more reason that access to the safety
deposit box should be denied if the one
requesting for the opening of the safety deposit
box is a stranger. Thus, in case of loss of any item
deposited in the safety deposit box, it is
inevitable to conclude that the management had
at least a hand in the consummation of the
taking, unless the reason for the loss is force
majeure.
Noteworthy is the fact that Payam and Lainez,
who were employees of Tropicana, had custody of
the master key of the management when the loss
took place. In fact, they even admitted that they
assisted Tan on three separate occasions in
opening McLoughlin's safety deposit box.33 This
only proves that Tropicana had prior knowledge
that a person aside from the registered guest had
access to the safety deposit box. Yet the
management failed to notify McLoughlin of the
incident and waited for him to discover the taking
before it disclosed the matter to him. Therefore,
Tropicana should be held responsible for the
damage suffered by McLoughlin by reason of the
negligence of its employees.
The management should have guarded against
the occurrence of this incident considering that
Payam admitted in open court that she assisted
Tan three times in opening the safety deposit box
of McLoughlin at around 6:30 A.M. to 7:30 A.M.
while the latter was still asleep.34 In light of the
circumstances surrounding this case, it is
undeniable that without the acquiescence of the
employees of Tropicana to the opening of the
safety deposit box, the loss of McLoughlin's
money could and should have been avoided.

ARTICLE 1170

35
Page

trial court is in the best position to assess the

credibility of witnesses and their testimonies
because of its unique opportunity to observe the
witnesses firsthand and note their demeanor,
conduct and attitude under grilling examination.32

The management contends, however, that

McLoughlin, by his act, made its employees
believe that Tan was his spouse for she was
always with him most of the time. The evidence
on record, however, is bereft of any showing that
McLoughlin introduced Tan to the management as
his wife. Such an inference from the act of
McLoughlin will not exculpate the petitioners from
liability in the absence of any showing that he
made the management believe that Tan was his
wife or was duly authorized to have access to the
safety deposit box. Mere close companionship
and intimacy are not enough to warrant such
conclusion considering that what is involved in
the instant case is the very safety of McLoughlin's
deposit. If only petitioners exercised due
diligence in taking care of McLoughlin's safety
deposit box, they should have confronted him as
to his relationship with Tan considering that the
latter had been observed opening McLoughlin's
safety deposit box a number of times at the early
hours of the morning. Tan's acts should have
prompted the management to investigate her
relationship with McLoughlin. Then, petitioners
would have exercised due diligence required of
them. Failure to do so warrants the conclusion
that the management had been remiss in
complying with the obligations imposed upon
hotel-keepers under the law.
Under Article 1170 of the New Civil Code, those
who, in the performance of their obligations, are
guilty of negligence, are liable for damages. As to
who shall bear the burden of paying damages,
Article 2180, paragraph (4) of the same Code
provides that the owners and managers of an
establishment
or
enterprise
are
likewise
responsible for damages caused by their
employees in the service of the branches in which
the latter are employed or on the occasion of
their functions. Also, this Court has ruled that if
an employee is found negligent, it is presumed
that the employer was negligent in selecting
and/or supervising him for it is hard for the victim
to prove the negligence of such employer. 35 Thus,
given the fact that the loss of McLoughlin's
money was consummated through the negligence
of Tropicana's employees in allowing Tan to open
the safety deposit box without the guest's
consent, both the assisting employees and YHT
Realty Corporation itself, as owner and operator
of Tropicana, should be held solidarily liable
pursuant to Article 2193.36
The issue of whether the "Undertaking For The
Use of Safety Deposit Box" executed by

Art. 2003. The hotel-keeper cannot free himself

from responsibility by posting notices to the
effect that he is not liable for the articles brought
by the guest. Any stipulation between the hotelkeeper and the guest whereby the responsibility
of the former as set forth in Articles 1998 to
200137 is suppressed or diminished shall be void.
Article 2003 was incorporated in the New Civil
Code as an expression of public policy precisely
to apply to situations such as that presented in
this case. The hotel business like the common
carrier's business is imbued with public interest.
Catering to the public, hotelkeepers are bound to
provide not only lodging for hotel guests and
security to their persons and belongings. The twin
duty constitutes the essence of the business. The
law in turn does not allow such duty to the public
to be negated or diluted by any contrary
stipulation in so-called "undertakings" that
ordinarily appear in prepared forms imposed by
hotel keepers on guests for their signature.
In an early case,38 the Court of Appeals through
its then Presiding Justice (later Associate Justice
of the Court) Jose P. Bengzon, ruled that to hold
hotelkeepers or innkeeper liable for the effects of
their guests, it is not necessary that they be
actually delivered to the innkeepers or their
employees. It is enough that such effects are
within the hotel or inn.39 With greater reason
should the liability of the hotelkeeper be enforced
when the missing items are taken without the
guest's knowledge and consent from a safety
deposit box provided by the hotel itself, as in this
case.
Paragraphs (2) and (4) of the "undertaking"
manifestly contravene Article 2003 of the New
Civil Code for they allow Tropicana to be released
from liability arising from any loss in the contents
and/or use
of the
safety deposit
box
for any cause
whatsoever.40 Evidently,
the
undertaking was intended to bar any claim
against Tropicana for any loss of the contents of
the safety deposit box whether or not negligence
was incurred by Tropicana or its employees. The
New Civil Code is explicit that the responsibility of
the hotel-keeper shall extend to loss of, or injury
to, the personal property of the guests even if

ARTICLE 1170

36
Page

McLoughlin is tainted with nullity presents a legal

question appropriate for resolution in this
petition. Notably, both the trial court and the
appellate court found the same to be null and
void. We find no reason to reverse their common
conclusion. Article 2003 is controlling, thus:

caused by servants or employees of the keepers

of hotels or inns as well as by strangers, except
as it may proceed from any force majeure.41 It is
the loss through force majeure that may spare
the hotel-keeper from liability. In the case at bar,
there is no showing that the act of the thief or
robber was done with the use of arms or through
an irresistible force to qualify the same as force
majeure.42
Petitioners likewise anchor their defense on
Article 200243 which exempts the hotel-keeper
from liability if the loss is due to the acts of his
guest, his family, or visitors. Even a cursory
reading of the provision would lead us to reject
petitioners' contention. The justification they
raise would render nugatory the public interest
sought to be protected by the provision. What if
the negligence of the employer or its employees
facilitated the consummation of a crime
committed by the registered guest's relatives or
visitor? Should the law exculpate the hotel from
liability since the loss was due to the act of the
visitor of the registered guest of the hotel?
Hence, this provision presupposes that the hotelkeeper is not guilty of concurrent negligence or
has not contributed in any degree to the
occurrence of the loss. A depositary is not
responsible for the loss of goods by theft, unless
his actionable negligence contributes to the
loss.44
In the case at bar, the responsibility of securing
the safety deposit box was shared not only by the
guest himself but also by the management since
two keys are necessary to open the safety
deposit box. Without the assistance of hotel
employees, the loss would not have occurred.
Thus, Tropicana was guilty of concurrent
negligence in allowing Tan, who was not the
registered guest, to open the safety deposit box
of McLoughlin, even assuming that the latter was
also guilty of negligence in allowing another
person to use his key. To rule otherwise would
result in undermining the safety of the safety
deposit boxes in hotels for the management will
be given imprimatur to allow any person, under
the pretense of being a family member or a
visitor of the guest, to have access to the safety
deposit box without fear of any liability that will
attach thereafter in case such person turns out to
be a complete stranger. This will allow the hotel
to evade responsibility for any liability incurred by
its employees in conspiracy with the guest's
relatives and visitors.

As to damages awarded to McLoughlin, we see no

reason to modify the amounts awarded by the
appellate court for the same were based on facts
and law. It is within the province of lower courts
to settle factual issues such as the proper amount
of damages awarded and such finding is binding
upon this Court especially if sufficiently proven by
evidence and not unconscionable or excessive.
Thus, the appellate court correctly awarded
McLoughlin
Two
Thousand
US
Dollars
(US$2,000.00) and Four Thousand Five Hundred
Australian dollars (AUS$4,500.00) or their peso
equivalent at the time of payment, 47 being the
amounts duly proven by evidence.48The alleged
loss that took place prior to 16 April 1988 was not
considered since the amounts alleged to have
been taken were not sufficiently established by
evidence. The appellate court also correctly
awarded the sum ofP308,880.80, representing
the peso value for the air fares from Sydney to
Manila and back for a total of eleven (11)
trips;49 one-half of P336,207.05 or P168,103.52
representing payment to Tropicana;50 one-half
ofP152,683.57
or P76,341.785
representing
payment
to
Echelon
Tower;51 one-half
of P179,863.20 or P89,931.60 for the taxi or
transportation
expenses
from
McLoughlin's
residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11)
trips;52 one-half
of P7,801.94
or P3,900.97
representing Meralco power expenses;53 one-half
of P356,400.00
or P178,000.00
representing
expenses for food and maintenance.54
The amount of P50,000.00 for moral damages is
reasonable. Although trial courts are given
discretion to determine the amount of moral
damages, the appellate court may modify or
change the amount awarded when it is palpably
and scandalously excessive.l^vvphi1.net Moral
damages are not intended to enrich a
complainant
at
the
expense
of
a
defendant.l^vvphi1.net They are awarded only to
enable the injured party to obtain means,
diversion or amusements that will serve to

ARTICLE 1170

37

alleviate the moral suffering he has undergone,

by reason of defendants' culpable action. 55

Page

Petitioners contend that McLoughlin's case was

mounted on the theory of contract, but the trial
court and the appellate court upheld the grant of
the claims of the latter on the basis of
tort.45 There is nothing anomalous in how the
lower courts decided the controversy for this
Court has pronounced a jurisprudential rule that
tort liability can exist even if there are already
contractual relations. The act that breaks the
contract may also be tort.46

The awards of P10,000.00 as exemplary damages

and P200,000.00 representing attorney's fees are
likewise sustained.
WHEREFORE, foregoing premises considered,
the Decision of the Court of Appeals dated 19
October 1995 is hereby AFFIRMED. Petitioners are
directed, jointly and severally, to pay private
respondent the following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso
equivalent at the time of payment;
(2) P308,880.80, representing the peso value for
the air fares from Sydney to Manila and back for a
total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52
representing payment to Tropicana Copacabana
Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785
representing payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the
taxi or transportation expense from McLoughlin's
residence to Sydney Airport and from MIA to the
hotel here in Manila, for the eleven (11) trips;
(6)
One-half
of P7,801.94
or P3,900.97
representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00
representing expenses for food and maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.

38
Page
G.R. No. 114791 May 29, 1997
NANCY GO AND ALEX GO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS,
HERMOGENES ONG and JANE C.
ONG, respondents.

ROMERO, J.:
No less than the Constitution commands us to
protect marriage as an inviolable social institution
and the foundation of the family. 1 In our society,
the importance of a wedding ceremony cannot be
underestimated as it is the matrix of the family
and, therefore, an occasion worth reliving in the
succeeding years.
It is in this light that we narrate the following
undisputed facts:
Private respondents spouses Hermogenes and
Jane Ong were married on June 7, 1981, in
Dumaguete City. The video coverage of the
wedding was provided by petitioners at a contract
price of P1,650.00. Three times thereafter, the
newlyweds tried to claim the video tape of their
wedding, which they planned to show to their
relatives in the United States where they were to
spend their honeymoon, and thrice they failed
because the tape was apparently not yet

ARTICLE 1170

processed. The parties then agreed that the tape

would be ready upon private respondents' return.

39

When private respondents came home from their

honeymoon, however, they found out that the
tape had been erased by petitioners and
therefore, could no longer be delivered.

Page

Furious at the loss of the tape which was

supposed to be the only record of their wedding,
private respondents filed on September 23, 1981
a complaint for specific performance and
damages against petitioners before the Regional
Trial Court, 7th Judicial District, Branch 33,
Dumaguete City. After a protracted trial, the
court a quorendered a decision, to wit:
WHEREFORE, judgment is hereby granted:
1. Ordering the rescission of the agreement
entered into between plaintiff Hermogenes Ong
and defendant Nancy Go;
2. Declaring defendants Alex Go and Nancy Go
jointly
and
severally
liable
to
plaintiffs
Hermogenes Ong and Jane C. Ong for the
following sums:
a) P450.00 , the down payment made at contract
time;
b) P75,000.00, as moral damages;
c) P20,000.00, as exemplary damages;
d) P5,000.00, as attorney's fees; and
e) P2,000.00, as litigation expenses;
Defendants are also ordered to pay the costs.
SO ORDERED.
Dissatisfied with the decision, petitioners
elevated the case to the Court of Appeals which,
on September 14, 1993, dismissed the appeal
and affirmed the trial court's decision.
Hence, this petition.
Petitioners contend that the Court of Appeals
erred in not appreciating the evidence they
presented to prove that they acted only as agents
of a certain Pablo Lim and, as such, should not
have been held liable. In addition, they aver that
there is no evidence to show that the erasure of
the tape was done in bad faith so as to justify the
award of damages. 2
The petition is not meritorious.

ARTICLE 1170

Petitioners claim that for the video coverage, the

cameraman was employed by Pablo Lim who also
owned the video equipment used. They further
assert that they merely get a commission for all
customers solicited for their principal. 3
This contention is primarily premised on Article
1883 of the Civil Code which states thus:
Art. 1883. If an agent acts in his own name, the
principal has no right of action against the
persons with whom the agent has contracted;
neither have such persons against the principal.
In such case the agent is the one directly bound
in favor of the person with whom he has
contracted, as if the transaction were his own,
except when the contract involves things
belonging to the principal.
xxx xxx xxx
Petitioners' argument that since the video
equipment used belonged to Lim and thus the
contract was actually entered into between
private respondents and Lim is not deserving of
any serious consideration. In the instant case, the
contract entered into is one of service, that is, for
the
video
coverage
of
the
wedding.
Consequently, it can hardly be said that the
object of the contract was the video equipment
used. The use by petitioners of the video
equipment of another person is of no
consequence.
It must also be noted that in the course of the
protracted trial below, petitioners did not even
present Lim to corroborate their contention that
they were mere agents of the latter. It would not
be unwarranted to assume that their failure to
present such a vital witness would have had an
adverse result on the case. 4
As regards the award of damages, petitioners
would impress upon this Court their lack of malice
or fraudulent intent in the erasure of the tape.
They insist that since private respondents did not
claim the tape after the lapse of thirty days, as
agreed upon in their contract, the erasure was
done in consonance with consistent business
practice to minimize losses. 5
We are not persuaded.
As correctly observed by the Court of Appeals, it
is contrary to human nature for any newlywed
couple to neglect to claim the video coverage of
their wedding; the fact that private respondents

In this regard, Article 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 is any manner contravene
the tenor thereof, are liable for damages."
In the instant case, petitioners and private
respondents entered into a contract whereby, for
a fee, the former undertook to cover the latter's
wedding and deliver to them a video copy of said
event. For whatever reason, petitioners failed to
provide private respondents with their tape.
Clearly, petitioners are guilty of contravening
their obligation to said private respondents and
are thus liable for damages.
The grant of actual or compensatory damages in
the amount of P450.00 is justified, as
reimbursement of the downpayment paid by
private respondents to petitioners. 6
Generally, moral damages cannot be recovered in
an action for breach of contract because this case
is not among those enumerated in Article 2219 of
the Civil Code. However, it is also accepted in this
jurisdiction that liability for a quasi-delict may still
exist despite the presence of contractual
relations, that is, the act which violates the
contract
may
also
constitute
a quasidelict. 7 Consequently,
moral
damages
are
recoverable
for
the
breach
of
contract
which was palpably wanton, reckless, malicious
or in bad faith, oppressive or abusive. 8
Petitioners' act or omission in recklessly erasing
the video coverage of private respondents'
wedding was precisely the cause of the suffering
private respondents had to undergo.
As the appellate court aptly observed:
Considering the sentimental value of the tapes
and the fact that the event therein recorded a
wedding which in our culture is a significant
milestone to be cherished and remembered
could no longer be reenacted and was lost
forever, the trial court was correct in awarding
the appellees moral damages albeit in the

ARTICLE 1170

40
Page

filed a case against petitioners belies such

assertion. Clearly, petitioners are guilty of
actionable delay for having failed to process the
video tape. Considering that private respondents
were about to leave for the United States, they
took care to inform petitioners that they would
just claim the tape upon their return two months
later. Thus, the erasure of the tape after the lapse
of thirty days was unjustified.

amount of P75,000.00, which was a great

reduction from plaintiffs' demand in the complaint
in compensation for the mental anguish, tortured
feelings, sleepless nights and humiliation that the
appellees suffered and which under the
circumstances could be awarded as allowed
under Articles 2217 and 2218 of the Civil Code. 9
Considering the attendant wanton negligence
committed by petitioners in the case at bar, the
award of exemplary damages by the trial court is
justified 10 to serve as a warning to all entities
engaged in the same business to observe due
diligence in the conduct of their affairs.
The award of attorney' s fees and litigation
expenses are likewise proper, consistent with
Article 2208 11 of the Civil Code.
Finally, petitioner Alex Go questions the finding of
the trial and appellate courts holding him jointly
and severally liable with his wife Nancy regarding
the pecuniary liabilities imposed. He argues that
when his wife entered into the contract with
private respondent, she was acting alone for her
sole interest. 12
We find merit in this contention. Under Article
117 of the Civil Code (now Article 73 of the Family
Code), the wife may exercise any profession,
occupation or engage in business without the
consent of the husband. In the instant case, we
are convinced that it was only petitioner Nancy
Go who entered into the contract with private
respondent. Consequently, we rule that she is
solely liable to private respondents for the
damages awarded below, pursuant to the
principle that contracts produce effect only as
between the parties who execute them. 13
WHEREFORE, the assailed decision dated
September 14, 1993 is hereby AFFIRMED with the
MODIFICATION that petitioner Alex Go is absolved
from any liability to private respondents and that
petitioner Nancy Go is solely liable to said private
respondents for the judgment award. Costs
against petitioners.
SO ORDERED.

HEIRS OF EDUARDO MANLAPAT, represented

by GLORIA MANLAPAT-BANAAG and LEON M.
BANAAG,
JR., Petitioners,
vs.
HON. COURT OF APPEALS, RURAL BANK OF
SAN PASCUAL, INC., and JOSE B. SALAZAR,
CONSUELO CRUZ and ROSALINA CRUZBAUTISTA, and the REGISTER OF DEEDS of
Meycauayan, Bulacan,Respondents.
DECISION
Tinga, J.:
Before this Court is a Rule 45 petition assailing
the D E C I S I O N1 dated 29 September 1994 of
the Court of Appeals that reversed the D E C I S I
O N2 dated 30 April 1991 of the Regional Trial
Court (RTC) of Bulacan, Branch 6, Malolos. The
trial court declared Transfer Certificates of Title
(TCTs) No. T-9326-P(M) and No. T-9327-P(M) as
void ab initio and ordered the restoration of
Original Certificate of Title (OCT) No. P-153(M) in
the name of Eduardo Manlapat (Eduardo),
petitioners predecessor-in-interest.
The controversy involves Lot No. 2204, a parcel of
land with an area of 1,058 square meters, located
at Panghulo, Obando, Bulacan. The property had
been originally in the possession of Jose Alvarez,
Eduardos grandfather, until his demise in 1916.
It remained unregistered until 8 October 1976
when OCT No. P-153(M) was issued in the name
of Eduardo pursuant to a free patent issued in
Eduardos name3 that was entered in the Registry
of Deeds of Meycauayan, Bulacan.4 The subject
lot is adjacent to a fishpond owned by one
Ricardo Cruz (Ricardo), predecessor-in-interest of
respondents Consuelo Cruz and Rosalina CruzBautista (Cruzes).5
On 19 December 1954, before the subject lot was
titled, Eduardo sold a portion thereof with an area
of 553 square meters to Ricardo. The sale is
evidenced by a deed of sale entitled "Kasulatan
ng Bilihang Tuluyan ng Lupang Walang Titulo
(Kasulatan)"6 which was signed by Eduardo
himself as vendor and his wife Engracia Aniceto
with a certain Santiago Enriquez signing as
witness. The deed was notarized by Notary Public
Manolo Cruz.7 On 4 April 1963, the Kasulatan was
registered with the Register of Deeds of Bulacan.8
On
18
March
1981,
another Deed
of
Sale9 conveying another portion of the subject lot

ARTICLE 1170

41

June 8, 2005

Page

G.R. No. 125585

consisting of 50 square meters as right of way

was executed by Eduardo in favor of Ricardo in
order to reach the portion covered by the first
sale executed in 1954 and to have access to his
fishpond from the provincial road.10 The deed was
signed by Eduardo himself and his wife Engracia
Aniceto, together with Eduardo Manlapat, Jr. and
Patricio Manlapat. The same was also duly
notarized on 18 July 1981 by Notary Public
Arsenio Guevarra.11
In December 1981, Leon Banaag, Jr. (Banaag), as
attorney-in-fact of his father-in-law Eduardo,
executed a mortgage with the Rural Bank of San
Pascual, Obando Branch (RBSP), for P100,000.00
with the subject lot as collateral. Banaag
deposited the owners duplicate certificate of OCT
No. P-153(M) with the bank.
On 31 August 1986, Ricardo died without learning
of the prior issuance of OCT No. P-153(M) in the
name of Eduardo.12 His heirs, the Cruzes, were
not immediately aware of the consummated sale
between Eduardo and Ricardo.
Eduardo himself died on 4 April 1987. He was
survived by his heirs, Engracia Aniceto, his
spouse; and children, Patricio, Bonifacio, Eduardo,
Corazon, Anselmo, Teresita and Gloria, all
surnamed Manlapat.13 Neither did the heirs of
Eduardo (petitioners) inform the Cruzes of the
prior sale in favor of their predecessor-in-interest,
Ricardo. Yet subsequently, the Cruzes came to
learn about the sale and the issuance of the OCT
in the name of Eduardo.
Upon learning of their right to the subject lot, the
Cruzes immediately tried to confront petitioners
on the mortgage and obtain the surrender of the
OCT. The Cruzes, however, were thwarted in their
bid to see the heirs. On the advice of the Bureau
of Lands, NCR Office, they brought the matter to
the barangay captain
of BarangayPanghulo,
Obando, Bulacan. During the hearing, petitioners
were informed that the Cruzes had a legal right to
the property covered by OCT and needed the OCT
for the purpose of securing a separate title to
cover the interest of Ricardo. Petitioners,
however, were unwilling to surrender the OCT.14
Having failed to physically obtain the title from
petitioners, in July 1989, the Cruzes instead went
to RBSP which had custody of the owners
duplicate certificate of the OCT, earlier
surrendered as a consequence of the mortgage.
Transacting with RBSPs manager, Jose Salazar
(Salazar), the Cruzes sought to borrow the

Thereafter, the Cruzes solicited the opinion of

Ricardo Arandilla (Arandilla), Land Registration
Officer, Director III, Legal Affairs Department,
Land Registration Authority at Quezon City, who
agreed with the advice given by Flores.18 Relying
on the suggestions of Flores and Arandilla, the
Cruzes hired two geodetic engineers to prepare
the
corresponding
subdivision
plan.
The
subdivision plan was presented to the Land
Management Bureau, Region III, and there it was
approved by a certain Mr. Pambid of said office on
21 July 1989.
After securing the approval of the subdivision
plan, the Cruzes went back to RBSP and again
asked for the owners duplicate certificate from
Salazar. The Cruzes informed him that the
presentation of the owners duplicate certificate
was necessary, per advise of the Register of
Deeds, for the cancellation of the OCT and the
issuance in lieu thereof of two separate titles in
the names of Ricardo and Eduardo in accordance
with the approved subdivision plan.19 Before
giving the owners duplicate certificate, Salazar
required the Cruzes to see Atty. Renato Santiago
(Atty. Santiago), legal counsel of RBSP, to secure
from the latter a clearance to borrow the title.
Atty. Santiago would give the clearance on the
condition that only Cruzes put up a substitute
collateral, which they did.20 As a result, the
Cruzes got hold again of the owners duplicate
certificate.
After the Cruzes presented the owners duplicate
certificate, along with the deeds of sale and the
subdivision plan, the Register of Deeds cancelled
the OCT and issued in lieu thereof TCT No. T9326-P(M) covering 603 square meters of Lot No.

ARTICLE 1170

42
Page

owners duplicate certificate for the purpose of

photocopying the same and thereafter showing a
copy thereof to the Register of Deeds. Salazar
allowed the Cruzes to bring the owners duplicate
certificate outside the bank premises when the
latter
showed
the Kasulatan.15 The
Cruzes
returned the owners duplicate certificate on the
same day after having copied the same. They
then brought the copy of the OCT to Register of
Deeds Jose Flores (Flores) of Meycauayan and
showed the same to him to secure his legal
opinion as to how the Cruzes could legally protect
their interest in the property and register the
same.16 Flores suggested the preparation of a
subdivision plan to be able to segregate the area
purchased by Ricardo from Eduardo and have the
same covered by a separate title.17

2204 in the name of Ricardo and TCT No. T-9327P(M) covering the remaining 455 square meters
in the name of Eduardo.21
On 9 August 1989, the Cruzes went back to the
bank and surrendered to Salazar TCT No. 9327P(M) in the name of Eduardo and retrieved the
title they had earlier given as substitute
collateral. After securing the new separate titles,
the Cruzes furnished petitioners with a copy of
TCT No. 9327-P(M) through the barangay captain
and paid the real property tax for 1989.22
The Cruzes also sent a formal letter to Guillermo
Reyes,
Jr.,
Director,
Supervision
Sector,
Department III of the Central Bank of the
Philippines, inquiring whether they committed
any violation of existing bank laws under the
circumstances. A certain Zosimo Topacio, Jr. of
the Supervision Sector sent a reply letter advising
the Cruzes, since the matter is between them and
the bank, to get in touch with the bank for the
final settlement of the case.23
In October of 1989, Banaag went to RBSP,
intending to tender full payment of the mortgage
obligation. It was only then that he learned of the
dealings of the Cruzes with the bank which
eventually led to the subdivision of the subject lot
and the issuance of two separate titles thereon.
In exchange for the full payment of the loan,
RBSP tried to persuade petitioners to accept TCT
No. T-9327-P(M) in the name of Eduardo.24
As a result, three (3) cases were lodged, later
consolidated, with the trial court, all involving the
issuance of the TCTs, to wit:
(1) Civil Case No. 650-M-89, for reconveyance
with damages filed by the heirs of Eduardo
Manlapat against Consuelo Cruz, Rosalina CruzBautista, Rural Bank of San Pascual, Jose Salazar
and Jose Flores, in his capacity as Deputy
Registrar, Meycauayan Branch of the Registry of
Deeds of Bulacan;
(2) Civil Case No. 141-M-90 for damages filed by
Jose Salazar against Consuelo Cruz, et. [sic] al.;
and
(3) Civil Case No. 644-M-89, for declaration of
nullity of title with damages filed by Rural Bank of
San Pascual, Inc. against the spouses Ricardo
Cruz and Consuelo Cruz, et al.25
After trial of the consolidated cases, the RTC of
Malolos rendered a decision in favor of the heirs

WHEREFORE, premised from

judgment is hereby rendered:

the

foregoing,

1.Declaring Transfer Certificates of Title Nos. T9326-P(M) and T-9327-P(M) as void ab initio and
ordering the Register of Deeds, Meycauayan
Branch to cancel said titles and to restore Original
Certificate of Title No. P-153(M) in the name of
plaintiffs
predecessor-in-interest
Eduardo
Manlapat;
2.-Ordering the defendants Rural Bank of San
Pascual, Jose Salazar, Consuelo Cruz and Rosalina
Cruz-Bautista, to pay the plaintiffs Heirs of
Eduardo Manlapat, jointly and severally, the
following:
a)P200,000.00 as moral damages;
b)P50,000.00 as exemplary damages;
c)P20,000.00 as attorneys fees; and
d)the costs of the suit.
3.Dismissing the counterclaims.
SO ORDERED."26
The trial court found that petitioners were
entitled to the reliefs of reconveyance and
damages. On this matter, it ruled that petitioners
were bona fide mortgagors of an unclouded title
bearing no annotation of any lien and/or
encumbrance. This fact, according to the trial
court, was confirmed by the bank when it
accepted the mortgage unconditionally on 25
November 1981. It found that petitioners were
complacent and unperturbed, believing that the
title to their property, while serving as security
for a loan, was safely vaulted in the impermeable
confines of RBSP. To their surprise and prejudice,
said title was subdivided into two portions,
leaving them a portion of 455 square meters from
the original total area of 1,058 square meters, all
because of the fraudulent and negligent acts of
respondents
and
RBSP.
The
trial
court
ratiocinated that even assuming that a portion of
the subject lot was sold by Eduardo to Ricardo,
petitioners were still not privy to the transaction
between the bank and the Cruzes which
eventually led to the subdivision of the OCT into
TCTs No. T-9326-P(M) and No. T-9327-P(M), clearly
to the damage and prejudice of petitioners.27

ARTICLE 1170

43
Page

of Eduardo, the dispositive portion of which

reads:

Concerning the claims for damages, the trial

court found the same to be bereft of merit. It
ruled that although the act of the Cruzes could be
deemed fraudulent, still it would not constitute
intrinsic fraud. Salazar, nonetheless, was clearly
guilty of negligence in letting the Cruzes borrow
the owners duplicate certificate of the OCT.
Neither the bank nor its manager had business
entrusting to strangers titles mortgaged to it by
other persons for whatever reason. It was a clear
violation of the mortgage and banking laws, the
trial court concluded.
The trial court also ruled that although Salazar
was personally responsible for allowing the title
to be borrowed, the bank could not escape
liability for it was guilty of contributory
negligence. The evidence showed that RBSPs
legal counsel was sought for advice regarding
respondents request. This could only mean that
RBSP through its lawyer if not through its
manager had known in advance of the Cruzes
intention and still it did nothing to prevent the
eventuality. Salazar was not even summarily
dismissed by the bank if he was indeed the sole
person to blame. Hence, the banks claim for
damages must necessarily fail.28
The trial court granted the prayer for the
annulment of the TCTs as a necessary
consequence of its declaration that reconveyance
was in order. As to Flores, his work being
ministerial as Deputy Register of the Bulacan
Registry of Deeds, the trial court absolved him of
any liability with a stern warning that he should
deal with his future transactions more carefully
and in the strictest sense as a responsible
government official.29
Aggrieved by the decision of the trial court, RBSP,
Salazar and the Cruzes appealed to the Court of
Appeals. The appellate court, however, reversed
the decision of the RTC. The decretal text of the
decision reads:
THE FOREGOING CONSIDERED, the appealed
decision is hereby reversed and set aside, with
costs against the appellees.
SO ORDERED.30
The appellate court ruled that petitioners were
not bona fide mortgagors since as early as 1954
or before the 1981 mortgage, Eduardo already
sold to Ricardo a portion of the subject lot with an
area of 553 square meters. This fact, the Court of
Appeals noted, is even supported by a document

Hence, this petition for review on certiorari.

Petitioners ascribe errors to the appellate court
by asking the following questions, to wit: (a) can
a mortgagor be compelled to receive from the
mortgagee a smaller portion of the originally
encumbered
title
partitioned
during
the
subsistence of the mortgage, without the
knowledge of, or authority derived from, the
registered owner; (b) can the mortgagee question
the veracity of the registered title of the
mortgagor, as noted in the owners duplicate
certificate, and thus, deliver the certificate to
such third persons, invoking an adverse, prior,
and unregistered claim against the registered title
of the mortgagor; (c) can an adverse prior claim
against a registered title be noted, registered and
entered without a competent court order; and (d)
can belief of ownership justify the taking of
property without due process of law?34

44
Page

of sale signed by Eduardo Jr. and Engracia

Aniceto, the surviving spouse of Eduardo, and
registered with the Register of Deeds of Bulacan.
The appellate court also found that on 18 March
1981, for the second time, Eduardo sold to
Ricardo a separate area containing 50 square
meters, as a road right-of-way.31 Clearly, the OCT
was issued only after the first sale. It also noted
that the title was given to the Cruzes by RBSP
voluntarily, with knowledge even of the banks
counsel.32 Hence, the imposition of damages
cannot be justified, the Cruzes themselves being
the owners of the property. Certainly, Eduardo
misled the bank into accepting the entire area as
a collateral since the 603-square meter portion
did not anymore belong to him. The appellate
court, however, concluded that there was no
conspiracy between the bank and Salazar.33

A careful perusal of the evidence on record

reveals that the Cruzes have sufficiently proven
their claim of ownership over the portion of Lot
No. 2204 with an area of 553 square meters. The
duly notarized instrument of conveyance was
executed in 1954 to which no less than Eduardo
was a signatory. The execution of the deed of sale
was rendered beyond doubt by Eduardos
admission in his Sinumpaang Salaysay dated 24
April
1963.35These
documents
make
the
affirmance of the right of the Cruzes ineluctable.
The apparent irregularity, however, in the
obtention of the owners duplicate certificate
from the bank, later to be presented to the
Register of Deeds to secure the issuance of two
new TCTs in place of the OCT, is another matter.
Petitioners argue that the 1954 deed of sale was
not annotated on the OCT which was issued in
1976 in favor of Eduardo; thus, the Cruzes claim
of ownership based on the sale would not hold
water. The Court is not persuaded.
Registration is not a requirement for validity of
the contract as between the parties, for the effect
of registration serves chiefly to bind third
persons.36 The principal purpose of registration is
merely to notify other persons not parties to a
contract that a transaction involving the property
had been entered into. Where the party has
knowledge of a prior existing interest which is
unregistered at the time he acquired a right to
the same land, his knowledge of that prior
unregistered interest has the effect of registration
as to him.37

The kernel of the controversy boils down to the

issue of whether the cancellation of the OCT in
the name of the petitioners predecessor-ininterest and its splitting into two separate titles,
one for the petitioners and the other for the
Cruzes, may be accorded legal recognition given
the peculiar factual backdrop of the case. We rule
in the affirmative.

Further, the heirs of Eduardo cannot be

considered third persons for purposes of applying
the rule. The conveyance shall not be valid
against any person unless registered, except (1)
the grantor, (2) his heirs and devisees, and (3)
third persons having actual notice or knowledge
thereof.38 Not only are petitioners the heirs of
Eduardo, some of them were actually parties to
the Kasulatan executed in favor of Ricardo. Thus,
the annotation of the adverse claim of the Cruzes
on the OCT is no longer required to bind the heirs
of Eduardo, petitioners herein.

Private
respondents
(Cruzes)
the portion titled in their names

Petitioners
had
no
right
mortgage over disputed portion

own

Consonant with law and justice, the ultimate

denouement of the property dispute lies in the
determination of the respective bases of the
warring claims. Here, as in other legal disputes,
what is written generally deserves credence.

ARTICLE 1170

to

constitute

The requirements of a valid mortgage are clearly

laid down in Article 2085 of the New Civil
Code, viz:

ART. 2085. The following requisites are essential

to the contracts of pledge and mortgage:

45

(1) That they be constituted to secure the

fulfillment of a principal obligation;

Page

(2) That the pledgor or mortgagor be

the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for the purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or
mortgaging their own property. (emphasis
supplied)
For a person to validly constitute a valid
mortgage on real estate, he must be the absolute
owner thereof as required by Article 2085 of the
New Civil Code.39 The mortgagor must be the
owner, otherwise the mortgage is void. 40 In a
contract of mortgage, the mortgagor remains to
be the owner of the property although the
property is subjected to a lien.41 A mortgage is
regarded as nothing more than a mere lien,
encumbrance, or security for a debt, and passes
no title or estate to the mortgagee and gives him
no right or claim to the possession of the
property.42 In this kind of contract, the property
mortgaged is merely delivered to the mortgagee
to secure the fulfillment of the principal
obligation.43 Such delivery does not empower the
mortgagee to convey any portion thereof in favor
of another person as the right to dispose is an
attribute of ownership.44 The right to dispose
includes the right to donate, to sell, to pledge or
mortgage. Thus, the mortgagee, not being the
owner of the property, cannot dispose of the
whole or part thereof nor cause the impairment of
the security in any manner without violating the
foregoing rule.45 The mortgagee only owns the
mortgage credit, not the property itself.46
Petitioners submit as an issue whether a
mortgagor may be compelled to receive from the
mortgagee a smaller portion of the lot covered by
the originally encumbered title, which lot was
partitioned during the subsistence of the
mortgage without the knowledge or authority of
the mortgagor as registered owner. This
formulation is disingenuous, baselessly assuming,
as it does, as an admitted fact that the mortgagor
is the owner of the mortgaged property in its

ARTICLE 1170

entirety. Indeed, it has not become a salient issue

in this case since the mortgagor was not the
owner of the entire mortgaged property in the
first place.
Issuance of OCT No. P-153(M), improper
It is a glaring fact that OCT No. P-153(M) covering
the property mortgaged was in the name of
Eduardo, without any annotation of any prior
disposition or encumbrance. However, the
property was sufficiently shown to be not entirely
owned
by
Eduardo
as
evidenced
by
the Kasulatan. Readily apparent upon perusal of
the records is that the OCT was issued in 1976,
long after the Kasulatan was executed way back
in 1954. Thus, a portion of the property registered
in Eduardos name arising from the grant of free
patent did not actually belong to him. The
utilization of the Torrens system to perpetrate
fraud cannot be accorded judicial sanction.
Time and again, this Court has ruled that the
principle of indefeasibility of a Torrens title does
not apply where fraud attended the issuance of
the title, as was conclusively established in this
case. The Torrens title does not furnish a shied for
fraud.47 Registration does not vest title. It is not a
mode of acquiring ownership but is merely
evidence of such title over a particular property. It
does not give the holder any better right than
what he actually has, especially if the registration
was done in bad faith. The effect is that it is as if
no registration was made at all.48 In fact, this
Court has ruled that a decree of registration cut
off or extinguished a right acquired by a person
when such right refers to a lien or encumbrance
on the landnot to the right of ownership
thereofwhich was not annotated on the
certificate of title issued thereon.49
Issuance
of
TCT
and T-9327-P(M), Valid

Nos.

T-9326-P(M)

The validity of the issuance of two TCTs, one for

the portion sold to the predecessor-in-interest of
the Cruzes and the other for the portion retained
by petitioners, is readily apparent from Section 53
of the Presidential Decree (P.D.) No. 1529 or
the Property Registration Decree. It provides:
SEC 53. Presentation of owners duplicate upon
entry of new certificate. No voluntary
instrument shall be registered by the Register of
Deeds, unless the owners duplicate certificate is
presented with such instrument, except in cases

expressly provided for in this Decree or upon

order of the court, for cause shown.

46

The production of the owners duplicate

certificate,
whenever
any
voluntary
instrument is presented for registration,
shall be conclusive authority from the
registered owner to the Register of Deeds
to enter a new certificate or to make a
memorandum of registration in accordance
with such instrument, and the new certificate
or memorandum shall be binding upon the
registered owner and upon all persons claiming
under him, in favor of every purchaser for value
and in good faith.

Page

In all cases of registration procured by fraud, the

owner may pursue all his legal and equitable
remedies against the parties to such fraud
without prejudice, however, to the rights of any
innocent holder of the decree of registration on
the original petition or application, any
subsequent
registration
procured
by
the
presentation of a forged duplicate certificate of
title, or a forged deed or instrument, shall be null
and void. (emphasis supplied)
Petitioners argue that the issuance of the TCTs
violated the third paragraph of Section 53 of P.D.
No. 1529. The argument is baseless. It must be
noted that the provision speaks of forged
duplicate certificate of title and forged deed or
instrument. Neither instance obtains in this case.
What the Cruzes presented before the Register of
Deeds was the very genuine owners duplicate
certificate earlier deposited by Banaag, Eduardos
attorney-in-fact,
with
RBSP.
Likewise,
the
instruments of conveyance are authentic, not
forged. Section 53 has never been clearer on the
point that as long as the owners duplicate
certificate is presented to the Register of Deeds
together with the instrument of conveyance, such
presentation serves as conclusive authority to the
Register of Deeds to issue a transfer certificate or
make a memorandum of registration in
accordance with the instrument.
The records of the case show that despite the
efforts made by the Cruzes in persuading the
heirs of Eduardo to allow them to secure a
separate TCT on the claimed portion, their
ownership
being
amply
evidenced
by
theKasulatan and Sinumpaang
Salaysay where
Eduardo himself acknowledged the sales in favor
of Ricardo, the heirs adamantly rejected the
notion of separate titling. This prompted the
Cruzes to approach the bank manager of RBSP for

ARTICLE 1170

the purpose of protecting their property right.

They succeeded in persuading the latter to lend
the owners duplicate certificate. Despite the
apparent irregularity in allowing the Cruzes to get
hold of the owners duplicate certificate, the bank
officers consented to the Cruzes plan to register
the deeds of sale and secure two new separate
titles, without notifying the heirs of Eduardo
about it.
Further, the law on the matter, specifically P.D.
No. 1529, has no explicit requirement as to the
manner of acquiring the owners duplicate for
purposes of issuing a TCT. This led the Register of
Deeds of Meycauayan as well as the Central Bank
officer, in rendering an opinion on the legal
feasibility of the process resorted to by the
Cruzes. Section 53 of P.D. No. 1529 simply
requires the production of the owners duplicate
certificate, whenever any voluntary instrument is
presented for registration, and the same shall be
conclusive authority from the registered owner to
the Register of Deeds to enter a new certificate or
to make a memorandum of registration in
accordance with such instrument, and the new
certificate or memorandum shall be binding upon
the registered owner and upon all persons
claiming under him, in favor of every purchaser
for value and in good faith.
Quite interesting, however, is the contention of
the heirs of Eduardo that the surreptitious lending
of the owners duplicate certificate constitutes
fraud within the ambit of the third paragraph of
Section 53 which could nullify the eventual
issuance of the TCTs. Yet we cannot subscribe to
their position.
Impelled by the inaction of the heirs of Eduardo
as to their claim, the Cruzes went to the bank
where the property was mortgaged. Through its
manager and legal officer, they were assured of
recovery of the claimed parcel of land since they
are the successors-in-interest of the real owner
thereof. Relying on the bank officers opinion as
to the legality of the means sought to be
employed by them and the suggestion of the
Central Bank officer that the matter could be best
settled between them and the bank, the Cruzes
pursued the titling of the claimed portion in the
name of Ricardo. The Register of Deeds
eventually issued the disputed TCTs.
The Cruzes resorted to such means to protect
their interest in the property that rightfully
belongs to them only because of the bank
officers acquiescence thereto. The Cruzes could

Indeed, petitioners contend that the mortgagee

cannot question the veracity of the registered
title of the mortgagor as noted in the owners
duplicate certificate, and, thus, he cannot deliver
the certificate to such third persons invoking an
adverse, prior, and unregistered claim against the
registered title of the mortgagor. The strength of
this argument is diluted by the peculiar factual
milieu of the case.
A mortgagee can rely on what appears on the
certificate of title presented by the mortgagor
and an innocent mortgagee is not expected to
conduct an exhaustive investigation on the
history of the mortgagors title. This rule is strictly
applied to banking institutions. A mortgagee-bank
must exercise due diligence before entering into
said contract. Judicial notice is taken of the
standard practice for banks, before approving a
loan, to send representatives to the premises of
the land offered as collateral and to investigate
who the real owners thereof are.52
Banks, indeed, should exercise more care and
prudence in dealing even with registered lands,
than private individuals, as their business is one
affected with public interest. Banks keep in trust
money belonging to their depositors, which they
should guard against loss by not committing any
act of negligence that amounts to lack of good
faith. Absent good faith, banks would be denied
the protective mantle of the land registration
statute, Act 496, which extends only to
purchasers for value and good faith, as well as to
mortgagees of the same character and
description.53 Thus, this Court clarified that the
rule that persons dealing with registered lands
can rely solely on the certificate of title
does not apply to banks.54
Bank Liable for Nominal Damages
Of deep concern to this Court, however, is the
fact that the bank lent the owners duplicate of
the OCT to the Cruzes when the latter presented
the instruments of conveyance as basis of their
claim of ownership over a portion of land covered

ARTICLE 1170

47
Page

not have secured a separate TCT in the name of

Ricardo without the banks approval. Banks, their
business being impressed with public interest, are
expected to exercise more care and prudence
than private individuals in their dealings, even
those
involving
registered
lands.50 The highest degree
of
diligence
is
expected, and high standards of integrity and
performance are even required of it.51

by the title. Simple rationalization would dictate

that a mortgagee-bank has no right to deliver to
any stranger any property entrusted to it other
than to those contractually and legally entitled to
its possession. Although we cannot dismiss the
banks acknowledgment of the Cruzes claim as
legitimized by instruments of conveyance in their
possession, we nonetheless cannot sanction how
the bank was inveigled to do the bidding of
virtual strangers. Undoubtedly, the banks
cooperative stance facilitated the issuance of the
TCTs. To make matters worse, the bank did not
even notify the heirs of Eduardo. The conduct of
the bank is as dangerous as it is unthinkably
negligent. However, the aspect does not impair
the right of the Cruzes to be recognized as
legitimate owners of their portion of the property.
Undoubtedly, in the absence of the banks
participation, the Register of Deeds could not
have issued the disputed TCTs. We cannot find
fault on the part of the Register of Deeds in
issuing the TCTs as his authority to issue the
same is clearly sanctioned by law. It is thus
ministerial on the part of the Register of Deeds to
issue TCT if the deed of conveyance and the
original owners duplicate are presented to him
as there appears on theface of the instruments
no badge of irregularity or nullity. 55 If there is
someone to blame for the shortcut resorted to by
the Cruzes, it would be the bank itself whose
manager and legal officer helped the Cruzes to
facilitate the issuance of the TCTs.1avvphi1
The bank should not have allowed complete
strangers to take possession of the owners
duplicate certificate even if the purpose is merely
for photocopying for a danger of losing the same
is more than imminent. They should be aware of
the conclusive presumption in
Section 53. Such act constitutes manifest
negligence on the part of the bank which would
necessarily hold it liable for damages under
Article 1170 and other relevant provisions of the
Civil Code.56
In the absence of evidence, the damages that
may be awarded may be in the form of nominal
damages. 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.57 This award rests on the mortgagors
right to rely on the banks observance of the
highest diligence in the conduct of its business.

character is a patent failure to foresee the risk

created by the act in view of the provisions of
Section 53 of P.D. No. 1529. This act runs afoul of
every banks mandate to observe the highest
degree of diligence in dealing with its clients.
Moreover, a mortgagor has also the right to be
afforded due process before deprivation or
diminution of his property is effected as the OCT
was still in the name of Eduardo. Notice and
hearing are indispensable elements of this right
which the bank miserably ignored.
Under the circumstances, the Court believes the
award of P50,000.00 as nominal damages is
appropriate.
Five-Year
Prohibition
against
alienation
or encumbrance under the Public Land Act
One vital point. Apparently glossed over by the
courts below and the parties is an aspect which is
essential, spread as it is all over the record and
intertwined with the crux of the controversy,
relating as it does to the validity of the
dispositions of the subject property and the
mortgage thereon. Eduardo was issued a title in
1976 on the basis of his free patent application.
Such application implies the recognition of the
public dominion character of the land and, hence,
the five (5)-year prohibition imposed by the Public
Land Act against alienation or encumbrance of
the land covered by a free patent or
homestead58 should have been considered.
The deed of sale covering the fifty (50)-square
meter right of way executed by Eduardo on 18
March 1981 is obviously covered by the
proscription, the free patent having been issued
on 8 October 1976. However, petitioners may
recover the portion sold since the prohibition was
imposed in favor of the free patent holder.
InPhilippine National Bank v. De los Reyes,59 this
Court ruled squarely on the point, thus:
While the law bars recovery in a case where the
object of the contract is contrary to law and one
or both parties acted in bad faith, we cannot here
apply the doctrine of in pari delicto which admits
of an exception, namely, that when the contract
is merely prohibited by law, not illegal per se, and
the prohibition is designed for the protection of

ARTICLE 1170

48
Page

The act of RBSP of entrusting to respondents the

owners duplicate certificate entrusted to it by
the mortgagor without even notifying the
mortgagor and absent any prior investigation on
the veracity of respondents claim and

the party seeking to recover, he is entitled to the

relief prayed for whenever public policy is
enhanced thereby. Under the Public Land Act, the
prohibition to alienate is predicated on the
fundamental policy of the State to preserve and
keep in the family of the homesteader that
portion of public land which the State has
gratuitously given to him, and recovery is allowed
even where the land acquired under the Public
Land Act was sold and not merely encumbered,
within the prohibited period.60
The sale of the 553 square meter portion is a
different story. It was executed in 1954, twentytwo (22) years before the issuance of the patent
in 1976. Apparently, Eduardo disposed of the
portion even before he thought of applying for a
free patent. Where the sale or transfer took place
before the filing of the free patent application,
whether by the vendor or the vendee, the
prohibition should not be applied. In such
situation, neither the prohibition nor the rationale
therefor which is to keep in the family of the
patentee that portion of the public land which the
government has gratuitously given him, by
shielding him from the temptation to dispose of
his landholding, could be relevant. Precisely, he
had disposed of his rights to the lot even before
the government could give the title to him.
The mortgage executed in favor of RBSP is also
beyond the pale of the prohibition, as it was
forged in December 1981 a few months past the
period of prohibition.
WHEREFORE, the Decision of the Court of Appeals
is AFFIRMED, subject to the modifications herein.
Respondent Rural Bank of San Pascual is hereby
ORDERED to PAY petitioners Fifty Thousand Pesos
(P50,000.00) by way of nominal damages.
Respondents Consuelo Cruz and Rosalina CruzBautista are hereby DIVESTED of title to, and
respondent Register of Deeds of Meycauayan,
Bulacan is accordingly ORDERED to segregate,
the portion of fifty (50) square meters of the
subject Lot No. 2204, as depicted in the approved
plan covering the lot, marked as Exhibit "A", and
to issue a new title covering the said portion in
the name of the petitioners at the expense of the
petitioners. No costs.
SO ORDERED.

49
Page

against the defendant, sentencing the latter to

pay to the former, the following amounts:
1. P500,000.00 as actual damages;
2. P3,000,000.00 as moral damages;
3. P500,000.00 as exemplary damages; and
4. P500,000.00 as attorney's fees;

G.R. No. 151783

July 8, 2003

VICTORINO SAVELLANO, VIRGINIA B.

SAVELLANO and DEOGRACIAS B.
SAVELLANO, petitioners,
vs.
NORTHWEST AIRLINES, respondent.

"All such sums shall bear legal interest, i.e., 6%

per annum pursuant to Article 2209 of the Civil
Code (Reformina vs. Tomol, 139 SCRA 260) from
the date of the filing of the complaint until fully
paid. Costs against the x x x Northwest Airlines,
Inc.
"[Respondent's]
counterclaim
dismissed, for lack of merit."5

is

ordered

PANGANIBAN, J.:

The Facts

When, as a result of engine malfunction, a

commercial airline is unable to ferry its
passengers on the original contracted route, it
nonetheless has the duty of fulfilling its
responsibility of carrying them to their contracted
destination on the most convenient route
possible. Failing in this, it cannot just unilaterally
shuttle them, without their consent, to other
routes or stopping places outside of the
contracted sectors. However, moral damages
cannot be awarded without proof of the carrier's
bad faith, ill will, malice or wanton conduct.
Neither will actual damages be granted in the
absence of convincing and timely proof of loss.
But nominal damages may be allowed under the
circumstances in the case herein.

The facts of the case are summarized by the CA

as follows:

The Case

"[Petitioner] Victorino Savellano (Savellano) was a

Cabugao, Ilocos Sur mayor for many terms,
former Chairman of the Commission on Elections
and Regional Trial Court (RTC) judge. His wife,
[Petitioner] Virginia is a businesswoman and
operates several rural banks in Ilocos Sur. The
couple's x x x son [Petitioner] Deogracias was, at
the time [of] the incident subject of the case, the
Vice-Governor of Ilocos Sur.
"On October 27, 1991, at around 1:45 p.m.,
[petitioners] departed from San Francisco, USA on
board Northwest Airlines (NW) Flight 27, Business
Class, bound for Manila, Philippines using the NW
round-trip tickets which were issued at
[respondent's] Manila ticketing office.

Before the Court is a Petition for Review under

Rule 45 of the Rules of Court, seeking to set aside
the June 29, 2001 Decision1 of the Court of
Appeals2 (CA) in CA-GR CV No. 47165. The
dispositive part of the Decision reads:

"[Petitioners] were expected to arrive at the

Ninoy Aquino International Airport (NAIA), Manila
on October 29, 1991 (Manila time) or after twelve
(12) hours of travel.

"WHEREFORE, the judgment of July 29, 1994 is

hereby REVERSED and SET ASIDE and another
rendered DISMISSING [petitioners'] Complaint. No
pronouncement as to costs."3

"After being airborne for approximately two and

one-half (2) hours or at about 4:15 p.m. of the
same day, October 27, 1991 (Seattle, USA time),
NW Flight 27's pilot made an emergency landing
in Seattle after announcing that a fire had started
in one of the plane's engines.

On the other hand, the dispositive portion of the

Regional Trial Court (RTC) Decision4 that was
reversed by the CA disposed thus:
"WHEREFORE, premises considered, decision is
hereby rendered in favor of the plaintiffs and

ARTICLE 1170

"[Petitioners]
and
the
other
passengers
proceeded to Gate 8 of the Seattle Airport where
they were instructed to go home to Manila the
next day, 'using the same boarding passes with
the same seating arrangements'.

"[Petitioners] who were travelling as a family

were assigned one room at the hotel. At around
12:00 midnight, they were awakened by a phone
call from [respondent's] personnel who advised
them to be at the Seattle Airport by 7:00 a.m.
(Seattle time) the following day, October 28,
1991, for departure. To reach the airport on time,
the NW shuttle bus fetched them early, making
them skip the 6:30 a.m. hotel breakfast.
"Prior to leaving the hotel, however, [petitioners]
met at the lobby Col. Roberto Delfin, a Filipino copassenger who was also travelling Business
Class, who informed them that he and some
passengers were leaving the next day, October
29, 1991, on board the same plane with the same
itinerary.
"On account of the 'engine failure' of the plane,
[petitioner] Virginia developed nervousness. On
getting wind of information that they were
'bumped off', she took 'valium' to calm her nerves
and 'cough syrup' for the fever and colds she had
developed during the trip.
"When [petitioners] reached the Seattle Airport,
[respondent's] ground stewardess belatedly
advised them that instead of flying to Manila they
would have to board NW Flight 94, a DC-10 plane,
bound for a 3-hour flight to Los Angeles for a
connecting flight to Manila. When [Petitioner]
Savellano insisted theirs was a direct flight to
Manila, the female ground stewardess just told
them to hurry up as they were the last
passengers to board.
"In Los Angeles, [petitioners] and the other
passengers became confused for while 'there was
a sort of a board' which announced a SeoulBangkok flight, none was posted for a Manila
flight. It was only after they complained to the
NW personnel that the latter 'finally changed the
board to include Manila.'
"Before boarding NW Flight 23 for Manila via
Seoul,
[petitioners]
encountered
another
problem. Their three small handcarried items
which were not padlocked as they were
merely closed by zippers were 'not allowed' to be
placed
inside
the
passengers'
baggage
compartments of the plane by an arrogant NW
ground stewardess.

ARTICLE 1170

50
Page

"[Respondent's] shuttle bus thereafter brought all

passengers to the Seattle Red Lion Hotel where
they were billeted by, and at the expense of
[respondent].

"On [petitioners'] arrival at the NAIA, Manila

where they saw Col. Delfin and his wife as well as
the other passengers of the distressed flight who
unlike them [petitioners] who left Seattle on
October 28, 1991, left Seattle on October 29,
1991, they were teased for taking the longer and
tiresome route to the Philippines.
"When [petitioners] claimed their luggage at the
baggage carousel, they discovered that the
would-have-been handcarried items which were
not allowed to be placed inside the passengers'
baggage compartment had been ransacked and
the contents thereof stolen. Virginia was later to
claim having lost her diamond earrings costing
P300,000.00, two (2) Perry Gan shoes worth
US$250.00, four (4) watches costing US$40.00
each, two (2) pieces of Tag Heuer watch and
three (3) boxes of Elizabeth Arden [perfumes].
Deogracias, on the other hand, claimed to have
lost two (2) pairs of Cole Haan shoes which he
bought for his wife, and the clothes, camera,
personal computer, and jeans he bought for his
children.
"By letter of November 22, 1991, [petitioners]
through counsel demanded from [respondent] the
amount of P3,000,000.00 as damages for what
they claimed to be the humiliation and
inconvenience they suffered in the hands of its
personnel. [Respondent] did not accede to the
demand, however, impelling [petitioners] to file a
case for damages at the RTC of Cabugao, Ilocos
Sur subject of the present appeal.
"[Petitioners] concede that they were
downgraded in any of the flights on their
home to Manila. Their only complaint is that
suffered inconvenience, embarrassment,
humiliation for taking a longer route.

not
way
they
and

"During the trial, the [RTC], on motion of

[petitioners], issued on October 29, 1993 a
subpoena duces tecum directing [respondent] to
submit the passengers' manifest of the distressed
flight from San Francisco to Tokyo on October 27,
1991, the passengers' manifest of the same
distressed plane from Seattle to Tokyo which took
off on October 29, 1991, and the passenger
manifest of the substitute plane from Seattle to
Los Angeles and Los Angeles to Seoul enroute to
Manila which took off on October 28, 1991.
"The subpoena duces tecum was served on
December 1, 1993 but was not complied with,
however, by [respondent], it proffering that its

Minneapolis head office retains documents only

for one year after which they are destroyed.

51

" x x x Branch 24 of the RTC of Cabugao, Ilocos

Sur rendered judgment in favor of [petitioners] x
x x.

Page

"In granting moral and actual damages to

[petitioners], the [RTC] credited [petitioners']
claim that they were excluded from the SeattleTokyo-Manila flight to accommodate several
Japanese passengers bound for Japan. And as
basis of its award of actual damages arising from
the allegedly lost articles contained in the wouldhave-been handcarried [luggage], the [RTC],
passing on the lack of receipts covering the
same, took judicial notice of the Filipinos' practice
of often bringing home pasalubong for friends
and relatives."6
Ruling of the Court of Appeals
The CA ruled that petitioners had failed to show
respondent's bad faith, negligence or malice in
transporting them via the Seattle-Los AngelesSeoul-Manila route. Hence, it held that there was
no basis for the RTC's award of moral and
exemplary damages. Neither did it find any
reason to grant attorney's fees.
It further ruled:
"[Petitioners'] testimonial
claim of
losses
is
unsupported by any other evidence at all. It is
odd and even contrary to human experience for
[petitioner] Virginia not to have taken out a
P300,000.00 pair of diamond earrings from an
unlocked small luggage after such luggage was
not allowed to be placed inside the passenger's
baggage compartment, given the ease with which
it could have been done as the small luggage was
merely closed by zipper. Just as it is odd why no
receipts
for
alleged
purchases
for
valuablepasalubongs including Tag Huer watches,
camera and personal computer were presented x
x x "7
Thus, even the trial court's award of actual
damages was reversed by the appellate court.
Hence this Petition.8
Issues
In their appeal, petitioners ask this Court to rule
on these issues:
" x x x [W]hether or not petitioners'
discriminatory bump-off from NW Flight No. 0027

ARTICLE 1170

on 28 October 1991 (not the diversion of the

distressed
plane
to
Seattle
the
day
before, i.e. NW Flight 27 on 27 October 1991)
constitutes breach by respondent airline of its aircarriage contract?
"And if so, whether or not petitioners are entitled
to actual, moral and exemplary damages
including attorney's fees as a consequence?" 9
The Court's Ruling
The Petition is partly meritorious.
First
Breach of Contract

Issue:

Petitioners' contract of carriage with Northwest

was for the San Francisco-Tokyo (Narita)-Manila
flights scheduled for October 27, 1991. This
itinerary was not followed when the aircraft used
for the first segment of the journey developed
engine trouble. Petitioners stress that they are
questioning, not the cancellation of the original
itinerary, but its substitution, which they
allegedly had not contracted for or agreed to.
They insist that, like the other passengers of the
distressed flight, they had the right to be placed
on Flight 27, which had a connecting flight from
Japan to Manila. They add that in being treated
differently and shabbily, they were being
discriminated against.
A contract is the law between the parties. 10 Thus,
in determining whether petitioners' rights were
violated, we must look into its provisions, which
are printed on the airline ticket. Condition 9 in the
agreement states that a " x x x [c]arrier may
without notice substitute alternate carriers or
aircraft, and may alter or omit stopping places
shown on the ticket in case of necessity. x x x ."11
The basis of the Complaint was the way
respondent allegedly treated petitioners like
puppets that could be shuttled to Manila via Los
Angeles
and
Seoul
without
their
consent.12 Undeniably, it did not take the time to
explain how it would be meeting its contractual
obligation to transport them to their final
destination. Its employees merely hustled the
confused petitioners into boarding one plane after
another without giving the latter a choice from
other courses of action that were available. It
unilaterally decided on the most expedient way
for them to reach their final destination.
Passengers' Consent

The ambiguities in the contract, being one of

adhesion, should be construed against the party
that caused its preparation in this case,
respondent.13 Since the conditions enumerated
on the ticket do not specifically allow it to change
stopping places or to fly the passengers to
alternate connecting cities without consulting
them, then it must be construed to mean that
such unilateral change was not permitted.

52
Page

After an examination of the conditions printed on

the airline ticket, we find nothing there
authorizing Northwest to decide unilaterally, after
the distressed flight landed in Seattle, what other
stopping places petitioners should take and when
they should fly. True, Condition 9 on the ticket
allowed respondent to substitute alternate
carriers or aircraft without notice. However,
nothing there permits shuttling passengers
without so much as a by your-leave to stopping
places that they have not been previously
notified of, much less agreed to or been prepared
for. Substituting aircrafts or carriers without
notice
is
entirely
different
from
changing stopping
places
or
connecting
cities without notice.

were
other
carriers
that
could
have
accommodated them for these sectors of their
journey, and whose route they might have
preferred to the more circuitous one unilaterally
chosen for them by respondent.
In the absence of evidence as to the actual
situation, the Court is hard pressed to determine
if there was a "case of necessity" sanctioning the
alteration of the Tokyo stopping place in the case
of petitioners. Thus, we hold that in the absence
of a demonstrated necessity thereof and their
rerouting to Los Angeles and Seoul as stopping
places without their consent, respondent
committed a breach of the contract of carriage.
Second
Damages

Issue:

Being guilty of a breach of their contract,

respondent may be held liable for damages
suffered by petitioners in accordance with Articles
1170 and 2201 of the Civil Code, which state:

Proof of Necessity of Alteration

"Art. 1170. Those who in the performance of their

obligations are guilty of fraud, negligence, or
delay and those who in any manner contravene
the tenor thereof are liable for damages."
(Emphasis supplied)

Furthermore, the change in petitioners' flight

itinerary does not fall under the situation covered
by the phrase "may alter or omit stopping places
shown on the ticket in case of necessity." 14 A case
of necessity must first be proven. The burden of
proving it necessarily fell on respondent. This
responsibility it failed to discharge.

"Art. 2201. In contracts and quasi-contracts, the

damages for which the obligor who acted in good
faith is liable shall be those 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."

Petitioners do not question the stop in Seattle, so

we will not delve into this matter. The airplane
engine trouble that developed during the flight
bound for Tokyo from San Francisco definitely
merited the "necessity" of landing the plane at
some place for repair in this case, Seattle
but
not
that
of
shuttling
petitioners
to otherconnecting points thereafter without their
consent.

"In case of fraud, bad faith, malice or wanton

attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to
the non-performance of the obligation."

Northwest failed to show a "case of necessity" for

changing the stopping place from Tokyo to Los
Angeles and Seoul. It is a fact that some of the
passengers on the distressed flight continued on
to the Tokyo (Narita) connecting place. No
explanation whatsoever was given to petitioners
as to why they were not similarly allowed to do
so. It may be that the Northwest connecting flight
from Seattle to Tokyo to Manila could no longer
accommodate them. Yet it may also be that there

ARTICLE 1170

As a general rule, the factual findings of the CA

when supported by substantial evidence on
record are final and conclusive and may not be
reviewed on appeal.15 An exception to this rule is
when the lower court and the CA arrive at
different factual findings.16 In this case, the trial
court found the presence of bad faith and hence
awarded moral and exemplary damages; while
the CA found none and hence deleted the award
of damages. Thus, the Court is now behooved to
review the basis for sustaining the award or
deletion of damages.
Petitioners impute oppression, discrimination,
recklessness and malevolence to respondent. We

The records show that respondent was impelled

by sincere motives to get petitioners to their final
destination
by
whatever
was
the
most
expeditious course in its judgment, if not in
theirs. Though they claim that they were not
accommodated on Flight 27 from Seattle to Tokyo
because respondent had taken on Japanese
passengers,
petitioners
failed
to
present
convincing evidence to back this allegation. In the
absence of convincing evidence, we cannot find
respondent guilty of bad faith.
Lopez, Zulueta
Applicable

and

Ortigas

Rulings

Not

Petitioners cite the cases of Lopez v. Pan

American World Airways,18 Zulueta v. Pan
American World Airways, Inc.19 and Ortigas Jr. v.
Lufthansa German Airlines20 to support their claim
for moral and exemplary damages.
In Lopez, Honorable Fernando Lopez, then an
incumbent senator and former Vice President of
the Philippines together with his wife, his
daughter and his son-in-law made first-class
reservations with the Pan American World
Airways on its Tokyo-San Francisco flight. The
reservation having been confirmed, first-class
tickets were subsequently issued in their favor.
Mistakenly, however, defendant's agent cancelled
the reservation. But expecting other cancellations
before the flight scheduled a month later, the
reservations supervisor decided to withhold the
information from them, with the result that upon
arrival in Tokyo, the Lopezes discovered they had
no first-class accommodations. Thus, they were
compelled to take the tourist class, just so the
senator could be on time for his pressing
engagements in the United States.
In the light of these facts, the Court held there
was a breach of the contract of carriage. The
failure of the defendant to inform the plaintiffs on
time that their reservations for the first class had
long been cancelled was considered as the

ARTICLE 1170

53
Page

are not convinced. There is no persuasive

evidence that they were maliciously singled out
to fly the Seattle-Los Angeles-Seoul-Manila route.
It appears that the passengers of the distressed
flight were randomly divided into two groups. One
group was made to take the Tokyo-Manila flight;
and the other, the Los Angeles-Seoul-Manila
flight. The selection of who was to take which
flight was handled via the computer reservation
system, which took into account only the
passengers' final destination.17

element of bad faith entitling them to moral

damages for the contractual breach. According to
the Court, such omission had placed them in a
predicament that enabled the company to keep
them as their passengers in the tourist class.
Thus, the defendant was able to retain the
business and to promote its self-interest at the
expense of embarrassment, discomfort and
humiliation on their part.
In Zulueta, the passenger was coming home to
Manila from Honolulu via a Pan-American flight.
The plane had a stopover at Wake Island, where
Rafael Zulueta went down to relieve himself. At
flight time, he could not be located immediately.
Upon being found, an altercation ensued between
him and the Pan-Am employees. One of them
remonstrated: "What in the hell do you think you
are? Get on that plane." An exchange of angry
words followed, and the pilot went to the extent
of referring to the Zuluetas as "those monkeys."
Subsequently, for his "belligerent" attitude,
Rafael Zulueta was intentionally off-loaded and
left at Wake Island with the prospect of being
stranded there for a week, with malice
aforethought. The Court awarded to the Zuluetas
P500,000.00 as moral damages, P200,000.00 as
exemplary
damages
and
P75,000.00
as
attorney's fees, apart from the actual damages of
P5,502.85.
In Ortigas, Francisco Ortigas Jr. had a confirmed
and validated first-class ticket for Lufthansa's
Flight No. 646. His reserved first class seat was,
however, given to a Belgian. As a result, he was
forced to take economy class on the same flight.
Lufthansa succeeded in keeping him as a
passenger by assuring him that he would be
given first-class accommodation at the next stop.
The
proper
arrangements
therefor
had
supposedly been made already, when in truth
such was not the case. In justifying the award of
moral and exemplary damages, the Court
explained.
" x x x [W]hen it comes to contracts of common
carriage, inattention and lack of care on the part
of the carrier resulting in the failure of the
passenger to be accommodated in the class
contracted for amounts to bad faith or fraud
which entitles the passenger to the award of
moral damages in accordance with Article 2220
of the Civil Code. But in the instant case, the
breach appears to be of graver nature, since the
preference given to the Belgian passenger over
plaintiff was done willfully and in wanton

These cases are different from and inapplicable to

the present case. Here, there is no showing that
the breach of contract was done with the same
entrepreneurial motive or self-interest as
in Lopez or with ill will as in Zuluetaand Ortigas.
Petitioners have failed to show convincingly that
they were rerouted by respondent to Los Angeles
and Seoul because of malice, profit motive or selfinterest. Good faith is presumed, while bad faith
is a matter of fact that needs to be proved 21 by
the party alleging it.
In the absence of bad faith, ill will, malice or
wanton conduct, respondent cannot be held liable
for moral damages. Article 2219 of the Civil
Code22 enumerates the instances in which moral
damages may be awarded. In a breach of
contract, such damages are not awarded if the
defendant is not shown to have acted
fraudulently
or
with
malice
or
bad
faith.23 Insufficient to warrant the award of moral
damages is the fact that complainants suffered
economic hardship, or that they worried and
experienced mental anxiety.24
Neither are exemplary damages proper in the
present case. The Civil Code provides that "[i]n
contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive, or
malevolent manner."25 Respondent has not been
proven to have acted in that manner. At most, it
can only be found guilty of having acted without
first considering and weighing all other possible
courses of actions it could have taken, and
without consulting petitioners and securing their
consent to the new stopping places.
The unexpected and sudden requirement of
having to arrange the connecting flights of every
single person in the distressed plane in just a few
hours, in addition to the Northwest employees'
normal workload, was difficult to satisfy perfectly.
We cannot find respondent liable for exemplary

ARTICLE 1170

54

To summarize, in Loipez despite sufficient time

one month to inform the passengers of what
had happened to their booking, the airline agent
intentionally withheld that information from them.
In Zulueta, the passenger was deliberately offloaded after being gravely insulted during an
altercation. And in Ortigas, the passenger was
intentionally downgraded in favor of a European.

damages for its imperfection of neglecting to

consult with the passengers beforehand.

Page

disregard of plaintiff's rights and his dignity as a

human being and as a Filipino, who may not be
discriminated against with impunity."

Nevertheless, herein petitioners will not be totally

deprived of compensation. Nominal damages
may be awarded as provided by the Civil Code,
from which we quote:
"Art. 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."
"Art. 2222. The court may award nominal
damages in every obligation arising from any
source enumerated in article 1157, or in every
case where any property right has been invaded."
Nominal damages are recoverable if no actual,
substantial or specific damages were shown to
have resulted from the breach.26 The amount of
such damages is addressed to the sound
discretion of the court, taking into account the
relevant circumstances.27
In the present case, we must consider that
petitioners suffered the inconvenience of having
to wake up early after a bad night and having to
miss breakfast; as well as the fact that they were
business class passengers. They paid more for
better service; thus, rushing them and making
them miss their small comforts was not a trivial
thing. We also consider their social and official
status. Victorino Savellano was a former mayor,
regional trial court judge and chairman of the
Commission on Elections. Virginia B. Savellano
was the president of five rural banks, and
Deogracias Savellano was then the incumbent
vice governor of Ilocos Sur. Hence, it will be
proper to grant one hundred fifty thousand pesos
(P150,000) as nominal damages28 to each of
them, in order to vindicate and recognize their
right29 to be notified and consulted before their
contracted stopping place was changed.
A claim for the alleged lost items from the
baggage of petitioners cannot prosper, because
they failed to give timely notice of the loss to
respondent. The Conditions printed on the airline
ticket plainly read:
"2. Carriage hereunder is subject to the rules and
limitations relating to liability established by the
Warsaw Convention unless such carriage is not
`International carriage' as defined by that
Convention.

xxx

"7. Checked baggage will be delivered to bearer

of the baggage check. In case of damage to
baggage moving in international transportation
complaint must be made in writing to carrier
forthwith after discovery of damage, and at the
latest, within 7 days from receipt; in case of
delay, complaint must be made within 21 days
from date the baggage was delivered. x x x ."30

55

xxx

Page

xxx

petitioners
as
nominal
pronouncement as to costs.

damages.

SO ORDERED.

The pertinent provisions of the Rules Relating to

International
Carriage
by
Air
(Warsaw
Convention) state:
"Article 26
1. Receipt by the person entitled to delivery of
luggage or goods without complaint is prima
facie evidence that the same have been delivered
in good condition and in accordance with the
document of carriage.
2. In case of damage, the person entitled to
delivery must complain to the carrier forthwith
after the discovery of the damage, and, at the
latest, within three days from the date of receipt
in the case of luggage and seven days from date
of receipt in the case of goods. In the case of
delay the complaint must be made at the latest
within fourteen days from the date on which the
luggage or goods have been placed at his
disposal.
3. Every complaint must be made in writing upon
the document of carriage or by separate notice in
writing dispatched within the times aforesaid.
4. Failing complaint within the times aforesaid, no
action shall lie against the carrier, save in the
case of fraud on his part."
After allegedly finding that their luggage had
been ransacked, petitioners never lodged a
complaint with any Northwest airport personnel.
Neither did they mention the alleged loss of their
valuables in their November 22, 1991 demand
letter.31 Hence, in accordance with the parties'
contract of carriage, no claim can be heard or
admitted against respondent with respect to
alleged damage to or loss of petitioners'
baggage.
WHEREFORE, the Petition is hereby PARTIALLY
GRANTED, and the assailed Decision MODIFIED.
Respondent is ORDERED to pay one hundred fifty
thousand pesos (P150,000) to each of the three

ARTICLE 1170

G.R. No. 96505 July 1, 1993

LEGASPI OIL CO., INC., petitioner,
vs.

No.

Duran, Lanuzo & Associates for petitioner.

Leovigildo Mijares III for private respondent.

MELO, J.:
The petition for review on certiorari before us
seeks to set aside the decision dated March 23,
1990 of the Court of Appeals in CA-G.R. CV No.
05828, penned by the Honorable Justice Abelardo
Dayrit with whom Justices Javellana and Kalalo
concurred, which dismissed petitioner's complaint
for damages (p. 48, Rollo).
Petitioner does not dispute the facts of the case,
as found by respondent Court of Appeals. The
findings of the respondent Court are thus
adopted, to wit:
From the evidence presented by the plaintiffappellee [now petitioner Legaspi Oil Company,
Inc.], it appears that defendant-appellant [now
private respondent Bernard Oseraos] acting
through his authorized agents, had several
transactions with appellee Legaspi Oil Co. for the
sale of copra to the latter. The price at which
appellant sells the copra varies from time to time,
depending on the prevailing market price when
the contract is entered into. One of his authorized
agents, Jose Llover, had previous transactions
with appellee for the sale and delivery of copra.
The records show that he concluded a sale for 70
tons of copra at P95.00 per 100 kilos on May 27,
1975 (Exhibit G-5) and another sale for 30 tons of
P102.00 per 100 kilos on September 23, 1975
(Exhibit G-3). Subsequently, on November 6,
1975, another designated agent signed a
contract in behalf of appellant for the sale of 100
tons of copra at P79.00 per 100 kilos with the
delivery terms of 25 days effective December 15,
1975 (Exhibit G-2). At this point, it must be noted
that the price of copra had been fluctuating
(going up and down), indicating its unsteady
position in the market.
On February 16, 1976, appellant's agent Jose
Llover signed contract No. 3804 for the sale of
100 tons of copra at P82.00 per 100 kilos with
delivery terms of 20 days effective March 8, 1976
(Exhibit G, for the plaintiff). As compared to
appellant's transaction on November 6, 1975, the
current price agreed upon is slightly higher than
the last contract. In all these contracts though,

ARTICLE 1170

56
Page

THE COURT OF APPEALS and BERNARD

OSERAOS, respondent.

the selling price had always been stated as "total

price" rather than per 100 kilos. However, the
parties had understood the same to be per 100
kilos in their previous transactions.
After the period to deliver had lapsed, appellant
sold only 46,334 kilos of copra thus leaving a
balance of 53,666 kilos as per running account
card (Exhibit "F"). Accordingly, demands were
made upon appellant to deliver the balance with
a final warning embodied in a letter dated
October 6, 1976, that failure to deliver will mean
cancellation of the contract, the balance to be
purchased at open market and the price
differential to be charged against appellant. On
October 22, 1976, since there was still no
compliance, appellee exercised its option under
the contract and purchased the undelivered
balance from the open market at the prevailing
price of P168.00 per 100 kilos, or a price
differential of P86.00 per 100 kilos, a net loss of
P46,152.76 chargeable against appellant.
(pp. 43-44, Rollo)
On November 3, 1976, petitioner filed a
complaint against private respondent for breach
of a contract and for damages.
After trial, the then Court of First Instance (now
Regional Trial Court) of Albay in Civil Case No.
5529 rendered a decision holding herein private
respondent (then defendant) Oseraos liable for
damages in the amount of P48,152.76, attorney's
fees (P2,000), and litigation costs.
Oseraos appealed to respondent Court which
thereafter rendered a reversal decision on March
23, 1990, ordering the dismissal of the complaint.
Hence,
the
on certiorari.

instant

petition

for

review

The sole issued posed by the petition is whether

or not private respondent Oseraos is liable for
damages arising from fraud or bad faith in
deliberately breaching the contract of sale
entered into by the parties.
After a review of the case, we believe and thus
hold, that private respondent is guilty of fraud in
the performance of his obligation under the sales
contract whereunder he bound himself to deliver
to petitioner 100 metric tons of copra within
twenty (20) days from March 8, 1976. However
within the delivery period, Oseraos delivered only
46,334 kilograms of copra to petitioner, leaving
an undelivered balance of 53,666 kilograms.

Under the foregoing undisputed circumstances,

the actuality of private respondent's fraud cannot
be gainsaid. In general, fraud may be defined as
the voluntary execution of a wrongful act, or a
wilfull omission, knowing and intending the
effects which naturally and necessarily arise from
such act or omission; the fraud referred to in
Article 1170 of the Civil Code of the Philippines is
the deliberate and intentional evasion of the
normal fulfillment of obligation; it is distinguished
from negligence by the presence of deliberate
intent,
which
is
lacking
in
the
latter
(Tolentino's Civil Code of the Philippines, Vol. IV,
p. 110). The conduct of private respondent clearly
manifests his deliberate fraudulent intent to
evade his contractual obligation for the price of
copra had in the meantime more than doubled
from P82.00 to P168 per 100 kilograms. Under
Article 1170 of the Civil Code of the Philippines,
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. Pursuant to said
article, private respondent is liable for damages.
The next point of inquiry, therefore, is the amount
of damages which private respondent is liable to
pay petitioner. As aforementioned, on account of
private respondent's deliberate breach of his
contractual obligation, petitioner was compelled
to buy the balance of 53,666 kilos of copra in the
open market at the then prevailing price of P168
per 100 kilograms thereby paying P46,152.76

ARTICLE 1170

57
Page

Petitioner made repeated demands upon private

respondent to comply with his contractual
undertaking to deliver the balance of 53,666
kilograms but private respondent elected to
ignore the same. In a letter dated October 6,
1976, petitioner made a final demand with a
warning that, should private respondent fail to
complete delivery of the balance of 53,666
kilograms of copra, petitioner would purchase the
balance at the open market and charge the price
differential to private respondent. Still private
respondent failed to fulfill his contractual
obligation to deliver the remaining 53,666
kilograms of copra. On October 22, 1976, since
there was still no compliance by private
respondent, petitioner exercised its right under
the contract and purchased 53,666 kilograms of
copra, the undelivered balance, at the open
market at the then prevailing price of P168.00 per
100 kilograms, a price differential of P86.00 per
100 kilograms or a total price differential of
P46,152.76.

more than he would have paid had private

respondent completed delivery of the copra as
agreed upon. Thus, private respondent is liable to
pay respondent the amount of P46,152.76 as
damages. In case of fraud, bad faith, malice, or
wanton attitude, the guilty party is liable for all
damages which may be reasonably attributed to
the non performance of the obligation (Magat vs.
Medialdea, 121 SCRA 418 [1983]). Article 1101 of
the old Civil Code, later to be reproduced as
Article 1170 of our present Civil Code, was the
basis of our decision in an old case, Acme Films,
Inc. vs. Theaters Supply Corporation, (63 Phil, 657
[1936]), wherein we held:
It is not denied that the plaintiff company failed
to supply the defendant with the cinematographic
films which were the subject matter of the
contracts entered into on March 20, 1934
(Exhibits 1 and 2), and two films under the
contract of March 24, 1934 (Exhibit 3), one of said
films being a serial entitled "Whispering Shadow".
Guillermo Garcia Bosque testified that because
the plaintiff company had failed to supply said
films, the defendants had to resort to the
Universal Pictures Corporation and ask for films to
replace those which said plaintiff had failed to
supply under the contract, having had to pay
therefor five per cent more than for those films
contracted with said plaintiff Acme Films, Inc.,
and that the total cost thereof, including the
printing of programs, posters paraded through
the streets with bands of music to announce the
showing of the films which the plaintiff company
failed to supply, amount to from P400 to P550.
The plaintiff company did not submit evidence to
rebut the testimony of said witness and the fact
that the estimate of the expenses is approximate
does not make said estimate inadmissible. It was
incumbent upon the plaintiff company to submit
evidence in rebuttal, or at least ascertain the
amount of the different items in crossexamination. There being no evidence to the
contrary, it is logical to admit that the defendant
company spent at least the sum of P400.
Inasmuch as the plaintiff company had failed to
comply with a part of its booking contract, and as
the defendant company had suffered damages as
a result thereof, the former is liable to indemnify
the damages caused to the latter, in accordance
with the provisions of Article 1101 of the Civil
Code.
(at page 663.)

SO ORDERED.

58
Page

WHEREFORE, the instant petition is hereby

GRANTED. The decision of the respondent Court
of Appeals in CA-G.R. CV No. 05828 is ANNULLED
and SET ASIDE and the decision of the trial court
in Civil Case No. 5529 REINSTATED, with costs
against private respondent.

operational taxis consisting of four wheel, fourdoor, four passenger, radio controlled, meter
controlled, sedans, not more than one year . . . "6
On September 22, 1972, with the advent of
martial law, President Ferdinand E. Marcos issued
Letter of Instruction No. 1 (hereinafter referred to
as "the LOI"). We reproduce the text, as follows:
"Letter of Instruction No. 1
"SUBJECT: SEIZURE AND CONTROL OF ALL
PRIVATELY OWNED NEWSPAPERS, MAGAZINES,
RADIO AND TELEVISION FACILITIES AND ALL
OTHER MEDIA OF COMMUNICATION.
"To: 1. The Press Secretary Office of the President
Manila
"2. The Secretary Department of National
Defense
Camp E. Aguinaldo, Q.C.

G.R. No. 124221

August 4, 2000

VICTORINO MAGAT, JR. substituted by heirs,

OLIVIA D. MAGAT, and minors MA. DULCE
MAGAT, MA. MAGNOLIA MAGAT, RONALD
MAGAT and DENNIS MAGAT, petitioners,
vs.
COURT OF APPEALS and SANTIAGO A.
GUERRERO, respondents.
PARDO, J.:
The case is an appeal1 from the decision of the
Court of Appeals2 reversing the decision of the
Regional
Trial
Court
of
Makati,
Metro
Manila,3 ruling in favor of respondent Santiago A.
Guerrero and dismissing petitioners' complaint.
First, the facts.
Private
respondent
Santiago
A.
Guerrero
(hereinafter referred to as "Guerrero") was
President and Chairman of4"Guerrero Transport
Services", a single proprietorship.5
Sometime in 1972, Guerrero Transport Services
won a bid for the operation of a fleet of taxicabs
within the Subic Naval Base, in Olongapo. As
highest bidder, Guerrero was to "provide radiocontrolled taxi service within the U.S. Naval Base,
Subic Bay, utilizing as demand requires . . . 160

ARTICLE 1170

"In view of the present national emergency which

has been brought about by the activities of those
who are actively engaged in a criminal conspiracy
to seize political and state power in the
Philippines and to take over the Government by
force and violence the extent of which has now
assumed the proportion of an actual war against
our people and their legitimate Government, and
pursuant to Proclamation No. 1081 dated
September 21, 1972, and in my capacity as
commander in chief of all the armed forces of the
Philippines and in order to prevent the use of
privately owned newspapers, magazines, radio
and television facilities and all other media of
communications,
for
propaganda
purposes
against the government and its duly constituted
authorities or for any purpose that tend to
undermine the faith and confidence of the people
in our government and aggravate the present
national emergency, you are hereby ordered
forthwith to take over and control or cause the
taking over and control of all such newspapers,
magazines, radio and television facilities and all
other media of communications, wherever they
are, for the duration of the present national
emergency, or until otherwise ordered by me or
by
my
duly
designated
representative.1wphi1.nt
"In carrying out the foregoing order you are
hereby also directed to see to it that reasonable
means are employed by you and your men and

that injury to persons and property must be

carefully avoided."

59

On September 25, 1972, pursuant to the

aforequoted Letter of Instruction, the Radio
Control Office issued Administrative Circular No. 4
(hereinafter referred to as "the Admin. Circular"),
herein quoted in full:

Page

"SUBJECT: SUSPENDING THE ACCEPTANCE AND

PROCESSING OF APPLICATIONS FOR RADIO
STATION CONSTRUCTION PERMITS AND FOR
PERMITS TO OWN AND/OR POSSESS RADIO
TRANSMITTERS OR TRANSCEIVERS.
"In view of the existence of a state of emergency
and the declaration by the President of martial
law in the entire country under Proclamation No.
1081 dated September 21, 1972, effective
immediately the acceptance and processing by
the radio control office of applications for radio
stations constructions permits and for permits to
possess, own, transfer, purchase and sale of radio
transmitters and transreceivers as well as
manufacturers and dealer's permits of said
equipment is hereby suspended.
"Exempted from this circular are applications for
radio station construction permits and for permits
to possess, own, transfer, purchase and sell radio
transmitters and transceivers for the following
radio stations:
"1. Aeronautical Stations;
"2. Aeronautical Fixed Stations;
"3. Aircraft Stations;
"4. Coastal Stations; and
"5. Ship Stations.
"This circular shall be strictly observed until lifted
upon proper instructions from higher authorities."
On September 25, 1972, Guerrero and Victorino
D. Magat (hereinafter referred to as Victorino), as
General
Manager
of
Spectrum
Electronic
Laboratories, a single proprietorship, executed a
letter-contract for the purchase of transceivers at
a quoted price of US$77,620.59, FOB Yokohoma.
Victorino was to deliver the transceivers within 60
to 90 days after receiving notice from Guerrero of
the assigned radio frequency,7 "taking note of
Government Regulations."8

ARTICLE 1170

The contract was signed and Victorino contacted

his Japanese supplier, Koide & Co., Ltd. and
placed an order for the transceivers.
On September 29, 1972, Navy Exchange Officer,
A. G. Mason confirmed that Guerrero won the bid
for the commercial transportation contract.9
On October 4, 1972, middle man and
broker10 Isidro Q. Aligada of Reliance Group
Engineers, Inc. (hereinafter referred to as
"Aligada"), wrote Victorino, informing him that a
radio frequency was not yet assigned to Guerrero
and
that
government
regulations
might
complicate the importation of the transceivers.
However, in the same letter, Victorino was
advised to advise his supplier "to proceed (with)
production pending frequency information."
Victorino was also assured of Guerrero's financial
capability to comply with the contract.11
On October 6, 1972, Guerrero informed Aligada of
the frequency number12 assigned by Subic Naval
Base authorities. Aligada was instructed to
"proceed with the order thru Spectrum
Electronics Laboratories."13
On October 7, 1972, Aligada informed Magat of
the assigned frequency number. Aligada also
advised Victorino to "proceed with the order upon
receipt of letter of credit."14
On January 10, 1973, Guerrero applied for a letter
of credit with the Metropolitan Bank and Trust
Company.15This application was not pursued.16
On March 27, 1973, Victorino, represented by his
lawyer, Atty. Sinesio S. Vergara, informed
Guererro that the order with the Japanese
supplier has not been canceled. Should the
contract be canceled, the Japanese firm would
forfeit 30% of the deposit and charge a
cancellation fee in an amount not yet known,
Guerrero to bear the loss. Further, should the
contract be canceled, Victorino would demand an
additional amount equivalent to 10% of the
contract price.17
Unable to get a letter of credit from the Central
Bank due to the refusal of the Philippine
government18 to issue a permit to import the
transceivers,19 Guerrero commenced operation of
the taxi cabs within Subic Naval Base, using radio
units borrowed from the U.S. government
(through
the
Subic
Naval
Base
authorities).20 Victorino thus canceled his order
with his Japanese supplier.

On June 7, 1973, Guerrero moved to dismiss the

complaint on the ground that it did not state a
cause of action.22

60
Page

On May 22, 1973, Victorino filed with the Regional

Trial Court, Makati a complaint for damages
arising from breach of contract against
Guerrero.21

damages; and
"4. P20,000.00 as attorney's fees.
"SO ORDERED."
On August 21, 1991, Guerrero appealed to the
Court of Appeals.33

On June 16, 1973, the trial court 23 granted the

motion and dismissed the complaint.24

On October 4, 1995, the Court of Appeals

rendered the decision appealed from, disposing
as follows:34

On July 11, 1973, Victorino filed a petition for

review on certiorari with this Court assailing the
dismissal of the complaint.25

"WHEREFORE, judgment is
DISMISSING the complaint.

On April 20, 1983, this Court2 6 ruled that the

complaint sufficiently averred a cause of action.
We set aside the order of dismissal and remanded
the case to the trial court for further proceedings,
to wit:27
"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."
On November 27, 1984, the trial court 28 ordered
that the case be archived for failure of Victorino
to prosecute.29
On March 11, 1985, petitioners, Olivia, Dulce, Ma.
Magnolia, Ronald and Dennis Magat (hereinafter
referred to as "heirs of Victorino"), moved to
reinstate the case and to substitute Victorino in
its prosecution. Apparently, Victorino died on
February 18, 1985.30
On April 29, 1985, the trial court granted the
motion.31
On July 12, 1991, the trial court decided in favor
of the heirs of Victorino and ordered Guerrero to
pay temperate, moral and exemplary damages,
and attorney's fees, disposing of the case in this
wise:32
"WHEREFORE, judgment is rendered for the
substituted plaintiffs and against the defendant
"1. Ordering defendant to pay substituted
plaintiffs the sum of P25,000.00 for temperate
damages for injury to plaintiff's business dealings
with foreign and local businessmen;
"2. P50,000.00 as moral damages;
"3. P25,000.00 as exemplary

ARTICLE 1170

hereby

rendered

"No pronouncements as to costs.

" SO ORDERED."
On October 26, 1995, the heirs of Victorino filed
with the Court of Appeals a motion for
reconsideration.35
On March 12, 1996, the Court of Appeals denied
the motion for reconsideration.36
Hence, this appeal.37
The issue is whether the contract between
Victorino and Guerrero for the purchase of radio
transceivers was void. Stated differently, whether
the transceivers subject of the contract were
banned contraband items prohibited by the LOI
and the Administrative Circular to import.
The contract was valid; the radio transceivers
were not contraband.
"Contraband" generally refers to "any property
which is unlawful to produce or possess." It refers
to goods which are exported and imported into a
country against its laws.38
In declaring the contract void ab initio, the Court
of Appeals ruled that the importation of the
transceivers meant the inevitable passing of such
goods through Philippine Ports, where the LOI and
the Administrative Circular have to be observed
and applied with full force and effect. 39 The Court
of
Appeals
declared
that
the
proposed
importation of such goods was contrary to law,
hence, the nullity of the contract.40
We do not agree. The contract was not void ab
initio. Nowhere in the LOI and Admin. Circular is
there an express ban on the importation of
transceivers.
The LOI and Administrative Circular did not render
"radios and transceivers" illegal per se. The

Affirming the validity of the contract, we next

discuss whether the contract was breached.
Guerrero testified that a permit to import the
transceivers from Japan was denied by the Radio
Control Board. He stated that he, together with
Aligada, Victorino and a certain John Dauden
personally went to the Radio Control Office, and
were denied a permit to import. They also went to
the Office of the President, where Secretary
Ronaldo B. Zamora explained that radios were
"banned
like
guns
because
of
martial
law."44 Guerrero testified that this prevented him
from securing a letter of credit from the Central
Bank.45 This testimony was not rebutted.
The law provides that "[w]hen the service
(required by the contract) has become so
manifestly beyond the contemplation of the
parties, the obligor may also be released
therefrom, in whole or in part."46 Here, Guerrero's
inability to secure a letter of credit and to comply
with his obligation was a direct consequence of
the denial of the permit to import. For this, he
cannot be faulted.
Even if we assume that there was a breach of
contract, damages cannot be awarded. Damnum
absque injuria.
There was no bad faith.47 Bad faith does not
simply connote bad judgment or negligence. It
imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means
a breach of a known duty through some motive or
interest or ill will that partakes of the nature of
fraud.48 Guerrero
honestly
relied
on
the
representations of the Radio Control Office and
the Office of the President.
True, Guerrero borrowed equipment from the
Subic Naval Base authorities at zero cost. 49 This
does not automatically translate to bad faith.

ARTICLE 1170

61
Page

Administrative Circular merely ordered the Radio

Control Office to suspend the "acceptance and
processing . . . . of applications . . . for permits to
possess, own, transfer, purchase and sell radio
transmitters and transceivers . . . " 41 Therefore,
possession and importation of the radio
transmitters and transceivers was legal provided
one
had
the
necessary
license
for
it.42 Transceivers were not prohibited but merely
regulated goods. The LOI and Administrative
Circular did not render the transceivers outside
the commerce of man. They were valid objects of
the contract.43

Guerrero was faced with the danger of the

cancellation of his contract with Subic Naval
Base. He borrowed equipment as a prudent and
swift alternative. There was no proof that he
resorted to this option with a deliberate and
malicious intent to dishonor his contract with
Victorino. An award of damages surely cannot be
based on mere hypotheses, conjectures and
surmises. Good faith is presumed, the burden of
proving bad faith rests on the one alleging
it.50 Petitioners did not effectively discharge the
burden in this case.
To recover moral damages in an action for breach
of contract, the breach must be palpably wanton,
reckless, malicious, in bad faith, oppressive or
abusive.51 This is not the case here.
Exemplary damages also cannot be awarded.
Guerrero did not act in a wanton, fraudulent,
reckless, oppressive or malevolent manner.52
Neither can actual damages be awarded. True,
indemnification for damages contemplates not
only actual loss suffered (damnum emergens) but
unrealized
profits
(lucrum
cessans)
as
well.53 However, to be entitled to adequate
compensation for pecuniary loss, the loss must
be actually suffered and duly proved. 54 To recover
actual damages, the amount of loss must not
only be capable of proof, but must be proven with
a reasonable degree of certainty. The claim must
be premised upon competent proof or upon the
best evidence obtainable,55such as receipts56 or
other documentary proof.
Only the testimony of Aligada was presented to
substantiate petitioners' claim for unrealized
profits.57 Aligada testified that as a result of the
cancellation of the contract, Victorino had to
suspend transactions with his Japanese supplier
for six (6) months. Aligada stated that the volume
of Victorino's business with Subic Naval Base also
diminished significantly. Aligada approximated
that Victorino's unrealized business opportunities
amounted to P400,000.00.58 Being a witness for
Victorino's heirs and standing to gain from the
contract's fulfillment, Aligada's testimony is selfserving. It is also hearsay. We fail to see how this
"evidence" proves actual damages with a
"reasonable degree of certainty."59 If proof is
"flimsy", we cannot award actual damages.60
WHEREFORE, we AFFIRM the decision of the Court
of Appeals promulgated on October 11, 1995, in
CA-G. R. CV No. 34952, dismissing the
complaint.1wphi1.nt

62

SO ORDERED.

Page

No costs.

G.R. No. 144474

April 27, 2007

SAMAR II ELECTRIC COOPERATIVE, INC., and

BALTAZAR
DACULA, Petitioners,
vs.
ESTRELLA QUIJANO, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
By
way
of
a
Petition
for
Review
on Certiorari under Rule 45 of the Rules of Court,
petitioners Samar Electric Cooperative, Inc.
(SAMELCO) and Baltazar Dacula (Dacula) assail
the September 7, 1999 Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 32035, 2 which
affirmed in toto the January 15, 1991 Decision of
the Regional Trial Court (RTC), and the July 17,
2000 CA Resolution3 which denied petitioners'
Motion for Reconsideration.
The facts which are not disputed are summarized
below.
SAMELCO observed the reduction by more or less
50% in the electric consumption from April 1983
to March 1984 of one of its customers, spouses
Norberto and Estrella Quijano, as registered in
their electric meter.4
On May 14, 1984, SAMELCO sent an inspection
team, headed by Dacula, to the residence of the
Spouses Quijano. Upon inspection of the electric
meter, the team found that it no longer had the
three meter seals previously attached to it and
the rotating disc was adjusted upward causing it
to stop intermittently.5 The inspection team then

ARTICLE 1170

The following day, the Spouses Quijano requested

SAMELCO to restore their electric service but
SAMELCO required them to pay penalty charges
for allegedly tampering with the electric meter.
The Spouses Quijano refused to pay, insisting
that their electric meter was not tampered with.
Instead, they filed a Complaint 6 for Damages with
the RTC against SAMELCO and Dacula. The latter
filed a Motion to Dismiss7 on the ground that the
complaint involves an intra-corporate dispute
between SAMELCO as an electric cooperative and
Spouses Quijano as its members and that
jurisdiction over it is vested in the Securities and
Exchange Commission. The RTC denied the
motion in an Order8 dated November 9, 1984.
After trial, the RTC rendered a Decision dated
January 15, 1991, holding SAMELCO and Dacula
solidarily liable for damages, thus:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiffs and
against the defendants, ordering the latter to
comply with the following, to wit:
1. to pay plaintiffs solidarily the amount of five
thousand (P5,000.00) pesos for actual damages;
twenty thousand (P20,000.00) pesos for moral
damages; five thousand (P5,000.00) pesos for
exemplary
damages;
and
five
thousand
(P5,000.00) pesos for attorney's fees plus two
thousand
(P2,000.00)
pesos
for
litigation
expenses; and
2. to return and reconnect the electric meter of
the plaintiff to its original installation immediately
upon request of the plaintiffs.
SO ORDERED.9
SAMELCO and Dacula appealed10 but were
rebuffed by the CA in the September 7, 1999
Decision assailed herein. Their Motion for
Reconsideration11 was also denied by the CA in its
July 17, 2000 Resolution.
SAMELCO and Dacula (petitioners) took the
present recourse to have the September 7, 1999
CA Decision and January 15, 1991 RTC Decision
reversed on the following grounds:

ARTICLE 1170

63
Page

removed the device and disconnected the

spouses' electric service. The Spouses Quijano
were not at home when all these happened; only
their seventeen-year old daughter, Jenny Quijano,
was around.

A. The trial court and the Honorable Court of

Appeals committed an error of law in their
interpretation and application of Articles 19 and
21 of the Civil Code.
1. SAMELCO II was not primarily motivated by
hatred or desire to cause damage or prejudice
upon herein respondent and her family but rather
by its desire to save itself from financial
destruction by eliminating, if not minimizing,
pilferage of electricity.
2. There was sufficient factual basis for SAMELCO
II to inspect its own electric meter installed at the
store and residence of herein respondent.
3. Herein petitioners' inspection of the electric
meter
and
the
electric
appliances
and
contrivances inside the store and residence of
herein respondent was practically with prior
authority from the latter.
4. The inspection of the electric meter and of
herein respondents' appliances, lamps and other
electrical gadgets, as well as the removal of the
meter, were not done in wanton and high-handed
manner. No "abuse of right" was ever committed
by herein petitioners.
B. The Honorable Court of Appeals erred in not
dismissing the complaint of herein respondent on
the ground of lack of jurisdiction.12
We will address the jurisdictional issue ahead of
the substantive ones.
There has been quite a number of cases where
we recognized the original jurisdiction of the RTC
over actions for damages or injunction arising
from the arbitrary disconnection of electrical
services.13 The case most akin to the present
petition is Sps. Quisumbing v. Meralco14 where the
Court sustained with modification the RTC and CA
decisions which awarded damages to the spouses
Quisumbing for the arbitrary manner in which
Meralco disconnected their electric service.
Petitioners, nonetheless, reiterate the arguments
in their Motion for Reconsideration with the CA
that, as respondents are its members-consumers,
their complaint falls within the jurisdiction of the
NEA based on Sections 10, 35 and 46 of
Presidential Decree (P.D.) No. 269.15
This Court is not persuaded. No such adjudicatory
power is vested by P.D. No. 269 in NEA.

If the electric cooperative concerned or other

similar entity fails after due notice to comply with
NEA orders, rules and regulations and/or
decisions, or with any of the terms of the Loan
Agreement, the NEA Board of Administrators may
avail of any or all of the following remedies:
(a) Refuse to make or approve any loan to the
borrower or to release funds to implement loans
that are otherwise already approved;
(b) Withhold NEA advances, or withhold approval
of advances or fund releases in behalf of any
other lender with respect to which the NEA has
such power relative to loans made;
(c) Withhold any technical or professional
assistance otherwise being furnished or that
might be furnished to the borrower;
(d) Foreclose any mortgage or deed of trust or
other security hold by the NEA on the properties
of such borrower, in connection with which the
NEA may subject to any superior or co-equal
rights in such lien held by any other lender, (1)
bid for and purchase or otherwise acquire such
properties; (2) pay the purchase price thereof and
any costs and expenses incurred in connection
therewith out of the revolving fund; (3) accept
title to such properties in the name of the
Republic of the Philippines; and (4) even prior to
the institution of foreclosure proceedings, operate
or lease such properties for such period, and in
such manner as may be deemed necessary or
advisable to protect the investment therein,
including the improvement, maintenance and
rehabilitation of systems to be foreclosed, but the
NEA may, within five years after acquiring such
properties in foreclosure proceedings, sell the
same for such consideration as it determines to
be reasonable and upon such terms and

ARTICLE 1170

64

Sec. 10. Enforcement Powers and Remedies. - In

the exercise of its power of supervision and
control over electric cooperatives and other
borrower, supervised or controlled entities, the
NEA is empowered to issue orders, rules and
regulations and motu propio or upon petition of
third parties, to conduct investigations, referenda
and other similar actions in all matters
affecting said electric cooperatives and other
borrower, or supervised or controlled entities.

conditions as it determines most conducive to the

achievement of the purposes of this Decree; or

Page

Petitioners relied only on the first paragraph of

Section 10 of P.D. No. 269 (as amended by P.D.
No. 1645) the full text of which reads:

(e) Take preventive and/or disciplinary measures

including suspension and/or removal and
replacement of any or all of the members of the
Board of Directors, officers or employees of the
Cooperative, other borrower institutions or
supervised or controlled entities as the NEA Board
of Administrators may deem fit and necessary
and to take any other remedial measures as the
law or the Loan Agreement may provide.
No Cooperative shall borrow money from any
source without the Board of Administrator's prior
approval: Provided, That the NEA Board of
Administrators, may, by appropriate rule or
regulation,
grant
general
permission
to
Cooperative to secure short-term loans not
requiring the encumbrance of their real
properties or of a substantial portion of their
other properties or assets.
It is a fundamental rule in statutory construction
that the clauses, phrases, sections and provisions
of a law be read as a whole; never as disjointed
or truncated parts,16 for a law is enacted as a
single entity and not by installment of paragraphs
here and subsections there.17 Applying this rule to
Section 10, its opening paragraph must be read
in relation to the succeeding subsections. The
phrase in the opening paragraph ostensibly
vesting in the NEA jurisdiction over "all matters"
involving electric cooperatives actually pertain to
the subjects covered in the succeeding
subsections such as the organization of electric
cooperatives,18 rate fixing,19 loan agreements and
fund
management.
This
is
a
rational
understanding of Section 10 for, as specified in
the preamble of the law, the primary purpose of
the NEA is to ensure total electrification through
the administration of funds for the establishment
and operation of electric cooperatives.
Petitioners' reliance on Section 35 of P.D. No. 269
is likewise misplaced. The provision reads:
Section 35. Non-profit, Non-discriminatory, Area
Coverage Operation and Service. A cooperative
shall be operated on a non-profit basis for the
mutual benefit of its members and patrons;
shall, as to rates and services make or grant
no unreasonable preference or advantage
to any member or patron nor subject any
member or patron to any unreasonable
prejudice or disadvantage; shall not establish
or maintain any unreasonable difference as to

The by-laws of a cooperative or its contracts with

members and patrons shall contain such
reasonable terms and conditions respecting
membership, the furnishing of service and the
disposition of revenues and receipts as may be
necessary and appropriate to establish and
maintain its non-profit, cooperative character and
to ensure compliance with this section. No bona
fide applicant for membership on non-member
patronage who is able and willing to satisfy and
abide by all such terms and conditions shall be
denied arbitrarily, capriciously or without good
cause. (Emphasis supplied)
Section 35 merely declares discriminatory
practices regarding rate fixing and delivery of
services as contrary to public policy. Arbitrary
service
disconnection per
se is
not
a
discriminatory practice unless it is alleged and
established that the party prejudiced by the
disconnection was purposely singled out or
differentiated against. There is no allegation nor
proof by the Spouses Quijano (respondents) that
there was a purposeful discriminatory design by
petitioners in depriving them of electric service.
By no stretch of the imagination may Section 10
be construed to vest in the NEA jurisdiction to
resolve claims for damages arising from arbitrary
service disconnection.
Section 46 of P. D. No. 269 which provides:
Section 46. Additional Regulation of Cooperatives
by the NEA. In addition to the other ways in which
cooperatives are subject to regulation by the NEA
as provided in this Decree, the NEA, on its own
motion or upon complaint but only after affording
opportunity for hearing to all interested parties, is

ARTICLE 1170

65
Page

rates or services either as between localities or as

between classes of service; shall not give, pay or
receive any rebate or bonus, directly or indirectly,
or mislead its members in any manner as to rates
charged for its services; and shall furnish service
on an area coverage basis; Provided, That for any
extension of service which if treated on the basis
of standard terms and conditions is so costly as to
jeopardize the financial feasibility of the
cooperative's entire operation, the cooperative
may require such contribution in aid of
construction, such facilities extension deposit,
such guarantee of minimum usage for a minimum
term or such other reasonable commitment on
the part of the person to be served as may be
necessary and appropriate to remove such
jeopardy, but no difference in standard rates for
use of service shall be imposed for such purpose.

empowered to and shall (1) require a cooperative

to extend or improve service upon the NEA's
determination that such should be done in
furtherance of the purposes of this Decree and
that such may reasonably be done without undue
impairment of the feasibility of the cooperative's
operation and financial condition; and (2) require
a cooperative to cease and correct any practice
or act which the NEA determines to be in violation
of the provisions of Section 35, and in connection
with such authority it may require a cooperative
to file with the NEA, and to make accessible to
any person upon request therefore, copies of all
rates, charges, contract forms, fee or deposit
schedules, by-laws, and service rules and
regulations.
is also inapplicable. It empowers the NEA to
compel electric cooperatives to "extend or
improve service" in furtherance of the purposes
of P.D. No. 269. There is nothing in this provision,
however, granting the NEA authority to hold an
electric cooperative liable for damages arising
from its arbitrary disconnection of electrical
services to a member or to order said electric
cooperative to re-connect such services.
To recapitulate, while P.D. No. 269 appoints the
NEA as overseer of electric cooperatives, its
supervision is limited to matters concerning
loans, rate fixing and service improvement, but
does not include adjudication of claims for
damages against electric cooperatives arising
from such acts as the arbitrary disconnection of
electrical services to a member. It is axiomatic
that jurisdiction is determined by the allegations
in the complaint and its annexes.20 There is no
allegation therein of matters involving the
organization of electric cooperatives, rate fixing,
loan agreement and fund management which
would bring the case within the operation of
Section 10; neither is there an averment of a
discriminatory practice in rate fixing or service
distribution, which would make Section 35
applicable; nor protest against service failure as
would subject the complaint to Section 46.
Instead, it is expressly stated in respondents'
complaint that their action is for recovery of
damages for mental anguish, social humiliation
and moral shock arising from the disconnection of
their electric service by petitioners, 21 which action
is cognizable by the regular courts, such as the
RTC.22

The RTC held petitioners liable for damages to

respondents Spouses Quijano based on the
finding that the inspection, removal and
recalibration of the latter's electric meter and the
disconnection of their electric service were all
done
without
their
consent
or
presence.23 Concurring with this finding of the
RTC, the CA held that the lack of consent to and
presence of respondents in the whole process
rendered whatever evidence petitioners may
have gathered in the course thereof entirely
dubious. The CA aptly explained:
Despite these, appellants still did not observe
restraint in their actions as clearly shown by the
evidence on record. Having resolved to
disconnect the subject meter and to confirm that
it was tampered, the inspection team should have
formally notified the appellees that their meter
was disconnected due to suspicion of tampering
and altogether require them to be present when
the meter would be calibrated at SAMELCO's
meter laboratory. They did not. Even worse, the
appellants proceeded to calibrate the meter in
the absence of and without notice to the
appellees or their representatives (T.S.N., January
14, 1987, p. 16). That smells bad faith. Instead of
giving the appellees fair notice and warning, and
affording them a reasonable opportunity to
challenge the veracity of the alleged tampering,
appellants had effectively left the Quijanos with
the bleak alternative of either accepting the
cooperative's finding as the gospel truth or suffer
the possibility of living an uncomfortable life
without electricity. It goes without saying that
whimsical and capricious acts such as the one
perpetrated by the appellants is violative of the
due process and frowned upon by the morals and
good customs of every civilized society. In this
jurisdiction, such act could neither be condoned
nor tolerated.
Ironically, appellants had every opportunity to
present evidence within their control to establish
that they had given the appellees ample notice
and an adequate opportunity to ascertain the
truthfulness of their findings. Yet, aside from their
bare declarations which We find to be selfserving, no such credible evidence was proffered.
For this reason, there are not enough evidence
submitted to overturn the lower court's finding of
bad faith thus, appellants must necessarily suffer

ARTICLE 1170

66
Page

This brings us to the principal issue of whether

the CA erred in sustaining the January 15, 1991
Decision of the RTC.

the consequences of their own inaction and

indifference.24
We agree with the CA.
Electricity is property25 the enjoyment of which
the provider, such as an electric cooperative like
Samelco,
may
extend
or
deny
to
others.26 However, electricity is not just any
property, and an electric cooperative is not just
any property owner. Electricity is a basic
necessity the generation and distribution of which
is imbued with public interest, and its provider is
a public utility subject to strict regulation by the
State in the exercise of police power. 27Failure to
comply with these regulations will give rise to the
presumption of bad faith or abuse of right.28
Against
electricity
pilferage,
an
electric
cooperative is allowed certain measures of selfpreservation. The present law, Republic Act (R.A.)
No. 783229 (as amended by Republic Act No.
9136), allows electric cooperatives multiple
remedies consisting of immediate disconnection
of
the
electric
service
of
the
erring
consumer,30 criminal
prosecution,31 and
the
imposition of surcharges.32
Prior to R.A. No. 7832, however, the remedies
available to electric cooperatives were limited.
Under Presidential Decree No. 40133 (P.D. No.
401), the remedies available to it were merely the
conduct of inspections of electric meters and the
criminal prosecution of those erring consumers
who were found to have tampered with their
electric meters, thus:
Section 1. Any person who installs any water,
electrical, telephone or piped gas connection
without previous authority from the Metropolitan
Waterworks and Sewerage System, the Manila
Electric Company, the Philippine Long Distance
Telephone Company, or the Manila Gas
Corporation, as the case may be, tampers and/or
uses tampered water, electrical or gas meters,
jumpers or other devices whereby water,
electricity or piped gas is stolen; steals or pilfers
water, electric or piped gas meters, or water,
electric and/or telephone wires, or piped gas
pipes or conduits; knowingly possesses stolen or
pilfered water, electrical or gas meters as well as
stolen or pilfered water, electrical and/or
telephone wires, or piped gas pipes and conduits,
shall, upon conviction, be punished with prision
correccional in its minimum period or a fine
ranging from two thousand to six thousand pesos,
or both.

However, recourse to the remedy of differential

billing with disconnection was subject to strict
regulation,35specifically under Sections 96 and 97
of Revised General Order No. 1, which provide:
Sec. 96. Refusal or discontinuance of service. - A
public service shall not refuse or discontinue
service to an applicant, or customer, who is not in
arrears to the public service, even though there
are unpaid charges due from the premises
occupied by applicant, or customer, on account of
unpaid bill of a prior tenant, unless there is
evidence of conspiracy between them to defraud
public service.
Sec. 97. Payment of bills. - A public service may
require that bills for service be paid within a
specified time after rendition. When the billing
period covers a month or more, the minimum
time allowed will be ten days and upon expiration
of the specified time, service may be
discontinued for the non-payment of bills,
provided that a 48-hours' written notice of such
disconnection has been given the customer;
Provided, however, That disconnections of service
shall not be made on Sundays and official
holidays and never after 2 p.m., or any working
day; Provided, further, that if at the moment the
disconnection is to be made the customer
tenders payment of the unpaid bill to the agent or
employee of the operator who is to effect the
disconnection, the said agent or employee shall
be obliged to accept tendered payment and issue
a temporary receipt for the amount and shall
desist from disconnecting the service.
Significantly, electric cooperatives were not
permitted to resort to outright disconnection
without prior recourse to differential billing with
notice.

ARTICLE 1170

67
Page

P.D. No. 401 did not expressly provide for more

expedient remedies such as the charging of
differential billing and immediate disconnection
against
erring
consumers.
Thus,
electric
cooperatives found a creative way of availing of
such remedies by inserting into their service
contracts a provision for differential billing with
option of disconnection upon non-payment by the
erring consumer. The Court has recognized the
validity of such stipulations.34

The law in force at the time of the disconnection

complained of in this case is P.D. No. 401. Hence,
the requirements under said law are applicable to
this case, specifically that disconnection be
resorted to only after notice of differential billing
as provided under Sections 96 and 97 above.
There is no question that herein petitioners
resorted to disconnection without prior recourse
to charging respondents differential billing and
affording the latter opportunity to settle the
same. This arbitrary action of petitioners
rendered them in bad faith.
Moreover, as found by the CA and RTC,
petitioners disconnected the electric meter of
respondents without notice to the latter.
Petitioners did not controvert these findings
except to point out that respondents' minor
daughter was around and that Norberto Quijano
was advised of the disconnection. 36 The presence
of respondents' daughter did not excuse
petitioners from notifying respondents prior to the
disconnection. The advise to Norberto Quijano
was also belated for it was given only after the
fact of disconnection. The purpose of the notice
requirement is to afford electric consumers
opportunity to witness the inspection and protect
themselves
from
contrived
discovery
of
tampering. They must also be allowed to dispute
any accusation of electricity pilferage. This
purpose is not served by allowing inspection
teams to swoop down on unsuspecting
consumers.
In fine, petitioners abused the remedies available
to them under P.D. No. 401 and Revised General
Order No. 1 by outrightly depriving respondents
of electrical services, without first notifying the
latter of any differential billing or informing them
that
their
electrical
services
would
be
disconnected should they fail to settle their
account. The CA, therefore, did not err in
affirming the RTC.
WHEREFORE, the petition is DENIED. The
September 7, 1999 Decision of the Court of
Appeals is AFFIRMED.
Costs against petitioners.
SO ORDERED.

68
Page

RADIO
COMMUNICATIONS
OF
THE
PHILIPPINES,
INC.
(RCPI),Petitioner,
vs.
ALFONSO
VERCHEZ,
GRACE
VERCHEZINFANTE, MARDONIO INFANTE, ZENAIDA
VERCHEZ-CATIBOG,
AND
FORTUNATO
CATIBOG, Respondents.
DECISION
CARPIO MORALES, J.:
On January 21, 1991, Editha Hebron Verchez
(Editha) was confined at the Sorsogon Provincial
Hospital due to an ailment. On even date, her
daughter
Grace
Verchez-Infante
(Grace)
immediately hied to the Sorsogon Branch of the
Radio Communications of the Philippines, Inc.
(RCPI) whose services she engaged to send a
telegram to her sister Zenaida Verchez-Catibog
(Zenaida) who was residing at 18 Legal St., GSIS
Village, Quezon City1reading: "Send check money
Mommy hospital." For RCPIs services, Grace
paid P10.502 for which she was issued a receipt.3
As three days after RCPI was engaged to send the
telegram to Zenaida no response was received
from her, Grace sent a letter to Zenaida, this time
thru JRS Delivery Service, reprimanding her for
not sending any financial aid.
Immediately after she received Graces letter,
Zenaida, along with her husband Fortunato
Catibog, left on January 26, 1991 for Sorsogon.
On her arrival at Sorsogon, she disclaimed having
received any telegram.
In the meantime, Zenaida and her husband,
together with her mother Editha left for Quezon
City on January 28, 1991 and brought Editha to
the Veterans Memorial Hospital in Quezon City
where she was confined from January 30, 1991 to
March 21, 1991.
The telegram was finally delivered to Zenaida 25
days later or on February 15, 1991. 4 On inquiry
from RCPI why it took that long to deliver it, a
messenger of RCPI replied that he had nothing to
do with the delivery thereof as it was another
messenger who previously was assigned to
deliver the same but the address could not be
located, hence, the telegram was resent on
February 2, 1991, and the second messenger
finally found the address on February 15, 1991.

G.R. No. 164349

ARTICLE 1170

January 31, 2006

Edithas husband Alfonso Verchez (Verchez), by

letter of March 5, 1991, 5 demanded an
explanation from the manager of the Service

Our internal message monitoring led to the

discovery of
the above. Thus,
a repeat
transmission was made and subsequent delivery
was effected. (Underscoring supplied)
Verchezs
lawyer thereupon
wrote
RCPIs
manager Fabian, by letter of July 23,
1991,7 requesting for a conference on a specified
date and time, but no representative of RCPI
showed up at said date and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his
daughters Grace and Zenaida and their
respective spouses, filed a complaint against RCPI
before the Regional Trial Court (RTC) of Sorsogon
for damages. In their complaint, the plaintiffs
alleged that, inter alia, the delay in delivering the
telegram contributed to the early demise of the
late Editha to their damage and prejudice, 8 for
which they prayed for the award of moral and
exemplary damages9and attorneys fees.10
After its motion to dismiss the complaint for
improper venue11 was denied12 by Branch 5 of the
RTC of Sorsogon, RCPI filed its answer, alleging
that except with respect to Grace, 13 the other
plaintiffs had no privity of contract with it; any
delay in the sending of the telegram was due
to force majeure, "specifically, but not limited to,
radio noise and interferences which adversely
affected the transmission and/or reception of the
telegraphic message";14 the clause in the
Telegram Transmission Form signed by Grace
absolved it from liability for any damage arising
from the transmission other than the refund of
telegram tolls;15 it observed due diligence in the
selection and supervision of its employees; and at

ARTICLE 1170

69

Our investigation on this matter disclosed that

subject telegram was duly processed in
accordance
with
our
standard
operating
procedure.
However,
delivery
was
not
immediately effected due to the occurrence of
circumstances which were beyond the control and
foresight of RCPI. Among others, during the
transmission process, the radio link connecting
the
points
of
communication
involved
encountered radio noise and interferences such
that
subject
telegram
did
not
initially
registered (sic) in
the
receiving
teleprinter
machine.

all events, any cause of action had been barred

by laches.16

Page

Quality Control Department of the RCPI, Mrs.

Lorna D. Fabian, who replied, by letter of March
13, 1991,6 as follows:

The trial court, observing that "although the

delayed delivery of the questioned telegram was
not apparently the proximate cause of the death
of Editha," ruled out the presence of force
majeure. Respecting the clause in the telegram
relied upon by RCPI, the trial court held that it
partakes of the nature of a contract of adhesion.
Finding that the nature of RCPIs business
obligated it to dispatch the telegram to the
addressee at the earliest possible time but that it
did not in view of the negligence of its employees
to repair its radio transmitter and the
concomitant delay in delivering the telegram on
time, the trial court, upon the following provisions
of the Civil Code, to wit:
Article 2176 Whoever by act or omission causes
damage to another, there being at fault or
negligence, is obliged to pay for the damage
done. Such fault or negligence if there is no preexisting contractual relation between the parties,
is called quasi-delict and is governed by the
provisions of this Chapter.
Article 1173 defines the fault of (sic) negligence
of the obligor as the "omission of the diligence
which is required by the nature of the obligation
and corresponds with the circumstances of the
person, of the time, or the place."
In the instant case, the obligation of the
defendant to deliver the telegram to the
addressee is of an urgent nature. Its essence is
the early delivery of the telegram to the
concerned person. Yet, due to the negligence of
its employees, the defendant failed to discharge
of its obligation on time making it liable for
damages under Article 2176.
The negligence on the part of the employees
gives rise to the presumption of negligence on
the part of the employer.17 (Underscoring
supplied),
rendered judgment against RCPI. Accordingly, it
disposed:
WHEREFORE, in the light of the foregoing
premises, judgment is hereby rendered in favor of
the plaintiffs and against the defendant, to wit:
Ordering the defendant to pay the plaintiffs the
following amount:

1. The amount of One Hundred Thousand

(P100,000.00) Pesos as moral damages;

70

2. The amount of Twenty Thousand (P20,000.00)

Pesos as attorneys fees; and

Page

3. To pay the costs.

SO ORDERED.18
On appeal, the Court of Appeals, by Decision of
February 27, 2004,19 affirmed the trial courts
decision.
Hence, RCPIs present petition for review on
certiorari, it raising the following questions: (1) "Is
the award of moral damages proper even if the
trial court found that there was no direct
connection between the injury and the alleged
negligent acts?"20 and (2) "Are the stipulations in
the Telegram Transmission Form, in the nature
"contracts of adhesion" (sic)?21
RCPI insists that respondents failed to prove any
causal connection between its delay in
transmitting the telegram and Edithas death.22
RCPIs stand fails. It bears noting that its liability
is anchored on culpa contractual or breach of
contract with regard to Grace, and on tort with
regard to her co-plaintiffs-herein-co-respondents.
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.
(Underscoring supplied)
Passing on
explained:

this

codal

provision,

this

Court

In culpa contractual x x x the mere proof of the

existence of the contract and the failure of its
compliance justify,prima facie, a corresponding
right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be
set free from liability for any kind of
misperformance of the contractual undertaking or
a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party
a valid cause for recovering that which may have
been lost or suffered. The remedy serves to
preserve the interests of the promissee that may
include his "expectation interest," which is his
interest in having the benefit of his bargain by
being put in as good a position as he would have
been in had the contract been performed, or

ARTICLE 1170

his "reliance interest," which is his interest in

being reimbursed for loss caused by reliance on
the contract by being put in as good a position as
he would have been in had the contract not been
made; or his "restitution interest," which is his
interest in having restored to him any benefit that
he has conferred on the other party. Indeed,
agreements can accomplish little, either for their
makers or for society, unless they are made the
basis for action. The effect of every infraction is
to create a new duty, that is, to make
recompense to the one who has been injured by
the failure of another to observe his contractual
obligation unless he can show extenuating
circumstances, like proof of his exercise of
due diligence x x x or of the attendance of
fortuitous event, to excuse him from his
ensuing liability.23(Emphasis and underscoring
supplied)
In the case at bar, RCPI bound itself to deliver the
telegram within the shortest possible time. It took
25 days, however, for RCPI to deliver it.
RCPI invokes force majeure, specifically, the
alleged radio noise and interferences which
adversely affected the transmission and/or
reception
of
the
telegraphic
message.
Additionally, its messenger claimed he could not
locate the address of Zenaida and it was only on
the third attempt that he was able to deliver the
telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has
committed no negligence or misconduct that
may have occasioned the loss. An act of God
cannot be invoked to protect a person who has
failed to take steps to forestall the possible
adverse consequences of such a loss. Ones
negligence may have concurred with an act of
God in producing damage and injury to another;
nonetheless, showing that the immediate or
proximate cause of the damage or injury was a
fortuitous event would not exempt one from
liability. When the effect is found to be partly
the result of a persons participation
whether by active intervention, neglect or
failure to act the whole occurrence is
humanized and removed from the rules
applicable to acts of God.
xxxx
Article 1174 of the Civil Code states that no
person shall be responsible for a fortuitous event

Assuming arguendo that fortuitous circumstances

prevented RCPI from delivering the telegram at
the soonest possible time, it should have at least
informed Grace of the non-transmission and the
non-delivery so that she could have taken steps
to remedy the situation. But it did not. There lies
the fault or negligence.
In an earlier case also involving RCPI, this Court
held:
Considering the public utility of RCPIs business
and its contractual obligation to transmit
messages, it should exercise due diligence to
ascertain that messages are delivered to the
persons at the given address and shouldprovide a
system whereby in cases of undelivered
messages the sender is given notice of nondelivery. Messages sent by cable or wireless
means are
usually more
important and urgent than those which can
wait for the mail.25

71
Page

that could not be foreseen or, though foreseen,

was inevitable. In other words, there must be
an exclusion of human intervention from
the cause of injury or loss.24 (Emphasis and
underscoring supplied)

clearing period of 5 days before it may be

encashed or withdrawn. If the transmittal of the
requested check to Sorsogon took 1 day private
respondents could therefore still wait for 6 days
before the same may be withdrawn. Requesting a
check that would take 6 days before it could be
withdrawn therefore contradicts plaintiffs claim
of urgency or need.28
At any rate, any sense of urgency of the situation
was met when Grace Verchez was able to
communicate to Manila via a letter that she sent
to the same addressee in Manila thru JRS.29
xxxx
As far as the respondent courts award for moral
damages is concerned, the same has no
basis whatsoever
since
private
respondent Alfonso Verchez did not accompany
his late wife when the latter went to Manila by
bus. He stayed behind in Sorsogon for almost 1
week before he proceeded to Manila. 30
When pressed on cross-examination, private
respondent Alfonso Verchez could not give any
plausible reason as to the reason why he did not
accompany his ailing wife to Manila.31

xxxx

xxxx

People depend
on
telecommunications
companies in times of deep emotional
stress or pressing financial needs. Knowing
that messages about the illnesses or deaths of
loved ones, births or marriages in a family,
important business transactions, and notices of
conferences or meetings as in this case, are
coursed through the petitioner and similar
corporations, it is incumbent upon them to
exercise a greater amount of care and
concern than that shown in this case. Every
reasonable effort to inform senders of the nondelivery of messages should be undertaken.26

It is also important to consider in resolving

private respondents claim for moral damages
that private respondent Grace Verchez did not
accompany her ailing mother to Manila.32

(Emphasis and underscoring supplied)

RCPI argues, however, against the presence of
urgency in the delivery of the telegram, as well as
the basis for the award of moral damages, thus:27
The request to send check as written in the
telegraphic text negates the existence of
urgency that private respondents allegations
that time was of the essence imports. A check
drawn against a Manila Bank and transmitted to
Sorsogon, Sorsogon will have to be deposited in a
bank in Sorsogon and pass thru a minimum

ARTICLE 1170

xxxx
It is the common reaction of a husband to be at
his ailing wifes side as much as possible. The fact
that private respondent Alfonso Verchez stayed
behind in Sorsogon for almost 1 week
convincingly demonstrates that he himself knew
that his wife was not in critical condition.33
(Emphasis and underscoring supplied)
RCPIs arguments fail. For it is its breach of
contract upon which its liability is, it bears
repeating, anchored. Since RCPI breached its
contract, the presumption is that it was at fault or
negligent. It, however, failed to rebut this
presumption.
For breach of contract then, RCPI is liable to
Grace for damages.

Whoever by act or omission causes damage to

another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual
relation between the parties, is called a quasidelict and is governed by the provisions of this
Chapter. (Underscoring supplied)
RCPIs liability as an employer could of course be
avoided if it could prove that it observed the
diligence of a good father of a family to prevent
damage. Article 2180 of the Civil Code so
provides:
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.
xxxx
The owners and managers of an establishment or
enterprise are likewise responsible for damages
caused by their employees in the service of the
branches in which the latter are employed or on
the occasion of their functions.
Employers shall be liable for the damages caused
by their employees and household helpers acting
within the scope of their assigned tasks, even
though the former are not engaged in any
business or industry.
xxxx
The responsibility treated of in this article
shall cease when the persons herein mentioned
prove that they observed all the diligence of a
good father of a family to prevent damage.
(Underscoring supplied)
RCPI failed, however, to prove that it observed all
the diligence of a good father of a family to
prevent damage.
Respecting the assailed award of moral damages,
a determination of the presence of the following
requisites to justify the award is in order:
x x x firstly, evidence of besmirched reputation or
physical, mental or psychological suffering
sustained by the claimant; secondly, a culpable
act or omission factually established; thirdly,
proof that the wrongful act or omission of the
defendant is the proximate cause of damages

ARTICLE 1170

72
Page

And for quasi-delict, RCPI is liable to Graces corespondents following Article 2176 of the Civil
Code which provides:

sustained by the claimant; and fourthly, that the

case is predicated on any of the instances
expressed or envisioned by Article 2219 and
Article 2220 of the Civil Code.34
Respecting the first requisite, evidence of
suffering by the plaintiffs-herein respondents was
correctly appreciated by the CA in this wise:
The failure of RCPI to deliver the telegram
containing the message of appellees on time,
disturbed their filial tranquillity. Family members
blamed each other for failing to respond swiftly to
an emergency that involved the life of the late
Mrs. Verchez, who suffered from diabetes.35
As reflected in the foregoing discussions, the
second and third requisites are present.
On the fourth requisite, Article 2220 of the Civil
Code provides:
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. (Emphasis and underscoring supplied)
After RCPIs first attempt to deliver the telegram
failed, it did not inform Grace of the non-delivery
thereof and waited for 12 days before trying to
deliver it again, knowing as it should know
that time is of the essence in the delivery of
telegrams. When its second long-delayed attempt
to deliver the telegram again failed, it, again,
waited for another 12 days before making a third
attempt. Such nonchalance in performing its
urgent obligation indicates gross negligence
amounting to bad faith. The fourth requisite is
thus also present.
In applying the above-quoted Article 2220, this
Court has awarded moral damages in cases of
breach of contract where the defendant was
guilty of gross negligence amounting to bad faith,
or in wanton disregard of his contractual
obligation.36
As for RCPIs tort-based liability, Article 2219 of
the Civil Code provides:
Moral damages may be recovered in the following
and analogous cases:
xxxx

Article 26 of the Civil Code, in turn, provides:

Every person
shall
respect the
dignity,
personality, privacy and peace of mind of his
neighbors and other persons. The following and
similar acts, though they may not constitute a
criminal offense, shall produce a cause of action
for damages, prevention, and other relief:
xxxx
(2) Meddling with or disturbing the private life
or family
relations of
another.
(Emphasis
supplied)
RCPIs negligence in not promptly performing its
obligation undoubtedly disturbed the peace of
mind not only of Grace but also her corespondents. As observed by the appellate court,
it disrupted the "filial tranquillity" among them as
they blamed each other "for failing to respond
swiftly to an emergency." The tortious acts and/or
omissions complained of in this case are,
therefore, analogous to acts mentioned under
Article 26 of the Civil Code, which are among the
instances of quasi-delict when courts may award
moral damages under Article 2219 of the Civil
Code.
In fine, the award to the plaintiffs-herein
respondents of moral damages is in order, as is
the award of attorneys fees, respondents having
been compelled to litigate to protect their rights.
Clutching at straws, RCPI insists that the limited
liability clause in the "Telegram Transmission
Form" is not a contract of adhesion. Thus it
argues:

73
Page

(10) Acts and actions referred to in Articles

21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis
supplied)

Neither can the Telegram Transmission Form be

considered a contract of adhesion as held by the
respondent court. The said stipulations were
all written in bold letters right in front of the
Telegram Transmission Form. As a matter of fact
they were beside the space where the telegram
senders write their telegraphic messages. It
would have been different if the stipulations were
written at the back for surely there is no way the
sender will easily notice them. The fact that the
stipulations were located in a particular space
where they can easily be seen, is sufficient notice
to any sender (like Grace Verchez-Infante) where
she could manifest her disapproval, leave the
RCPI station and avail of the services of the other
telegram operators.37 (Underscoring supplied)
RCPI misunderstands the nature of a contract of
adhesion. Neither the readability of the
stipulations nor their physical location in the
contract determines whether it is one of
adhesion.
A contract of adhesion is defined as one in which
one of the parties imposes a ready-made form of
contract, which the other party may accept or
reject, but which the latter cannot modify. One
party prepares the stipulation in the contract,
while the other party merely affixes his signature
or his "adhesion" thereto, giving no room for
negotiation and depriving the latter of the
opportunity
to
bargain
on
equal
footing.38 (Emphasis and underscoring supplied)
While a contract of adhesion is not necessarily
void and unenforceable, since it is construed
strictly against the party who drafted it or gave
rise to any ambiguity therein, it is stricken down
as void and unenforceable or subversive of public
policy when the weaker party is imposed upon in
dealing with the dominant bargaining party and is
reduced to the alternative of taking it or leaving
it, completely deprived of the opportunity to
bargain on equal footing.39
This Court holds that the Court of Appeals finding
that the parties contract is one of adhesion
which is void is, given the facts and
circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the
challenged decision of the Court of Appeals
is AFFIRMED.
Costs against petitioner.
SO ORDERED.

ARTICLE 1170

74
Page

The Case
Before us is a Petition for Review under Rule 45 of
the Rules of Court, assailing the February 1, 2000
Decision1and the April 10, 2000 Resolution2 of the
Court of Appeals (CA) in CA-GR SP No. 49022. The
decretal portion of the said Decision reads as
follows:
"WHEREFORE, the challenged decision in Civil
Case No. Q-95-23219 is hereby SET ASIDE and
the
complaint
against
defendant-appellant
MERALCO
is
hereby DISMISSED.
Plaintiffsappellees
are
herebyORDERED to
pay
defendant-appellant MERALCO the differential
billing of P193,332.00 representing the value of
used but unregistered electrical consumption."3
The assailed Resolution
Motion for Reconsideration.

denied

petitioner's

The Facts
The facts of the case are summarized by the
Court of Appeals in this wise:
"Defendant-appellant Manila Electric Company
(MERALCO) is a private corporation, authorized by
law to charge all persons, including the
government, for the consumption of electric
power at rates duly authorized and approved by
the Board of Energy (now the Energy Regulatory
Board).

G.R. No. 142943

April 3, 2002

Spouses
ANTONIO
QUISUMBING, petitioners,
vs.
MANILA
ELECTRIC
(MERALCO), respondent.

and

LORNA

COMPANY

PANGANIBAN, J.:
Under the law, the Manila Electric Company
(Meralco) may immediately disconnect electric
service on the ground of alleged meter
tampering, but only if the discovery of the cause
is personally witnessed and attested to by an
officer of the law or by a duly authorized
representative of the Energy Regulatory Board.

ARTICLE 1170

"Plaintiffs-appellees Spouses Antonio and Lorna

Quisumbing are owners of a house and lot
located at No. 94 Greenmeadows Avenue, Quezon
City, which they bought on April 7, 1994 from Ms.
Carmina Serapio Santos. They alleged to be
business entrepreneurs engaged in the export of
furnitures under the business name 'Loran
Industries' and recipient of the 1993 Agora Award
and 1994 Golden Shell Award. Mrs. Quisumbing is
a member of the Innerwheel Club while Mr.
Quisumbing is a member of the Rotary Club,
Chairman of Cebu Chamber of Commerce, and
Director of Chamber of Furniture.
"On March 3, 1995 at around 9:00 a.m.,
defendant-appellant's inspectors headed by
Emmanuel C. Orlino were assigned to conduct a
routine-on-the-spot inspection of all single phase
meters at Greenmeadows Avenue. House no. 94
of Block 8, Lot 19 Greenmeadows Avenue owned
by plaintiffs-appellees was inspected after
observing a standard operating procedure of
asking permission from plaintiffs-appellees,
through their secretary which was granted. The

75
Page

secretary witnessed the inspection. After the

inspection,
defendant-appellant's
inspectors
discovered that the terminal seal of the meter
was missing; the meter cover seal was deformed;
the meter dials of the meter was mis-aligned and
there were scratches on the meter base plate.
Defendant-appellant's inspectors relayed the
matter to plaintiffs-appellees' secretary, who in
turn relayed the same to plaintiff-appellee, Lorna
Quisumbing, who was outraged of the result of
the inspection and denied liability as to the
tampering of the meter. Plaintiffs-appellees were
advised by defendant-appellant's inspectors that
they had to detach the meter and bring it to their
laboratory for verification/confirmation of their
findings. In the event the meter turned out to be
tampered,
defendant-appellant
had
to
temporarily disconnect the electric services of
plaintiffs-appellees.
The
laboratory
testing
conducted on the meter has the following
findings to wit:

electric service
complied.

which

the

latter

faithfully

"On March 6, 1995, plaintiffs-appellees filed a

complaint for damages with prayer for the
issuance of a writ of preliminary mandatory
injunction, despite the immediate reconnection,
to order defendant-appellant to furnish electricity
to the plaintiffs-appellees alleging that defendantappellant
acted
with
wanton,
capricious,
malicious
and
malevolent
manner
in
disconnecting their power supply which was done
without due process, and without due regard for
their rights, feelings, peace of mind, social and
business reputation.

'1. Terminal seal was missing.

"In its Answer, defendant-appellant admitted

disconnecting the electric service at the plaintiffsappellees' house but denied liability citing the
'Terms and Conditions of Service,' and Republic
Act No. 7832 otherwise known a 'Anti-Electricity
and
Electric
Transmission
Lines/Materials
Pilferage Act of 1994.'

'2. Lead cover seals ('90 ERB 1-Meralco 21) were

tampered by forcibly pulling out from the sealing
wire.

"After trial on the merits, the lower court

rendered judgment, ruling in favor of plaintiffsappellees."4(Citations omitted)

'3. The 1000th, 100th and 10th dial pointers of

the register were found out of alignment and with
circular scratches at the face of the register which
indicates that the meter had been opened to
manipulate the said dial pointers and set
manually to the desired reading. In addition to
this, the meter terminal blades were found full of
scratches.'

Ruling of the Trial Court

"After an hour, defendant-appellant's head

inspector, E. Orlina returned to the residence of
plaintiffs-appellees and informed them that the
meter had been tampered and unless they pay
the amount ofP178,875.01 representing the
differential billing, their electric supply would be
disconnected. Orlina informed plaintiffs-appellees
that they were just following their standard
operating procedure. Plaintiffs-appellees were
further advised that questions relative to the
results of the inspection as well as the
disconnection of her electrical services for
Violation of Contract (VOC) may be settled with
Mr. M. Manuson of the Special Accounts, Legal
Service Department. However, on the same day
at around 2:00 o'clock in the afternoon
defendant-appellant's officer through a two-way
radio instructed its service inspector headed by
Mr. Orlino to reconnect plaintiffs-appellees'

ARTICLE 1170

The trial court held that Meralco (herein

respondent) should have given the Quisumbing
spouses (herein petitioners) ample opportunity to
dispute the alleged meter tampering.
It held that respondent had acted summarily and
without procedural due process in immediately
disconnecting the electric service of petitioners.
Respondent's action, ruled the RTC, constituted
a quasi delict.
Ruling of the Court of Appeals
The Court of Appeals overturned the trial court's
ruling and dismissed the Complaint. It held that
respondent's representatives had acted in good
faith when they disconnected petitioners' electric
service. Citing testimonial and documentary
evidence, it ruled that the disconnection was
made only after observing due process. Further, it
noted that petitioners had not been able to prove
their claim for damages. The appellate court
likewise upheld respondent's counterclaim for the
billing
differential
in
the
amount
5
of P193,332 representing
the
value
of
petitioners' used but unregistered electrical
consumption, which had been established without
being controverted.

In their Memorandum,7 petitioners submit the

following issues for our consideration:
"4.1 Whether a prima facie presumption of
tampering of electrical meter enumerated under
Sec. 4 (a) iv of RA 7832 (Anti-Electricity and
Electric Transmission Lines/Materials Pilferage Act
of 1994) may be had despite the absence of an
ERB representative or an officer of the law?
"4.2 Whether the enumeration of instances to
establish a prima facie presumption of tampering
of electrical meter enumerated under Sec. 4 (a) iv
of RA 7832 (Anti-Electricity and Electric
Transmission Lines/Materials Pilferage Act of
1994) is exclusive?
"4.3
What
constitutes
notice
prior
to
disconnection of electricity service? Corollarily,
whether the definition of notice under Meralco v.
Court of Appeals (157 SCRA 243) applies to the
case at bar?
"4.4 Whether a prima facie presumption may
contradict logic?
"4.5 Whether documentary proof is pre-requisite
for award of damages?"8
In sum, this Petition raises three (3) main issues
which this Court will address: (1) whether
respondent observed the requisites of law when it
disconnected the electrical supply of petitioners,
(2)
whether
such
disconnection
entitled
petitioners to damages, and (3) whether
petitioners are liable for the billing differential
computed by respondent.
The Court's Ruling
The Petition is partly meritorious.
First Issue:
Compliance with Requisites of Law
Petitioners
contend
that
the
immediate
disconnection of electrical service was not validly
effected because of respondent's noncompliance
with the relevant provisions of RA 7832, the "AntiElectricity
and
Electric
Transmission
Lines/Materials Pilferage Act of 1994." They insist
that the immediate disconnection of electrical
supply may only be validly effected only when
there is prima facie evidence of its illegal use. To
constitute prima facie evidence, the discovery of

ARTICLE 1170

76

The Issues

Page

Hence, this Petition.6

the illegal use must be "personally witnessed and

attested to by an officer of the law or a duly
authorized
representative
of
the
Energy
Regulatory Board (ERB)."
Respondent, on the other hand, points out that
the issue raised by petitioners is a question of
fact which this Court cannot pass upon. It argues
further that this issue, which was not raised in the
court below, can no longer be taken up for the
first time on appeal. Assuming arguendo that the
issue was raised below, it also contends that
petitioners were not able to specifically prove the
absence of an officer of the law or a duly
authorized representative of the ERB when the
discovery was made.1wphi1.nt
Prima facie
Electricity

Evidence

of

Illegal

Use

of

We agree with petitioners. Section 4 of RA 7832

states:
(a) The presence of any of the following
circumstances
shall
constitute prima
facie evidence of illegal use of electricity, as
defined in this Act, by the person benefitted
thereby, and shall be the basis for: (1) the
immediate disconnection by the electric utility to
such person after due notice, x x x
xxx

xxx

xxx

(viii) x x x Provided, however, That the discovery

of any of the foregoing circumstances, in order to
constitute prima
facie evidence, must
be
personally witnessed and attested to by an
officer of the law or a duly authorized
representative of the Energy Regulatory Board
(ERB)."9 (Italics supplied)
Under the above provision, the prima facie
presumption that will authorize immediate
disconnection will arise only upon the satisfaction
of certain requisites. One of these requisites is
the personal witnessing and attestation by an
officer of the law or by an authorized ERB
representative when the discovery was made.
As a rule, this Court reviews only questions of
law, not of facts. However, it may pass upon the
evidence when the factual findings of the trial
court are different from those of the Court of
Appeals, as in this case.10
A careful review of the evidence on record
negates the appellate court's holding that "the
actions
of
defendant-appellant's
service

inspectors were all in accord with the requirement

of the law."11

77

Respondent's own witnesses provided the

evidence on who were actually present when the
inspection was made. Emmanuel C. Orlino, the
head of the Meralco team, testified:

Page

"Q
When you were conducting this inspection,
and you discovered these findings you testified
earlier, who was present?
A

The secretary, sir."12

"ATTY. REYES - Who else were the members of

your team that conducted this inspection at
Greenmeadows Avenue on that day, March 3,
1995?
A

The composition of the team, sir?

Yes.

A
Including me, we are about four (4)
inspectors, sir.
Q

You were four (4)?

Yes, sir.

Who is the head of this team?

I was the head of the team, sir."13

Further, Catalino A. Macaraig, the area head of

the Orlino team, stated that only Meralco
personnel had been present during the
inspection:
"Q
By the way you were not there at Green
Meadows on that day, right?
A

Yes, sir.

Only Mr. Orlino and who else were there?

Two or three of his men.

All members of the inspection team?

Yes, sir."14

These testimonies clearly show that at the time

the alleged meter tampering was discovered,
only the Meralco inspection team and petitioners'
secretary were present. Plainly, there was no
officer of the law or ERB representative at that
time. Because of the absence of government
representatives, the prima facie authority to
disconnect, granted to Meralco by RA 7832,
cannot apply.

ARTICLE 1170

Neither can respondent find solace in the fact

that petitioners' secretary was present at the
time the inspection was made. The law clearly
states that for the prima facie evidence to apply,
the discovery "must be personally witnessed and
attested to by an officer of the law or a duly
authorized
representative
of
the
Energy
Regulatory Board (ERB)."15 Had the law intended
the presence of the owner or his/her
representative to suffice, then it should have said
so. Embedded in our jurisprudence is the rule that
courts may not construe a statute that is free
from doubt.16 Where the law is clear and
unambiguous, it must be taken to mean exactly
what it says, and courts have no choice but to
see to it that the mandate is obeyed.17
In fact, during the Senate deliberations on RA
7832, Senator John H. Osmea, its author,
stressed the need for the presence of
government officers during inspections of electric
meters. He said:
"Mr. President, if a utility like MERALCO finds
certain circumstances or situations which are
listed in Section 2 of this bill to be prima
facie evidence, I think they should be prudent
enough to bring in competent authority, either
the police or the NBI, to verify or substantiate
their finding. If they were to summarily proceed
to disconnect on the basis of their findings and
later on there would be a court case and the
customer or the user would deny the existence of
what is listed in Section 2, then they could be in a
lot of trouble."18 (Italics supplied)
Neither can we accept respondent's argument
that when the alleged tampered meter was
brought to Meralco's laboratory for testing, there
was already an ERB representative present.
The
law
says
that before immediate
disconnection may be allowed, the discovery of
the illegal use of electricity must have been
personally witnessed and attested to by an officer
of the law or by an authorized ERB
representative. In this case, the disconnection
was effected immediately after the discovery of
the alleged meter tampering, which was
witnessed only by Meralco's employees. That the
ERB representative was allegedly present when
the meter was examined in the Meralco
laboratory will not cure the defect.
It is undisputed that after members of the
Meralco team conducted their inspection and
found alleged meter tampering, they immediately

"A
When she went inside then she came out
together with Mrs. Lourdes Quis[u]mbing at that
time. We did tell our findings regarding the meter
and the consequence with it. And she was very
angry with me.
Q
When you say consequence of
findings, what exactly did you tell
Quisumbing?

your
Mrs.

A
We told her that the service will be
temporarily disconnected and that we are
referring to our Legal Department so could know
the violation, sir."19
"A
Yes, sir. At that time, I referred her to Mr.
Macaraig, sir.
Q

What is the fist name of this supervisor?

Mr. Catalino Macara[i]g, sir.

Q
Then after talking to Mr. Catalino
Macara[i]g, this is over the telephone, what
happened?
A
The supervisor advised her that the service
will be temporarily disconnected and she has to
go to our Legal Department where she could
settle the VOC, sir.
Q
You are talking of 'VOC,' what is this all
about Mr. Orlino?
A

'VOC' is violation of contract, sir."20

As to respondent's argument that the presence of

an authorized ERB representative had not been
raised below, it is clear, however, that the issue
of due process was brought up by petitioners as a
valid issue in the CA. The presence of
government
agents
who
may
authorize
immediate disconnections go into the essence of
due process. Indeed, we cannot allow respondent
to act virtually as prosecutor and judge in
imposing the penalty of disconnection due to
alleged meter tampering. That would not sit well
in a democratic country. After all, Meralco is a
monopoly that derives its power from the
government. Clothing it with unilateral authority
to disconnect would be equivalent to giving it a
license to tyrannize its hapless customers.
Besides, even if not specifically raised, this Court
has already ruled that "[w]here the issues already

ARTICLE 1170

78
Page

disconnected petitioners' electrical supply. Again,

this verity is culled from the testimony of
Meralco's Orlina:

raised also rest on other issues not specifically

presented, as long as the latter issues bear
relevance and close relation to the former and as
long as they arise from matters on record, the
Court has the authority to include them in its
discussion of the controversy as well as to pass
upon them."21
Contractual
Right
Electrical Service

to

Disconnect

Neither may respondent rely on its alleged

contractual right to disconnect electrical service
based on Exhibits "10"22 and "11,"23 or on
Decisions of the Board of Energy (now the Energy
Regulatory Board). The relevant portion of these
documents concerns discontinuance of service. It
provides:
"The Company reserves the right to discontinue
service in case the Customer is in arrears in the
payment of bills or for failure to pay the adjusted
bills in those cases where the meter stopped or
failed to register the correct amount of energy
consumed, or for failure to comply with any of
these terms and conditions, or in case of or to
prevent fraud upon the Company. Before
disconnection is made in case of or to prevent
fraud, the Company may adjust the bill of said
Customer accordingly and if the adjusted bill is
not paid, the Company may disconnect the same.
In case of disconnection, the provisions of
Revised Order No. 1 of the former Public Service
Commission (now the Board of Energy) shall be
observed. Any such suspension of service shall
not terminate the contract between the Company
and the Customer."24
Petitioners' situation can fall under disconnection
only "in case of or to prevent fraud upon the
Company." However, this too has requisites
before a disconnection may be made. An
adjusted bill shall be prepared, and only upon
failure to pay it may the company discontinue
service. This is also true in regard to the
provisions of Revised Order No. 1 of the former
Public Service Commission, which requires a 48hour written notice before a disconnection may
be justified. In the instant case, these requisites
were obviously not complied with.
Second Issue
Damages
Having ruled that the immediate disconnection
effected by Meralco lacks legal, factual or
contractual basis, we will now pass upon on the

right of petitioners to recover damages for the

improper disconnection.

79

Petitioners are asking for the reinstatement of the

RTC Decision, which awarded them actual, moral
and exemplary damages as well as attorney's
fees. All these were overturned by the CA.

Page

when all our buyers are here for us to show what

we had that was exhibited to go around. So, my
husband had to [fly] from Cebu to Manila just for
this occasion. So we have an appointment with
our people and our buyers with SITEM and also
that evening we will have to treat them [to]
dinner.

As to actual damages, we agree with the CA that

competent proof is necessary before our award
may be made. The appellate court ruled as
follows:

"Considering further, it is a settled rule that in

order for damages to be recovered, the best
evidence obtainable by the injured party must be
presented. Actual and compensatory damages
cannot be presumed but must be duly proved and
proved with reasonable degree and certainty. A
court cannot rely on speculation, conjecture or
guess work as to the fact and amount of
damages, but must depend upon competent
proof that they have been suffered and on
evidence of actual amount thereof. If the proof is
flimsy and unsubstantial, no damages will be
awarded."25

Actual damages are compensation for an injury

that will put the injured party in the position
where it was before it was injured. 26 They pertain
to such injuries or losses that are actually
sustained
and
susceptible
of
measurement.27 Except as provided by law or by
stipulation, a party is entitled to an adequate
compensation only for such pecuniary loss as it
has duly proven.28
Basic is the rule that to recover actual damages,
not only must the amount of loss be capable of
proof; it must also be actually proven with a
reasonable degree of certainty, premised upon
competent
proof
or
the
best
evidence
29
obtainable.
Petitioners' claim for actual damages was
premised only upon Lorna Quisumbing's bare
testimony as follows:
"A
Actually that da[y] I was really scheduled
to go to that furniture exhibit. That furniture
exhibit is only once a year.
Q

What is this furniture exhibit?

A
The SITEM, that is a government agency
that takes care of exporters and exclusive
marketing of our products around the world. We
always have that once a year and that's the time

ARTICLE 1170

Whereat?

A
At our residence, we were supposed to have
a dinner at our residence.
What happened to this occasion?

A
So when they disconnected our electric
power we had to get in touch with them and
change the venue.
Q
Which venue did you transfer your dinner
for your buyers?
A
We brought them in a restaurant in Makati
at Season's Restaurant. But it was very
embar[r]assing for us because we faxed them
ahead of time before they came to Manila.
Q
Now as a result of this change of your
schedule because of the disconnection of the
electric power on that day, Friday, what damage
did you suffer?
A
I cancelled the catering service and that is
so much of a h[a]ssle it was so embarras[s]ing for
us.
Q

Can you tell us how much amount?

Approximately P50,000.00."30

No other evidence has been proffered to

substantiate her bare statements. She has not
shown how she arrived at the amount of P50,000;
it is, at best, speculative. Her self-serving
testimonial evidence, if it may be called such, is
insufficient to support alleged actual damages.
While respondent does not rebut this testimony
on the expenses incurred by the spouses in
moving the dinner out of their residence due to
the disconnection, no receipts covering such
expenditures have been adduced in evidence.
Neither is the testimony corroborated. To
reiterate, actual or compensatory damages
cannot be presumed, but must be duly proved
with a reasonable degree of certainty. It is
dependent upon competent proof of damages
that petitioners have suffered and of the actual
amount thereof.31 The award must be based on

Having said that, we agree with the trial court,

however, that petitioners are entitled to moral
damages, albeit in a reduced amount.
The RTC opined as follows:
"This Court agrees with the defendant regarding
[its] right by law and equity to protect itself from
any fraud. However, such right should not be
exercised arbitrarily but with great caution and
with due regard to the rights of the consumers.
Meralco having a virtual monopoly of the supply
of electric power should refrain from taking
drastic actions against the consumers without
observing due process. Even assuming that the
subject meter has had history of meter
tampering, defendant cannot simply assume that
the present occupants are the ones responsible
for such tampering. Neither does it serve as a
license to deprive the plaintiffs of their right to
due process. Defendant should have given the
plaintiffs simple opportunity to dispute the
electric charges brought about by the alleged
meter-tampering, which were not included in the
bill rendered them. Procedural due process
requires reasonable notice to pay the bill and
reasonable notice to discontinue supply. Absent
due process the defendant may be held liable for
damages. While this Court is aware of the
practice of unscrupulous individuals of stealing
electric curre[n]t which causes thousands if not
millions of pesos in lost revenue to electric
companies, this does not give the defendant the
right to trample upon the rights of the consumers
by denying them due process."33
Article 2219 of the Civil Code lists the instances
when moral damages may be recovered. One
such case34 is when the rights of individuals,
including the right against deprivation of property
without due process of law, are violated.35
Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social
humiliation,
and
similar
injury.36 Although
incapable of pecuniary computation, such
damages may be recovered if they are the
proximate results of the defendant's wrongful act
or omission.37

ARTICLE 1170

80
Page

the evidence presented, not on the personal

knowledge of the court; and certainly not on
flimsy, remote, speculative and unsubstantial
proof.32 Consequently, we uphold the CA ruling
denying the grant of actual damages.

Case law establishes the following requisites for

the award of moral damages: (1) there is an
injury
-whether
physical,
mental
or
psychological -- clearly sustained by the claimant;
(2) there is 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 of
damages is predicated on any of the cases stated
in Article 2219 of the Civil Code.38
To reiterate, respondent had no legal right to
immediately disconnect petitioners' electrical
supply without observing the requisites of law
which, in turn, are akin to due process. Had
respondent been more circumspect and prudent,
petitioners could have been given the opportunity
to controvert the initial finding of alleged meter
tampering. Said the RTC:
"More seriously, the action of the defendant in
maliciously disconnecting the electric service
constitutes a breach of public policy. For public
utilities, broad as their powers are, have a clear
duty to see to it that they do not violate nor
transgress the rights of the consumers. Any act
on their part that militates against the ordinary
norms of justice and fair play is considered an
infraction that gives rise to an action for
damages. Such is the case at bar."39
Indeed, the Supreme Court has ruled in Meralco
v. CA40 that respondent is required to give notice
of disconnection to an alleged delinquent
customer. The Court said:
"x x x One can not deny the vital role which a
public utility such as MERALCO, having a
monopoly of the supply of electrical power in
Metro Manila and some nearby municipalities,
plays in the life of people living in such areas.
Electricity has become a necessity to most people
in these areas, justifying the exercise by the State
of its regulatory power over the business of
supplying electrical service to the public, in which
petitioner MERALCO is engaged. Thus, the state
may regulate, as it has done through Section 97
of the Revised Order No. 1 of the Public Service
Commission, the conditions under which and the
manner by which a public utility such as
MERALCO may effect a disconnection of service
to a delinquent customer. Among others, a prior
written notice to the customer is required before
disconnection of the service. Failure to give such
prior notice amounts to a tort."41

However, the amount of moral damages, which is

left largely to the sound discretion of the courts,
should be granted in reasonable amounts,
considering
the
attendant
facts
and
circumstances.43 Moral
damages,
though
incapable of pecuniary estimation, are designed
to compensate the claimant for actual injury
suffered and not to impose a penalty. 44 Moral
damages are not intended to enrich a plaintiff at
the expense of the defendant.45 They are
awarded only to obtain a means, a diversion or
an amusement that will serve to alleviate the
moral suffering the injured party has undergone
by
reason
of
the
defendant's
culpable
action.46 They must be proportionate to the
suffering inflicted.47
It is clear from the records that respondent was
able to restore the electrical supply of petitioners
on the same day. Verily, the inconvenience and
anxiety they suffered as a result of the
disconnection was thereafter corrected. Thus, we
reduce the RTC's grant of moral damages to the
more equitable amount of P100,000.
Exemplary damages, on the other hand, are
imposed by way of example or correction for the
public good in addition to moral, temperate,
liquidated or compensatory damages.48 It is not
given to enrich one party and impoverish
another, but to serve as a deterrent against or as
a negative incentive to socially deleterious
actions.49 In this case, to serve an example -- that
before a disconnection of electrical supply can be
effected by a public utility like Meralco, the
requisites of law must be faithfully complied with
-- we award the amount ofP50,000 to petitioners.
Finally, with the award of exemplary damages,
the award of attorney's fees is likewise
granted.50 It is readily apparent that petitioners
needed the services of a lawyer to argue their
cause, even to the extent of elevating the matter
to this Court;51 thus, an award of P50,000 is
considered sufficient.
Final Issue:

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Observance of the rights of our people is sacred

in our society. We cannot allow such rights to be
trifled with or trivialized. Although the Court
sympathizes with respondent's efforts to stamp
out the illegal use of electricity, such action must
be done only with strict observance of the rights
of our people. As has been we succinctly said:
"there is a right way to do the right thing at the
right time for the right reason."42

Billing Differential
Finally, this Court holds that despite the basis for
the award of damages -- the lack of due process
in
immediately
disconnecting
petitioners'
electrical supply -- respondent's counterclaim for
the billing differential is still proper. We agree
with the CA that respondent should be given what
it rightfully deserves. The evidence it presented,
both documentary and testimonial, sufficiently
proved the amount of the differential.
Not only did respondent show how the meter
examination had been conducted by its experts,
but it also established the amount of P193,332.96
that petitioners owed respondent. The procedure
through which this amount was arrived at was
testified to by Meralco's Senior Billing Computer
Enrique
Katipunan.
His
testimony
was
corroborated by documentary evidence showing
the
account's
billing
history
and
the
corresponding computations. Neither do we doubt
the documents of inspections and examinations
presented by respondent to prove that, indeed
there had been meter tampering that resulted in
unrecorded and unpaid electrical consumption.
The mere presentation by petitioners of a
Contract
to
Sell
with
Assumption
of
Mortgage52 does not necessarily mean that they
are no longer liable for the billing differential.
There was no sufficient evidence to show that
they had not been actually residing in the house
before the date of the said document. Lorna
Quisumbing herself admitted53 that they did not
have any contract for electrical service in their
own name. Hence, petitioners effectively
assumed the bills of the former occupants of the
premises.
Finally, the CA was correct in ruling that the
convincing
documentary
and
testimonial
evidence presented by respondent, was not
controverted by petitioners.1wphi1.nt
WHEREFORE, the Petition is hereby PARTLY
GRANTED. The
assailed
CA
Decision
is MODIFIED as
follows:
petitioners
are ORDERED to pay respondent the billing
differential of P193,332.96; while respondent is
ordered to pay petitioners P100,000 as moral
damages, P50,000
as
exemplary
damages,
and P50,000
as
attorney's
fees.
No
pronouncement as to costs.
SO ORDERED.

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ARTICLE 1170

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ARTICLE 1170