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6. G.R. No.

193914 November 26, 2014 incident, the loading conveyor and related structures of
SEVEN BROTHERS SHIPPING CORPORATION, Petitioner, respondent were indeed damaged.8 In the course of the
vs. destruction, the RTC found that no force majeure
DMC-CONSTRUCTION RESOURCES, INC., Respondent. existed, considering that petitioners captain was well
DECISION aware of the bad weather, and yet proceeded against the
SERENO, CJ: strong wind and rough seas, instead of staying at the
This is a Rule 45 appeal1 dated 18 November 2010 causeway and waiting out the passage of the typhoon.9 It
assailing the Decision2 and Resolution3 of the Court of further concluded that "there was negligence on the part
Appeals (CA) in CA-G.R. CV No. 69819, which affirmed of the captain; hence, defendant [petitioner] as his
with modifications the Decision4 of the Regional Trial employer and owner of the vessel shall be liable for
Court (RTC), Branch 132, Makati City in Civil Case No. 98- damages caused thereby."10
699, finding petitioner liable to respondent for damages. Regarding liability, the RTC awarded respondent actual
Petitioner Seven Brothers Shipping Corporation is the damages in the amount of 3,523,175.92 plus legal
owner of the cargo ship M/V "Diamond Rabbit," (vessel), interest of 6%, based on the testimony of respondents
while respondent DMC Construction Resource, Inc. is the engineer, Loreto Dalangin (Engr. Dalangin). The value
owner of coal-conveyor facility, which was destroyed represented 50% of the 7,046,351.84 claimed by the
when the vessel became uncontrollable and respondent as the fair and reasonable valuation of the
unmanueverable during a storm.5 structure at the time of the loss,11 because as manifested
We reproduce the narration of facts culled by the CA,6 as by Engr. Dalangin at the time of the incident, the loading
follows: conveyor and related structures were almost five years
On 23 February 1996, the cargo ship M/V "Diamond old, with a normal useful life of 10 years.12
Rabbit" (the Vessel) owned and operated by defendant Thus, on 18 January 2001, the RTC issued a Decision13 to
Seven Brothers Shipping Corporation (Seven wit:
Brothers),was at the PICOP Pier in Mangagoy, Bislig, WHEREFORE, judgment is hereby rendered ordering
Surigao del Sur to dock there. According to the record, defendant to pay plaintiff:
the weather that day was windy with a wind force of 10 (a) Actual damages in the amount of 3,523,175.92 plus
to 20 knots, and the sea condition was rough, with waves legal interest of 6% per annum from the date of the filing
6 to 8 feet high. However, the parties also stipulated of this complaint until the same is fully paid; and
during pre-trial that prior to the occurrence of the (b) Costs of suit.
incident, the vessel was anchored at the cause way of the Aggrieved, petitioner appealed via a Notice of Appeal on
port of Bislig, where it was safe from inclement weather. 5 February 2001.14 The appeal was dismissed by the CA
According to the report of the Master, it heaved its in a Decision dated 30 April 2010,15 the dispositive
anchor and left the causeway in order to dock at the portion of which is quoted herein:
PICOP Pier. A lifeboat pulled the vessel towards the Pier WHEREFORE, the appeal is DISMISSED, and the Decision
with a heaving line attached to the vessels astern dated 18 January 2001 of the Regional Trial Court, Branch
mooring rope, when suddenly, the heaving line broke 132, Makati City in Civil Case No. 98-699, is AFFIRMED
loose, causing the astern mooring rope to drift freely. with modification in that Seven Brothers Shipping
The mooring rope got entangled in the vessels propeller, Corporation is found liable to DMC Construction
thereby choking and disabling it, and preventing the Equipment Resources, Inc. for nominal damages in the
further use of its main engine for maneuvering. amount of 3,523,175.92 due to the destruction of the
In order to stop the vessel from further drifting and latters coal conveyor post and terminal by the cargo ship
swinging, its Master dropped her starboard anchor. To M/V "Diamond Rabbit." (Emphasis in the original)
help secure the vessel, its forward mooring rope was sent The CA affirmed the RTCs Decision with respect to the
ashoreand secured at the mooring fender. However, finding of negligence on the part of the vessels captain.
because of the strong winds and rough seas, the vessels However, the appellate court modified the nature of
anchor and the mooring rope could not hold the vessel. damages awarded (from actual to nominal), on the
Under the influence of the wind and current, the dead premise that actual damages had not been proved.
weight of the vessel caused it to swung from side to side Respondent merely relied on estimates to prove the cost
until the fender, where the mooring rope was attached, of replacing the structures destroyed by the vessel, as no
collapsed. The uncontrollable and unmaneuverable actual receipt was presented.16
vessel drifted and dragged its anchor until it hit several On 19 May 2010, petitioner filed a Motion for Partial
structures at the Pier, including the coal conveyor facility Reconsideration.17 Respondent filed a Commenton the
owned by DMC Construction Equipment Resources, Inc. Motion on 22 June 2010,18 and the former, a Reply on 29
(DMC). (Emphasis in the original) June 2010.19 In a Resolution promulgated on 24
On 5 March 1996, respondent sent a formal demand September 2010,20 the CA denied petitioners Motion.
letter to petitioner, claiming the amount above-stated Hence, the instant Petition.
for the damages sustained by their vessel.7 This Court noted respondents Comment dated 27 April
When petitioner failed to pay, respondent filed with the 2011;21 respondents Manifestation dated 4 May
RTC a Complaint for damages against respondent on 23 2011;22 and petitioners Reply dated 2 June 2011.23
March 1998. Based on the pieces of evidence presented ISSUE
by both parties, the RTC ruled that as a result of the
1
From the foregoing, the sole issue proffered to us by suffered but its amount cannot, from the nature of the
petitioner is whether or not the CA erred in awarding case, be provided with certainty.
nominal damages to respondent after having ruled that Under the Civil Code, when an injury has been sustained,
the actual damages awarded by the RTC was unfounded. actual damages may be awarded under the following
THE COURTS RULING condition:
Petitioner argues that under Articles 2221 and 2223 of Art. 2199. Except as provided by law or by stipulation,
the Civil Code,24 nominal damages are only awarded to one is entitled to an adequate compensation only for
vindicate or recognize a right that has been violated, and such pecuniary loss suffered by him as he has duly
not to indemnify a party for any loss suffered by the proved. Such compensation is referred to as actual or
latter. They are not awarded as a simple replacement for compensatory damages. (Emphasis ours)
actual damages that were not duly proven during As we have stated in Dee Hua Liong Electrical Equipment
trial.25Assuming further that nominal damages were Corp., v. Reyes,31 "[a]ctual or compensatory damages
properly awarded by the CA, petitioner is of the belief cannot be presumed, but must be duly proved, and
that the amount thereof must be equal or at least proved with a reasonable degree of certainty. A court
commensurate to the injury sustained by the claimant, cannot rely on speculation, conjecture or guess work as
as ruled in PNOC Shipping and Transportation Corp. v. to the fact and amount of damages, but must depend
Court of Appeals (PNOC).26 Considering that respondent upon competent proof that they have suffered and on
allegedly failed to substantiate its actual loss, it was evidence of the actual amount thereof. If the proof is
therefore improper for the CA to award nominal flimsy and unsubstantial, no damages will be awarded."
damages of 3,523,175.92, which was based on Jurisprudence has consistently heldthat "[t]o justify an
respondents "highly speculative claims."27 award of actual damages x x x credence can be given only
Respondent, on the other hand, alleges that nominal to claims which are duly supported by receipts."32 We
damages were rightly assessed, since there was a take this to mean by credible evidence. Otherwise, the
categorical finding that its "property right was law mandates that other forms of damages must be
indubitably invaded and violated when damage to its awarded, to wit:
conveyor and port equipment due to petitioners Art. 2216. No proof of pecuniary loss is necessary in order
negligence,"28 was inflicted. Nominal damages are that moral, nominal, temperate, liquidated or exemplary
recoverable where some injury has been done, but the damages, may be adjudicated. The assessment of
evidence fails to show the corresponding amount suchdamages, except liquidated ones, is left to the
thereof. Accordingly, the assessment of damages is left discretion of the court, according to the circumstances of
to the discretion of the court.29 Respondent asserts that each case.
the CAs award of 3,523,175.92 is not unreasonable, Under Article 2221 of the Civil Code, nominal damages
following the amounts awarded in PNOC. may be awarded in order that the plaintiffs right, which
We rule that temperate, and not nominal, damages has been violated or invaded by the defendant, may be
should be awarded to respondent in the amount of vindicated or recognized, and not for the purpose of
3,523,175.92. indemnifying the plaintiff for any loss suffered. We have
Factual findings of appellate and trial courts are entitled laid down the concept of nominal damages in the
to great weight and respect on appeal, especially when following wise:
established by unrebutted testimonial and documentary Nominal damages are recoverable where a legal right is
evidence. technically violated and must be vindicated against an
To resolve the issue at hand, we must first determine invasion that has produced no actual present loss of any
whether there was indeed a violation of petitioners kind or where there has been a breach of contract and
right. In this light, we are inclined to adopt the factual no substantial injury or actual damages whatsoever have
findings of the RTC and the CA as "[t]his Court has been or can be shown.33
repeatedly held that petitions for review under Rule 45 Thus, in Saludo v. Court of Appeals,34 nominal damages
of the Rules of Court may be brought only on questions were granted because while petitioner suffered no
of law, not on questions of fact. Moreover, the factual substantial injury, his right to be treated with due
findings of trial courts are entitled to great weight and courtesy was violated by the respondent, Transworld
respect on appeal, especially when established by Airlines, Inc. Nominal damages were likewise awarded in
unrebutted testimonial and documentary evidence. And Northwestern Airlines v. Cuenca,35 Francisco v.
the findings of facts of the Court of Appeals are Ferrer,36 and Areola v. Court of Appeals,37 where a right
conclusive and binding on the Supreme Court except was violated, but produced no injury or loss to the
when they conflict with the findings of the trial court."30 aggrieved party. In contrast, under Article 2224,
In this case, two facts have been established by the temperate or moderate damages may be recovered
appellate and trial courts: that respondent suffered a loss when the court finds that some pecuniary loss has been
caused by petitioner; and that respondent failed to suffered but its amount cannot, from the nature of the
sufficiently establish the amount due to him, as no actual case, be provided with certainty. This principle was
receipt was presented. thoroughly explained in Araneta v. Bank of
Temperate or moderate damages may be recovered America,38 which cited the Code Commission, to wit:
when the court finds that some pecuniary loss has been

2
The Code Commission, in explaining the concept of reasonable valuation, having taking into account the
temperate damages under Article 2224, makes the remaining useful life of the facility.
following comment: WHEREFORE, the Petition for Review on Certiorari is
In some States of the American Union, temperate hereby DISMISSED. The assailed Decision and Resolution
damages are allowed. There are cases where from the of the Court of Appeals in CA-G.R. CV No. 69819, are
nature of the case, definite proof of pecuniary loss hereby MODIFIED, in that temperate damages in the
cannot be offered, although the court is convinced that amount of 3,523,175.92 are awarded, in lieu of nominal
there has been such loss.For instance, injury to one's damages.
commercial credit or to the goodwill of a business firm is SO ORDERED.
often hard to show with certainty in terms of money. 7.
Should damages be denied for that reason? The judge TWIN ACE G.R. No. 160191
should be empowered to calculate moderate damages in HOLDINGS
such cases, rather than that the plaintiff should suffer, CORPORATION, Present:
without redress from the defendant's wrongful act. Petitioner,
(Emphasis ours) PANGANIBAN, C.J.
Thus, in Tan v. OMC Carriers, Inc.,39 temperate damages Chairperson,
YNARES-
were rightly awarded because plaintiff suffered a loss,
SANTIAGO,*
although definitive proof of its amount cannot be
- versus - AUSTRIA-
presented as the photographs produced as evidence MARTINEZ,**
were deemed insufficient. Established in that case, CALLEJO, SR., and
however, was the fact that respondents truck was CHICO-NAZARIO, JJ.
responsible for the damage to petitioners property and
that petitioner suffered some form of pecuniary loss. In RUFINA AND Promulgated:
Canada v. All Commodities Marketing COMPANY,
40
Corporation, temperate damages were also awarded Respondent. June 8, 2006
wherein respondents goods did not reach the Pepsi Cola x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Plant at Muntinlupa City as a result of the negligence of - - - - - - - - - - - -x
petitioner in conducting its trucking and hauling services,
even ifthe amount of the pecuniary loss had not been
proven. In Philtranco Services Enterprises, Inc. v. DECISION
Paras,41 the respondent was likewise awarded
temperate damages in an action for breach of contract of CHICO-NAZARIO, J.:
carriage, even if his medical expenses had not been
From the records, it appears that on 3 December 1991,
established with certainty. In People v. Briones,42 in
Twin Ace Holdings Corporation (Twin Ace) filed a
which the accused was found guilty of murder, Complaint[1] for recovery of possession of personal
temperate damages were given even if the funeral property, permanent injunction and damages with prayer
expenses for the victim had not been sufficiently proven. for the issuance of a writ of replevin, temporary
Given these findings, we are of the belief that temperate restraining order and a writ of preliminary injunction
and not nominal damages should have been awarded, against Rufina and Company (Rufina).
considering that it has been established that respondent As alleged in the complaint, Twin Ace is a private
herein suffered a loss, even if the amount thereof cannot domestic corporation engaged in the manufacture
be proven with certainty. of rhum, wines and liquor under the name and
The amount of temperate damages to be awarded is style Tanduay Distillers. It has registered its mark of
usually left to the discretion of the courts, but such ownership of its bottles with the Bureau of Patent,
amount must be reasonable. Trademarks and Technology Transfer under Republic Act
Consequently, in computing the amount of temperate or No. 623. In the conduct of its business, it sells its products
moderate damages, it is usually left to the discretion of to the public excluding the bottles. It makes substantial
the courts, but the amount must be reasonable, bearing investments in brand new bottles which it buys from glass
in mind that temperate damages should be more than factories and which they use for about five times in order
to recover the cost of acquisition. Twin Ace thus retrieves
nominal but less than compensatory.43
its used empty bottles, washes and uses them over and
Here, we are convinced that respondent sustained
over again as containers for its products.
damages to its conveyor facility due to petitioner's On the other hand, Rufina is engaged in the production,
negligence. Nonetheless, for failure of respondent to extraction, fermentation and manufacture of patis and
establish by competent evidence the exact amount of other food seasonings and is engaged in the buying and
damages it suffered, we are constrained to award selling of all kinds of foods, merchandise and products for
temperate damages. Considering that the lower courts domestic use or for export to other countries. In
have factually established that the conveyor facility had producing patis and other food seasonings, Rufina uses
a remaining life of only five of its estimated total life of as containers bottles owned by Twin Ace without any
ten years during the time of the collision, then the authority or permission from the latter. In the
replacement cost of 7,046,351.84 should rightly be process, Rufina is unduly benefited from the use of the
reduced to 50% or 3,523, 175.92. This is a fair and bottles.
3
A motion for reconsideration dated 19 October
Upon the posting of Twin Ace of the required bond, the 2002[7] filed by Twin Ace was denied in a resolution of
Regional Trial Court (RTC) of Manila, Branch 26, issued the Court of Appeals dated 29 September 2003.[8] Hence,
an Order dated 5 February 1992 granting the application this Petition for Review.
for the issuance of a writ of replevin.[2] Upon the
implementation of the said writ, Deputy For resolution are the following issues:
Sheriff Amado P. Sevilla was able to seize a total of
26,241 empty bottles marked TANDUAY DISTILLERY, I.
INC.,[3] at the address of Rufina. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT RESPONDENT RUFINA IS NOT
In its Answer with counter-application for a Writ of COVERED WITHIN THE EXEMPTION PROVIDED
Preliminary Injunction, Rufina claimed that the marked BY SECTION 6 OF R.A. 623, AS AMENDED BY R.A.
bottles it used as containers for its products were 5700.
purchased from junk dealers; hence, it became the owner
thereof. II.
THE HONORABLE COURT OF APPEALS ERRED IN
After hearing, the trial court rendered its decision dated 20 AWARDING NOMINAL DAMAGES AGAINST
May 1995 the dispositive portion of which states: PETITIONER TWIN ACE CONSIDERING THAT IT
WAS THE ONE WHOSE RIGHTS HAVE BEEN
WHEREFORE, PREMISES CONSIDERED, judgment is VIOLATED OR INVADED BY RESPONDENT
hereby rendered in favor of the defendant as follows: RUFINA.

a) dismissing the complaint for lack of merit; III.


THE HONORABLE COURT OF APPEALS ERRED IN
b) dissolving the order of replevin; NOT FINDING THAT PETITIONER AS OWNER OF
THE SUBJECT BOTTLES IS ENTITLED TO
c) ordering the plaintiff to return 26,241 bottles to the COMPENSATION FOR ITS UNAUTHORIZED USE
defendant in the place where the bottles were seized at the BY RESPONDENT RUFINA.[9]
expense of the plaintiff within 48 hours from receipt Pertinent provision of Republic Act No. 623,[10] as
hereof; amended by Republic Act No. 5700,[11] is quoted
hereunder for clarity:
d) ordering the plaintiff to pay the defendant the sum
of P100,000.00 as actual damages sustained by the latter Sec. 2. It shall be unlawful for any person, without the
to be taken from the replevin bond; written consent of the manufacturer, bottler, or seller, who
has successfully registered the marks of ownership in
e) ordering the plaintiff to pay the defendant the sum accordance with the provisions of the next preceding
of P1,000,000.00 as damages for besmirched reputation; section, to fill such bottles, boxes, kegs, barrels, steel
cylinders, tanks, flasks, accumulators, or other similar
f) ordering the plaintiff to pay the sum of P100,00.00 as containers so marked or stamped, for the purpose of sale,
nominal damages; or to sell, dispose of, buy or traffic in, or wantonly destroy
the same, whether filled or not to use the same for
g) ordering the plaintiff to pay the defendant the sum drinking vessels or glasses or drain pipes, foundation
of P50,000.00 as attorneys fee; and pipes, for any other purpose than that registered by the
manufacturer, bottler or seller. Any violation of this
h) ordering the plaintiff to pay the cost of the suit.[4] section shall be punished by a fine of not more than one
thousand pesos or imprisonment of not more than one
year or both.
Twin Ace appealed to the Court of Appeals. On 27
September 2002, the appellate court rendered its Sec. 3. The use by any person other than the registered
decision[5] modifying the decision of the trial court as manufacturer, bottler or seller, without written permission
follows: of the latter of any such bottle, cask, barrel, keg, box, steel
cylinders, tanks, flasks, accumulators, or other similar
WHEREFORE, in view of all the foregoing, the appealed containers, or the possession thereof without written
decision dated May 20, 1995 of Branch 26, Regional Trial permission of the manufacturer, by any junk dealer or
Court, Manila, in Civil Case No. 92-59862 is dealer in casks, barrels, kegs, boxes, steel cylinders, tanks,
MODIFIED, in that the award of damages, except flasks, accumulators, or other similar containers, the same
nominal damages, and attorneys fees is DELETED for being duly marked or stamped and registered as herein
lack of legal and factual basis. The award of nominal provided, shall give rise to a prima facie presumption that
damages is reduced to P50,000.00. In all other respects, such use or possession is unlawful.[12]
the assailed decision is AFFIRMED.
Sec. 4. The criminal action provided in this Act shall in
Costs against plaintiff-appellant.[6] no way affect any civil action to which the registered
manufacturer, bottler, or seller, may be entitled by law or
contract.

4
Sec. 5. No action shall be brought under this Act against to the backyard, cottage and small-scale manufacturers of
any person to whom the registered manufacturer, bottler, indigenous native products such
or seller, has transferred by way of sale, any of the as patis, sisi and toyo who do not have the capital to buy
containers herein referred to, but the sale of the beverage brand new bottles as containers nor afford to pass the
contained in the said containers shall not include the sale added cost to the majority of poor Filipinos who use the
of the containers unless specifically so provided. products as their daily condiments or viands. If the
contention of petitioner is accepted, i.e., to construe the
Sec. 6. The provisions of this Act shall not be interpreted exemption as to apply to criminal liability only but not to
as prohibiting the use of bottles as containers civil liability, the very purpose for which the exemption
for sisi, bagoong, patis, and similar native products.[13] was granted will be defeated. None of the small-scale
manufacturers of the indigenous native products protected
In sum, Twin Ace asserts that the provision under the law would possibly wish to use the registered bottles if they
affords protection only to small scale are vulnerable to civil suits. The effect is a virtual
producers/manufacturers who do not have the capacity to elimination of the clear and unqualified exemption
buy new bottles for use in their products and cannot embodied in Sec. 6. It is worthy to note that House Bill
extend to Rufina which had unequivocably admitted in its No. 20585 was completely rejected because it sought to
Answer[14] and affirmed in the decision of the trial court expressly and directly eliminate that which petitioner
that it is engaged, on a large scale basis, in the production indirectly proposes to do with this petition.[16] (Emphasis
and manufacture of food seasonings. supplied.)

For its part, Rufina counters that the law did not really It is worth noting that Lorenzana Food Corporation which
distinguish between large scale manufacturers and small prevailed in the case filed by Twin Ace against it is
time producers. certainly not a small scale industry. Just
The petition is not meritorious. like Rufina, Lorenzana Food Corporation also
manufactures and exports processed foods and other
The earlier case of Twin Ace Holdings Corporation v. related products, e.g., patis, toyo, bagoong, vinegar and
Court of Appeals,[15] applies to the present petition. In said other food seasonings.
case, Twin Ace filed a Complaint
for Replevin againstLorenzana Food Corporation to It is a basic rule in statutory construction that when the
recover three hundred eighty thousand bottles allegedly law is clear and free from any doubt or ambiguity, there
owned by Twin Ace but detained and used is no room for construction or interpretation. As has been
by Lorenzana Food Corporation as containers for its our consistent ruling, where the law speaks in clear and
native products without its express permission, in categorical language, there is no occasion for
violation of the law. In that case, this Court acknowledged interpretation; there is only room for application.[17]
that the exemption under the law is unqualified as the law
did not make a distinction that it only applies to small Notably, attempts to amend the protection afforded by
scale industries but not to large scale Section 6 of Republic Act No. 623, by giving protection
manufacturers. Thus, even if the court in said case held only to small scale manufacturers or those with a
that the exemption is primarily meant to give protection capitalization of five hundred thousand pesos or less
to small scale industries, it did not qualify that the (P500,000.00), through then House Bill No.
protection therein was intended and limited only to 20585,[18] and subsequently through House Bill No.
such. The Court held: 30400,[19] proved unsuccessful as the amendment
proposed in both Bills was never passed.
Petitioner itself alleges that respondent LORENZANA In view of these considerations, we find and so hold that
uses the subject 350 ml., 375 ml. and 750 ml. bottles as the exemption contained in Section 6 of Rep. Act No. 623
containers for processed foods and other related products applies to all manufacturers of sisi, bagoong, patis and
such as patis,toyo, bagoong, vinegar and other food similar native products without distinction or
seasonings. Hence, Sec. 6 squarely applies in private qualification as to whether they are small, medium or
respondents favor. Obviously, the contention of TWIN large scale.
ACE that the exemption refers only to criminal liability On the issue of nominal damages, Article 2222 of the
but not to civil liability is without merit. It is Civil Code[20] states that the court may award nominal
inconceivable that an act specifically allowed by law, in damages in every obligation arising from any source
other words legal, can be the subject of injunctive relief enumerated in Article 1157,[21] or in every other case
and damages.Besides, the interpretation offered by where any property right has been invaded.[22] Nominal
petitioner defeats the very purpose for which the damages are given in order that a right of the plaintiff,
exemption was provided. which has been violated or invaded by the defendant, may
be vindicated or recognized, and not for the purpose of
Republic Act No. 623, An Act to Regulate the Use of indemnifying the plaintiff for any loss suffered by
Duly Stamped or Marked Bottles, Boxes, Casks, Kegs, him.[23] In another case,[24] this Court held that when
Barrels and Other Similar Containers, as amended by RA plaintiff suffers some species of injury not enough to
No. 5700, was meant to protect the intellectual property warrant an award of actual damages, the court may award
rights of the registrants of the containers and prevent nominal damages. Considering the foregoing, we find that
unfair trade practices and fraud on the public. However, the award of nominal damages to Rufina in the amount of
the exemption granted in Sec. 6 thereof was deemed fifty thousand pesos (P50,000.00) is reasonable,
extremely necessary to provide assistance and incentive warranted and justified.
5
As to the third issue, Rule 60, Section 2(a), of the Revised Time and again, we have held that in a petition for review
Rules of Court mandates that a party praying for the on certiorari filed under Rule 45 of the Rules of Court,
recovery of possession of personal property must show by we cannot review or pass upon factual matters, save under
his own affidavit or that of some other person who exceptional circumstances, none of which obtains in the
personally knows the facts that he is the owner of the present case. Petitioner endeavors in vain to convince us
property claimed, particularly describing it, or is entitled that the trial court and the Court of Appeals erred in
to the possession thereof.[25] It must be borne in mind finding him negligent in the construction of respondents
that replevin is a possessory action the gist of which house and holding him liable for breach of contract.
focuses on the right of possession that, in turn, is
dependent on a legal basis that, not infrequently, looks to This is a Petition for Review on Certiorari[1] under Rule
the ownership of the object sought to 45 of the Rules of Court seeking to reverse and set aside
be replevied.[26] Wrongful detention by the defendant of the April 29, 2004 Decision[2] of the Court Appeals in CA-
the properties sought in an action for replevin must be G.R. CV No. 70757, which affirmed the December 21,
satisfactorily established. If only a mechanistic averment 2000 Decision[3] of the Regional Trial Court, Branch 157,
thereof is offered, the writ should not be issued.[27] In this Pasig City, in an action for breach of contract with
case, Twin Ace has not shown that it is entitled to the damages[4] filed by respondent against petitioner.
possession of the bottles in question and consequently
there is thus no basis for the demand by it of due THE FACTS
compensation. As stated by the court in the earlier case
of Twin Ace Holdings Corporation v. Court of Appeals[28]: For respondent and her family, April 18, 1998 was
Petitioner cannot seek refuge in Sec. 5 of RA No. 623 to supposed to be a special occasion and a time for family
support its claim of continuing ownership over the subject reunion. It was the wedding date of her sister Sally Guce,
bottles. In United States v. Manuel [7 Phil. 221 (1906)] and respondents other siblings from the United States of
we held that since the purchaser at his discretion could America, as well as her mother, were expected to return
either retain or return the bottles, the transaction must be to the country. The wedding ceremony was set to be held
regarded as a sale of the bottles when the purchaser at the familys ancestral house at San Vicente, Banay-
actually exercised that discretion and decided not to return banay, Lipa City, where respondents relatives planned to
them to the vendor. We also take judicial notice of the stay while in the Philippines.
standard practice today that the cost of the container is
included in the selling price of the product such that the Respondent found the occasion an opportune time to
buyer of liquor or any such product from any store is not renovate their ancestral house. Thus, in January 1998 she
required to return the bottle nor is the liquor placed in a entered into a Construction Contract[5] with petitioner for
plastic container that possession of the bottle is retained the demolition of the ancestral house and the construction
by the store. of a new four-bedroom residential house. The parties
agreed that respondent would pay P500,000.00 to the
petitioner, who obliged himself to furnish all the
WHEREFORE, premises considered, the instant petition necessary materials and labor for the completion of the
is DENIED for lack of merit and the decision dated 27 project. Petitioner likewise undertook to finish all interior
September 2002 and resolution dated 29 September 2003, portions of the house on or before March 31, 1998, or
in CA-G.R. CV No. 52852, both of the Court of Appeals more than two weeks before Sallys wedding.
are Affirmed.
SO ORDERED. On April 18, 1998, however, the house remained
unfinished. The wedding ceremony was thus held at the
8. Club Victorina and respondents relatives were forced to
ENGR. APOLINARIO G.R. No. 165679 stay in a hotel.Her mother lived with her children,
DUEAS, transferring from one place to another.
Petitioner, Present: On July 27, 1998, respondent filed a Complaint[6] for
breach of contract and damages against petitioner before
CORONA,* J., the Regional Trial Court of Pasig City. She alleged,
CARPIO MORALES, among others, that petitioner started the project without
Acting Chairperson, securing the necessary permit from the City Engineers
-versus - BRION, Office of Lipa City. Respondent likewise alleged that, all
DEL CASTILLO, and in all, she gave petitioner P550,000.00 (which
ABAD, JJ. is P50,000.00 more than the contract price). However,
and despite knowledge that the construction of the house
Promulgated: was intended for the forthcoming marriage of respondents
ALICE GUCE-AFRICA, October 5, 2009 sister, petitioner unjustly and fraudulently abandoned the
Respondent. project leaving it substantially unfinished and
x-------------------------------------- incomplete. Several demands were made, but petitioner
------------------x obstinately refused to make good his contractual
obligations. Worse, petitioners workmanship on the
DECISION incomplete residential house was substandard.

DEL CASTILLO, J.:


6
Respondent prayed for the return of the P50,000.00 respondent and against the petitioner. The RTC gave
overpayment. She also prayed for an award more credence to respondents version of the facts, finding
of P100,000.00 for the purpose of repairing what had been that-
poorly constructed and at least P200,000.00 to complete Clearly, Dueas [herein petitioner] failed to tender
the project. performance in accordance with the terms and conditions
of the construction contract he executed
In his Answer with Counterclaim,[7] petitioner asserted with Africa [herein respondent]. He failed to construct a
that it was respondent who undertook to secure the four-bedroom residential house suitable and ready for
necessary government permits.[8] With regard to the occupancy on a stipulated date. Dueas was fully aware
alleged overpayment, petitioner claimed that the amount that Africa needed the new house for a long scheduled
of P50,000.00 was in payment for the additional works family event precisely a completion date was included and
which respondent requested while the construction was specified in the transaction. Despite knowledge and
still on going. In fact, the estimated cost for the additional receipt of payment from Africa, Dueas failed to deliver
works amounted to P133,960.00, over and above what was incumbent upon him under the undertaking. He
the P500,000.00 contract price. unjustifiably incurred delay in the construction of the new
building and wrongfully deprived Africa and her family
Petitioner likewise alleged that the delay in the of the use and enjoyment of the subject property.Bad
construction of the house was due to circumstances weather, observance of the Holy Week and barangay
beyond his control, namely: heavy rains, observance of fiesta are insufficient excuses. As a building contractor
Holy Week, and celebration Dueas should have provided for such contingencies. Mere
of barangay fiesta. Ultimately, he was not able to inconvenience or unexpected impediments will not
complete the project because on May 27, 1998, relieve a party of his obligation. Granting that he was not
respondent went to his house and told him to stop the yet fully paid for the additional work by Africa,
work. provisions or arrangements should have been made to
ensure completion of the project within the agreed period.
He maintained that he cannot be held liable for the
amounts claimed by the Moreover, Dueas negligently abandoned the unfinished
respondent in her complaint considering that he had structure shortly after a confrontation with Africa and
faithfully complied with the family. Rain water sipped[sic] into the house because
terms and conditions of the Construction Contract. Dueas failed to secure the roofing and wall flushing. The
house remained [un]habitable because fixtures and
On February 19, 1999, pre-trial conference was devises were yet to be installed. Dueas failed to exercise
conducted. Thereafter, trial ensued. the required diligence as a contractor and is guilty of
negligence and delay. He must be made responsible for
Respondent testified on the material points alleged in her the foreseen effect of the exposure of the new structure to
complaint. She also presented the testimony of her brother the elements.
Romeo Guce, who declared on the witness stand that
petitioner confided to him that he had to stop the Significantly, the poor construction performance
construction because he could no longer pay his manifested in the structure after Dueas in bad faith
workers. He also testified that petitioner asked for abandoned it. Indeed, the newly constructed edifice needs
additional amount of about P20,000.00 to finish the significant repairs if only to make it habitable for its
house. He relayed this to the respondent who refused to occupants.[10]
release any additional amount because of petitioners
unsatisfactory and substandard work. But later on, Consequently, the fallo of the RTC decision reads:
respondent acceded and gave petitioner P20,000.00.
WHEREFORE, judgment is hereby rendered in favor of
To establish the status of the project and determine the plaintiff Alice G. Africa and against defendant Apolinario
amount necessary for the repair and completion of the Dueas who is hereby directed to pay plaintiff:
house, respondent presented Romeo Dela Cruz, a licensed
realtor and a graduate of an engineering course at the - P100,000.00 for the necessary repair of the structure;
Technological Institute of the Philippines. Dela Cruz - 200,000.00 for the completion of the construction;
testified that he conducted an ocular inspection on the - 50,000.00 as and for attorneys fees;
construction site in November 1998 and found that only - and costs of suit.
about 60% of the project had been accomplished. Some
parts of the project, according to the witness, were even Plaintiffs claim for moral, nominal and exemplary
poorly done. He likewise testified that in order to repair damages are hereby denied for lack of sufficient basis.
the poorly constructed portion of the house, respondent
would need to spend about P100,000.00 and SO ORDERED.[11]
another P200,000.00 to complete it.
Both parties were unsatisfied. They thus brought the
Petitioner also took the witness stand and testified on matter to the Court of Appeals assailing the Decision of
matters relative to the defenses he raised in his answer. the RTC. The appellate court, however, found no cogent
reason to depart from the trial courts conclusion. Thus,
On December 21, 2000, the RTC rendered a Decision[9] i on April 29, 2004, it rendered the herein assailed
n favor of the
7
Decision[12] affirming with modification the RTCs defined a question of law as distinguished from a question
ruling, viz: of fact, viz:

WHEREFORE, in view of the foregoing, the Decision of A question of law arises when there is doubt as to what
the Regional Trial Court of Pasig City, Branch 157, the law is on a certain state of facts, while there is a
dated 21 December 2000, is hereby AFFIRMED WITH question of fact when the doubt arises as to the truth or
MODIFICATION that the award of attorneys fees is falsity of the alleged facts.For a question to be one of law,
hereby DELETED. the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of
SO ORDERED.[13] them. The resolution of the issue must rest solely on what
ISSUES the law provides on the given set of circumstances. Once
it is clear that the issue invites a review of the evidence
Feeling aggrieved but still undeterred, petitioner presented, the questioned posed is one of fact. Thus, the
interposes the present recourse anchored on the following test of whether a question is one of law or of fact is not
grounds: the appellation given to such question by the party raising
the same; rather, it is whether the appellate court can
I. determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of
THE COSTS OF ACTUAL DAMAGES AWARDED law; otherwise, it is a question of fact.
ARE BASED ON MERE SPECULATIONS AND It has already been held that the determination of the
CONJECTURES.[14] existence of a breach of contract is a factual matter not
usually reviewable in a petition filed under Rule
II. 45.[18] We will not review, much less reverse, the factual
findings of the Court of Appeals especially where, as in
THE RULINGS THAT DUEAS ABANDONED THE this case, such findings coincide with those of the trial
WORK AND INCURRED DELAY ARE CONTRARY court, since we are not a trier of facts.[19] The established
TO THE EVIDENCE.[15] rule is that the factual findings of the Court of Appeals
affirming those of the RTC are conclusive and binding on
III. us. We are not wont to review them, save under
exceptional circumstances as: (1) when the inference
THE DAMAGES CAUSED BY RAIN WATER WERE made is manifestly mistaken, absurd or impossible; (2)
NOT DUE TO APOLINARIO DUEAS FAULT OR when there is grave abuse of discretion; (3) when the
NEGLIGENCE.[16] findings are grounded entirely on speculations, surmises
or conjectures; (4) when the judgment of the Court of
OUR RULING Appeals is based on misapprehension of facts; (5) when
the Court of Appeals, in making its findings, went beyond
For purposes of clarity, we shall tackle simultaneously the the issues of the case and the same is contrary to the
second and third arguments raised by the petitioner. admissions of both appellant and appellee; (6) when the
findings of fact are conclusions without citation of
specific evidence on which they are based; (7) when the
Court of Appeals manifestly overlooked certain relevant
Instant petition not available to determine whether facts not disputed by the parties and which, if properly
petitioner violated the contract or abandoned the considered, would justify a different conclusion; and
construction of the house (8) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted
Petitioner contends that he neither abandoned the project by the evidence on record.[20]
nor violated the contract. He maintains that continuous
rains caused the delay in the construction of the house and Except with respect to the first ground advanced by the
that he was not able to finish the project because petitioner which will be discussed later, none of the above
respondent ordered him to stop the work. In fact, there exceptions obtain in this case. Hence, we find no cogent
was no reason for him to stop the project because he still reason to disturb the findings of the RTC and affirmed by
had available workers and materials at that time, as well the Court of Appeals that petitioner was negligent in the
as collectibles from the respondent. Petitioner likewise construction of respondents house and thus liable for
contends that the Court of Appeals erred in upholding the breach of contract.
trial courts finding that he was guilty of negligence.
Respondent not entitled to actual damages for want of
The contentions lack merit. evidentiary proof

Petitioner endeavors to convince us to determine, yet Petitioner further argues that the appellate court erred in
again, the weight, credence, and probative value of the affirming the RTCs award of actual damages for want of
evidence presented. This cannot be done in this petition evidentiary foundation. He maintains that actual damages
for review on certiorari under Rule 45 of the Rules of must be proved with reasonable degree of certainty. In the
Court where only questions of law may be raised by the case at bench, petitioner argues that the trial and the
parties and passed upon by us. In Fong v. Velayo,[17] we appellate courts awarded the amounts of P100,000.00

8
and P200,000.00 as actual damages based merely on the cannot, from the nature of the case, be proved with
testimonies of respondent and her witness. certainty.[23] The amount thereof is usually left to the
discretion of the courts but the same should be reasonable,
We agree. Article 2199 of the Civil Code provides that bearing in mind that temperate damages should be more
one is entitled to an adequate compensation only for such than nominal but less than compensatory. [24]
pecuniary loss suffered by him as he has duly
proved. In Ong v. Court of Appeals,[21] we held that There is no doubt that respondent sustained damages due
(a)ctual damages are such compensation or damages for to the breach committed by the petitioner. The transfer of
an injury that will put the injured party in the position in the venue of the wedding, the repair of the substandard
which he had been before he was injured. They pertain to work, and the completion of the house necessarily
such injuries or losses that are actually sustained and entailed expenses. However, as earlier discussed,
susceptible of measurement. To be recoverable, actual respondent failed to present competent proof of the exact
damages must not only be capable of proof, but must amount of such pecuniary loss. To our mind, and in view
actually be proved with reasonable degree of of the circumstances obtaining in this case, an award of
certainty. We cannot simply rely on speculation, temperate damages equivalent to 20% of the original
conjecture or guesswork in determining the amount of contract price of P500,000.00, or P100,000.00 (which,
damages. Thus, it was held that before actual damages can incidentally, is equivalent to 1/3 of the total amount
be awarded, there must be competent proof of the actual claimed as actual damages), is just and reasonable.
amount of loss, and credence can be given only to claims
which are duly supported by receipts.[22] WHEREFORE, the instant petition
is PARTIALLY GRANTED. The Decision of the Court
Here, as correctly pointed out by petitioner, respondent of Appeals dated April 29, 2004 in CA-G.R. CV No.
did not present documentary proof to support the claimed 70757 is AFFIRMED withMODIFICATION that the
necessary expenses for the repair and completion of the award of actual damages is deleted and, in lieu thereof,
house. In awarding the amounts of P100,000.00 petitioner is ordered to pay respondent temperate damages
and P200,000.00, the RTC and the Court of Appeals in the amount of P100,000.00.
merely relied on the testimonies of the respondent and her
witness. Thus: SO ORDERED.

As to the award of P100,000.00 as cost of repair 9.


and P200,000.00 as the amount necessary to complete the FILINVEST LAND, G.R. No.138980
house, the Court finds the same to be in the nature of INC.,
actual damages. It is settled that actual damages must be P e t i t i o n e r, Present:
supported by best evidence available x x x. In the case at
bar, the Court finds that the testimony of the plaintiff- PUNO,
appellant in this regard is supported by the testimony of Chairman,
Romeo dela Cruz, a realtor, who inspected the structure - versus - AUSTRIA-
after it remained unfinished. Said testimonies are MARTINEZ,
sufficient to establish the claim. x x x CALLEJO, SR.,
TINGA and
Respondent entitled to temperate damages in lieu of HON. COURT OF CHICO-
actual damages APPEALS, NAZARIO, JJ.
PHILIPPINE
Nonetheless, in the absence of competent proof on the AMERICAN
amount of actual damages suffered, a party is entitled to GENERAL Promulgated:
temperate damages. Articles 2216, 2224 and 2225 of the INSURANCE
Civil Code provide: COMPANY, and September 20, 2005
PACIFIC EQUIPMENT
Art. 2216. No proof of pecuniary loss is necessary in order CORPORATION,
that moral, nominal, temperate, liquidated or exemplary R e s p o n d e n t s.
damages may be adjudicated. The assessment of such x--------------------------------------
damages, except liquidated ones, is left to the discretion ------------x
of the court, according to the circumstances of each case.
DECISION
Art. 2224. Temperate or moderate damages, which are
more than nominal but less than compensatory damages, CHICO-NAZARIO, J.:
may be recovered when the court finds that some This is a petition for review on certiorari of the
pecuniary loss has been suffered but its amount can not, Decision[1] of the Court of Appeals dated 27 May
from the nature of the case, be proved with certainty. 1999 affirming the dismissal by the Regional Trial Court
of Makati, Branch 65,[2] of the complaint for damages
Art. 2225. Temperate damages must be reasonable under filed by Filinvest Land, Inc. (Filinvest) against herein
the circumstances. private respondents Pacific Equipment Corporation
(Pecorp) and Philippine American General Insurance
Temperate or moderate damages may be recovered when Company.
some pecuniary loss has been suffered but its amount
9
The essential facts of the case, as recounted by the trial
court, are as follows: On 28 November 1984, the Court received the findings
made by the Court Commissioner. In arriving at his
On 26 April 1978, Filinvest Land, Inc. (FILINVEST, for findings, the Commissioner used the construction
brevity), a corporation engaged in the development and documents pertaining to the project as basis. According to
sale of residential subdivisions, awarded to defendant him, no better basis in the work done or undone could be
Pacific Equipment Corporation (PACIFIC, for brevity) made other than the contract billings and payments made
the development of its residential subdivisions consisting by both parties as there was no proper procedure followed
of two (2) parcels of land located at Payatas, Quezon City, in terminating the contract, lack of inventory of work
the terms and conditions of which are contained in an accomplished, absence of appropriate record of work
Agreement. (Annex A, Complaint). To guarantee its progress (logbook) and inadequate documentation and
faithful compliance and pursuant to the agreement, system of construction management.
defendant Pacific posted two (2) Surety Bonds in favor of
plaintiff which were issued by defendant Philippine Based on the billings of defendant Pacific and the
American General Insurance (PHILAMGEN, for payments made by plaintiff, the work accomplished by
brevity). (Annexes B and C, Complaint). the former amounted to P11,788,282.40 with the
exception of the last billing (which was not acted upon or
Notwithstanding three extensions granted by plaintiff to processed by plaintiff) in the amount of P844,396.42. The
defendant Pacific, the latter failed to finish the contracted total amount of work left to be accomplished by plaintiff
works. (Annexes G, I and K, Complaint). On 16 October was based on the original contract amount less value of
1979, plaintiff wrote defendant Pacific advising the latter work accomplished by defendant Pacific in the amount
of its intention to takeover the project and to hold said of P681,717.58 (12,470,000-11,788,282.42).
defendant liable for all damages which it had incurred and
will incur to finish the project. (Annex L, Complaint). As regards the alleged repairs made by plaintiff on the
construction deficiencies, the Court Commissioner found
On 26 October 1979, plaintiff submitted its claim against no sufficient basis to justify the same. On the other hand,
defendant Philamgen under its performance and he found the additional work done by defendant Pacific in
guarantee bond (Annex M, Complaint) but Philamgen the amount of P477,000.00 to be in order.
refused to acknowledge its liability for the simple reason
that its principal, defendant Pacific, refused to On 01 April 1985, plaintiff filed its objections to the
acknowledge liability therefore. Hence, this action. Commissioners Resolution on the following grounds:

In defense, defendant Pacific claims that its failure to a) Failure of the commissioner to conduct a
finish the contracted work was due to inclement weather joint survey which according to the latter is indispensable
and the fact that several items of finished work and change to arrive at an equitable and fair resolution of the issues
order which plaintiff refused to accept and pay for caused between the parties;
the disruption of work. Since the contractual relation
between plaintiff and defendant Pacific created a b) The cost estimates of the commissioner were
reciprocal obligation, the failure of the plaintiff to pay its based on pure conjectures and contrary to the evidence;
progressing bills estops it from demanding fulfillment of and,
what is incumbent upon defendant Pacific. The
acquiescence by plaintiff in granting three extensions to c) The commissioner made conclusions of law
defendant Pacific is likewise a waiver of the formers right which were beyond his assignment or capabilities.
to claim any damages for the delay. Further, the unilateral
and voluntary action of plaintiff in preventing defendant In its comment, defendant Pacific alleged that the failure
Pacific from completing the work has relieved the latter to conduct joint survey was due to plaintiffs refusal to
from the obligation of completing the same. cooperate. In fact, it was defendant Pacific who initiated
the idea of conducting a joint survey and inventory dating
On the other hand, Philamgen contends that the various back 27 November 1983. And even assuming that a joint
amendments made on the principal contract and the survey were conducted, it would have been an exercise in
deviations in the implementation thereof which were futility because all physical traces of the actual conditions
resorted to by plaintiff and co-defendant Pacific without then obtaining at the time relevant to the case had already
its (defendant Philamgens) written consent thereto, have been obliterated by plaintiff.
automatically released the latter from any or all liability
within the purview and contemplation of the coverage of On 15 August 1990, a Motion for Judgment Based on the
the surety bonds it has issued. Upon agreement of the Commissioners Resolution was filed by defendant
parties to appoint a commissioner to assist the court in Pacific.
resolving the issues confronting the parties, on 7 July
1981, an order was issued by then Presiding Judge On 11 October 1990, plaintiff filed its opposition thereto
Segundo M. Zosa naming Architect Antonio Dimalanta as which was but a rehash of objections to the
Court Commissioner from among the nominees submitted commissioners report earlier filed by said plaintiff.[3]
by the parties to conduct an ocular inspection and to
determine the amount of work accomplished by the
defendant Pacific and the amount of work done by
plaintiff to complete the project.
10
On the basis of the commissioners report, the trial court
dismissed Filinvests complaint as well as Pecorps No Costs.[4]
counterclaim. It held:

In resolving this case, the court observes that the


appointment of a Commissioner was a joint undertaking The Court of Appeals, finding no reversible error in the
among the parties. The findings of facts of the appealed decision, affirmed the same.
Commissioner should therefore not only be conclusive
but final among the parties. The court therefore agrees Hence, the instant petition grounded solely on the issue of
with the commissioners findings with respect to whether or not the liquidated damages agreed upon by the
parties should be reduced considering that: (a) time is of
1. Cost to repair deficiency or the essence of the contract; (b) the liquidated damages
defect P532,324.02 was fixed by the parties to serve not only as penalty in
2. Unpaid balance of work done by defendant case Pecorp fails to fulfill its obligation on time, but also
- P1,939,191.67 as indemnity for actual and anticipated damages which
3. Additional work/change order (due to Filinvest may suffer by reason of such failure; and (c) the
defendant) P475,000.00 total liquidated damages sought is only 32% of the total
contract price, and the same was freely and voluntarily
The unpaid balance due defendant therefore agreed upon by the parties.
is P1,939,191.67. To this amount should be added
additional work performed by defendant at plaintiffs At the outset, it should be stressed that as only the issue
instance in the sum of P475,000.00. And from this total of liquidated damages has been elevated to this Court,
of P2,414,191.67 should be deducted the sum petitioner Filinvest is deemed to have acquiesced to the
of P532,324.01 which is the cost to repair the deficiency other matters taken up by the courts below. Section 1,
or defect in the work done by defendant. The Rule 45 of the 1997 Rules of Court states in no uncertain
commissioner arrived at the figure of P532,324.01 by terms that this Courts jurisdiction in petitions for review
getting the average between plaintiffs claim on certiorari is limited to questions of law which must be
of P758,080.37 and defendants allegation distinctly set forth.[5] By assigning only one legal issue,
of P306,567.67. The amount due to defendant per the Filinvest has effectively cordoned off any discussion into
commissioners report is therefore P1,881,867.66. the factual issue raised before the Court of Appeals.[6] In
effect, Filinvest has yielded to the decision of the Court of
Although the said amount of P1,881,867.66 would be Appeals, affirming that of the trial court, in deferring to
owing to defendant Pacific, the fact remains that said the factual findings of the commissioner assigned to the
defendant was in delay since April 25, 1979. The third parties case. Besides, as a general rule, factual matters
extension agreement of September 15, 1979 is very clear cannot be raised in a petition for review on certiorari.
in this regard. The pertinent paragraphs read: This Court at this stage is limited to reviewing errors of
law that may have been committed by the lower
a) You will complete all the unfinished works not later courts.[7] We do not perceive here any of the exceptions to
than Oct. 15, 1979. It is agreed and understood that this this rule; hence, we are restrained from conducting further
date shall DEFINITELY be the LAST and FINAL scrutiny of the findings of fact made by the trial court
extension & there will be no further extension for any which have been affirmed by the Court of Appeals.
cause whatsoever. Verily, factual findings of the trial court, especially when
affirmed by the Court of Appeals, are binding and
b) We are willing to waive all penalties for delay which conclusive on the Supreme Court.[8] Thus, it is settled that:
have accrued since April 25, 1979 provided that you are
able to finish all the items of the contracted works as per (a) Based on Pecorps billings and the payments made by
revised CPM; otherwise you shall continue to be liable to Filinvest, the balance of work to be accomplished by
pay the penalty up to the time that all the contracted works Pecorp amounts to P681,717.58 representing 5.47% of
shall have been actually finished, in addition to other the contract work. This means to say that Pecorp, at the
damages which we may suffer by reason of the delays time of the termination of its contract, accomplished
incurred. 94.53% of the contract work;

Defendant Pacific therefore became liable for delay when (b) The unpaid balance of work done by Pecorp amounts
it did not finish the project on the date agreed on October to P1,939,191.67;
15, 1979. The court however, finds the claim
of P3,990,000.00 in the form of penalty by reason of delay (c) The additional work/change order due Pecorp
(P15,000.00/day from April 25, 1979 to Jan. 15, 1980) to amounts to P475,000.00;
be excessive. A forfeiture of the amount due defendant
from plaintiff appears to be a reasonable penalty for the (d) The cost to repair deficiency or defect, which is for the
delay in finishing the project considering the amount of account of Pecorp, is P532,324.02; and
work already performed and the fact that plaintiff
consented to three prior extensions. (e) The total amount due Pecorp is P1,881,867.66.

The foregoing considered, this case is dismissed. The


counterclaim is likewise dismissed.
11
Coming now to the main matter, Filinvest argues that the was already not far from completion. Said the Court of
penalty in its entirety should be respected as it was a Appeals:
product of mutual agreement and it represents only 32%
of the P12,470,000.00 contract price, thus, not shocking Turning now to plaintiffs appeal, We likewise agree with
and unconscionable under the circumstances. Moreover, the trial court that a penalty interest of P15,000.00 per day
the penalty was fixed to provide for actual or anticipated of delay as liquidated damages or P3,990,000.00
liquidated damages and not simply to ensure compliance (representing 32% penalty of the P12,470,000.00 contract
with the terms of the contract; hence, pursuant price) is unconscionable considering that the construction
to Laureano v. Kilayco,[9] courts should be slow in was already not far from completion. Penalty interests are
exercising the authority conferred by Art. 1229 of the in the nature of liquidated damages and may be
Civil Code. equitably reduced by the courts if they are iniquitous or
unconscionable (Garcia v. Court of Appeals, 167 SCRA
We are not swayed. 815, Lambert v. Fox, 26 Phil. 588). The judge shall
equitably reduce the penalty when the principal obligation
There is no question that the penalty of P15,000.00 per has been partly or irregularly complied with by the debtor.
day of delay was mutually agreed upon by the parties and Even if there has been no performance, the penalty may
that the same is sanctioned by law. A penal clause is an also be reduced by the courts if it is iniquitous or
accessory undertaking to assume greater liability in case unconscionable (Art. 1229, New Civil Code). Moreover,
of breach.[10] It is attached to an obligation in order to plaintiffs right to indemnity due to defendants delay has
insure performance[11] and has a double function: (1) to been cancelled by its obligations to the latter consisting of
provide for liquidated damages, and (2) to strengthen the unpaid works.
coercive force of the obligation by the threat of greater
responsibility in the event of breach.[12] Article 1226 of This Court finds no fault in the cost estimates of the court-
the Civil Code states: appointed commissioner as to the cost to repair deficiency
or defect in the works which was based on the average
Art. 1226. In obligations with a penal clause, the penalty between plaintiffs claim of P758,080.37 and
shall substitute the indemnity for damages and the defendants P306,567.67 considering the following
payment of interests in case of noncompliance, if there is factors: that plaintiff did not follow the standard practice
no stipulation to the contrary. Nevertheless, damages shall of joint survey upon take over to establish work already
be paid if the obligor refuses to pay the penalty or is guilty accomplished, balance of work per contract still to be
of fraud in the fulfillment of the obligation. done, and estimate and inventory of repair (Exhibit H). As
for the cost to finish the remaining works, plaintiffs
The penalty may be enforced only when it is demandable estimates were brushed aside by the commissioner on the
in accordance with the provisions of this Code. reasoned observation that plaintiffs cost estimate for work
(to be) done by the plaintiff to complete the project is
based on a contract awarded to another contractor (JPT),
the nature and magnitude of which appears to be
As a general rule, courts are not at liberty to ignore the inconsistent with the basic contract between defendant
freedom of the parties to agree on such terms and PECORP and plaintiff FILINVEST.[14]
conditions as they see fit as long as they are not contrary
to law, morals, good customs, public order or public
policy.[13] Nevertheless, courts may equitably reduce a
stipulated penalty in the contract in two instances: (1) if We are hamstrung to reverse the Court of Appeals as it is
the principal obligation has been partly or irregularly rudimentary that the application of Article 1229 is
complied; and (2) even if there has been no compliance if essentially addressed to the sound discretion of the
the penalty is iniquitous or unconscionable in accordance court.[15]As it is settled that the project was
with Article 1229 of the Civil Code which provides: already 94.53% complete and that Filinvest did agree to
extend the period for completion of the project, which
Art. 1229. The judge shall equitably reduce the penalty extensions Filinvest included in computing the amount of
when the principal obligation has been partly or the penalty, the reduction thereof is clearly warranted.
irregularly complied with by the debtor. Even if there has Filinvest, however, hammers on the case of Laureano v.
been no performance, the penalty may also be reduced by Kilayco,[16] decided in 1915, which cautions courts to
the courts if it is iniquitous or unconscionable. distinguish between two kinds of penalty clauses in order
to better apply their authority in reducing the amount
recoverable. We held therein that:

In herein case, the trial court ruled that the penalty charge . . . [I]n any case wherein there has been a partial or
for delay pegged at P15,000.00 per day of delay in the irregular compliance with the provisions in a contract for
aggregate amount of P3,990,000.00 -- was excessive and special indemnification in the event of failure to comply
accordingly reduced it to P1,881,867.66 considering the with its terms, courts will rigidly apply the doctrine of
amount of work already performed and the fact that strict construction against the enforcement in its entirety
[Filinvest] consented to three (3) prior extensions. The of the indemnification, where it is clear from the terms of
Court of Appeals affirmed the ruling but added as well the contract that the amount or character of the indemnity
that the penalty was unconscionable as the construction is fixed without regard to the probable damages which
might be anticipated as a result of a breach of the terms of
12
the contract; or, in other words, where the indemnity where the full amount of damages is payable in case of
provided for is essentially a mere penalty having for its total breach of contract. In the instant case, as the penalty
principal object the enforcement of compliance with the clause was agreed upon to answer for delay in the
contract. But the courts will be slow in exercising the completion of the project considering that time is of the
jurisdiction conferred upon them in article 1154[17] so as essence, the parties thus clearly contemplated the
to modify the terms of an agreed upon indemnification payment of accumulated liquidated damages despite, and
where it appears that in fixing such indemnification the precisely because of, partial performance.[20] In effect, it
parties had in mind a fair and reasonable compensation is Filinvests position that the first part of Article 1229 on
for actual damages anticipated as a result of a breach of partial performance should not apply precisely because,
the contract, or, in other words, where the principal in all likelihood, the penalty clause would kick in in
purpose of the indemnification agreed upon appears to situations where Pecorp had already begun work but
have been to provide for the payment of actual anticipated could not finish it on time, thus, it is being penalized for
and liquidated damages rather than the penalization of a delay in its completion.
breach of the contract. (Emphases supplied)
The above argument, albeit sound,[21] is insufficient to
reverse the ruling of the Court of Appeals. It must be
remembered that the Court of Appeals not only held that
Filinvest contends that the subject penalty clause falls the penalty should be reduced because there was partial
under the second type, i.e., the principal purpose for its compliance but categorically stated as well that the
inclusion was to provide for payment of actual anticipated penalty was unconscionable. Otherwise stated, the Court
and liquidated damages rather than the penalization of a of Appeals affirmed the reduction of the penalty not
breach of the contract. Thus, Filinvest argues that had simply because there was partial compliance per se on the
Pecorp completed the project on time, it (Filinvest) could part of Pecorp with what was incumbent upon it but, more
have sold the lots sooner and earned its projected income fundamentally, because it deemed the penalty
that would have been used for its other projects. unconscionable in the light of
Pecorps 94.53% completion rate.
Unfortunately for Filinvest, the above-quoted doctrine is In Ligutan v. Court of Appeals,[22] we pointed out that the
inapplicable to herein case. The Supreme Court question of whether a penalty is reasonable or iniquitous
in Laureano instructed that a distinction between a can be partly subjective and partly objective as its
penalty clause imposed essentially as penalty in case of resolution would depend on such factors as, but not
breach and a penalty clause imposed as indemnity for necessarily confined to, the type, extent and purpose of
damages should be made in cases where there has been the penalty, the nature of the obligation, the mode of
neither partial nor irregular compliance with the terms of breach and its consequences, the supervening realities, the
the contract. In cases where there has been partial or standing and relationship of the parties, and the like, the
irregular compliance, as in this case, there will be no application of which, by and large, is addressed to the
substantial difference between a penalty and liquidated sound discretion of the court.[23]
damages insofar as legal results are concerned.[18] The
distinction is thus more apparent than real especially in In herein case, there has been substantial compliance in
the light of certain provisions of the Civil Code of good faith on the part of Pecorp which renders
the Philippines which provides in Articles 2226 and unconscionable the application of the full force of the
Article 2227 thereof: penalty especially if we consider that in 1979 the amount
of P15,000.00 as penalty for delay per day was quite steep
Art. 2226. Liquidated damages are those agreed upon by indeed. Nothing in the records suggests that Pecorps delay
the parties to a contract to be paid in case of breach in the performance of 5.47% of the contract was due to it
thereof. having acted negligently or in bad faith. Finally, we factor
in the fact that Filinvest is not free of blame either as it
Art. 2227. Liquidated damages, whether intended as an likewise failed to do that which was incumbent upon
indemnity or a penalty, shall be equitably reduced if they it, i.e., it failed to pay Pecorp for work actually performed
are iniquitous or unconscionable. by the latter in the total amount of P1,881,867.66. Thus,
all things considered, we find no reversible error in the
Court of Appeals exercise of discretion in the instant case.

Thus, we lamented in one case that (t)here is no Before we write finis to this legal contest that had spanned
justification for the Civil Code to make an apparent across two and a half decades, we take note of Pecorps
distinction between a penalty and liquidated damages own grievance. From its Comment and Memorandum,
because the settled rule is that there is no difference Pecorp, likewise, seeks affirmative relief from this Court
between penalty and liquidated damages insofar as legal by praying that not only should the instant case be
results are concerned and that either may be recovered dismissed for lack of merit, but that Filinvest should
without the necessity of proving actual damages and both likewise be made to pay what the Court Commissioner
may be reduced when proper.[19] found was due defendant in the total amount
of P2,976,663.65 plus 12% interest from 1979 until full
Finally, Filinvest advances the argument that while it may payment thereof plus attorneys fees.[24] Pecorp, however,
be true that courts may mitigate the amount of liquidated cannot recover that which it seeks as we had already
damages agreed upon by the parties on the basis of the denied, in a Resolution dated 21 June 2000, its own
extent of the work done, this contemplates a situation petition for review of the 27 May 1999 decision of the
13
Court of Appeals. Thus, as far as Pecorp is concerned, the Inc., issued in favor of appellee a surety bond in the
ruling of the Court of Appeals has already attained finality amount of P66,150 to guarantee the full and faithful
and can no longer be disturbed. performance by the appellant Alto Electronics
Corporation under the agreement.
WHEREFORE, premises considered, the Decision of the The first shipment of 250 television sets was totally
Court of Appeals dated 27 May 1999 is AFFIRMED. No delivered, and totally paid for. Thereafter, appellee
pronouncement as to costs. deposited with appellant Alto Electronics Corporation the
SO ORDERED. sum of P66,150, the sum required under the "dealership
agreement" as advance partial payment for the 250 sets of
10. G.R. No. L-12376 August 22, 1958 the second delivery. No delivery having been made on this
JOE'S RADIO and ELECTRICAL SUPPLY, plaintiff- second batch, suit was commenced against the defendants
appellee, and appellants on January 30, 1954.
vs. During the pendency of the case, but before trial was held,
ALTO ELECTRONICS CORPORATION and ALTO the appellee and the Alto Electronics Corporation entered
SURETY and INSURANCE CO., INC., defendants- into another agreement, dated July 2, 1954, wherein the
appellants. latter admitted having received from the former the sum
Jose W. Diokno for appellee. of P66,150, as advance partial payment, as
Manuel P. Calanog for appellant Alto Electronics aforementioned, for the remaining 250 television sets
Corporation. slated for delivery by the Alto Electronics Corporation to
Aristorenas and Relova for appellant Alto Surety and the appellee under the dealership agreement; and that, as
Insurance Co., Inc. of the date of the additional agreement, said sum, together
REYES, J.B.L., J.: with interest thereon, amounted to P70,008.75. Under the
Appeal from a judgment of the Court of First Instance of terms of the second instrument, the said appellant agreed
Manila, in its Civil Case No. 21805, ordering the to liquidate this indebtedness by delivering to appellee 66
defendants to pay jointly and severally to the plaintiff, the television sets of various models, delivery to commence
sum of P49,378.77, plus 6 per cent interest per annum within five days after the signing of the agreement and to
from July 2, 1954, plus the further sum of P39,780 as be completed within 90 days thereafter. With this
liquidated damages, with legal interest from the filing of agreement, the Alto Surety & Insurance Co., Inc. signed
the complaint, provided, however, that the liability of the in conformity.
defendant surety company shall not exceed P66,150, in However, of the 66 television sets required to be delivered
accordance with the surety bond. under the agreement, appellant Alto Electronics
The facts of this case are practically undisputed, and may Corporation was only able to deliver 13 sets, with a total
be substantially stated as follows: value of P20,629.98, leaving an unpaid balance of
On May 23, 1953, the plaintiff and appellee and the P49,378.77. Besides these 13 television sets, said
Bolinao Electronics Corporation entered into a appellant also delivered to appellee two other sets with a
"dealership agreement", (Exhibit "A"), whereby the latter total value of P2,928.24, which were accepted by the latter
bound itself to sell and deliver to the former 500 television as "deposit pending receipt of letter of approval from the
sets (RCA TV Model 21T-303, 21" KERBY) at the price appellant surety company" presumably (fearing a release
of P1,134.00 each, in two shipments of 250 sets, the first of the surety bond should said delivery be accepted
shipment to be made within 90 days from May 23, 1953, without the surety company's consent), because delivery
and the next shipment within 60 days after the completion was made after the lapse of the period provided in the
of the first shipment. On its part, the appellee, Joe's Radio second agreement.
& Electrical Supply, agreed to deposit 1/3 of the total In view of such failure of the appellant Alto Electronics
price of the first shipment, minus a discount of 30 per Corporation to comply fully with the said additional
cent, upon signing the contract; 1/3 of the total price of agreement, appellee reactivated the present suit and on
the second shipment, minus a discount of 30 per cent, April 2, 1955, filed an amended and supplemental
immediately after its receipt of the first shipment; and the complaint alleging the above facts.
balance of the total price of each shipment (minus the As already indicated, the trial court rendered judgment in
discounts) immediately after making the performance test favor of the plaintiff and appellee. Against this decision,
of each set in each shipment. To secure the true and the defendants-appellants, Alto Electronics Corporation
faithful compliance of the agreement by the Bolinao and Alto Surety & Insurance Co., Inc., appealed to the
Electronics Corporation, it agreed to put up a surety bond, Court of Appeals, which certified the case to this Court,
in an amount sufficient to cover the advance payment to in view of section 17, paragraph 2, of the Judiciary Act of
be made by appellee, and also that, should the Bolinao 1948, since the amount involved is far in excess of
Electronics Corporation fail to comply with the terms of P50,000.
the agreement within the period specified, it would return Appellants, Alto Electronics Corporation and Alto Surety
to appellee upon demand whatever amount or amounts & Insurance Co., Inc., now urge that:
had been deposited by the latter, with interest at the rate 1. The lower court erred in not crediting the appellants
of 6% per annum, plus damages equivalent to 20 per cent with the sum of P2,928.24, representing the cost (current
of the total cost of 250 television sets. price less 40 per cent and 2 per cent discount) of three (3)
The defendant and appellant Alto Electronics Corporation TV sets delivered to and accepted by the appellee.
was subrogated to the rights and obligations of the 2. The lower court erred in holding that the subsequent
Bolinao Electronics Corporation in the "dealership agreement Exhibit "G" is a supplement to the original
agreement" on August 31, 1953; and on the same date, the dealership agreement and not a novation thereof.
other defendant-appellant Alto Surety & Insurance Co.,
14
3. The lower court erred in holding that the stipulation for possession of the objects being merely in the nature of a
liquidated damages and interest contained in the original deposit. Appellant Alto Electronics Corporate could have,
dealership agreement was tacitly carried over to the at any time, if it wanted to, retake them prior to the said
subsequent agreement, Exhibit "G." approval. Until such delivery was confirmed by the
4. The lower court erred in holding that the appellants are surety, no unqualified acceptance had been made, and
jointly and severally liable for the principal sum of ownership remained with the Alto Electronics
P49,378.77, with interest at 6% per annum from July 2, Corporation, as the depositor.
1954, plus 20 per cent of the total cost of undelivered sets As regards the appellant Alto Electronics Corporation,
or the sum of P39,780 as liquidated damages, with interest there is another reason why the first assigned error could
at 6 per cent per annum from the filing of the complaint not be given merit, and that is, its admission under
on January 30, 1954. paragraph 5 of its amended answer (Rec. App., p. 36) of
On the first assignment of error, it is urged by appellants paragraph 11 of the amended and supplemental complaint
that the value of two television sets which were accepted which in effect admitted the allegations contained in the
by appellee as "deposit pending receipt of letter of said paragraph of the complaint, viz., "That under the
approval from the Alto Surety & Insurance Co., Inc.," aforesaid agreement, defendant delivered to plaintiff only
should be credited to the principal amount owned by 13 television sets with a total value of P20,629.98 leaving
appellant Alto Electronics Corporation. They cite in this an unpaid balance of P49,378.77". It is a familiar doctrine
regard a statement from the Corpus Juris (Vol. 12, p. 320) that an admission made in the pleadings cannot be
to the effect that: controverted by the party making such admission and are
Where a tender is made on condition that it shall be conclusive as to him, and that all proofs submitted by him
received in settlement of a disputed claim, it is the duty of contrary thereto or inconsistent therewith, should be
the party to whom it is made either to refuse it or accept it ignored, whether objection is interposed by the party or
on the terms as made. He has no right to accept the tender not (Cunanan vs. Amparo, 80 Phil., 227; Ramirez vs.
and prescribe the terms of the acceptance. Where a tender Orientalist Co., 38 Phil., 634; McDaniel vs. Apacible, 44
thus made is accepted, it is binding, although the Phil., 248; see also section 7, Rule 123, Rules of Court;
acceptance is under protest or with the express declaration Francisco, Rules of Court ann., Vol. VI, p. 195;
that it is received in part satisfaction only. Comments on the Rules of Court, Moran, Vol. 3, '57 Ed.,
Aside from the fact that this rule would seem to have p. 66-67).
application only in cases where the thing offered is With respect to the second assignment of error, it is
tendered by the debtor with the condition that it shall be appellants' theory that the subsequent agreement, Exhibit
in full satisfaction or settlement of a claim (which does "G", entered into during the pendency of this action,
not appear to be the case here), it is qualified thus: novated the original agreement of May 23, 1953. They
The rule that the retention of payment made on condition base this proposition on Article 1291 of the Civil Code
that they shall be in full satisfaction of the claim does not which provides that obligations may be modified by
apply where the amount accepted does not purport to changing the object or principal conditions. In order to
cover the amount in controversy (Bryant Lumber Co. vs. produce that effect, however, Article 1292 of the same
Cappock-Warner Lumber Co., 79 S.E. 282), when there Code prescribes:
is nothing to show that the payment was accepted as ART. 1292. In order that an obligation may be
definite and final settlement (94 A.L.R.), (or), when the extinguished by another which substitutes the same, it is
amount is transmitted under circumstances showing that imperative that it be so declared in unequivocal terms, or
it was tendered as a payment of indebtedness which was that the old and new obligation be in every point
thereafter to be adjusted by the parties. . . . (15 C.J.S., incompatible with each other. (Emphasis supplied)
section 7, pp. 720-721) This rule definitely precludes the possibility of a novation
Certainly, the delivery of the two television sets in taking place without the intention of the parties to do so
question could not have been intended by either of the (animus novendi), expressed in the manner provided in
parties to be the full and final settlement of appellee's the aforequoted provision of the law. Hence, in the case
claim. of La Tondea, Inc. vs. Alto Surety & Insurance Co., Inc.
Upon the other hand, it would seem that the general et al., 101 Phil., 879; 53 Off. Gaz. (18) 6101 this court
principles on payment under the Civil Code1 sanctions ruled that in order to extinguish or discharge an obligation
such kind of acceptance, as where the performance of the by novation, the intent of the parties to do so (animus
obligation is incomplete or irregular. Observe that the novendi) must either be expressed, or else clearly apparent
delivery of the two television sets was made after the from the incompatibility in all points" of the old and new
prescribed period fixed in the agreement of the parties. obligations. Aside, therefore, from the changes or
Lest the appellee be misunderstood as having granted an differences that might be brought about in the terms of the
extension of the obligation that might release the surety old agreement by the new one, "absolute incompatibility"
company from its undertaking under the surety bond2 , it in order to presume intention to novate should be evident
was not improper nor unreasonable for it to subject its in the absence of an express declaration to that effect by
acceptance to the said delivery upon the surety company's the parties. This Court has been uniform in its decisions
consent. It should be noted further that when appellee in this respect. (Lorenzo Lerma vs. V. Reyes and Adela
imposed such condition, no objection was interposed by Enriquez, 103 Phil., 1027; Maria Pascual vs. Jose
the appellant Alto Electronics Corporation, thereby at Lacsamana, 100 Phil., 381; Reynold Santos vs. Emiliano
least implying its concurrence to it. Acua, et al., 100 Phil., 230; 53 Off. Gaz. 358;
Pending the receipt of a letter of approval from the surety Mendoza vs. De Guia, 84 Phil., 873; Inchausti vs. Yulo,
company, appellee could not have disposed of the two 34 Phil., 624; Zapanta vs. De Rotaeche, 21 Phil., 154).
television sets in the ordinary course of business, its
15
In the present case, the subsequent agreement, Exhibit liquidated damages, computed at 20 per cent of the total
"G", contains no express declaration extinguishing the cost of 250 television sets (at the price of P1,134 per set
previous one (the dealership agreement). Upon the other less 30 per cent discount), as provided in the original
hand, it is clear that the parties still recognized the dealership agreement, plus legal interest from the date of
existence of the first agreement, as the arrangement was filing of the original complaint on January 30, 1954.
that upon the completion of the 66 television within the Appellants contend that in view of the partial performance
period agreed upon under the new covenant, the appellee on their part of the agreement, they are entitled to an
would move for the dismissal of the pending case against equitable reduction of damages irrespective of whether
the appellants, "otherwise, whatever deliveries might have the stipulation for damages was intended as a penalty or
been made would be applied on account of the claims, as indemnity. Appellee, on the other hand, argues that
subject matter of the complaint." (Rec. App., p. 32). while partial or irregular performance may justify a
Evidently, in referring to the "claims subject matter of the reduction of a penalty under Article 1229 of the new Civil
complaint", the parties had in mind then the already Code, it may not do so in the case of liquidated damages,
existing liability of the appellants that arose from the which according to it could only be reduced if found to be
breach of the original contract. The parties could not have iniquitous or unconscionable as provided in Article 2227
intended as the "claims subject matter of the complaint" of the same Code.
those to be derived from the second agreement, for there Art. 1229. The judge shall equitably reduce the penalty
could not have been any violation thereof at the time it when the principal obligation has been partly or
was entered into. irregularly complied with by the debtor. Even if there has
It thus appears that Exhibit "G" simply gave appellants been no performance, the penalty may also be reduced by
more time and an added opportunity to liquidate their the courts if it is iniquitous or unconscionable.
obligations and thus escape the sanctions provided in the ART. 2227. Liquidated damages, whether intended as an
first (dealership) agreement; it was not contemplated that indemnity or a penalty shall be equitably reduced if they
the latter would be completely superseded unless and until are iniquitous or unconscionable.
there was a full performance of the terms in the new We believe that the distinction that appellee stresses in
agreement. The appellee had experienced the break of the this appeal, has no justification. While under the new
first agreement by the appellant, and having no assurance Civil Code, penalties and liquidated damages are dealt
that the second would not be likewise breached, it had no with separately, nevertheless, the fundamental rules
reason to forego the clause providing for liquidated governing them still remain basically the same, making
damages, since that was established for its own them subject to reduction where equity so requires.
protection. The terms of the second agreement clearly In American law, it is only when the clause is a penalty
indicate, on the contrary, that the liquidated damages that the courts will reduce the stipulated damages which
clause of the original contract was intended to subsist. are excessive. But article 2247 (now 2227) of the
Did the new arrangement amount to an independent proposed Code states:
contract? It did not, for as we have already explained, it ART. 2247. Liquidated damages, whether intended as an
included specifically the stipulation that should there be indemnity or a penalty shall be equitably reduced if they
partial performance of the new agreement, the same are iniquitous or unconscionable.
should be applied on account of the claims subject matter The reason is that in both cases, the stipulation is contra
of the complaint, which "claims" embraced the recovery bonos mores under article 1326. It is a mere technicality
of the liquidated damages provided in the dealership to refuse to lessen the damages to their just amount simply
agreement. because the stipulation is not meant to be a penalty. An
Having arrived at the above conclusion, the appellants' immoral stipulation is none the less immoral because it is
third and fourth assignments of error necessarily fail, for called an indemnity. (Report of the Code Commission, p.
both are based on the proposition that the second 75)
agreement, Exhibit "G" extinguished by novation the What could be regarded as an equivalent provision of
previous dealership agreement, Exhibit "A". However, Article 1229 on penalties is Article 2228 with respect to
the amounts recoverable by the appellee must be reduced liquidated damages:
as follows: ART. 2228. When the breach of the contract committed
(1) The first recoverable item stated by the trial court to by the defendant is not the one contemplated by the parties
be in the amount of P49,378.773 should bear interest at 6 in agreeing upon the liquidated damages, the law shall
%, not from July 2, 1954 when the second agreement was determine the measure of damages, and not the
entered into, but only from April 2, 1955, the date when stipulation."4
the amended and supplemental complaint was filed. As a Where there is partial or irregular performance in a
debtor incurs in default only from the time the obligee contract providing for liquidated damages, it can be said,
judicially or extrajudicially demands the fulfillment of the in view of the foregoing cited provision of the Code, that
obligation (Article 1169, new Civil Code), and as no the court may mitigate the sum stipulated therein since it
extra-judicial demand was made, legal interest thereon is to be presumed that the parties only contemplated a total
starts to run only from the date of judicial demand breach of the contract. And this is usually so because of
(Mariano Veloso, et al. vs. Aniceta Fontanosa, et al., 13 the difficulty or sometimes inability of the parties to
Phil. 79, citing the decision of the Supreme Court of ascertain or gauge beforehand, the amount of indemnity
Spain, dated December 3, 1902). The amount involved in in case of a partial breach, just as it is equally perplexing
this item, it is to be observed, has particular reference to a to foresee the extent of a partial or irregular performance.
violation of the second agreement. And so it has been held in one case that a stipulation for
(2) The other item in the amount of P39,780 was ordered liquidated damages in case of a total breach of the contract
by the court below to be paid to appellee by way of cannot be enforced if the party has accepted a partial
16
performance thereof (Tanenbaum Son & Co. vs. Drumbor P78,595.02
Bingell Co., C.C.A. Pa. 47 F [2d] 1009, certiorari denied,
52 S. Ct. 7; 284 U.S. 619, 76 L. Ed. 588, cited 25 C.J.S. agreed percentage for liquidated
695). x 20 per cent. damages.
In this connection, we believe that the 20 per cent P15,719. recoverable sum
liquidated damages clause in the dealership agreement
must have had reference to a failure to comply with the
terms of the entire agreement, that is to say, the delivery
plus legal interest from the filing of the supplemental
of 500 television sets (in two shipments of 250 sets each)
complaint on April 2, 1955.
within the time provided therein. To permit appellee to
Wherefore, the decision appealed is affirmed, with the
collect the same amount of liquidated damages after more
modification that the 6% interest on the first item of
than half of the sets were delivered and received, would
P49,378.77 (representing of appellee's advances) be made
amount to doubling the stipulated damages in case none
to start only from April 2, 1955, the date of the filing of
of the sets had been delivered, and nothing in the contract
the amended and supplemental complaint; and with
warrants such a possibility.
respect to the P39,780 liquidated damages awarded by the
The correct principle has been declared in the case
trial court, the same shall be reduced to only P15,719, plus
of Sledge et al., vs. Arcadia Orchards Co. (77 Wash. 477,
legal interest thereon from the same date, April 2, 1955.
317 Pac. 1051, citing Shute vs. Taylor, 5 Metc. [Mass.]
Without costs in this instance. So ordered.
61, 67):
. . . The question what is liquidated damages, and what is
a penalty, if often a difficult one. It is not always the
calling of a sum, to be paid for breach of contract,
liquidated damages which makes it so. In general, it is the
tendency and preference of the law to regard a sum, stated
to be payable if a contract is not fulfilled, as a penalty, and
not as liquidated damages, because then it may be
apportioned to the loss actually sustained. But, without
going at large into the subject, one consideration, we
think, is decisive against recovering the sum in question
as liquidated damages, namely: That here there has been
a part performance, and acceptance of such part
performance. If the parties intended the sum named to be
liquidated damages for the breach of the contract therein
expressed, it was for an entire breach. Whether divisible
in its nature or not, it was in fact divided by an offer and
acceptance of part performance. It is like the case of an
obligation to perform two more independent acts, with a
provision for single liquidated damages for non-
performance; if one is performed, and not the other, it is
not a case for the recovery of the liquidated damages.
(Emphasis supplied)
Consequently, it is immaterial whether the questioned
clause in the dealership agreement is a provision for
liquidated damages, or deemed a penalty clause under the
above circumstances; it has to be mitigated in either case,
in the former case, because of its being unconscionable if
enforced in toto; and in the latter, because of the
acceptance of a partial performance.
Accordingly, taking the stipulated sum as the basis for the
measure of damages, or deducting therefrom the benefits
received in view of the partial compliance, appellants
should be made to pay as damages only the amount of
P15,719.00, computed as follows:

basic cost of 250 TV sets, minus a


discount of 30% from the stipulated
P198,450. price of P1,134 each.
one-half of the P198,450, as there
has been 50 per cent partial
compliance under the dealership
P 99,225. agreement.
extent of partial performance under
the second agreement (13 additional
P20,629.98 TV sets).
17