Civil Law Review 2 - Oblicon Cases

CIVIL LAW REVIEW 2 – OBLIGATION & CONTRACTS CASES
[G.R. No. L-10134. June 29, 1957.]
SABINA EXCONDE, Plaintiff-Appellant, v. DELFIN CAPUNO and DANTE CAPUNO, Defendants-Appellees.
Magno T. Bueser for Appellant.
Alvero Law Offices & Edon B. Brion and Vencedor A. Alimario for Appellees.
SYLLABUS
1. CIVIL LIABILITY OF PARENTS FOR DAMAGES CAUSED BY THEIR MINOR CHILDREN; RELIEF FROM LIABILITY. — The
civil liability which the law imposes upon the father, and, in case of his death or incapacity, the mother, for any damages that may
be caused by the minor children who live with them is a necessary consequence of the parental authority they exercise over
them which imposes upon the parents the "duty of supporting them, keeping them in their company, educating them and
instructing them in proportion to their means", while, on the other hand, gives them the "right to correct and punish them in
moderation" (Articles 154 and 155, Spanish Civil Code). The only way by which they can relieve themselves of such liability is if
they prove that they exercised all the diligence of a good father of a family to prevent the damage (Article 1903, last paragraph,
Spanish Civil Code).
2. ID.; LIABILITY OF TEACHERS OR DIRECTOR; INSTITUTIONS AFFECTED. — The civil liability imposed by Article 1903 of
the old Civil Code on teachers or directors of arts and trades for damages caused by pupils or apprentices under their custody,
only applies to an institution of arts and trades and not to any academic educational institution.
DECISION
BAUTISTA ANGELO, J.:
Dante Capuno, son of Delfin Capuno, was accused of double homicide through reckless imprudence for the death of Isidoro
Caperiña and Amado Ticzon on March 31, 1949 in the Court of First Instance of Laguna (Criminal Case No. 15001). During the
trial, Sabina Exconde, as mother of the deceased Isidoro Caperiña, reserved her right to bring a separate civil action for
damages against the accused. After trial, Dante Capuno was found guilty of the crime charged and, on appeal, the Court of
Appeals affirmed the decision. Dante Capuno was only fifteen (15) years old when he committed the crime.
In line with her reservation, Sabina Exconde filed the present action against Delfin Capuno and his son Dante Capuno asking for
damages in the aggregate amount of P2,959.00 for the death of her son Isidoro Caperiña. Defendants set up the defense that if
any one should be held liable for the death of Isidoro Caperiña, he is Dante Capuno and not his father Delfin because at the time
of the accident, the former was not under the control, supervision and custody of the latter. This defense was sustained by the
lower court and, as a consequence, it only convicted Dante Capuno to pay the damages claimed in the complaint. From this
decision, plaintiff appealed to the Court of Appeals but the case was certified to us on the ground that the appeal only involves
questions of law.
It appears that Dante Capuno was a member of the Boy Scouts Organization and a student of the Balintawak Elementary School
situated in a barrio in the City of San Pablo and on March 31, 1949 he attended a parade in honor of Dr. Jose Rizal in said city
upon instruction of the city school’s supervisor. From the school Dante, with other students, boarded a jeep and when the same
started to run, he took hold of the wheel and drove it while the driver sat on his left side. They have not gone far when the jeep
turned turtle and two of its passengers, Amado Ticzon and Isidoro Caperiña, died as a consequence. It further appears that
Delfin Capuno, father of Dante, was not with his son at the time of the accident, nor did he know that his son was going to attend
a parade. He only came to know it when his son told him after the accident that he attended the parade upon instruction of his
teacher.
The only issue involved in this appeal is whether defendant Delfin Capuno can be held civilly liable, jointly and severally with his
Page 1 of 105
son Dante, for damages resulting from the death of Isidoro Caperiña caused by the negligent act of minor Dante Capuno.
The case comes under Article 1903 of the Spanish Civil Code, paragraph 1 and 5, which provides:jgc:chanrobles.com.ph
"ART. 1903. The obligation imposed by the next preceding articles is enforceable not only for personal acts and omissions, but
also for those of persons for whom another is responsible.
The father, and, in case of his death or incapacity, the mother, are liable for any damages caused by the minor children who live
with them.
x x x
Finally, teachers or directors of arts and trades are liable for any damages caused by their pupils or apprentices while they are
under their custody."cralaw virtua1aw library
Plaintiff contends that defendant Delfin Capuno is liable for the damages in question jointly and severally with his son Dante
because at the time the latter committed the negligent act which resulted in the death of the victim, he was a minor and was then
living with his father, and inasmuch as these facts are not disputed, the civil liability of the father is evident. And so, plaintiff
contends, the lower court erred in relieving the father from liability.
We find merit in this claim. It is true that under the law above quoted, "teachers or directors of arts and trades are liable for any
damages caused by their pupils or apprentices while they are under their custody", but this provision only applies to an institution
of arts and trades and not to any academic educational institution (Padilla, Civil Law, 1953, Ed., Vol. IV, p. 841; See 12 Manresa,
4th Ed., p. 557). Here Dante Capuno was then a student of the Balintawak Elementary School and as part of his extra-curricular
activity, he attended the parade in honor of Dr. Jose Rizal upon instruction of the city school’s supervisor. And it was in
connection with that parade that Dante boarded a jeep with some companions and while driving it, the accident occurred. In the
circumstances, it is clear that neither the head of that school, nor the city school’s supervisor, could be held liable for the
negligent act of Dante because he was not then a student of an institution of arts and trades as provided for by law.
The civil liability which the law impose upon the father, and, in case of his death or incapacity, the mother, for any damages that
may be caused by the minor children who live with them, is obvious. This is a necessary consequence of the parental authority
they exercise over them which imposes upon the parents the "duty of supporting them, keeping them in their company, educating
them and instructing them in proportion to their means", while, on the other hand, gives them the "right to correct and punish
them in moderation" (Articles 154 and 155, Spanish Civil Code). The only way by which they can relieve themselves of this
liability is if they prove that they exercised all the diligence of a good father of a family to prevent the damage (Article 1903, last
paragraph, Spanish Civil Code). This defendants failed to prove.
Wherefore, the decision appealed from is modified in the sense that defendants Delfin Capuno and Dante Capuno shall pay to
plaintiff, jointly and severally, the sum of P2,959.00 as damages, and the costs of action.
Bengzon, Montemayor, Labrador and Endencia, JJ., concur.
Paras, C.J., concurs in the result.
Separate Opinions
REYES, J.B.L., J., dissenting:chanrob1es virtual 1aw library
After mature consideration I believe we should affirm the judgment relieving the father of liability. I can see no sound reason for
limiting Art. 1903 of the old Civil Code to teachers of arts and trades and not to academic ones. What substantial difference is
there between them in so far as concerns the proper supervision and vigilance over their pupils? It cannot be seriously
contended that an academic teacher is exempt from the duty of watching that his pupils do not commit a tort to the detriment of
third persons, so long as they are in a position to exercise authority and supervision over the pupil. In my opinion, in the phrase
"teachers or heads of establishments of arts and trades" used in Art. 1903 of the old Civil Code, the words "arts and trades" does
Page 2 of 105
not qualify "teachers" but only "heads of establishments." The phrase is only an updated version of the equivalent terms
"preceptores y artesanos" used in the Italian and French Civil Codes.
If, as conceded by all commentators, the basis of the presumption of negligence of Art. 1903 in some culpa in vigilando that the
parents, teachers, etc. are supposed to have incurred in the exercise of their authority, it would seem clear that where the parent
places the child under the effective authority of the teacher, the latter, and not the parent, should be the one answerable for the
torts committed while under his custody, for the very reason that the parent is not supposed to interfere with the discipline of the
school nor with the authority and supervision of the teacher while the child is under instruction. And if there is no authority, there
can be no responsibility.
In the case before us, there is no question that the pupil, Dante Capuno, was instructed by the City School Supervisor to attend
the Rizal parade. His father could not properly refuse to allow the child to attend, in defiance of the school authorities. The father
had every reason to assume that in ordering a minor to attend a parade with other children, the school authorities would provide
adequate supervision over them. If a teacher or scout master was present, then he should be the one responsible for allowing
the minor to drive the jeep without being qualified to do so. On the other hand, if no teacher or master was at hand to watch over
the pupils, the school authorities are the ones answerable for that negligence, and not the father.
At any rate, I submit that the father should not be held liable for a tort that he was in no way able to prevent, and which he had
every right to assume the school authorities would avoid. Having proved that he entrusted his child to the custody of school
authorities that were competent to exercise vigilance over him, the father has rebutted the presumption of Art. 1903 and the
burden of proof shifted to the claimant to show actual negligence on the part of the parent in order to render him liable.
Padilla and Reyes, A., JJ., concur.
[G.R. No. L-14342. May 30, 1960.]
CIRIACO L. MERCADO, Petitioner, v. THE COURT OF APPEALS, MANUEL QUISUMBING, JR., ET AL., Respondents.
Abad Santos & Pablo for Petitioner.
Sycip, Quisumbing, Salazar & Associates for Respondents.
SYLLABUS
1. DAMAGES; ARTICLE 2180 OF THE NEW CIVIL CODE NOT APPLICABLE TO ACADEMIC EDUCATIONAL INSTITUTIONS;
SITUATION CONTEMPLATED BY ARTICLE. — Article 2180 of the new Civil Code which provides that "teachers or heads of
establishments of arts and trades shall be liable for damages caused by their pupils and students or apprentices, so long as they
remain in their custody", applies to an institution of arts and traders and not to any academic institution and contemplates a
situation where the pupil lives and boards with the teacher, such that the control, direction and influence on the pupil supersede
those of the parents. In these circumstances the control or influence over the conduct and actions of the pupil would pass from
the father and mother to the teacher, and so would the responsibility for the torts of the pupil.
2. ID.; MORAL DAMAGES; WHEN THEY SHOULD NOT BE AWARDED. — While moral damages include physical suffering,
which must have been caused to a boy wounded by another boy in a fight, they should not be awarded if the decision of the
court does not declare that any of the cases specified in Article 2219 of the Civil Code in which moral damages may be
recovered, has attended or occasioned the physical injury. In the case at bar it does not appear that a criminal action for physical
injuries was ever presented, since the offender was nine years old, and it does not appear that he acted with discernment when
he inflicted the physical injuries. Even if it be assumed that the court considered the offender guilty of a quasi-delict when it
imposed the moral damages, the award should not be sustained since it is apparent that the proximate cause of the injury
caused to the offended party was his own fault or negligence.
Page 3 of 105
DECISION
LABRADOR, J.:
This is a petition to review a decision of the Court of Appeals, which condemned petitioner to pay P2,000 as moral damages and
P50 for medical expenses, for a physical injury caused by the son of petitioner, Augusto Mercado, on a classmate, Manuel
Quisumbing, Jr., both pupils of the Lourdes Catholic School, Kanlaon, Quezon City. The case had originated in the Court of First
Instance of Manila, Hon. Bienvenido A. Tan, presiding, which dismissed the complaint filed by Manuel Quisumbing, Jr. and his
father against petitioner, father of the above-mentioned Mercado. The facts found by the Court of Appeals are as
follows:jgc:chanrobles.com.ph
"Plaintiff-appellant Manuel Quisumbing, Jr. is the son of his co- plaintiff-appellants Ana Pineda and Manuel L. Quisumbing, while
Augusto Mercado is the son of defendant-appellee Ciriaco L. Mercado, Manuel Quisumbing, Jr. and Augusto Mercado were
classmates in the Lourdes Catholic School on Kanlaon, Quezon City. A ‘pitogo’, which figures prominently in this case, may be
described as an empty nutshell used by children as a piggy bank. On February 22, 1956, Augusto Mercado and Manuel
Quisumbing, Jr. quarrelled over a ‘pitogo’. As a result, Augusto wounded Manuel, Jr. on the right cheek with a piece of razor.
x x x
"The facts of record clearly show that it was Augusto Mercado who started the aggression. Undeniably, the ‘pitogo’ belonged to
Augusto Mercado but he lent it to Benedicto P. Lim and in turn Benedicto lent it to Renato Legaspi. Renato was not aware that
the ‘pitogo’ belonged to Augusto, because right after Benedicto gave it to him, Benedicto ran away to get a basket ball with which
they could play. Manuel Quisumbing, Jr. was likewise unaware that the ‘pitogo’ belonged to Augusto. He thought it was the
‘pitogo’ of Benedicto P. Lim, so that when Augusto attempted to get the ‘pitogo’ from Renato, Manuel, Jr. told him not to do so
because Renato was better at putting the chain into the holes of the ‘pitogo’. However, Augusto resented Manuel, Jr.’s remark
and he aggressively pushed the latter. The fight started then. After Augusto gave successive blows to Manuel, Jr. and the latter
was clutching his stomach which bore the brunt of Augusto’s anger, Augusto seeing that Manuel, Jr. was in a helpless position,
cut him on the right check with a piece of razor.
x x x
"Although the doctor who treated Manuel Quisumbing, Jr., Antonio B. Past, testified for plaintiffs-appellants, he did not declare as
to the amount of fees he collected from plaintiffs-appellants for the treatment of Manuel, Jr. The child was not even hospitalized
for the wound. We believe that the sum of P50.00 is a fair approximation of the medical expenses incurred by plaintiffs-
appellants.
x x x
"The damages specified in paragraphs C and D of the aforequoted portion of plaintiffs-appellant’s complaint come under the
class of moral damages. The evidence of record shows that the child suffered moral damages by reason of the wound inflicted
by Augusto Mercado. Though such kind of damages cannot be fully appreciated in terms of money, we believe that the sum of
P2,000.00 would fully compensate the child.
"As second cause of action, plaintiffs-appellants pray for P5,000.00 covering the moral damages they allegedly suffered due to
their son’s being wounded; and the sum of P3,000.00 as attorney’s fees. The facts of record do not warrant the granting of moral
damages to plaintiffs-appellants Manuel Quisumbing and Ana Pineda.’In law mental anguish is restricted, as a rule, to such
mental pain or suffering as arises from an injury or wrong to the person himself, as distinguished from that form of mental
suffering which is the accompaniment of sympathy or sorrow for another’s suffering or which arises from a contemplation of
wrongs committed on the person of another. Pursuant to the rule stated, a husband or wife cannot recover for mental suffering
Page 4 of 105
caused by his or her sympathy for the other’s suffering. Nor can a parent recover for mental distress and anxiety on account of
physical injury sustained by a child or for anxiety for the safety of his child placed in peril by the negligence of another.’ (15 Am.
Jur. 597). Plaintiffs-appellants are not entitled to attorney’s fees, it not appearing that defendant-appellee had wantonly
disregarded their claim for damages."cralaw virtua1aw library
In the first, second and third assignments of error, counsel for petitioner argues that since the incident of the inflicting of the
wound on respondent occurred in a Catholic School (during recess time), through no fault of the father, petitioner herein, the
teacher or head of the school should be held responsible instead of the father. This precise question was brought before this
Court in Exconde v. Capuno and Capuno, 101 Phil., 843, but we held, through Mr. Justice Bautista:jgc:chanrobles.com.ph
"We find merit in this claim. It is true that under the law abovequoted, ‘teachers or directors of arts and trades are liable for any
damage caused by their pupils or apprentices while they are under their custody’, but this provision only applies to an institution
of arts and trades and not to any academic educational institution (Padilla, Civil Law, 1953 Ed., Vol. IV, p. 841; See 12 Manresa,
4th Ed., p. 557)"
The last paragraph of Article 2180 of the Civil Code upon which petitioner rests his claim that the school where his son was
studying should be made liable, is as follows:jgc:chanrobles.com.ph
"ART. 2180. . . .
"Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody."cralaw virtua1aw library
It would seem that the clause "so long as they remain in their custody," contemplates a situation where the pupil lives and boards
with the teacher, such that the control, direction and influence on the pupil supersedes those of the parents. In these
circumstances the control or influence over the conduct and actions of the pupil would pass from the father and mother to the
teacher; and so would the responsibility for the torts of the pupil. Such a situation does not appear in the case at bar; the pupils
appear to go to school during school hours and go back to their homes with their parents after school is over. The situation
contemplated in the last paragraph of Article 2180 does not apply, nor does paragraph 2 of said article, which makes father or
mother responsible for the damages caused by their minor children. The claim of petitioner that responsibility should pass to the
school must, therefore, be held to be without merit.
We next come to the claim of petitioner that the moral damages fixed at P2,000 are excessive. We note that the wound caused
to respondent was inflicted in the course of an ordinary or common fight between boys in a grade school. The Court of Appeals
fixed the medical expenses incurred in treating and curing the wound at P50. Said court stated that the wound did not even
require hospitalization. Neither was Mercado found guilty of any offense nor the scar in Quisumbing’s face pronounced to have
caused a deformity, unlike the case of Araneta, Et. Al. v. Arreglado, Et Al., 104 Phil., 529; 55 Off. Gaz. (9) 1561. Petitioner’s
counsel argues that if death call for P3,000 to P6,000, certainly the incised would could not cause mental pain and suffering to
the tune of P2,000.
In the decision of the Court of Appeals, said court pronounces that the child Quisumbing suffered moral damages "by reason of
the wound inflicted by Augusto Mercado." While moral damages included physical suffering, which must have been caused to
the wounded boy Quisumbing (Art. 2217, Civil Code), the decision of the court below does not declare that any of the cases
specified in Article 2219 of the Civil Code in which moral damages may be recovered, has attended or occasioned the physical
injury. The only possible circumstance in the case at bar in which moral damages are recoverable would be if a criminal offense
or a quasi-delict has been committed.
It does not appear that a criminal action for physical injuries was ever presented. The offender, Augusto Mercado, was nine
years old and it does not appeal that he had acted with discernment when he inflicted the physical injuries on Manuel
Quisumbing, Jr.
It is possible that the Court of Appeals may have considered Augusto Mercado responsible for or guilty, of a quasi-delict causing
physical injuries, within the meaning of paragraph 2 of Article 2219. Even if we assume that said court considered Mercado guilty
of a quasi-delict when it imposed the moral damages, yet the facts found by said court indicate that Augusto’s resentment, which
motivated the assault, was occasioned by the fact that Manuel, Jr. had tried to intervene in or interfere with the attempt of
Mercado to get "his pitogo from Renato." This is, according to the decision appealed from, the reason why Mercado was
Page 5 of 105
incensed and pushed Quisumbing who, in turn, also pushed Mercado. It is, therefore, apparent that the proximate cause of the
injury caused to Quisumbing was Quisumbing’s own fault or negligence for having interfered with Mercado while trying to get the
pitogo from another boy. (Art. 2179, Civil Code.)
After considering all the facts as found by the Court of Appeals, we find that none of the cases mentioned in Article 2219 of the
Civil Code, which authorizes the grant of moral damages, was shown to have existed. Consequently, the grant of moral damages
is not justified.
For the foregoing considerations, the decision appealed from is hereby reversed and the petitioner is declared exempt or free
from the payment of moral damages. The award of P50 for medical expenses, however, is hereby affirmed. Without costs.
Paras, C.J., Bengzon, Montemayor, Barrera and Gutiérrez David, JJ., concur.
Bautista Angelo and Concepción, JJ., concur in the result.
[G.R. No. L-29025. October 4, 1971.]
Spouses MOISES P. PALISOC and BRIGIDA P. PALISOC, Plaintiffs-Appellants, v. ANTONIO C, BRILLANTES and
TEODOSIO V. VALENTON, owner and President, respectively, of a school of arts and trades, known under the name and
style of "Manila Technical Institute" (M.I.T.), VIRGILIO L. DAFFON and SANTIAGO M. QUIBULUE, Defendants-Appellees.
Leovollo C . Agustin, for Plaintiffs-Appellants.
Honorato S. Reyes for appellee Brillantes, Et Al., Villareal, Almacen, Navarra, and Amares for appellee Daffon.
SYLLABUS
1. CIVIL LAW; QUASI-DELICT; LIABILITY OF SCHOOL HEADS AND TEACHERS FOR TORTIOUS ACTS OF STUDENTS;
RATIONALE. — The rationale of such liability of school heads and teachers for the tortious acts of their pupils and students, so
long as they remain in their custody, is that they stand, to a certain extent, as to their pupils and students, in loco parentis and
are called upon to "exercise reasonable supervision over the conduct of the child" This is expressly provided for in Articles 349,
350 and 352 of the Civil Code. In the law of torts, the governing principle is that the protective custody of the school heads and
teachers is mandatorily substituted for that of the parents, and hence, it becomes their obligation as well as that of the school
itself to provide proper supervision of the students’ activities during the whole time that they are at attendance in the school,
including recess time, as well as to take the necessary precautions to protect the students in their custody from dangers and
hazards that would reasonably be anticipated, including injuries that some students themselves may inflict willfully or through
negligence on their fellow students.
2. ID.; ID.; ID.; PRESUMPTION OF NEGLIGENCE; BASIS. — The basis of the presumption of negligence of Art. 1903 (now
2180)is some culpa in vigilando that the parents, teachers, etc., are supposed to have incurred in the exercise of their authority
and where the parent places the child under the effective authority of the teacher, the latter, and not the parent, should be the
one answerable for the torts committed while under his custody, for the reason that the parent is not supposed to interfere with
the discipline of the school nor with the authority and supervision of the teacher while the child is under instruction. The school
itself, likewise, has to respond for the fault or negligence of its school head and teachers under the same cited article.
3. ID.; ID.; ID.; PHRASE "SO LONG AS STUDENTS REMAIN IN THEIR CUSTODY," CONSTRUED. — The lower court
therefore erred in law in absolving defendants-school officials on the ground that they could be held liable under Article 2180,
Civil Code, only if the student who inflicted the fatal fistblows on his classmate and victim "lived and boarded with his teacher or
the other defendants officials of the school." As stated above, the phrase used in the cited article — "so long as (the students)
remain in their custody" means the protective and supervisory custody that the school and its head and teachers exercise over
the pupils and students for as long as they are at attendance in the school, including recess time. There is nothing in the law that
Page 6 of 105
requires that for such liability to attach, the pupil or student who commits the tortious act must live an board in the school, as
erroneously held by the lower court, and the dicta in Mercado (as well as in Exconde) on which it relied, must now be deemed to
have been set aside by the present decision.
4. ID.; ID.; ID.; OBSERVANCE OF DILIGENCE OF A GOOD FATHER OF A FAMILY, VALID DEFENSE. — The unfortunate
death resulting from the fight between the protagonists-students could have been avoided, had said defendants but complied
with their duty of providing adequate supervision over the activities of the students in the school premises to protect their
students from harm, whether at the hands of fellow students or other parties. At any rate, the law holds them liable unless they
relieve themselves of such liability, in compliance with the last paragraph of Article 2180, Civil Code, by" (proving) that they
observed all the diligence of a good father of a family to prevent damage." In the light of the factual findings of the lower court’s
decision said defendants failed to prove such exemption from liability.
5. ID.; DAMAGES, COMPENSATORY DAMAGES FOR DEATH CAUSED BY CRIME OR QUASI DELICT, P12,000.00 AS SET
BY PEOPLE VS. PANTOJA. — Plaintiffs-appellees’ contention that the award of P6,000.00 as indemnity for the death of their
son should be increased to P12,000.00 as set by the Court in People v. Pantoja (25 SCRA 468), and observed in all death
indemnity cases thereafter is well taken. The Court, in Pantoja, after noting the decline in the purchasing power of the Philippine
peso, had expressed its "considered opinion that the amount of award of compensatory damages for death caused by a crime or
quasi-delict should now be P12,000.00." The Court thereby adjusted the minimum amount of "compensatory damages for death
caused by a crime or quasi-delict" as per Article 2206, Civil Code, from the old stated minimum of P3,000.00 to P12,000.00,
which amount is to be awarded "even though there may have been mitigating circumstances" pursuant to the express provisions
of said codal article.
6. ID.; ID.; EXEMPLARY DAMAGES; NOT GRANTED IN ABSENCE OF GROSS NEGLIGENCE. — Decisive here is the
touchstone provision of Article 2231, Civil Code, that "In quasi-delicts, exemplary damages may be granted if the defendant
acted with gross negligence." No gross negligence on the part of defendants was found by the trial court to warrant the
imposition of exemplary damages, as well as of interest and increased attorney’s fees, and the Court has not been shown in this
appeal any compelling reason to disturb such finding.
REYES, J.B.L., J., concurring:chanrob1es virtual 1aw library
CIVIL LAW; QUASI-DELICT; CUSTODIAL SUPERVISION OF SCHOOLS OVER PUPILS; AUTHORITY EXISTS REGARDLESS
OF STUDENT’S AGE. — While in the case of parents and guardians, their authority and supervision over the children and wards
end by law upon the latter reaching majority age, the authority and custodial supervision over pupils exist regardless of the age
of the latter. A student over twenty-one, by enrolling and attending a school, places himself under the custodial supervision and
disciplinary authority of the school authorities, which is the basis of the latter’s correlative responsibility for his torts, committed
while under such authority. Of course, the teachers’ control is not a plenary as when the student is a minor; but that circumstance
can only affect the degree of the responsibility but cannot negate the existence thereof. It is only a factor to be appreciated in
determining whether or not the defendant has exercised due diligence in endeavoring to prevent the injury, as prescribed in the
last paragraph of Article 2180.
MAKALINTAL, J., dissenting:chanrob1es virtual 1aw library
1. CIVIL LAW; QUASI-DELICT; TEACHERS ARE LIABLE FOR TORTIOUS ACTS OF STUDENTS LIVING AND BOARDING
WITH THEM. — I see no reason to depart from the doctrine laid down by this Court in Mercado v. Court of Appeals, 108 Phil.
414, where the clause, "so long as they remain in their custody" used in Article 2180 of the Civil Code was construed as referring
to a" situation where the pupil lives and boards with the teacher, such that the (latter’s) control, direction and influence on the
pupil supersedes those of the parents." I think it is highly unrealistic and conducive to unjust results, considering the size of the
enrollment in many of our educational institutions, academic and non-academic, as well as the temper, attitudes and often
destructive activism of the students, to hold their teachers and/or the administrative heads of the schools directly liable for torts
committed by them.
2. ID.; ID.; TORTIOUS ACTS OF CHILDREN; PARENTS LIABLE THEREFOR ONLY AS TO MINORS LIVING IN THEIR
COMPANY. — For parental responsibility to arise the children must be minors who live in their company. If, as stated also in the
opinion of the majority, "the rationale of (the) liability of school heads and teachers for the tortious acts of their pupils and
students, so long as they remain in their custody, is that they stand, to a certain extent, as to their pupils and students, in loco
parentis and are called upon to exercise reasonable supervision over the conduct of the child," then it stands to reason that (1)
Page 7 of 105
the clause "so long as they remain in their custody" as used in reference to teachers and school heads should be equated with
the phrase "who live in their company" as used in reference to parents; and (2) that just as parents are not responsible for
damages caused by their children who are no longer minors, so should teachers and school heads be exempt from liability for
the tortious acts of their students in the same age category. I find no justification, either in the law itself or in justice and equity, to
make a substitute parent liable where the real parent would be free from liability.
DECISION
TEEHANKEE, J.:
An appeal in forma pauperis on pure questions of law from a decision of the Court of First Instance of Manila.
Plaintiffs-appellants as parents of their sixteen-year old son, Dominador Palisoc, and a student in automotive mechanics at the
Manila Technical Institute, Quezon Boulevard, Manila, had filed on May 19, 1966, the action below for damages arising from the
death on March 10, 1966 of their son at the hands of a fellow student, defendant Virgilio L. Daffon, at the laboratory room of the
said Institute.
Defendants, per the trial court’s decisions are:" (T)he defendant Antonio C. Brillantes, at the time when the incident which gave
rise to his action occurred was a member of the Board of Directors of the institute; 1 the defendant Teodosio Valenton, the
president thereof; the defendant Santiago M. Quibulue, instructor of the class to which the deceased belonged; and the
defendant Virgilio L. Daffon, a fellow student of the deceased. At the beginning the Manila Technical Institute was a single
proprietorship, but lately on August 2, 1962, it was duly incorporated."cralaw virtua1aw library
The facts that led to the tragic death of plaintiffs’ son were thus narrated by the trial court:" (T)he deceased Dominador Palisoc
and the defendant Virgilio L. Daffon were classmates, and on the afternoon of March 10, 1966, between two and three o’clock,
they, together with another classmate Desiderio Cruz were in the laboratory room located on the ground floor. At that time the
classes were in recess. Desiderio Cruz and Virgilio L. Daffon were working on a machine while Dominador Palisoc was merely
looking on at them. Daffon made a remark to the effect that Palisoc was acting like a foreman. Because of this remark Palisoc
slapped slightly Daffon on the face. Daffon, in retaliation, gave Palisoc a strong flat blow on the face, which was followed by other
fist blows on the stomach. Palisoc retreated apparently to avoid the fist blows, but Daffon followed him and both exchanged
blows until Palisoc stumbled on an engine block which caused him to fall face downward. Palisoc became pale and fainted. First
aid was administered to him but he was not revived, so he was immediately taken to a hospital. He never regained
consciousness; finally he died. The foregoing is the substance of the testimony of Desiderio Cruz, the lone witness to the
incident."cralaw virtua1aw library
The trial court expressly gave credence to this version of the incident, as testified to by the lone eyewitness, Desiderio Cruz, a
classmate of the protagonists, as that of a disinterested witness who "has no motive or reason to testify one way or another in
favor of any party" and rejected the self-exculpatory version of defendant Daffon denying that he had inflicted any fist blows on
the deceased.
With the postmortem findings of Dr. Angelo Singian of the Manila Police Department who performed the autopsy re "Cause of
death: shock due to traumatic fracture of the ribs (6th and 7th, left, contusion of the pancreas and stomach with intra-gastric
hemorrhage and slight subarachnoid hemorrhage on the brain," and his testimony that these internal injuries of the deceased
were caused "probably by strong fist blows," 2 the trial court found defendant Daffon liable for the quasi delict under Article 2176
of the Civil Code. 3 It held that" (T)he act, therefore, of the accused Daffon in giving the deceased strong fistblows in the stomach
which ruptured his internal organs and caused his death falls within the purview of this article of the Code." 4
The trial court, however, absolved from liability the three other defendants-officials of the Manila Technical Institute, in this
wise:jgc:chanrobles.com.ph
". . . Their liabilities are based on the provisions of Article 2180 of the New Civil Code which reads:chanrob1es virtual 1aw library
‘Art. 2180. . . .
Page 8 of 105
‘Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students
and apprentices, so long as they remain in their custody.’
"In the opinion of the Court, this article of the Code is not applicable to the case at bar, since this contemplates the situation
where the control or influence of the teachers and heads of school establishments over the conduct and actions by the pupil
supersedes those of the parents.
‘CIVIL LAW: DAMAGES ART 2180. NEW CIVIL CODE CONSTRUED: — The clause ‘so long as they remain in their custody’
contained in Article 2180 of the new civil code contemplated a situation where the pupil lives and boards with the teacher, such
that the control or influence on the pupil supersedes those of the parents. In those circumstances the control or influence over
the conduct and actions of the pupil as well as the responsibilities for their sort would pass from the father and mother to the
teachers. (Ciriaco L. Mercado, Petitioner, v. the Court of Appeals, Manuel Quisumbing, Jr., Et Al., Respondents, G.R. No. L-
14862, May 30, 1960).’ 5
"There is no evidence that the accused Daffon lived and boarded with his teacher or the other defendant officials of the school.
These defendants cannot therefore be made responsible for the tort of the defendant Daffon."cralaw virtua1aw library
Judgment was therefore rendered by the trial court as follows:jgc:chanrobles.com.ph
"1. Sentencing the defendant Virgilio L. Daffon to pay the plaintiffs as heirs of the deceased Dominador Palisoc (a) P6,000.00 for
the death of Dominador Palisoc; (b) P3,375.00 for actual and compensatory expenses; (c) P5,000.00 for moral damages; (d)
P10,000.00 for loss of earning power, considering that the deceased was only between sixteen and seventeen years, and in
good health when he died, and (e) P2,000.00 for attorney’s fee, plus the costs of this action.
"2. Absolving the other defendants.
"3. Dismissing the defendants’ counterclaim for lack of merit."cralaw virtua1aw library
Plaintiffs’ appeal raises the principal legal question that under the factual findings of the trial court, which are now beyond review,
the trial court erred in absolving the defendants-school officials instead of holding them jointly and severally liable as tortfeasors,
with defendant Daffon, for the damages awarded them as a result of their son’s death. The Court finds the appeal, in the main, to
be meritorious.
1. The lower court absolved defendants-school officials on the ground that the provisions of Article 2180, Civil Code, which
expressly hold "teachers or heads of establishments of arts and trades . . . liable for damages caused by their pupils and
students and . liable for damages caused by their pupils and students and apprentices, so long as they remain in their custody,"
are not applicable to the case at bar, since "there is no evidence that the accused Daffon [who inflicted the fatal fistblows] 6 lived
and boarded with his teacher or the other defendants-officials of the school. These defendants cannot therefore be made
responsible for the tort of the defendant Daffon."cralaw virtua1aw library
The lower court based its legal conclusion expressly on the Court’s dictum in Mercado v. Court of Appeals, 7 that" (I) t would
seem that the clause ‘so long as they remain in their custody,’ contemplates a situation where the pupil lives and boards with the
teacher, such that the control, direction and influence on the pupil supersedes those of the parents. In these circumstances the
control or influence over the conduct and actions of the pupil would pass from the father and mother to the teacher; and so would
the responsibility for the torts of the pupil. Such a situation does not appear in the case at bar; the pupils appear to go to school
during school hours and go back to their homes with their parents after school is over." This dictum had been made in rejecting
therein petitioner-father’s contention that his minor son’s school, Lourdes Catholic School at Kanlaon, Quezon City [which was
not a party to the case] should be held responsible, rather than him as father, for the moral damages of P2,000.00 adjudged
against him for the physical injury inflicted by his son on a classmate. [A cut on the right cheek with a piece of razor which cost
only P50.00 by way of medical expenses to treat and cure, since the wound left no scar.] The moral damages award was after all
set aside by the Court on the ground that none of the specific cases provided in Article 2219, Civil Code, for awarding moral
damages had been established, petitioner’s son being only nine years old and not having been shown to have "acted with
discernment" in inflicting the injuries on his classmate.
The dictum in Mercado was based in turn on another dictum in the earlier case of Exconde v. Capuno, 8 where the only issue
Page 9 of 105
involved as expressly stated in the decision, was whether the therein defendant-father could be held civilly liable for damages
resulting from a death caused in a motor vehicle accident driven unauthorizedly and negligently by his minor son, (which issue
was resolved adversely against the father). Nevertheless, the dictum in such earlier case that "It is true that under the law above-
quoted, ‘teachers or directors of arts and trades are liable for any damage caused by their pupils or apprentices while they are
under their custody, but this provision only all applies to an institution of arts and trades and not to any academic educational
institution" was expressly cited and quoted in Mercado.
2. The case at bar was instituted directly against the school officials and squarely raises the issue of liability of teachers and
heads of schools under Article 2180, Civil Code, for damages caused by their pupils and students against fellow students on the
school premises. Here, the parents of the student at fault, defendant Daffon, are not involved, since Daffon was already of age at
the time of the tragic incident. There is no question, either, that the school involved is a non-academic school, 9 the Manila
Technical Institute being admittedly a technical vocational and industrial school.
The Court holds that under the cited codal article, defendants head and teacher of the Manila Technical Institute (defendants
Valenton and Quibulue, respectively) are liable jointly and severally for damages to plaintiffs-parents for the death of the latter’s
minor son at the hands of defendant Daffon at the school’s laboratory room. No liability attaches to defendant Brillantes as a
mere member of the school’s board of directors. The school itself cannot be held similarly liable, since it has not been properly
impleaded as party defendant. While plaintiffs sought to so implead it, by impleading improperly defendant Brillantes, its former
single proprietor, the lower court found that it had been incorporated since August 2, 1962, and therefore the school itself, as
thus incorporated, should have been brought in as party defendant. Plaintiffs failed to do so, notwithstanding that Brillantes and
his co-defendants in their reply to plaintiffs’ request for admission had expressly manifested and made of record that "defendant
Antonio C. Brillantes is not the registered owner/head of the ‘Manila Technical Institute’ which is now a corporation and is not
owned by any individual person." 10
3. The rationale of such liability of school heads and teachers for the tortious acts of their pupils and students, so long as they
remain in their custody, is that they stand, to a certain extent, as to their pupils and students, in loco parentis and are called upon
to "exercise reasonable supervision over the conduct of the child." 11 This is expressly provided for in Articles 349, 350 and 352
of the Civil Code. 12 In the law of torts, the governing principle is that the protective custody of the school heads and teachers is
mandatorily substituted for that of the parents, and hence, it becomes their obligation as well as that of the school itself to provide
proper supervision of the students’ activities during the whole time that they are at attendance in the school, including recess
time, as well as to take the necessary precautions to protect the students in their custody from dangers and hazards that would
reasonably be anticipated, including injuries that some student themselves may inflict willfully or through negligence on their
fellow students.
4. As tersely summarized by Mr. Justice J.B.L. Reyes in his dissenting opinion in Exconde, "the basis of the presumption of
negligence of Art. 1903 [now 2180] is some culpa in vigilando that the parents, teachers, etc. are supposed to have incurred in
the exercise of their authority" 13 and "where the parent places the child under the effective authority of the teacher, the latter,
and not the parent, should be the one answerable for the torts committed while under his custody, for the very reason that the
parent is not supposed to interfere with the discipline of the school nor with the authority and supervision of the teacher while the
child is under instruction" The school itself, likewise, has to respond for the fault or negligence of its school head and teachers
under the same cited article. 14
5. The lower court therefore erred in law in absolving defendants-school officials on the ground that they could be held liable
under Article 2180, Civil Code, only if the student who inflicted the fatal fistblows on his classmate and victim "lived and boarded
with his teacher or the other defendants officials of the school." As stated above, the phrase used in the cited article — "so long
as (the students) remain in their custody" means the protective and supervisory custody that the school and its heads and
teachers exercise over the pupils and students for as long as they are at attendance in the school, including recess time. There
is nothing in the law that requires that for such liability to attach, the pupil or student who commits the tortious act must live and
board in the school, as erroneously held by the lower court, and the dicta in Mercado (as well as in Exconde) on which it relied,
must now be deemed to have been set aside by the present decision.
6. Defendants Valenton and Quibulue as president and teacher-in-charge of the school must therefore be held jointly and
severally liable for the quasi-delict of their co-defendant Daffon in the latter’s having caused the death of his classmate, the
deceased Dominador Palisoc. The unfortunate death resulting from the fight between the protagonists-students could have been
avoided, had said defendants but complied with their duty of providing adequate supervision over the activities of the students in
the school premises to protect their students from harm, whether at the hands of fellow students or other parties. At any rate, the
Page 10 of 105
law holds them liable unless they relieve themselves of such liability, in compliance with the last paragraph of Article 2180, Civil
Code, by" (proving) that they observed all the diligence of a good father of a family to prevent damage." In the light of the factual
findings of the lower court’s decision, said defendants failed to prove such exemption from liability.
7. Plaintiffs-appellees’ contention that the award of P6,000.00 as indemnity for the death of their son should be increased to
P12,000.00 as set by the Court in People v. Pantoja, 15 and observed in all death indemnity cases thereafter is well taken. The
Court, in Pantoja, after noting the decline in the purchasing power of the Philippine peso, had expressed its "considered opinion
that the amount of award of compensatory damages for death caused by a crime or quasi-delict should now be P12,000.00." The
Court thereby adjusted the minimum amount of "compensatory damages for death caused by a crime or quasi-delict" as per
Article 2206, Civil Code, from the old stated minimum of P3,000.00 to P12,000.00, which amount is to be awarded "even though
there may have been mitigating circumstances" pursuant to the express provisions of said codal article.
8. Plaintiffs-appellees’ other claims on appeal that the lower court should have awarded exemplary damages and imposed legal
interest on the total damages awarded, besides increasing the award of attorney’s fees all concern matters that are left by law to
the discretion of the trial court and the Court has not been shown any error or abuse in the exercise of such discretion on the part
of the trial court 16 Decisive here is the touchstone provision of Article 2231, Civil Code, that "In quasi-delicts, exemplary
damages may be granted if the defendant acted with gross negligence." No gross negligence on the part of defendants was
found by the trial court to warrant the imposition of exemplary damages, as well as of interest and increased attorney’s fees, and
the Court has not been shown in this appeal any compelling reason to disturb such finding.
ACCORDINGLY, the judgment appealed from is modified so as to provide as follows:chanrob1es virtual 1aw library
1. Sentencing the defendants Virgilio L. Daffon, Teodosio V. Valenton and Santiago M. Quibulue jointly and severally to pay
plaintiffs as heirs of the deceased Dominador Palisoc (a) P12,000.00 for the death of Dominador Palisoc; (b) P3,375.00 for
actual and compensatory expenses; (c) P5,000.00 for moral damages; (d) P10,000.00 for less of earning power and (e) P2,000
00 for attorney’s fee, plus the costs of this action in both instances; 2. absolving defendant Antonio C. Brillantes from the
complaint; and 3. dismissing defendants’ counterclaims.
Concepcion, C.J., Villamor and Makasiar, JJ., concur.
Dizon, J., took no part.
Separate Opinions
REYES, J.B.L., J., concurring:chanrob1es virtual 1aw library
I concur with the opinion of Mr. Justice Teehankee but would like to clarify that the judgment of the dissenting opinion to the
effect that the responsibility of teachers and school officers under Article 2180 should be limited to pupils who are minors (below
the age of majority) is not in accord with the plain text of the law. Article 2180 of the Civil Code of the Philippines is to the
following effect:jgc:chanrobles.com.ph
"The obligation imposed by article 2176 is demandable not only for one’s own acts or omissions, but also for those of persons for
whom one is responsible.
"The father and, in case of his death or incapacity the mother, are responsible for the damages caused by the minor children who
live in their company.
"Guardians are liable for damages caused by the minors or incapacitated persons who are under their authority and live in their
company.
"The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in
the service of the branches in which the latter are employed or on the occasion of their functions.
"Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any business or industry.
Page 11 of 105
"The State is responsible in like manner when it acts through a special agent; but not when the damage has been caused by the
official to whom the task done properly pertains, in which case what is provided in article 2176 shall be applicable.
"Last, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody.
"The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observe all the
diligence of a good father of a family to prevent damages.
Examination of the article shows that where the responsibility prescribed therein is limited to illegal acts during minority, the
article expressly so provides, as in the case of the parents and of the guardians. It is natural to expect that if the law had
intended to similarly restrict the civil responsibility of the other categories of persons enumerated in the article, it would have
expressly so stated. The fact that it has not done so indicates an intent that the liability be not restricted to the case of persons
under age. Further, it is not without significance that the teachers and heads of scholarly establishments are not grouped with
parents and guardians but ranged with owners and managers of enterprises, employers and the state, as to whom no reason is
discernible to imply that they should answer only for minors.
Giorgi, in his well-known "Teoria de las Obligaciones en el Derecho Moderno", Volume 5, page 404, No. 272 (Sp. Ed.), after
noting the split among commentators on the point at issue, observes with considerable cogency that —
"272. Ante esta variedad de opiniones, ninguna de las cuales se funda en argumentos merecedores de seria ponderacion, no es
f cil tomar un partido. Esto no obstante, debiendo manifestar nuestra opinion, nos acercamos la de los que no estiman necesaria
la menor edad del discipulo o del aprendiz; porque si el aforismo ubi voluit dixit, ubi noluit tacuity, no es siempre argumento
seguro para interpretar la le, es infalible cuanto se refiere una misma disposicion relativa varios casos. Y tal es el art. 1.153. Lo
que haya establecido importa poco si, elev ndones los principios de razon, puede dudarse de la oportunidad de semajante
diferencia; porque la voluntad cierta del legislador prevalece in iure condito cualquier otra consideracion. Por otra parte, si bien
se considera, no puede parecer extraño o absurdo el suponer que un discipulo y un aprendiz, aunque mayores de edad,
acepten voluntariamente la entera vigilancia de su preceptor mientras dura la educacion. Ni parece dudoso desde el momento
que los artesanos y los preceptores deben, al par de los padres, responder civilmente de los daños comitidos por sus discipulos,
aun cuando estos estn faltos de discernimiento."cralaw virtua1aw library
Similarly, Planiol-Ripert, in their "Droit Civil Pratique," Volume VI, No. 635 (Spanish version), say that —
"635. Personas de quin responde. — Si bien la responsibilidad del maestro es originalmente una estensi "n de la de los padres
(1), el art. 1384 no especifica que los alumnos y aprendices han de ser menores de edad, por lo que la presuncion de culpa
funcionar aun cuando sean mayores (2); pero, la vigilancia no tendra que ser ejercida en iguales terminos. Aun respecto a los
menores variar segun la edad, extremo que tendr que tenerse en cuenta a los fines de apreciar si el maestro ha podido impedir
el acto nocivo o no.
I submit, finally, that while in the case of parents and guardians, their authority and supervision over the children and wards end
by law upon the latter reaching majority age, the authority and custodial supervision over pupils exist regardless of the age of the
latter. A student over twenty-one, by enrolling and attending a school, places himself under the custodial supervision and
disciplinary authority of the school authorities, which is the basis of the latter’s correlative responsibility for his torts, committed
while under such authority. Of course, the teachers’ control is not as plenary as when the student is a minor; but that
circumstance can only affect the degree of the responsibility but cannot negate the existence thereof. It is only a factor to be
appreciated in determining whether or not the defendant has exercised due diligence in endeavoring to prevent the injury, as
prescribed in the last paragraph of Article 2180.
MAKALINTAL, J., dissenting:chanrob1es virtual 1aw library
I vote to affirm the decision appealed from. I see no reason to depart from the doctrine laid down by this Court in Mercado v.
Court of Appeals, 108 Phil. 414, where the clause "so long as they remain in their custody" used in Article 2180 of the Civil Code
was construed as referring to a "situation where the pupil lives and boards with the teacher, such that the (latter’s) control,
direction and influence on the pupil supersedes those of the parents." I think it is highly unrealistic and conducive to unjust
results, considering the size of the enrollment in many of our educational institutions, academic and non-academic, as well as the
Page 12 of 105
temper, attitudes and often destructive activism of the students, to hold their teachers and/or the administrative heads of the
schools directly liable for torts committed by them. When even the school authorities find themselves besieged, beleaguered and
attacked, and unable to impose the traditional disciplinary measures formerly recognized as available to them, such as
suspension or outright expulsion of the offending students, it flies in the face of logic and reality to consider such students,
merely from the fact of enrollment and class attendance, as "in the custody" of the teachers or school heads within the meaning
of the statute, and to hold the latter liable unless they can prove that they have exercised "all the diligence of a good father of the
family to prevent damage." Article 2180, if applied as appellants construe it, would be bad law. It would demand responsibility
without commensurate authority, rendering teachers and school heads open to damage suits for causes beyond their power to
control. Present conditions being what they are, I believe the restrictive interpretation of the aforesaid provision enunciated in
Mercado should be maintained.
With particular reference to the case at bar, one other factor constrains me to dissent. The opinion of the majority states: "Here,
the parents of the student at fault, defendant Daffon, are not involved, since Daffon was already of age at the time of the tragic
incident." This statement is of course in accordance with Article 2180, which says that "the father and, in case of his death or
incapacity, the mother, are responsible for the damages caused by the minor children who live in their company." Note that for
parental responsibility to arise the children must be minors who live in their company. If, as stated also in the opinion of the
majority, "the rationale of (the) liability of school heads and teachers for the tortious acts of their pupils and students, so long as
they remain in their custody, is that they stand, to a certain extent, as to their pupils and students, in loco parentis and are called
upon to exercise reasonable supervision over the conduct of the child," then it stands to reason that (1) the clause "so long as
they remain in their custody" as used in reference to teachers and school heads should be equated with the phrase "who live in
their company" as used in reference to parents; and (2) that just as parents are not responsible for damages caused by their
children who are no longer minors, so should teachers and school heads be exempt from liability for the tortious acts of their
students in the same age category. I find no justification, either in the law itself or in justice and equity, to make a substitute
parent liable where the real parent would be free from liability.
Zaldivar, Castro and Fernando, JJ., concur.
G.R. No. L-47745 April 15, 1988
JOSE S. AMADORA, LORETA A. AMADORA, JOSE A. AMADORA JR., NORMA A. YLAYA PANTALEON A. AMADORA,
JOSE A. AMADORA III, LUCY A. AMADORA, ROSALINDA A. AMADORA, PERFECTO A. AMADORA, SERREC A.
AMADORA, VICENTE A. AMADORA and MARIA TISCALINA A. AMADORA, petitioners
vs.
HONORABLE COURT OF APPEALS, COLEGIO DE SAN JOSE-RECOLETOS, VICTOR LLUCH SERGIO P. DLMASO JR.,
CELESTINO DICON, ANIANO ABELLANA, PABLITO DAFFON thru his parents and natural guardians, MR. and MRS.
NICANOR GUMBAN, and ROLANDO VALENCIA, thru his guardian, A. FRANCISCO ALONSO, respondents.
Jose S. Amadora & Associates for petitioners.
Padilla Law Office for respondents.
CRUZ, J.:
Like any prospective graduate, Alfredo Amadora was looking forward to the commencement exercises where he would ascend
the stage and in the presence of his relatives and friends receive his high school diploma. These ceremonies were scheduled on
April 16, 1972. As it turned out, though, fate would intervene and deny him that awaited experience. On April 13, 1972, while they
were in the auditorium of their school, the Colegio de San Jose-Recoletos, a classmate, Pablito Damon, fired a gun that mortally
hit Alfredo, ending all his expectations and his life as well. The victim was only seventeen years old. 1
Page 13 of 105
Daffon was convicted of homicide thru reckless imprudence . 2 Additionally, the herein petitioners, as the victim's parents, filed a
civil action for damages under Article 2180 of the Civil Code against the Colegio de San Jose-Recoletos, its rector the high
school principal, the dean of boys, and the physics teacher, together with Daffon and two other students, through their respective
parents. The complaint against the students was later dropped. After trial, the Court of First Instance of Cebu held the remaining
defendants liable to the plaintiffs in the sum of P294,984.00, representing death compensation, loss of earning capacity, costs of
litigation, funeral expenses, moral damages, exemplary damages, and attorney's fees .3 On appeal to the respondent court,
however, the decision was reversed and all the defendants were completely absolved .4
In its decision, which is now the subject of this petition for certiorari under Rule 45 of the Rules of Court, the respondent court
found that Article 2180 was not applicable as the Colegio de San Jose-Recoletos was not a school of arts and trades but an
academic institution of learning. It also held that the students were not in the custody of the school at the time of the incident as
the semester had already ended, that there was no clear identification of the fatal gun and that in any event the defendant, had
exercised the necessary diligence in preventing the injury. 5
The basic undisputed facts are that Alfredo Amadora went to the San Jose-Recoletos on April 13, 1972, and while in its
auditorium was shot to death by Pablito Daffon, a classmate. On the implications and consequences of these facts, the parties
sharply disagree.
The petitioners contend that their son was in the school to show his physics experiment as a prerequisite to his graduation;
hence, he was then under the custody of the private respondents. The private respondents submit that Alfredo Amadora had
gone to the school only for the purpose of submitting his physics report and that he was no longer in their custody because the
semester had already ended.
There is also the question of the identity of the gun used which the petitioners consider important because of an earlier incident
which they claim underscores the negligence of the school and at least one of the private respondents. It is not denied by the
respondents that on April 7, 1972, Sergio Damaso, Jr., the dean of boys, confiscated from Jose Gumban an unlicensed pistol but
later returned it to him without making a report to the principal or taking any further action . 6 As Gumban was one of the
companions of Daffon when the latter fired the gun that killed Alfredo, the petitioners contend that this was the same pistol that
had been confiscated from Gumban and that their son would not have been killed if it had not been returned by Damaso. The
respondents say, however, that there is no proof that the gun was the same firearm that killed Alfredo.
Resolution of all these disagreements will depend on the interpretation of Article 2180 which, as it happens, is invoked by both
parties in support of their conflicting positions. The pertinent part of this article reads as follows:
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their
pupils and students or apprentices so long as they remain in their custody.
Three cases have so far been decided by the Court in connection with the above-quoted provision, to wit: Exconde v.
Capuno 7 Mercado v. Court of Appeals, 8 and Palisoc v. Brillantes. 9 These will be briefly reviewed in this opinion for a better
resolution of the case at bar.
In the Exconde Case, Dante Capuno, a student of the Balintawak Elementary School and a Boy Scout, attended a Rizal Day
parade on instructions of the city school supervisor. After the parade, the boy boarded a jeep, took over its wheel and drove it so
recklessly that it turned turtle, resulting in the death of two of its passengers. Dante was found guilty of double homicide with
reckless imprudence. In the separate civil action flied against them, his father was held solidarily liable with him in damages
under Article 1903 (now Article 2180) of the Civil Code for the tort committed by the 15-year old boy.
This decision, which was penned by Justice Bautista Angelo on June 29,1957, exculpated the school in an obiter dictum (as it
was not a party to the case) on the ground that it was riot a school of arts and trades. Justice J.B.L. Reyes, with whom Justices
Sabino Padilla and Alex Reyes concurred, dissented, arguing that it was the school authorities who should be held liable Liability
under this rule, he said, was imposed on (1) teachers in general; and (2) heads of schools of arts and trades in particular. The
modifying clause "of establishments of arts and trades" should apply only to "heads" and not "teachers."
Page 14 of 105
Exconde was reiterated in the Mercado Case, and with an elaboration. A student cut a classmate with a razor blade during
recess time at the Lourdes Catholic School in Quezon City, and the parents of the victim sued the culprits parents for damages.
Through Justice Labrador, the Court declared in another obiter (as the school itself had also not been sued that the school was
not liable because it was not an establishment of arts and trades. Moreover, the custody requirement had not been proved as
this "contemplates a situation where the student lives and boards with the teacher, such that the control, direction and influences
on the pupil supersede those of the parents." Justice J.B.L. Reyes did not take part but the other members of the court concurred
in this decision promulgated on May 30, 1960.
In Palisoc vs. Brillantes, decided on October 4, 1971, a 16-year old student was killed by a classmate with fist blows in the
laboratory of the Manila Technical Institute. Although the wrongdoer — who was already of age — was not boarding in the
school, the head thereof and the teacher in charge were held solidarily liable with him. The Court declared through Justice
Teehankee:
The phrase used in the cited article — "so long as (the students) remain in their custody" — means the
protective and supervisory custody that the school and its heads and teachers exercise over the pupils and
students for as long as they are at attendance in the school, including recess time. There is nothing in the
law that requires that for such liability to attach, the pupil or student who commits the tortious act must live
and board in the school, as erroneously held by the lower court, and the dicta in Mercado (as well as in
Exconde) on which it relied, must now be deemed to have been set aside by the present decision.
This decision was concurred in by five other members, 10 including Justice J.B.L. Reyes, who stressed, in answer to the
dissenting opinion, that even students already of age were covered by the provision since they were equally in the custody of the
school and subject to its discipline. Dissenting with three others,11 Justice Makalintal was for retaining the custody interpretation
in Mercado and submitted that the rule should apply only to torts committed by students not yet of age as the school would be
acting only in loco parentis.
In a footnote, Justice Teehankee said he agreed with Justice Reyes' dissent in the Exconde Case but added that "since the
school involved at bar is a non-academic school, the question as to the applicability of the cited codal provision to academic
institutions will have to await another case wherein it may properly be raised."
This is the case.
Unlike in Exconde and Mercado, the Colegio de San Jose-Recoletos has been directly impleaded and is sought to be held liable
under Article 2180; and unlike in Palisoc, it is not a school of arts and trades but an academic institution of learning. The parties
herein have also directly raised the question of whether or not Article 2180 covers even establishments which are technically not
schools of arts and trades, and, if so, when the offending student is supposed to be "in its custody."
After an exhaustive examination of the problem, the Court has come to the conclusion that the provision in question should apply
to all schools, academic as well as non-academic. Where the school is academic rather than technical or vocational in nature,
responsibility for the tort committed by the student will attach to the teacher in charge of such student, following the first part of
the provision. This is the general rule. In the case of establishments of arts and trades, it is the head thereof, and only he, who
shall be held liable as an exception to the general rule. In other words, teachers in general shall be liable for the acts of their
students except where the school is technical in nature, in which case it is the head thereof who shall be answerable. Following
the canon of reddendo singula singulis"teachers" should apply to the words "pupils and students" and "heads of establishments
of arts and trades" to the word "apprentices."
The Court thus conforms to the dissenting opinion expressed by Justice J.B.L. Reyes in Exconde where he said in part:
I can see no sound reason for limiting Art. 1903 of the Old Civil Code to teachers of arts and trades and not
to academic ones. What substantial difference is there between them insofar as concerns the proper
supervision and vice over their pupils? It cannot be seriously contended that an academic teacher is exempt
from the duty of watching that his pupils do not commit a tort to the detriment of third Persons, so long as
they are in a position to exercise authority and Supervision over the pupil. In my opinion, in the phrase
"teachers or heads of establishments of arts and trades" used in Art. 1903 of the old Civil Code, the words
Page 15 of 105
"arts and trades" does not qualify "teachers" but only "heads of establishments." The phrase is only an
updated version of the equivalent terms "preceptores y artesanos" used in the Italian and French Civil
Codes.
If, as conceded by all commentators, the basis of the presumption of negligence of Art. 1903 in some culpa
in vigilando that the parents, teachers, etc. are supposed to have incurred in the exercise of their authority, it
would seem clear that where the parent places the child under the effective authority of the teacher, the
latter, and not the parent, should be the one answerable for the torts committed while under his custody, for
the very reason/that the parent is not supposed to interfere with the discipline of the school nor with the
authority and supervision of the teacher while the child is under instruction. And if there is no authority, there
can be no responsibility.
There is really no substantial distinction between the academic and the non-academic schools insofar as torts committed by their
students are concerned. The same vigilance is expected from the teacher over the students under his control and supervision,
whatever the nature of the school where he is teaching. The suggestion in the Exconde and Mercado Cases is that the provision
would make the teacher or even the head of the school of arts and trades liable for an injury caused by any student in its custody
but if that same tort were committed in an academic school, no liability would attach to the teacher or the school head. All other
circumstances being the same, the teacher or the head of the academic school would be absolved whereas the teacher and the
head of the non-academic school would be held liable, and simply because the latter is a school of arts and trades.
The Court cannot see why different degrees of vigilance should be exercised by the school authorities on the basis only of the
nature of their respective schools. There does not seem to be any plausible reason for relaxing that vigilance simply because the
school is academic in nature and for increasing such vigilance where the school is non-academic. Notably, the injury subject of
liability is caused by the student and not by the school itself nor is it a result of the operations of the school or its equipment. The
injury contemplated may be caused by any student regardless of the school where he is registered. The teacher certainly should
not be able to excuse himself by simply showing that he is teaching in an academic school where, on the other hand, the head
would be held liable if the school were non-academic.
These questions, though, may be asked: If the teacher of the academic school is to be held answerable for the torts committed
by his students, why is it the head of the school only who is held liable where the injury is caused in a school of arts and trades?
And in the case of the academic or non- technical school, why not apply the rule also to the head thereof instead of imposing the
liability only on the teacher?
The reason for the disparity can be traced to the fact that historically the head of the school of arts and trades exercised a closer
tutelage over his pupils than the head of the academic school. The old schools of arts and trades were engaged in the training of
artisans apprenticed to their master who personally and directly instructed them on the technique and secrets of their craft. The
head of the school of arts and trades was such a master and so was personally involved in the task of teaching his students, who
usually even boarded with him and so came under his constant control, supervision and influence. By contrast, the head of the
academic school was not as involved with his students and exercised only administrative duties over the teachers who were the
persons directly dealing with the students. The head of the academic school had then (as now) only a vicarious relationship with
the students. Consequently, while he could not be directly faulted for the acts of the students, the head of the school of arts and
trades, because of his closer ties with them, could be so blamed.
It is conceded that the distinction no longer obtains at present in view of the expansion of the schools of arts and trades, the
consequent increase in their enrollment, and the corresponding diminution of the direct and personal contract of their heads with
the students. Article 2180, however, remains unchanged. In its present state, the provision must be interpreted by the Court
according to its clear and original mandate until the legislature, taking into account the charges in the situation subject to be
regulated, sees fit to enact the necessary amendment.
The other matter to be resolved is the duration of the responsibility of the teacher or the head of the school of arts and trades
over the students. Is such responsibility co-extensive with the period when the student is actually undergoing studies during the
school term, as contended by the respondents and impliedly admitted by the petitioners themselves?
Page 16 of 105
From a reading of the provision under examination, it is clear that while the custody requirement, to repeat Palisoc v. Brillantes,
does not mean that the student must be boarding with the school authorities, it does signify that the student should be within the
control and under the influence of the school authorities at the time of the occurrence of the injury. This does not necessarily
mean that such, custody be co-terminous with the semester, beginning with the start of classes and ending upon the close
thereof, and excluding the time before or after such period, such as the period of registration, and in the case of graduating
students, the period before the commencement exercises. In the view of the Court, the student is in the custody of the school
authorities as long as he is under the control and influence of the school and within its premises, whether the semester has not
yet begun or has already ended.
It is too tenuous to argue that the student comes under the discipline of the school only upon the start of classes notwithstanding
that before that day he has already registered and thus placed himself under its rules. Neither should such discipline be deemed
ended upon the last day of classes notwithstanding that there may still be certain requisites to be satisfied for completion of the
course, such as submission of reports, term papers, clearances and the like. During such periods, the student is still subject to
the disciplinary authority of the school and cannot consider himself released altogether from observance of its rules.
As long as it can be shown that the student is in the school premises in pursuance of a legitimate student objective, in the
exercise of a legitimate student right, and even in the enjoyment of a legitimate student right, and even in the enjoyment of a
legitimate student privilege, the responsibility of the school authorities over the student continues. Indeed, even if the student
should be doing nothing more than relaxing in the campus in the company of his classmates and friends and enjoying the
ambience and atmosphere of the school, he is still within the custody and subject to the discipline of the school authorities under
the provisions of Article 2180.
During all these occasions, it is obviously the teacher-in-charge who must answer for his students' torts, in practically the same
way that the parents are responsible for the child when he is in their custody. The teacher-in-charge is the one designated by the
dean, principal, or other administrative superior to exercise supervision over the pupils in the specific classes or sections to
which they are assigned. It is not necessary that at the time of the injury, the teacher be physically present and in a position to
prevent it. Custody does not connote immediate and actual physical control but refers more to the influence exerted on the child
and the discipline instilled in him as a result of such influence. Thus, for the injuries caused by the student, the teacher and not
the parent shag be held responsible if the tort was committed within the premises of the school at any time when its authority
could be validly exercised over him.
In any event, it should be noted that the liability imposed by this article is supposed to fall directly on the teacher or the head of
the school of arts and trades and not on the school itself. If at all, the school, whatever its nature, may be held to answer for the
acts of its teachers or even of the head thereof under the general principle of respondeat superior, but then it may exculpate itself
from liability by proof that it had exercised the diligence of a bonus paterfamilias.
Such defense is, of course, also available to the teacher or the head of the school of arts and trades directly held to answer for
the tort committed by the student. As long as the defendant can show that he had taken the necessary precautions to prevent the
injury complained of, he can exonerate himself from the liability imposed by Article 2180, which also states that:
The responsibility treated of in this article shall cease when the Persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damages.
In this connection, it should be observed that the teacher will be held liable not only when he is acting in loco parentis for the law
does not require that the offending student be of minority age. Unlike the parent, who wig be liable only if his child is still a minor,
the teacher is held answerable by the law for the act of the student under him regardless of the student's age. Thus, in the
Palisoc Case, liability attached to the teacher and the head of the technical school although the wrongdoer was already of age. In
this sense, Article 2180 treats the parent more favorably than the teacher.
The Court is not unmindful of the apprehensions expressed by Justice Makalintal in his dissenting opinion in Palisoc that the
school may be unduly exposed to liability under this article in view of the increasing activism among the students that is likely to
cause violence and resulting injuries in the school premises. That is a valid fear, to be sure. Nevertheless, it should be repeated
that, under the present ruling, it is not the school that will be held directly liable. Moreover, the defense of due diligence is
Page 17 of 105
available to it in case it is sought to be held answerable as principal for the acts or omission of its head or the teacher in its
employ.
The school can show that it exercised proper measures in selecting the head or its teachers and the appropriate supervision over
them in the custody and instruction of the pupils pursuant to its rules and regulations for the maintenance of discipline among
them. In almost all cases now, in fact, these measures are effected through the assistance of an adequate security force to help
the teacher physically enforce those rules upon the students. Ms should bolster the claim of the school that it has taken adequate
steps to prevent any injury that may be committed by its students.
A fortiori, the teacher himself may invoke this defense as it would otherwise be unfair to hold him directly answerable for the
damage caused by his students as long as they are in the school premises and presumably under his influence. In this respect,
the Court is disposed not to expect from the teacher the same measure of responsibility imposed on the parent for their influence
over the child is not equal in degree. Obviously, the parent can expect more obedience from the child because the latter's
dependence on him is greater than on the teacher. It need not be stressed that such dependence includes the child's support
and sustenance whereas submission to the teacher's influence, besides being coterminous with the period of custody is usually
enforced only because of the students' desire to pass the course. The parent can instill more las discipline on the child than the
teacher and so should be held to a greater accountability than the teacher for the tort committed by the child.
And if it is also considered that under the article in question, the teacher or the head of the school of arts and trades is
responsible for the damage caused by the student or apprentice even if he is already of age — and therefore less tractable than
the minor — then there should all the more be justification to require from the school authorities less accountability as long as
they can prove reasonable diligence in preventing the injury. After all, if the parent himself is no longer liable for the student's
acts because he has reached majority age and so is no longer under the former's control, there is then all the more reason for
leniency in assessing the teacher's responsibility for the acts of the student.
Applying the foregoing considerations, the Court has arrived at the following conclusions:
1. At the time Alfredo Amadora was fatally shot, he was still in the custody of the authorities of Colegio de San Jose-Recoletos
notwithstanding that the fourth year classes had formally ended. It was immaterial if he was in the school auditorium to finish his
physics experiment or merely to submit his physics report for what is important is that he was there for a legitimate purpose. As
previously observed, even the mere savoring of the company of his friends in the premises of the school is a legitimate purpose
that would have also brought him in the custody of the school authorities.
2. The rector, the high school principal and the dean of boys cannot be held liable because none of them was the teacher-in-
charge as previously defined. Each of them was exercising only a general authority over the student body and not the direct
control and influence exerted by the teacher placed in charge of particular classes or sections and thus immediately involved in
its discipline. The evidence of the parties does not disclose who the teacher-in-charge of the offending student was. The mere
fact that Alfredo Amadora had gone to school that day in connection with his physics report did not necessarily make the physics
teacher, respondent Celestino Dicon, the teacher-in-charge of Alfredo's killer.
3. At any rate, assuming that he was the teacher-in-charge, there is no showing that Dicon was negligent in enforcing discipline
upon Daffon or that he had waived observance of the rules and regulations of the school or condoned their non-observance. His
absence when the tragedy happened cannot be considered against him because he was not supposed or required to report to
school on that day. And while it is true that the offending student was still in the custody of the teacher-in-charge even if the latter
was physically absent when the tort was committed, it has not been established that it was caused by his laxness in enforcing
discipline upon the student. On the contrary, the private respondents have proved that they had exercised due diligence, through
the enforcement of the school regulations, in maintaining that discipline.
4. In the absence of a teacher-in-charge, it is probably the dean of boys who should be held liable especially in view of the
unrefuted evidence that he had earlier confiscated an unlicensed gun from one of the students and returned the same later to
him without taking disciplinary action or reporting the matter to higher authorities. While this was clearly negligence on his part,
for which he deserves sanctions from the school, it does not necessarily link him to the shooting of Amador as it has not been
shown that he confiscated and returned pistol was the gun that killed the petitioners' son.
Page 18 of 105
5. Finally, as previously observed, the Colegio de San Jose-Recoletos cannot be held directly liable under the article because
only the teacher or the head of the school of arts and trades is made responsible for the damage caused by the student or
apprentice. Neither can it be held to answer for the tort committed by any of the other private respondents for none of them has
been found to have been charged with the custody of the offending student or has been remiss in the discharge of his duties in
connection with such custody.
In sum, the Court finds under the facts as disclosed by the record and in the light of the principles herein announced that none of
the respondents is liable for the injury inflicted by Pablito Damon on Alfredo Amadora that resulted in the latter's death at the
auditorium of the Colegio de San Jose-Recoletos on April 13, 1972. While we deeply sympathize with the petitioners over the
loss of their son under the tragic circumstances here related, we nevertheless are unable to extend them the material relief they
seek, as a balm to their grief, under the law they have invoked.
WHEREFORE, the petition is DENIED, without any pronouncement as to costs. It is so ordered.
Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes and Griño-Aquino, JJ., concur.
Fernan, Padilla and Teehankee, C.J., JJ, took no part.
Separate Opinions
MELENCIO-HERRERA, J., concurring and dissenting:
I concur, except with respect to the restricted meaning given the term "teacher" in Article 2180 of the Civil Code as "teacher-in-
charge." This would limit liability to occasions where there are classes under the immediate charge of a teacher, which does not
seem to be the intendment of the law.
As I understand it, the philosophy of the law is that whoever stands in loco parentis will have the same duties and obligations as
parents whenever in such a standing. Those persons are mandatorily held liable for the tortious acts of pupils and students so
long as the latter remain in their custody, meaning their protective and supervisory custody.
Thus Article 349 of the Civil Code enumerates the persons who stand in loco parentis and thereby exercise substitute parental
authority:
Art. 349 The following persons shall exercise substitute parental authority:
xxx xxx xxx
2) Teachers and professors
xxx xxx xxx
4) Directors of trade establishments, with regard to apprentices;'
Article 352 of the Civil Code further provides:
Page 19 of 105
Art. 362. The relations between teacher and pupil, professor and student, are fixed by government
regulations and those of each school or institution....
But even such rules and regulations as may be fixed can not contravene the concept of substitute parental authority.
The rationale of liability of school heads and teachers for the tortious acts of their pupils was explained in Palisoc vs.
Brillantes (41 SCRA 548), thus:
The protective custody of the school heads and teachers is mandatorily substituted for that of the parents,
and hence, it becomes their obligation as well as that of the school itself to provide proper supervision of the
students' activities during the whole time that they are at attendance in the school, including recess time, as
well as to take the necessary precautions to protect the students in their custody from dangers and hazards
that would reasonably be anticipated, including injuries that some students themselves may inflict wilfully or
through negligence on their fellow students. (Emphasis supplied)
Of course, as provided for in the same Article 2180, the responsibility treated of shall cease when the persons mentioned prove
that they observed all the diligence of a good father of a family to prevent damage.
And while a school is, admittedly, not directly liable since Article 2180 speaks only of teachers and schools heads, yet, by virtue
of the same provision, the school, as their employer, may be held liable for the failure of its teachers or school heads to perform
their mandatory legal duties as substitute parents (Sangco, Philippine Law on Torts & Damages, 1978 ed., p. 201). Again, the
school may exculpate itself from liability by proving that it had exercised the diligence of a good father of the family.
Art. 2180. x x x
Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.
xxx xxx xxx
Parenthetically, from the enumeration in Article 349 of the Civil Code, supra, it is apparent that the Code Commission had
already segregated the classification of "teachers and professors" vis-a-vis their pupils, from "directors of trade establishments,
with regard to their apprentices."
GUTIERREZ, JR., J., concurring:
I concur in the Court's opinion so carefully analyzed and crafted by Justice Isagani A. Cruz. However, I would like to stress the
need for a major amendment to, if not a complete scrapping of, Article 2180 of the Civil Code insofar as it refers to teachers or
heads of establishments of arts and trades in relation to pupils and students or apprentices. The seventh paragraph of Art. 2180
is a relic of the past and contemplates a situation long gone and out of date. In a Palisoc v. Brillantes (41 SCRA 548) situation, it
is bound to result in mischief and injustice.
First, we no longer have masters and apprentices toiling in schools of arts and trades. Students in "technological" colleges and
universities are no different from students in liberal arts or professional schools. Apprentices now work in regular shops and
factories and their relationship to the employer is covered by laws governing the employment relationship and not by laws
governing the teacher—student relationship.
Second, except for kindergarten, elementary, and perhaps early high school students, teachers are often no longer objects of
veneration who are given the respect due to substitute parents. Many students in their late teens or early adult years view some
teachers as part of a bourgeois or reactionary group whose advice on behaviour, deportment, and other non-academic matters is
not only resented but actively rejected. It ,seems most unfair to hold teachers liable on a presumption juris tantum of negligence
for acts of students even under circumstances where strictly speaking there could be no in loco parentis relationship. Why do
Page 20 of 105
teachers have to prove the contrary of negligence to be freed from solidary liability for the acts f bomb-throwing or pistol packing
students who would just as soon hurt them as they would other members of the so-called-establishment.
The ordinary rules on quasi-delicta should apply to teachers and schools of whatever nature insofar as grown up students are
concerned. The provision of Art. 2180 of the Civil Code involved in this case has outlived its purpose. The Court cannot make
law. It can only apply the law with its imperfections. However, the Court can suggest that such a law should be amended or
repealed.
Separate Opinions
MELENCIO-HERRERA, J., concurring and dissenting:
I concur, except with respect to the restricted meaning given the term "teacher" in Article 2180 of the Civil Code as "teacher-in-
charge." This would limit liability to occasions where there are classes under the immediate charge of a teacher, which does not
seem to be the intendment of the law.
As I understand it, the philosophy of the law is that whoever stands in loco parentis will have the same duties and obligations as
parents whenever in such a standing. Those persons are mandatorily held liable for the tortious acts of pupils and students so
long as the latter remain in their custody, meaning their protective and supervisory custody.
Thus Article 349 of the Civil Code enumerates the persons who stand in loco parentis and thereby exercise substitute parental
authority:
Art. 349 The following persons shall exercise substitute parental authority:
xxx xxx xxx
2) Teachers and professors
xxx xxx xxx
4) Directors of trade establishments, with regard to apprentices;'
Article 352 of the Civil Code further provides:
Art. 362. The relations between teacher and pupil, professor and student, are fixed by government
regulations and those of each school or institution....
But even such rules and regulations as may be fixed can not contravene the concept of substitute parental authority.
The rationale of liability of school heads and teachers for the tortious acts of their pupils was explained in Palisoc vs.
Brillantes (41 SCRA 548), thus:
The protective custody of the school heads and teachers is mandatorily substituted for that of the parents,
and hence, it becomes their obligation as well as that of the school itself to provide proper supervision of the
students' activities during the whole time that they are at attendance in the school, including recess time, as
well as to take the necessary precautions to protect the students in their custody from dangers and hazards
Page 21 of 105
that would reasonably be anticipated, including injuries that some students themselves may inflict wilfully or
through negligence on their fellow students. (Emphasis supplied)
Of course, as provided for in the same Article 2180, the responsibility treated of shall cease when the persons mentioned prove
that they observed all the diligence of a good father of a family to prevent damage.
And while a school is, admittedly, not directly liable since Article 2180 speaks only of teachers and schools heads, yet, by virtue
of the same provision, the school, as their employer, may be held liable for the failure of its teachers or school heads to perform
their mandatory legal duties as substitute parents (Sangco, Philippine Law on Torts & Damages, 1978 ed., p. 201). Again, the
school may exculpate itself from liability by proving that it had exercised the diligence of a good father of the family.
Art. 2180. x x x
Employers shall be liable for the damages caused by their employees and household helpers acting within
the scope of their assigned tasks, even though the former are not engaged in any business or industry.
xxx xxx xxx
Parenthetically, from the enumeration in Article 349 of the Civil Code, supra, it is apparent that the Code Commission had
already segregated the classification of "teachers and professors" vis-a-vis their pupils, from "directors of trade establishments,
with regard to their apprentices."
GUTIERREZ, JR., J., concurring:
I concur in the Court's opinion so carefully analyzed and crafted by Justice Isagani A. Cruz. However, I would like to stress the
need for a major amendment to, if not a complete scrapping of, Article 2180 of the Civil Code insofar as it refers to teachers or
heads of establishments of arts and trades in relation to pupils and students or apprentices. The seventh paragraph of Art. 2180
is a relic of the past and contemplates a situation long gone and out of date. In a Palisoc v. Brillantes (41 SCRA 548) situation, it
is bound to result in mischief and injustice.
First, we no longer have masters and apprentices toiling in schools of arts and trades. Students in "technological" colleges and
universities are no different from students in liberal arts or professional schools. Apprentices now work in regular shops and
factories and their relationship to the employer is covered by laws governing the employment relationship and not by laws
governing the teacher—student relationship.
Second, except for kindergarten, elementary, and perhaps early high school students, teachers are often no longer objects of
veneration who are given the respect due to substitute parents. Many students in their late teens or early adult years view some
teachers as part of a bourgeois or reactionary group whose advice on behaviour, deportment, and other non-academic matters is
not only resented but actively rejected. It ,seems most unfair to hold teachers liable on a presumption juris tantum of negligence
for acts of students even under circumstances where strictly speaking there could be no in loco parentis relationship. Why do
teachers have to prove the contrary of negligence to be freed from solidary liability for the acts f bomb-throwing or pistol packing
students who would just as soon hurt them as they would other members of the so-called-establishment.
The ordinary rules on quasi-delicta should apply to teachers and schools of whatever nature insofar as grown up students are
concerned. The provision of Art. 2180 of the Civil Code involved in this case has outlived its purpose. The Court cannot make
law. It can only apply the law with its imperfections. However, the Court can suggest that such a law should be amended or
repealed.
G.R. No. 84698 February 4, 1992
Page 22 of 105
PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M.

MAGTALAS, COL. PEDRO SACRO and LT. M. SORIANO, Petitioners, vs. COURT OF APPEALS, HON. REGINA ORDOÑEZ-
BENITEZ, in her capacity as Presiding Judge of Branch 47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA and
ARSENIA D. BAUTISTA, Respondents.
Balgos and Perez for petitioners.chanrobles virtual law library
Collantes, Ramirez & Associates for private respondents.
PADILLA, J.:
A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor premises of the
Philippine School of Business Administration (PSBA) prompted the parents of the deceased to file suit in the Regional Trial Court
of Manila (Branch 47) presided over by Judge (now Court of Appeals justice) Regina Ordoñez-Benitez, for damages against the
said PSBA and its corporate officers. At the time of his death, Carlitos was enrolled in the third year commerce course at the
PSBA. It was established that his assailants were not members of the school's academic community but were elements from
outside the school.chanroblesvirtualawlibrarychanrobles virtual law library
Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President), Benjamin P. Paulino
(Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of Security) and a Lt. M. Soriano (Assistant
Chief of Security). Substantially, the plaintiffs (now private respondents) sought to adjudge them liable for the victim's untimely
demise due to their alleged negligence, recklessness and lack of security precautions, means and methods before, during and
after the attack on the victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the other petitioners
by resigning from his position in the school.chanroblesvirtualawlibrarychanrobles virtual law library
Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably sued under Article
2180 of the Civil Code, the complaint states no cause of action against them, as jurisprudence on the subject is to the effect
that academic institutions, such as the PSBA, are beyond the ambit of the rule in the afore-stated
article.chanroblesvirtualawlibrarychanrobles virtual law library
The respondent trial court, however, overruled petitioners' contention and thru an order dated 8 December 1987, denied their
motion to dismiss. A subsequent motion for reconsideration was similarly dealt with by an order dated 25 January 1988.
Petitioners then assailed the trial court's disposition before the respondent appellate court which, in a decision *promulgated on
10 June 1988, affirmed the trial court's orders. On 22 August 1988, the respondent appellate court resolved to deny the
petitioners' motion for reconsideration. Hence, this petition.chanroblesvirtualawlibrarychanrobles virtual law library
At the outset, it is to be observed that the respondent appellate court primarily anchored its decision on the law of quasi-delicts,
as enunciated in Articles 2176 and 2180 of the Civil Code. 1 Pertinent portions of the appellate court's now assailed ruling state:
Article 2180 (formerly Article 1903) of the Civil Code is an adoption from the old Spanish Civil Code. The comments of Manresa
and learned authorities on its meaning should give way to present day changes. The law is not fixed and flexible (sic); it must be
dynamic. In fact, the greatest value and significance of law as a rule of conduct in (sic) its flexibility to adopt to changing social
conditions and its capacity to meet the new challenges of progress.chanroblesvirtualawlibrarychanrobles virtual law library
Construed in the light of modern day educational system, Article 2180 cannot be construed in its narrow concept as held in the
old case of Exconde vs. Capuno 2 and Mercado vs. Court of Appeals; 3 hence, the ruling in the Palisoc 4 case that it should apply
to all kinds of educational institutions, academic or vocational.chanroblesvirtualawlibrarychanrobles virtual law library
At any rate, the law holds the teachers and heads of the school staff liable unless they relieve themselves of such liability
pursuant to the last paragraph of Article 2180 by "proving that they observed all the diligence to prevent damage." This can only
be done at a trial on the merits of the case. 5chanrobles virtual law library
Page 23 of 105
While we agree with the respondent appellate court that the motion to dismiss the complaint was correctly denied and the
complaint should be tried on the merits, we do not however agree with the premises of the appellate court's
ruling.chanroblesvirtualawlibrarychanrobles virtual law library
Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. This Court discussed this
doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more recently, in Amadora vs. Court of Appeals. 6 In all
such cases, it had been stressed that the law (Article 2180) plainly provides that the damage should have been caused or
inflicted by pupils or students of he educational institution sought to be held liable for the acts of its pupils or students while in its
custody. However, this material situation does not exist in the present case for, as earlier indicated, the assailants of
Carlitos were not students of the PSBA, for whose acts the school could be made liable.chanroblesvirtualawlibrarychanrobles
virtual law library
However, does the appellate court's failure to consider such material facts mean the exculpation of the petitioners from liability? It
does not necessarily follow.chanroblesvirtualawlibrarychanrobles virtual law library
When an academic institution accepts students for enrollment, there is established a contract between them, resulting in bilateral
obligations which both parties are bound to comply with. 7 For its part, the school undertakes to provide the student with an
education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a
profession. On the other hand, the student covenants to abide by the school's academic requirements and observe its rules and
regulations.chanroblesvirtualawlibrarychanrobles virtual law library
Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies
of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades
exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school
must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the
breakdown thereof.chanroblesvirtualawlibrarychanrobles virtual law library
Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos Bautista, the rules
on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that obligations arising from quasi-delicts or tort, also
known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied.
However, this impression has not prevented this Court from determining the existence of a tort even when there obtains a
contract. In Air France vs. Carrascoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted
expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's
liability as one arising from tort, not one arising from a contract of carriage. In effect, Air Franceis authority for the view that
liability from tort may exist even if there is a contract, for the act that breaks the contract may be also a tort. (Austro-America S.S.
Co. vs. Thomas, 248 Fed. 231).chanroblesvirtualawlibrarychanrobles virtual law library
This view was not all that revolutionary, for even as early as 1918, this Court was already of a similar mind. In Cangco vs. Manila
Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:
The field of non-contractual obligation is much broader than that of contractual obligation, comprising, as it does, the whole
extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person
is bound to another by contract does not relieve him from extra-contractual liability to such person. When such a contractual
relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the
contract would have constituted the source of an extra-contractual obligation had no contract existed between the parties.
Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21, which provides:
Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good custom or public policyshall
compensate the latter for the damage. (emphasis supplied).
Air France penalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust the private
respondent to cater to the comfort of a white man who allegedly "had a better right to the seat." In Austro-American, supra, the
Page 24 of 105
public embarrassment caused to the passenger was the justification for the Circuit Court of Appeals, (Second Circuit), to award
damages to the latter. From the foregoing, it can be concluded that should the act which breaches a contract be done in bad faith
and be violative of Article 21, then there is a cause to view the act as constituting a quasi-
delict.chanroblesvirtualawlibrarychanrobles virtual law library
In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and
Bautista had been breached thru the former's negligence in providing proper security measures. This would be for the trial court
to determine. And, even if there be a finding of negligence, the same could give rise generally to a breach of contractual
obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact,
that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a
contractual relation is a condition sine qua non to the school's liability. The negligence of the school cannot exist independently of
the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil
Code.chanroblesvirtualawlibrarychanrobles virtual law library
This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for conceptually a
school, like a common carrier, cannot be an insurer of its students against all risks. This is specially true in the populous student
communities of the so-called "university belt" in Manila where there have been reported several incidents ranging from gang
wars to other forms of hooliganism. It would not be equitable to expect of schools to anticipate all types of violent trespass upon
their premises, for notwithstanding the security measures installed, the same may still fail against an individual or group
determined to carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid
liability by proving that the breach of its contractual obligation to the students was not due to its negligence, here statutorily
defined to be the omission of that degree of diligence which is required by the nature of the obligation and corresponding to the
circumstances of persons, time and place. 9chanrobles virtual law library
As the proceedings a quo have yet to commence on the substance of the private respondents' complaint, the record is bereft of
all the material facts. Obviously, at this stage, only the trial court can make such a determination from the evidence still to
unfold.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin (RTC, Manila, Br. 47) is hereby
ordered to continue proceedings consistent with this ruling of the Court. Costs against the
petitioners.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.
Melencio-Herrera, Paras, Regalado and Nocon, JJ., concur.
G.R. No. 66207. May 18, 1992.]
MAXIMINO SOLIMAN, JR., represented by his judicial guardian VIRGINIA C. SOLIMAN, Petitioner, v. HON. JUDGE
RAMON TUAZON, Presiding Judge of Branch LXI, Regional Trial Court of Region III, Angeles City, and the REPUBLIC
CENTRAL COLLEGES, represented by its President, Respondents.
Mariano Y. Navarro for Republic Central Colleges.
SYLLABUS
1. CIVIL LAW; QUASI-DELICT; LIABILITY OF EMPLOYER FOR ALLEGED WRONGFUL ACTS OF ITS EMPLOYEES; RULE
NOT APPLICABLE TO SECURITY GUARDS ASSIGNED THERETO; REASONS THEREFOR. — The first paragraph of Article
2180 of the Civil Code offers no basis for holding the Colleges liable for the alleged wrongful acts of security guard Jimmy
Solomon inflicted upon petitioner Soliman, Jr. Private respondent school was not the employer of Jimmy Solomon. The employer
of Jimmy Solomon was the R.L. Security Agency Inc., while the school was the client or customer of the R.L. Security Agency
Page 25 of 105
Inc.. It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security guards,
the agency is the employer of such guards or watchmen. Liability for illegal or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a clients or customers of
a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall
be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot, in the
ordinary course of events, be demanded from the client whose premises or property are protected by the security guards. The
fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the
client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged in the contract for services entered into with
the security agency. There being no employer-employee relationship between the Colleges and Jimmy Solomon, petitioner
student cannot impose vicarious liability upon the Colleges for the acts of security guard Solomon.
2. ID.; ID.; LIABILITY OF HEADS OF ESTABLISHMENT OF ARTS AND TRADE FOR DAMAGES INFLICTED UPON ITS
STUDENTS; NOT APPLICABLE IN CASE AT BAR. — Since there is no question that Jimmy Solomon was not a pupil or student
or an apprentice of the Colleges, he being in fact an employee of the R.L. Security Agency Inc., the 7th paragraph of Article 2180
of the Civil Code is similarly not available for imposing liability upon the Republic Central Colleges for the acts or omissions of
Jimmy Solomon. Persons exercising substitute parental authority are made responsible for damage inflicted upon a third person
by the child or person subject to such substitute parental authority. In the instant case, as already noted, Jimmy Solomon who
committed allegedly tortious acts resulting in injury to petitioner, was not a pupil, student or apprentice of the Republic Central
Colleges; the school had no substitute parental authority over Solomon..
3. ID.; ID.; ID.; CONTRACTUAL OBLIGATIONS OF SCHOOLS AND ITS STUDENTS; CONSTRUED. — In PSBA v. CA, (G.R.
No. 84698, 4 February 1992) the Court held that Article 2180 of the Civil Case was not applicable where a student had been
injured by one who was an outsider or by one over whom the school did not exercise any custody or control or supervision. At
the same time, however, the Court stressed that an implied contract may be held to be established between a school which
accepts students for enrollment, on the one hand, and the students who are enrolled, on the other hand, which contract results in
obligations for both parties: "When an academic institution accepts students for enrollment, there is established a contract
between them, resulting in bilateral obligations which parties are bound to comply with. For its part, the school undertakes to
provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue
higher education or a profession. On the other hand, the student covenants to abide by the school’s academic requirements and
observe its rules and regulations. Institutions of learning must also meet the implicit or ‘built-in’ obligation of providing their
students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no
student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when
bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and
limb. Necessarily, the school must ensure that adequate steps are taken to maintain peace and order within the campus
premises and to prevent the breakdown thereof." In that case, the Court was careful to point out that: "In the circumstances
obtaining in the case at bar, however, there is, as yet, no finding that the contract between the school and Bautista had been
breached thru the former’s negligence in providing proper security measures. This would be for the trial court to determine. And,
even if there be a finding of negligence, the same could give rise generally to a breach of contractual obligation only. Using the
test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact, that negligence becomes
material only because of the contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition
sine qua non to the school’s liability. The negligence of the school cannot exist independently of the contract, unless the
negligence occurs under the circumstances set out in Article 21 of the Civil Code. The Court is not unmindful of the attendant
difficulties posed by the obligation of schools, above-mentioned, for conceptually a school, like a common carrier, cannot be an
insurer of its students against all risks. This is specially true in the populous student communities of the so-called ‘university belt’
in Manila where there have been reported several incidents ranging from gang wars to other forms of hooliganism. It would not
be equitable to expect of schools to anticipate all types of violent trespass upon their premises, for notwithstanding the security
measures installed, the same may still fail against an individual or group determined to carry out a nefarious deed inside school
premises and environs. Should this be the case, the school may still avoid liability by proving that the breach of its contractual
obligation to the students was not due to its negligence, here statutorily defined to be the omission of that degree of diligence
which is required by the nature of obligation and corresponding to the circumstances of person, time and place."
RESOLUTION
Page 26 of 105
FELICIANO, J.:
On 22 March 1983, petitioner Soliman, Jr. filed a civil complaint for damages against private respondent Republic Central
Colleges ("Colleges"), the R.L. Security Agency Inc. and one Jimmy B. Solomon, a security guard, as defendants. The complaint
alleged that:jgc:chanrobles.com.ph
". . . on 13 August 1982, in the morning thereof, while the plaintiff was in the campus ground and premises of the defendant,
REPUBLIC CENTRAL COLLEGES, as he was and is still a regular classes, the defendant, JIMMY B. SOLOMON, who was on
said date and hour in the premises of said school performing his duties and obligations as a duly appointed security guard under
the employment, supervision and control of his employer-defendant R.L. SECURITY AGENCY, INC., headed by Mr. Benjamin
Serrano, without any provocation, in a wanton, fraudulent, reckless, oppressive or malevolent manner, with intent to kill, attack,
assault, strike and shoot the plaintiff on the abdomen with a .38 Caliber Revolver, a deadly weapon, which ordinarily such wound
sustained would have caused plaintiff’s death were it not for the timely medical assistance given to him. The plaintiff was treated
and confined at Angeles Medical Center, Angeles City, and as per doctor’s opinion, the plaintiff may not be able to attend to his
regular classes and will be incapacitated in the performance of his usual work for a duration of from three to four months before
his wounds would be completely healed." 1
Private respondent Colleges filed a motion to dismiss, contending that the complaint stated no cause of action against it. Private
respondent argued that it is free from any liability for the injuries sustained by petitioner student for the reason that private
respondent school was not the employer of the security guard charged, Jimmy Solomon, and hence was not responsible for any
wrongful act of Solomon. Private respondent school further argued that Article 2180, 7th paragraph, of the Civil Code did not
apply, since said paragraph holds teachers and heads of establishment of arts and trades liable for damages caused by their
pupils and students or apprentices, while security guard Jimmy Solomon was not a pupil, student or apprentice of the school.
In an order dated 29 November 1983, respondent Judge granted private respondent school’s motion to dismiss, holding that
security guard Jimmy Solomon was not an employee of the school which accordingly could not be held liable for his acts or
omissions. Petitioner moved for reconsideration, without success.
In this Petition for Certiorari and Prohibition, it is contended that respondent trial judge committed a grave abuse of discretion
when he refused to apply the provisions of Article 2180, as well as those of Articles 349, 350 and 352, of the Civil Code and
granted the school’s motion to dismiss.
Under Article 2180 of the Civil Code, the obligation to respond for damage inflicted by one against another by fault or negligence
exists not only for one’s own act or omission, but also for acts or omissions of a person for whom one is by law responsible.
Among the persons held vicariously responsible for acts or omissions of another person are the following:chanrob1es virtual 1aw
library
x x x
Employers shall be liable for the damages caused by their employees and household helper, acting within the scope of their
assigned tasks, even though the former are not engaged in any business or industry.
x x x
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages caused by their pupils, their students
or apprentices, so long as they remain in their custody.chanrobles.com : virtual law library
x x x
The first paragraph quoted above offers no basis for holding the Colleges liable for the alleged wrongful acts of security guard
Jimmy B. Solomon inflicted upon petitioner Soliman, Jr. Private respondent school was not the employer of Jimmy Solomon. The
employer of Jimmy Solomon was the R.L. Security Agency Inc., while the school was the client or customer of the R.L. Security
Page 27 of 105
Agency Inc. It is settled that where the security agency, as here, recruits, hires and assigns the work of its watchmen or security
guards, the agency is the employer of such guards or watchmen. 2 Liability for illegal or harmful acts committed by the security
guards attaches to the employer agency, and not to the clients or customers of such agency. 3 As a general rule, a client or
customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of the guards cannot,
in the ordinary course of events, be demanded from the client whose premises or property are protected by the security guards.
The fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render
the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests commonly envisaged in the contract for services entered into with
the security agency. There being no employer-employee relationship between the Colleges and Jimmy Solomon, petitioner
student cannot impose vicarious liability upon the Colleges for the acts of security guard Solomon.
Since there is no question that Jimmy Solomon was not a pupil or student or an apprentice of the Colleges, he being in fact an
employee of the R.L. Security Agency Inc., the other above-quoted paragraph of Article 2180 of the Civil Code is similarly not
available for imposing liability upon the Republic Central Colleges for the acts or omissions of Jimmy Solomon.
The relevant portions of the other Articles of the Civil Code invoked by petitioner are as follows:jgc:chanrobles.com.ph
"Art. 349. The following persons shall exercise substitute parental authority:chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
x x x
(2) Teachers and professors;
x x x
(4) Directors of trade establishments with regard to apprentices;
x x x
Art. 350. The persons named in the preceding article shall exercise reasonable supervision over the conduct of the child.
x x x
Art. 352. The relations between teacher and pupil, professor and student are fixed by government regulations and those of each
school or institution. In no case shall corporal punishment be countenanced. The teacher or professor shall cultivate the best
potentialities of the heart and mind of the pupil or student."cralaw virtua1aw library
In Palisoc v. Brillantes, 4 invoked by petitioner, the Court held the owner and president of a school of arts and trades known as
the "Manila Technical Institute," Quezon Blvd., Manila, responsible in damages for the death of Dominador Palisoc, a student of
that Institute, which resulted from fist blows delivered by Virgilio L. Daffon, another student of the Institute. It will be seen that the
facts of Palisoc v. Brillantes brought it expressly within the 7th paragraph of Article 2180, quoted above; but those facts are
entirely different from the facts existing in the instant case.
Persons exercising substitute parental authority are made responsible for damage inflicted upon a third person by the child or
person subject to such substitute parental authority. In the instant case, as already noted, Jimmy Solomon who committed
allegedly tortious acts resulting in injury to petitioner, was not a pupil, student or apprentice of the Republic Central Colleges; the
school had no substitute parental authority over Solomon.
Clearly, within the confines of its limited logic, i.e., treating the petitioner’s claim as one based wholly and exclusively on Article
2180 of the Civil Code, the order of the respondent trial judge was correct. Does it follow, however, that respondent Colleges
Page 28 of 105
could not be held liable upon any other basis in law, for or in respect of the injury sustained by petitioner, so as to entitle
respondent school to dismissal of petitioner’s complaint in respect of itself?
The very recent case of the Philippine School of Business Administration (PSBA) v. Court of Appeals, 5 requires us to give a
negative answer to that question.
In PSBA, the Court held that Article 2180 of the Civil Code was not applicable where a student had been injured by one who was
an outsider or by one over whom the school did not exercise any custody or control or supervision. At the same time, however,
the court stressed that an implied contract may be held to be established between a school which accepts students for
enrollment, on the one hand, and the students who are enrolled, on the other hand, which contract results in obligations for both
parties:jgc:chanrobles.com.ph
"When an academic institution accepts students for enrollment, there is established a contract between them, resulting in
bilateral obligations which parties are bound to comply with. For its part, the school undertakes to provide the student with an
education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a
profession. On the other hand, the student covenants to abide by the school’s academic requirements and observe its rules and
regulations.
Institutions of learning must also meet the implicit or ‘built-in’ obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no student can absorb the intricacies
of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades
exploding in the air or where there looms around the school premises a constant threat to life and limb. Necessarily, the school
must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the
breakdown thereof." 6
In that case, the Court was careful to point out that:chanrobles.com : virtual law library
"In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between school and
Bautista had been breached thru the former’s negligence in providing proper security measures. This would be for the trial court
to determine. And, even if there be a finding of negligence, the same could give rise generally to a breach of contractual
obligation only. Using the test of Cangco, supra, the negligence of the school would not be relevant absent a contract. In fact,
that negligence becomes material only because of the contractual relation between PSBA and Bautista. In other words, a
contractual relation is a condition sine qua non to the school’s liability. The negligence of the school cannot exist independently
of the contract, unless the negligence occurs under the circumstances set out in Article 21 of the Civil Code.
The Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for conceptually a
school, like a common carrier, cannot be an insurer of its students against all risks. This is specially true in the populous student
communities of the so-called ‘university belt’ in Manila where there have been reported several incidents ranging from gang wars
to other forms of hooliganism. It would not be equitable to expect of schools to anticipate all types of violent trespass upon their
premises, for notwithstanding the security measures installed, the same still fail against an individual or group determined to
carry out a nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability by
proving that the breach of its contractual obligation to the students was not due to its negligence, here statutorily defined to be
the omission of that degree of diligence which is required by the nature of obligation and corresponding to the circumstances of
person, time and place." 7
In the PSBA case, the trial court had denied the school’s motion to dismiss the complaint against it, and both the Court of
Appeals and this Court affirmed the trial court’s order. In the case at bar, the court a quo granted the motion to dismiss filed by
respondent Colleges, upon the assumption that petitioner’s cause of action was based, and could have been based, only on
Article 2180 of the Civil Code. As PSBA, however, states, acts which are tortious or allegedly tortious in character may at the
same time constitute breach of a contractual, or other legal, obligation. Respondent trial judge was in serious error when he
supposed that petitioner could have no cause of action other than one based on Article 2180 of the Civil Code. Respondent trial
judge should not have granted the motion to dismiss but rather should have, in the interest of justice, allowed petitioner to prove
acts constituting breach of an obligation ex contractu or ex lege on the part of respondent Colleges.
In line, therefore, with the most recent jurisprudence of this Court, and in order to avoid a possible substantial miscarriage of
justice, and putting aside technical considerations, we consider that respondent trial judge committed serious error correctable by
Page 29 of 105
this Court in the instant case.
ACCORDINGLY, the court Resolved to GRANT DUE COURSE to the Petition, to TREAT the comment of respondent Colleges
as its answer, and to REVERSE and SET ASIDE the Order dated 29 November 1983. This case is REMANDED to the court a
quo for further proceedings consistent with this Resolution.
Gutierrez, Jr. Bidin, Davide, Jr. and Romero, JJ., concur.
G.R. NO. 156109 : November 18, 2004]
KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO REGINO, Petitioner, v.PANGASINAN COLLEGES
OF SCIENCE AND TECHNOLOGY, RACHELLE A. GAMUROT and ELISSA BALADAD, Respondents.
DECISION
PANGANIBAN, J.:
Upon enrolment, students and their school enter upon a reciprocal contract. The students agree to abide by the standards of
academic performance and codes of conduct, issued usually in the form of manuals that are distributed to the enrollees at the
start of the school term. Further, the school informs them of the itemized fees they are expected to pay. Consequently, it cannot,
after the enrolment of a student, vary the terms of the contract. It cannot require fees other than those it specified upon
enrolment.
The Case
Before the Court is a Petition for Review under Rule 45,1 seeking to nullify the July 12, 20022 and the November 22,
20023 Orders of the Regional Trial Court (RTC) of Urdaneta City, Pangasinan (Branch 48) in Civil Case No. U-7541. The decretal
portion of the first assailed Order reads:
"WHEREFORE, the Court GRANTS the instant motion to dismiss for lack of cause of action."4
The second challenged Order denied petitioner's Motion for Reconsideration.
The Facts
Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of Science
and Technology (PCST). Reared in a poor family, Regino went to college mainly through the financial support of her relatives.
During the second semester of school year 2001-2002, she enrolled in logic and statistics subjects under Respondents Rachelle
A. Gamurot and Elissa Baladad, respectively, as teachers.
In February 2002, PCST held a fund raising campaign dubbed the "Rave Party and Dance Revolution," the proceeds of which
were to go to the construction of the school's tennis and volleyball courts. Each student was required to pay for two tickets at the
price of P100 each. The project was allegedly implemented by recompensing students who purchased tickets with additional
points in their test scores; those who refused to pay were denied the opportunity to take the final examinations.
Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay for the
tickets. On March 14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her teachers - -
Respondents Rachelle A. Gamurot and Elissa Baladad - - allegedly disallowed her from taking the tests. According to petitioner,
Gamurot made her sit out her logic class while her classmates were taking their examinations. The next day, Baladad, after
announcing to the entire class that she was not permitting petitioner and another student to take their statistics examinations for
failing to pay for their tickets, allegedly ejected them from the classroom. Petitioner's pleas ostensibly went unheeded by
Gamurot and Baladad, who unrelentingly defended their positions as compliance with PCST's policy.
Page 30 of 105
On April 25, 2002, petitioner filed, as a pauper litigant, a Complaint 5 for damages against PCST, Gamurot and Baladad. In her
Complaint, she prayed for P500,000 as nominal damages; P500,000 as moral damages; at least P1,000,000 as exemplary
damages; P250,000 as actual damages; plus the costs of litigation and attorney's fees.
On May 30, 2002, respondents filed a Motion to Dismiss6 on the ground of petitioner's failure to exhaust administrative remedies.
According to respondents, the question raised involved the determination of the wisdom of an administrative policy of the PCST;
hence, the case should have been initiated before the proper administrative body, the Commission of Higher Education (CHED).
In her Comment to respondents' Motion, petitioner argued that prior exhaustion of administrative remedies was unnecessary,
because her action was not administrative in nature, but one purely for damages arising from respondents' breach of the laws on
human relations. As such, jurisdiction lay with the courts.
On July 12, 2002, the RTC dismissed the Complaint for lack of cause of action.
Ruling of the Regional Trial Court
In granting respondents' Motion to Dismiss, the trial court noted that the instant controversy involved a higher institution of
learning, two of its faculty members and one of its students. It added that Section 54 of the Education Act of 1982 vested in the
Commission on Higher Education (CHED) the supervision and regulation of tertiary schools. Thus, it ruled that the CHED, not the
courts, had jurisdiction over the controversy.7
In its dispositive portion, the assailed Order dismissed the Complaint for "lack of cause of action" without, however, explaining
this ground.
Aggrieved, petitioner filed the present Petition on pure questions of law.8
Issues
In her Memorandum, petitioner raises the following issues for our consideration:
"Whether or not the principle of exhaustion of administrative remedies applies in a civil action exclusively for damages based on
violation of the human relation provisions of the Civil Code, filed by a student against her former school.
"Whether or not there is a need for prior declaration of invalidity of a certain school administrative policy by the Commission on
Higher Education (CHED) before a former student can successfully maintain an action exclusively for damages in regular courts.
"Whether or not the Commission on Higher Education (CHED) has exclusive original jurisdiction over actions for damages based
upon violation of the Civil Code provisions on human relations filed by a student against the school."9
All of the foregoing point to one issue - - whether the doctrine of exhaustion of administrative remedies is applicable. The Court,
however, sees a second issue which, though not expressly raised by petitioner, was impliedly contained in her Petition: whether
the Complaint stated sufficient cause(s) of action.
The Court's Ruling
The Petition is meritorious.
First Issue:
Exhaustion of Administrative Remedies
Page 31 of 105
Respondents anchored their Motion to Dismiss on petitioner's alleged failure to exhaust administrative remedies before resorting
to the RTC. According to them, the determination of the controversy hinge on the validity, the wisdom and the propriety of
PCST's academic policy. Thus, the Complaint should have been lodged in the CHED, the administrative body tasked under
Republic Act No. 7722 to implement the state policy to "protect, foster and promote the right of all citizens to affordable quality
education at all levels and to take appropriate steps to ensure that education is accessible to all." 10
Petitioner counters that the doctrine finds no relevance to the present case since she is praying for damages, a remedy beyond
the domain of the CHED and well within the jurisdiction of the courts.11
Petitioner is correct. First, the doctrine of exhaustion of administrative remedies has no bearing on the present case. In Factoran
Jr. v. CA,12 the Court had occasion to elucidate on the rationale behind this doctrine:
"The doctrine of exhaustion of administrative remedies is basic. Courts, for reasons of law, comity, and convenience, should not
entertain suits unless the available administrative remedies have first been resorted to and the proper authorities have been
given the appropriate opportunity to act and correct their alleged errors, if any, committed in the administrative forum. x x x.13 "
Petitioner is not asking for the reversal of the policies of PCST. Neither is she demanding it to allow her to take her final
examinations; she was already enrolled in another educational institution. A reversal of the acts complained of would not
adequately redress her grievances; under the circumstances, the consequences of respondents' acts could no longer be undone
or rectified.
Second, exhaustion of administrative remedies is applicable when there is competence on the part of the administrative body to
act upon the matter complained of.14 Administrative agencies are not courts; they are neither part of the judicial system, nor are
they deemed judicial tribunals.15 Specifically, the CHED does not have the power to award damages.16 Hence, petitioner could
not have commenced her case before the Commission.
Third, the exhaustion doctrine admits of exceptions, one of which arises when the issue is purely legal and well within the
jurisdiction of the trial court.17 Petitioner's action for damages inevitably calls for the application and the interpretation of the Civil
Code, a function that falls within the jurisdiction of the courts.18
Second Issue:
Cause of Action
Sufficient Causes of Action Stated in the Allegations in the Complaint
As a rule, every complaint must sufficiently allege a cause of action; failure to do so warrants its dismissal.19 A complaint is said
to assert a sufficient cause of action if, admitting what appears solely on its face to be correct, the plaintiff would be entitled to the
relief prayed for. Assuming the facts that are alleged to be true, the court should be able to render a valid judgment in
accordance with the prayer in the complaint.20
A motion to dismiss based on lack of cause of action hypothetically admits the truth of the alleged facts. In their Motion to
Dismiss, respondents did not dispute any of petitioner's allegations, and they admitted that "x x x the crux of plaintiff's cause of
action is the determination of whether or not the assessment of P100 per ticket is excessive or oppressive." 21 They thereby
premised their prayer for dismissal on the Complaint's alleged failure to state a cause of action. Thus, a reexamination of the
Complaint is in order.
The Complaint contains the following factual allegations:
"10. In the second week of February 2002, defendant Rachelle A. Gamurot, in connivance with PCST, forced plaintiff and her
classmates to buy or take two tickets each, x x x;
Page 32 of 105
"11. Plaintiff and many of her classmates objected to the forced distribution and selling of tickets to them but the said defendant
warned them that if they refused [to] take or pay the price of the two tickets they would not be allowed at all to take the final
examinations;
"12. As if to add insult to injury, defendant Rachelle A. Gamurot bribed students with additional fifty points or so in their test score
in her subject just to unjustly influence and compel them into taking the tickets;
"13. Despite the students' refusal, they were forced to take the tickets because [of] defendant Rachelle A. Gamurot's coercion
and act of intimidation, but still many of them including the plaintiff did not attend the dance party imposed upon them by
defendants PCST and Rachelle A. Gamurot;
"14. Plaintiff was not able to pay the price of her own two tickets because aside form the fact that she could not afford to pay
them it is also against her religious practice as a member of a certain religious congregation to be attending dance parties and
celebrations;
"15. On March 14, 2002, before defendant Rachelle A. Gamurot gave her class its final examination in the subject 'Logic' she
warned that students who had not paid the tickets would not be allowed to participate in the examination, for which threat and
intimidation many students were eventually forced to make payments:
"16. Because plaintiff could not afford to pay, defendant Rachelle A. Gamurot inhumanly made plaintiff sit out the class but the
defendant did not allow her to take her final examination in 'Logic;'
"17. On March 15, 2002 just before the giving of the final examination in the subject 'Statistics,' defendant Elissa Baladad, in
connivance with defendants Rachelle A. Gamurot and PCST, announced in the classroom that she was not allowing plaintiff and
another student to take the examination for their failure and refusal to pay the price of the tickets, and thenceforth she ejected
plaintiff and the other student from the classroom;
"18. Plaintiff pleaded for a chance to take the examination but all defendants could say was that the prohibition to give the
examinations to non-paying students was an administrative decision;
"19. Plaintiff has already paid her tuition fees and other obligations in the school;
"20. That the above-cited incident was not a first since PCST also did another forced distribution of tickets to its students in the
first semester of school year 2001-2002; x x x " 22
The foregoing allegations show two causes of action; first, breach of contract; and second, liability for tort.
Reciprocity of the
School-Student Contract
In Alcuaz v. PSBA,23 the Court characterized the relationship between the school and the student as a contract, in which "a
student, once admitted by the school is considered enrolled for one semester."24Two years later, in Non v. Dames II,25 the Court
modified the "termination of contract theory" in Alcuaz by holding that the contractual relationship between the school and the
student is not only semestral in duration, but for the entire period the latter are expected to complete it."26 Except for the variance
in the period during which the contractual relationship is considered to subsist, both Alcuaz and Non were unanimous in
characterizing the school-student relationship as contractual in nature.
The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and inherent in all contracts of such
kind - - it gives rise to bilateral or reciprocal rights and obligations. The school undertakes to provide students with education
sufficient to enable them to pursue higher education or a profession. On the other hand, the students agree to abide by the
academic requirements of the school and to observe its rules and regulations.27
Page 33 of 105
The terms of the school-student contract are defined at the moment of its inception - - upon enrolment of the student. Standards
of academic performance and the code of behavior and discipline are usually set forth in manuals distributed to new students at
the start of every school year. Further, schools inform prospective enrollees the amount of fees and the terms of payment.
In practice, students are normally required to make a down payment upon enrollment, with the balance to be paid before every
preliminary, midterm and final examination. Their failure to pay their financial obligation is regarded as a valid ground for the
school to deny them the opportunity to take these examinations.
The foregoing practice does not merely ensure compliance with financial obligations; it also underlines the importance of major
examinations. Failure to take a major examination is usually fatal to the students' promotion to the next grade or to graduation.
Examination results form a significant basis for their final grades. These tests are usually a primary and an indispensable
requisite to their elevation to the next educational level and, ultimately, to their completion of a course.
Education is not a measurable commodity. It is not possible to determine who is "better educated" than another. Nevertheless, a
student's grades are an accepted approximation of what would otherwise be an intangible product of countless hours of study.
The importance of grades cannot be discounted in a setting where education is generally the gate pass to employment
opportunities and better life; such grades are often the means by which a prospective employer measures whether a job
applicant has acquired the necessary tools or skills for a particular profession or trade.
Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic standards, completion of academic
requirements and observance of school rules and regulations, the school would reward them by recognizing their "completion" of
the course enrolled in.
The obligation on the part of the school has been established in Magtibay v. Garcia,28 Licup v. University of San Carlos29 and
Ateneo de Manila University v. Garcia,30 in which the Court held that, barring any violation of the rules on the part of the students,
an institution of higher learning has a contractual obligation to afford its students a fair opportunity to complete the course they
seek to pursue.
We recognize the need of a school to fund its facilities and to meet astronomical operating costs; this is a reality in running it.
Crystal v. Cebu International School31 upheld the imposition by respondent school of a "land purchase deposit" in the amount of
P50,000 per student to be used for the "purchase of a piece of land and for the construction of new buildings and other facilities x
x x which the school would transfer [to] and occupy after the expiration of its lease contract over its present site."
The amount was refundable after the student graduated or left the school. After noting that the imposition of the fee was made
only after prior consultation and approval by the parents of the students, the Court held that the school committed no actionable
wrong in refusing to admit the children of the petitioners therein for their failure to pay the "land purchase deposit" and the 2.5
percent monthly surcharge thereon.
In the present case, PCST imposed the assailed revenue-raising measure belatedly, in the middle of the semester. It exacted the
dance party fee as a condition for the students' taking the final examinations, and ultimately for its recognition of their ability to
finish a course. The fee, however, was not part of the school-student contract entered into at the start of the school year. Hence,
it could not be unilaterally imposed to the prejudice of the enrollees.
Such contract is by no means an ordinary one. In Non, we stressed that the school-student contract "is imbued with public
interest, considering the high priority given by the Constitution to education and the grant to the State of supervisory and
regulatory powers over all educational institutions."32 Sections 5 (1) and (3) of Article XIV of the 1987 Constitution provide:
"The State shall protect and promote the right of all citizens to quality education at all levels and shall take appropriate steps to
make such declaration accessible to all.
"Every student has a right to select a profession or course of study, subject to fair, reasonable and equitable admission and
academic requirements."
Page 34 of 105
The same state policy resonates in Section 9(2) of BP 232, otherwise known as the Education Act of 1982:
"Section 9. Rights of Students in School. - In addition to other rights, and subject to the limitations prescribed by law and
regulations, students and pupils in all schools shall enjoy the following rights:
xxxxxxxxx
(2) The right to freely choose their field of study subject to existing curricula and to continue their course therein up to graduation,
except in cases of academic deficiency, or violation of disciplinary regulations."
Liability for Tort
In her Complaint, petitioner also charged that private respondents "inhumanly punish students x x x by reason only of their
poverty, religious practice or lowly station in life, which inculcated upon [petitioner] the feelings of guilt, disgrace and
unworthiness;"33 as a result of such punishment, she was allegedly unable to finish any of her subjects for the second semester
of that school year and had to lag behind in her studies by a full year. The acts of respondents supposedly caused her extreme
humiliation, mental agony and "demoralization of unimaginable proportions" in violation of Articles 19, 21 and 26 of the Civil
Code. These provisions of the law state thus:
"Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith."
"Article 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or
public policy shall compensate the latter for the damage."
"Article 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons.
The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages,
prevention and other relief:
(1) Prying into the privacy of another's residence;
(2) Meddling with or disturbing the private life or family relations of another;
(3) Intriguing to cause another to be alienated from his friends;
(4) Vexing or humiliating another on account of his beliefs, lowly station in life, place of birth, physical defect, or other personal
condition."
Generally, liability for tort arises only between parties not otherwise bound by a contract. An academic institution, however, may
be held liable for tort even if it has an existing contract with its students, since the act that violated the contract may also be a
tort. We ruled thus in PSBA v. CA,34 from which we quote:
"x x x A perusal of Article 2176 [of the Civil Code] shows that obligations arising from quasi-delicts or tort, also known as extra-
contractual obligations, arise only between parties not otherwise bound by contract, whether express or implied. However, this
impression has not prevented this Court from determining the existence of a tort even when there obtains a contract. In Air
France v. Carrascoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-
class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one
arising from tort, not one arising form a contract of carriage. In effect, Air France is authority for the view that liability from tort
may exist even if there is a contract, for the act that breaks the contract may be also a tort. x x x This view was not all that
revolutionary, for even as early as 1918, this Court was already of a similar mind. In Cangco v. Manila Railroad (38 Phil. 780),
Mr. Justice Fisher elucidated thus: 'x x x. When such a contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes a breach of the contract would have constituted the source of an extra-contractual
obligation had no contract existed between the parties.'
Page 35 of 105
"Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21 x x x." 35
Academic Freedom
In their Memorandum, respondents harp on their right to "academic freedom." We are not impressed. According to present
jurisprudence, academic freedom encompasses the independence of an academic institution to determine for itself (1) who may
teach, (2) what may be taught, (3) how it shall teach, and (4) who may be admitted to study. 36 In Garcia v. the Faculty Admission
Committee, Loyola School of Theology,37 the Court upheld the respondent therein when it denied a female student's admission
to theological studies in a seminary for prospective priests. The Court defined the freedom of an academic institution thus: "to
decide for itself aims and objectives and how best to attain them x x x free from outside coercion or interference save possibly
when overriding public welfare calls for some restraint."38
In Tangonan v. PaÃ±o,39 the Court upheld, in the name of academic freedom, the right of the school to refuse readmission of a
nursing student who had been enrolled on probation, and who had failed her nursing subjects. These instances notwithstanding,
the Court has emphasized that once a school has, in the name of academic freedom, set its standards, these should be
meticulously observed and should not be used to discriminate against certain students. 40 After accepting them upon enrollment,
the school cannot renege on its contractual obligation on grounds other than those made known to, and accepted by, students at
the start of the school year.
In sum, the Court holds that the Complaint alleges sufficient causes of action against respondents, and that it should not have
been summarily dismissed. Needless to say, the Court is not holding respondents liable for the acts complained of. That will
have to be ruled upon in due course by the court a quo.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders REVERSED. The trial court is DIRECTED to reinstate
the Complaint and, with all deliberate speed, to continue the proceedings in Civil Case No. U-7541. No costs.
SO ORDERED.
G.R. NO. 164012 : June 8, 2007]
FLORDELIZA MENDOZA, Petitioner, v. MUTYA SORIANO and Minor JULIE ANN SORIANO duly represented by her
natural mother and guardian ad litem MUTYA SORIANO, Respondents.
DECISION
QUISUMBING, J.:
In this Petition for Review under Rule 45 of the Rules of Court, petitioner asks this Court to reverse and set aside the
Decision1 dated November 17, 2003 and the Resolution2 dated May 24, 2004 of the Court of Appeals in CA-G.R. CV No. 69037.
The appellate court found petitioner, as employer of Lomer Macasasa, liable for damages.
The facts are as follows:
At around 1:00 a.m., July 14, 1997, Sonny Soriano, while crossing Commonwealth Avenue near Luzon Avenue in Quezon City,
was hit by a speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away, while the vehicle only
stopped some 25 meters from the point of impact. Gerard Villaspin, one of Soriano's companions, asked Macasasa to bring
Soriano to the hospital, but after checking out the scene of the incident, Macasasa returned to the FX, only to flee. A school bus
brought Soriano to East Avenue Medical Center where he later died. Subsequently, the Quezon City Prosecutor recommended
the filing of a criminal case for reckless imprudence resulting to homicide against Macasasa. 3
Page 36 of 105
On August 20, 1997, respondents Mutya Soriano and Julie Ann Soriano, Soriano's wife and daughter, respectively, filed a
complaint for damages against Macasasa and petitioner Flordeliza Mendoza, the registered owner of the vehicle. The complaint
was docketed as Civil Case No. C-18038 in the Regional Trial Court of Caloocan City, Branch 121. Respondents prayed that
Macasasa and petitioner be ordered to pay them: P200,000 moral damages; P500,000 for lost income; P22,250 for funeral
services; P45,000 for burial lot; P15,150 for interment and lapida; P8,066 for hospitalization, other medical and transportation
expenses; P28,540 for food and drinks during the wake; P50,000 exemplary damages; P60,000 indemnity for Soriano's death;
and P25,000 for attorney's fees plus P500 per court appearance.4
In her answer, petitioner Mendoza maintained that she was not liable since as owner of the vehicle, she had exercised the
diligence of a good father of a family over her employee, Macasasa.
Upon respondents' motion, the complaint for damages against Macasasa was dismissed.
After trial, the trial court also dismissed the complaint against petitioner.5 It found Soriano negligent for crossing Commonwealth
Avenue by using a small gap in the island's fencing rather than the pedestrian overpass. The lower court also ruled that petitioner
was not negligent in the selection and supervision of Macasasa since complainants presented no evidence to support their
allegation of petitioner's negligence.6
Respondents appealed. The Court of Appeals reversed the trial court. The dispositive portion of the appellate court's decision
reads:
WHEREFORE, the judgment appealed from is REVERSED, and another one is hereby rendered ordering [petitioner] Flordeliza
Mendoza to pay [respondents] Mutya Soriano and Julie Ann Soriano the following amounts:
1. Hospital and Burial Expenses P80,926.25
2. Loss of earning capacity P77,000.00
3. Moral Damages P20,000.00
4. Indemnity for the death of Sonny Soriano P50,000.00
Actual payment of the aforementioned amounts should, however, be reduced by twenty (20%) per cent due to the presence of
contributory negligence by the victim as provided for in Article 2179 of the Civil Code.
SO ORDERED.7
While the appellate court agreed that Soriano was negligent, it also found Macasasa negligent for speeding, such that he was
unable to avoid hitting the victim. It observed that Soriano's own negligence did not preclude recovery of damages from
Macasasa's negligence. It further held that since petitioner failed to present evidence to the contrary, and conformably with
Article 21808 of the Civil Code, the presumption of negligence of the employer in the selection and supervision of employees
stood.
Petitioner's motion for reconsideration was denied by the appellate court in a Resolution 9 dated May 24, 2004.
Hence, this appeal where petitioner alleges that:
I.
THE TOTAL AMOUNT PRAYED FOR IN THE COMPLAINT IS NOT WITHIN THE JURISDICTION OF THE REGIONAL TRIAL
COURT.
Page 37 of 105
II.
[COROLLARILY], THE AWARD OF DAMAGES IN FAVOR OF THE RESPONDENTS [HAS] NO BASIS IN LAW.10
The issues are simple: (1) Did the Regional Trial Court have jurisdiction to try the case? and (2) Was there sufficient legal basis
to award damages?cralaw library
Petitioner argues that the amount claimed by respondents is within the jurisdiction of the Metropolitan Trial Court. She posits that
to determine the jurisdictional amount, what should only be considered are the following: P22,250 for funeral services; P45,000
for burial lot; P15,150 for interment and lapida; P8,066 for hospitalization and transportation; P28,540 for food and drinks during
the wake; and P60,000 indemnity for Soriano's death. She maintains that the sum of these amounts, P179,006, is below the
jurisdictional amount of the Regional Trial Court. She states that under Section 19(8) of the Judiciary Reorganization Act of 1980,
the following claims of respondents must be excluded: P200,000 moral damages, P500,000 for lost income; P50,000 exemplary
damages; P25,000 attorney's fees plus P500 per court appearance. Petitioner thus prays that the decision of the Court of
Appeals be reversed, and the dismissal of the case by the trial court be affirmed on the ground of lack of jurisdiction.
Section 19(8) of Batas Pambansa Blg. 129,11 as amended by Republic Act No. 7691, states the pertinent law.
SEC. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:
xxx
(8) In all other cases in which the demand, exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses,
and costs or the value of the property in controversy exceeds One hundred thousand pesos (P100,000.00) or, in such other
cases in Metro Manila, where the demand, exclusive of the abovementioned items exceeds Two hundred thousand pesos
(P200,000.00).
But relatedly, Administrative Circular No. 09-9412 expressly states:
xxx
2. The exclusion of the term "damages of whatever kind" in determining the jurisdictional amount under Section 19(8) and
Section 33(1) of BP Blg. 129, as amended by RA No. 7691, applies to cases where the damages are merely incidental to or a
consequence of the main cause of action. However, in cases where the claim for damages is the main cause of action, or one of
the causes of action, the amount of such claim shall be considered in determining the jurisdiction of the court. (Underscoring
supplied.)
Actions for damages based on quasi-delicts, as in this case, are primarily and effectively actions for the recovery of a sum of
money for the damages for tortious acts.13 In this case, respondents' claim of P929,006 in damages and P25,000 attorney's fees
plus P500 per court appearance represents the monetary equivalent for compensation of the alleged injury. These money claims
are the principal reliefs sought by respondents in their complaint for damages.14 Consequently then, we hold that the Regional
Trial Court of Caloocan City possessed and properly exercised jurisdiction over the case. 15
Petitioner further argues that since respondents caused the dismissal of the complaint against Macasasa, there is no longer any
basis to find her liable. She claims that "no iota of evidence" was presented in this case to prove Macasasa's negligence, and
besides, respondents can recover damages in the criminal case against him.
Respondents counter that as Macasasa's employer, petitioner was presumed negligent in selecting and supervising Macasasa
after he was found negligent by the Court of Appeals.
The records show that Macasasa violated two traffic rules under the Land Transportation and Traffic Code. First, he failed to
maintain a safe speed to avoid endangering lives.16 Both the trial and the appellate courts found Macasasa overspeeding.17 The
Page 38 of 105
records show also that Soriano was thrown five meters away after he was hit.18 Moreover, the vehicle stopped only some 25
meters from the point of impact.19
Both circumstances support the conclusion that the FX vehicle driven by Macasasa was overspeeding. Second, Macasasa, the
vehicle driver, did not aid Soriano, the accident victim, in violation of Section 55,20 Article V of the Land Transportation and Traffic
Code. While Macasasa at first agreed to bring Soriano to the hospital, he fled the scene in a hurry. Contrary to petitioner's claim,
there is no showing of any factual basis that Macasasa fled for fear of the people's wrath. What remains undisputed is that he did
not report the accident to a police officer, nor did he summon a doctor. Under Article 2185 21 of the Civil Code, a person driving a
motor vehicle is presumed negligent if at the time of the mishap, he was violating traffic regulations.
While respondents could recover damages from Macasasa in a criminal case and petitioner could become subsidiarily liable, still
petitioner, as owner and employer, is directly and separately civilly liable for her failure to exercise due diligence in supervising
Macasasa.22 We must emphasize that this damage suit is for the quasi-delict of petitioner, as owner and employer, and not for
the delict of Macasasa, as driver and employee.
Under Article 2180 of the Civil Code, employers are liable for the damages caused by their employees acting within the scope of
their assigned tasks. The liability arises due to the presumed negligence of the employers in supervising their employees unless
they prove that they observed all the diligence of a good father of a family to prevent the damage.
In this case, we hold petitioner primarily and solidarily liable for the damages caused by Macasasa.23Respondents could recover
directly from petitioner24 since petitioner failed to prove that she exercised the diligence of a good father of a family in supervising
Macasasa.25 Indeed, it is unfortunate that petitioner harbored the notion that the Regional Trial Court did not have jurisdiction
over the case and opted not to present her evidence on this point.
Lastly, we agree that the Court of Appeals did not err in ruling that Soriano was guilty of contributory negligence for not using the
pedestrian overpass while crossing Commonwealth Avenue. We even note that the respondents now admit this point, and
concede that the appellate court had properly reduced by 20% the amount of damages it awarded. Hence, we affirm the
reduction26 of the amount earlier awarded, based on Article 2179 of the Civil Code which reads:
When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the
plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.
WHEREFORE, we DENY the petition for lack of merit and hereby AFFIRM the Decision dated November 17, 2003 and the
Resolution dated May 24, 2004 of the Court of Appeals in CA-G.R. CV No. 69037.
Costs against petitioner.
SO ORDERED.
G.R. NO. 126297 : January 31, 2007]
PROFESSIONAL SERVICES, INC., Petitioner, v. NATIVIDAD and ENRIQUE AGANA, Respondents.
[G.R. NO. 126467 : January 31, 2007]
NATIVIDAD (Substituted by her children MARCELINO AGANA III, ENRIQUE AGANA, JR., EMMA AGANA ANDAYA,
JESUS AGANA, and RAYMUND AGANA) and ENRIQUE AGANA, Petitioners, v. JUAN FUENTES, Respondent.
Page 39 of 105
[G.R. NO. 127590 : January 31, 2007]
MIGUEL AMPIL, Petitioner, v. NATIVIDAD AGANA and ENRIQUE AGANA,Respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Hospitals, having undertaken one of mankind's most important and delicate endeavors, must assume the grave responsibility of
pursuing it with appropriate care. The care and service dispensed through this high trust, however technical, complex and
esoteric its character may be, must meet standards of responsibility commensurate with the undertaking to preserve and protect
the health, and indeed, the very lives of those placed in the hospital's keeping.1
Assailed in these three consolidated Petitions for Review on Certiorari is the Court of Appeals' Decision2 dated September 6,
1996 in CA-G.R. CV No. 42062 and CA-G.R. SP No. 32198 affirming with modification the Decision3 dated March 17, 1993 of
the Regional Trial Court (RTC), Branch 96, Quezon City in Civil Case No. Q-43322 and nullifying its Order dated September 21,
1993.
The facts, as culled from the records, are:
On April 4, 1984, Natividad Agana was rushed to the Medical City General Hospital (Medical City Hospital) because of difficulty
of bowel movement and bloody anal discharge. After a series of medical examinations, Dr. Miguel Ampil, petitioner in G.R. No.
127590, diagnosed her to be suffering from "cancer of the sigmoid."
On April 11, 1984, Dr. Ampil, assisted by the medical staff4 of the Medical City Hospital, performed an anterior resection surgery
on Natividad. He found that the malignancy in her sigmoid area had spread on her left ovary, necessitating the removal of certain
portions of it. Thus, Dr. Ampil obtained the consent of Natividad's husband, Enrique Agana, to permit Dr. Juan Fuentes,
respondent in G.R. No. 126467, to perform hysterectomy on her.
After Dr. Fuentes had completed the hysterectomy, Dr. Ampil took over, completed the operation and closed the incision.
However, the operation appeared to be flawed. In the corresponding Record of Operation dated April 11, 1984, the attending
nurses entered these remarks:
"sponge count lacking 2
"announced to surgeon searched (sic) done but to no avail continue for closure."
On April 24, 1984, Natividad was released from the hospital. Her hospital and medical bills, including the doctors' fees, amounted
to P60,000.00.
After a couple of days, Natividad complained of excruciating pain in her anal region. She consulted both Dr. Ampil and Dr.
Fuentes about it. They told her that the pain was the natural consequence of the surgery. Dr. Ampil then recommended that she
consult an oncologist to examine the cancerous nodes which were not removed during the operation.
On May 9, 1984, Natividad, accompanied by her husband, went to the United States to seek further treatment. After four months
of consultations and laboratory examinations, Natividad was told she was free of cancer. Hence, she was advised to return to the
Philippines.
On August 31, 1984, Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her daughter found a
piece of gauze protruding from her vagina. Upon being informed about it, Dr. Ampil proceeded to her house where he managed
to extract by hand a piece of gauze measuring 1.5 inches in width. He then assured her that the pains would soon vanish.
Page 40 of 105
Dr. Ampil's assurance did not come true. Instead, the pains intensified, prompting Natividad to seek treatment at the Polymedic
General Hospital. While confined there, Dr. Ramon Gutierrez detected the presence of another foreign object in her vagina - - a
foul-smelling gauze measuring 1.5 inches in width which badly infected her vaginal vault. A recto-vaginal fistula had formed in
her reproductive organs which forced stool to excrete through the vagina. Another surgical operation was needed to remedy the
damage. Thus, in October 1984, Natividad underwent another surgery.
On November 12, 1984, Natividad and her husband filed with the RTC, Branch 96, Quezon City a complaint for damages against
the Professional Services, Inc. (PSI), owner of the Medical City Hospital, Dr. Ampil, and Dr. Fuentes, docketed as Civil Case No.
Q-43322. They alleged that the latter are liable for negligence for leaving two pieces of gauze inside Natividad's body and
malpractice for concealing their acts of negligence.
Meanwhile, Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative complaint for gross
negligence and malpractice against Dr. Ampil and Dr. Fuentes, docketed as Administrative Case No. 1690. The PRC Board of
Medicine heard the case only with respect to Dr. Fuentes because it failed to acquire jurisdiction over Dr. Ampil who was then in
the United States.
On February 16, 1986, pending the outcome of the above cases, Natividad died and was duly substituted by her above-named
children (the Aganas).
On March 17, 1993, the RTC rendered its Decision in favor of the Aganas, finding PSI, Dr. Ampil and Dr. Fuentes liable for
negligence and malpractice, the decretal part of which reads:
WHEREFORE, judgment is hereby rendered for the plaintiffs ordering the defendants PROFESSIONAL SERVICES, INC., DR.
MIGUEL AMPIL and DR. JUAN FUENTES to pay to the plaintiffs, jointly and severally, except in respect of the award for
exemplary damages and the interest thereon which are the liabilities of defendants Dr. Ampil and Dr. Fuentes only, as follows:
1. As actual damages, the following amounts:
A. The equivalent in Philippine Currency of the total of US$19,900.00 at the rate of P21.60-US$1.00, as reimbursement of actual
expenses incurred in the United States of America;
b. The sum of P4,800.00 as travel taxes of plaintiffs and their physician daughter;
c. The total sum of P45,802.50, representing the cost of hospitalization at Polymedic Hospital, medical fees, and cost of the
saline solution;
2. As moral damages, the sum of P2,000,000.00;
3. As exemplary damages, the sum of P300,000.00;
4. As attorney's fees, the sum of P250,000.00;
5. Legal interest on items 1 (a), (b), and (c); 2; and 3 hereinabove, from date of filing of the complaint until full payment;
andcralawlibrary
6. Costs of suit.
SO ORDERED.
Aggrieved, PSI, Dr. Fuentes and Dr. Ampil interposed an appeal to the Court of Appeals, docketed as CA-G.R. CV No. 42062.
Page 41 of 105
Incidentally, on April 3, 1993, the Aganas filed with the RTC a motion for a partial execution of its Decision, which was granted in
an Order dated May 11, 1993. Thereafter, the sheriff levied upon certain properties of Dr. Ampil and sold them for P451,275.00
and delivered the amount to the Aganas.
Following their receipt of the money, the Aganas entered into an agreement with PSI and Dr. Fuentes to indefinitely suspend any
further execution of the RTC Decision. However, not long thereafter, the Aganas again filed a motion for an alias writ of
execution against the properties of PSI and Dr. Fuentes. On September 21, 1993, the RTC granted the motion and issued the
corresponding writ, prompting Dr. Fuentes to file with the Court of Appeals a petition for certiorari and prohibition, with prayer for
preliminary injunction, docketed as CA-G.R. SP No. 32198. During its pendency, the Court of Appeals issued a
Resolution5 dated October 29, 1993 granting Dr. Fuentes' prayer for injunctive relief.
On January 24, 1994, CA-G.R. SP No. 32198 was consolidated with CA-G.R. CV No. 42062.
Meanwhile, on January 23, 1995, the PRC Board of Medicine rendered its Decision6in Administrative Case No. 1690 dismissing
the case against Dr. Fuentes. The Board held that the prosecution failed to show that Dr. Fuentes was the one who left the two
pieces of gauze inside Natividad's body; and that he concealed such fact from Natividad.
On September 6, 1996, the Court of Appeals rendered its Decision jointly disposing of CA-G.R. CV No. 42062 and CA-G.R. SP
No. 32198, thus:
WHEREFORE, except for the modification that the case against defendant-appellant Dr. Juan Fuentes is hereby DISMISSED,
and with the pronouncement that defendant-appellant Dr. Miguel Ampil is liable to reimburse defendant-appellant Professional
Services, Inc., whatever amount the latter will pay or had paid to the plaintiffs-appellees, the decision appealed from is hereby
AFFIRMED and the instant appeal DISMISSED.
Concomitant with the above, the petition for certiorari and prohibition filed by herein defendant-appellant Dr. Juan Fuentes in CA-
G.R. SP No. 32198 is hereby GRANTED and the challenged order of the respondent judge dated September 21, 1993, as well
as the alias writ of execution issued pursuant thereto are hereby NULLIFIED and SET ASIDE. The bond posted by the petitioner
in connection with the writ of preliminary injunction issued by this Court on November 29, 1993 is hereby cancelled.
Costs against defendants-appellants Dr. Miguel Ampil and Professional Services, Inc.
SO ORDERED.
Only Dr. Ampil filed a motion for reconsideration, but it was denied in a Resolution7dated December 19, 1996.
Hence, the instant consolidated petitions.
In G.R. No. 126297, PSI alleged in its petition that the Court of Appeals erred in holding that: (1) it is estopped from raising the
defense that Dr. Ampil is not its employee; (2) it is solidarily liable with Dr. Ampil; and (3) it is not entitled to its counterclaim
against the Aganas. PSI contends that Dr. Ampil is not its employee, but a mere consultant or independent contractor. As such,
he alone should answer for his negligence.
In G.R. No. 126467, the Aganas maintain that the Court of Appeals erred in finding that Dr. Fuentes is not guilty of negligence or
medical malpractice, invoking the doctrine of res ipsa loquitur. They contend that the pieces of gauze are prima facieproofs that
the operating surgeons have been negligent.
Finally, in G.R. No. 127590, Dr. Ampil asserts that the Court of Appeals erred in finding him liable for negligence and malpractice
sans evidence that he left the two pieces of gauze in Natividad's vagina. He pointed to other probable causes, such as: (1) it was
Dr. Fuentes who used gauzes in performing the hysterectomy; (2) the attending nurses' failure to properly count the gauzes used
during surgery; and (3) the medical intervention of the American doctors who examined Natividad in the United States of
America.
Page 42 of 105
For our resolution are these three vital issues: first, whether the Court of Appeals erred in holding Dr. Ampil liable for negligence
and malpractice; second, whether the Court of Appeals erred in absolving Dr. Fuentes of any liability; and third, whether PSI may
be held solidarily liable for the negligence of Dr. Ampil.
I - G.R. No. 127590
Whether the Court of Appeals Erred in Holding Dr. Ampil
Liable for Negligence and Malpractice.
Dr. Ampil, in an attempt to absolve himself, gears the Court's attention to other possible causes of Natividad's detriment. He
argues that the Court should not discount either of the following possibilities: first, Dr. Fuentes left the gauzes in Natividad's body
after performing hysterectomy; second, the attending nurses erred in counting the gauzes; and third, the American doctors were
the ones who placed the gauzes in Natividad's body.
Dr. Ampil's arguments are purely conjectural and without basis. Records show that he did not present any evidence to prove that
the American doctors were the ones who put or left the gauzes in Natividad's body. Neither did he submit evidence to rebut the
correctness of the record of operation, particularly the number of gauzes used. As to the alleged negligence of Dr. Fuentes, we
are mindful that Dr. Ampil examined his (Dr. Fuentes') work and found it in order.
The glaring truth is that all the major circumstances, taken together, as specified by the Court of Appeals, directly point to Dr.
Ampil as the negligent party, thus:
First, it is not disputed that the surgeons used gauzes as sponges to control the bleeding of the patient during the surgical
operation.
Second, immediately after the operation, the nurses who assisted in the surgery noted in their report that the 'sponge count (was)
lacking 2'; that such anomaly was 'announced to surgeon' and that a 'search was done but to no avail' prompting Dr. Ampil to
'continue for closure' x x x.
Third, after the operation, two (2) gauzes were extracted from the same spot of the body of Mrs. Agana where the surgery was
performed.
An operation requiring the placing of sponges in the incision is not complete until the sponges are properly removed, and it is
settled that the leaving of sponges or other foreign substances in the wound after the incision has been closed is at leastprima
facie negligence by the operating surgeon.8 To put it simply, such act is considered so inconsistent with due care as to raise an
inference of negligence. There are even legions of authorities to the effect that such act is negligence per se. 9
Of course, the Court is not blind to the reality that there are times when danger to a patient's life precludes a surgeon from further
searching missing sponges or foreign objects left in the body. But this does not leave him free from any obligation. Even if it has
been shown that a surgeon was required by the urgent necessities of the case to leave a sponge in his patient's abdomen,
because of the dangers attendant upon delay, still, it is his legal duty to so inform his patient within a reasonable time thereafter
by advising her of what he had been compelled to do. This is in order that she might seek relief from the effects of the foreign
object left in her body as her condition might permit. The ruling in Smith v. Zeagler 10 is explicit, thus:
The removal of all sponges used is part of a surgical operation, and when a physician or surgeon fails to remove a sponge he
has placed in his patient's body that should be removed as part of the operation, he thereby leaves his operation uncompleted
and creates a new condition which imposes upon him the legal duty of calling the new condition to his patient's attention, and
endeavoring with the means he has at hand to minimize and avoid untoward results likely to ensue therefrom.
Here, Dr. Ampil did not inform Natividad about the missing two pieces of gauze. Worse, he even misled her that the pain she was
experiencing was the ordinary consequence of her operation. Had he been more candid, Natividad could have taken the
Page 43 of 105
immediate and appropriate medical remedy to remove the gauzes from her body. To our mind, what was initially an act of
negligence by Dr. Ampil has ripened into a deliberate wrongful act of deceiving his patient.
This is a clear case of medical malpractice or more appropriately, medical negligence. To successfully pursue this kind of case, a
patient must only prove that a health care provider either failed to do something which a reasonably prudent health care provider
would have done, or that he did something that a reasonably prudent provider would not have done; and that failure or action
caused injury to the patient.11 Simply put, the elements are duty, breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividad's body before closure of the incision. When
he failed to do so, it was his duty to inform Natividad about it. Dr. Ampil breached both duties. Such breach caused injury to
Natividad, necessitating her further examination by American doctors and another surgery. That Dr. Ampil's negligence is the
proximate cause12 of Natividad's injury could be traced from his act of closing the incision despite the information given by the
attending nurses that two pieces of gauze were still missing. That they were later on extracted from Natividad's vagina
established the causal link between Dr. Ampil's negligence and the injury. And what further aggravated such injury was his
deliberate concealment of the missing gauzes from the knowledge of Natividad and her family.
II - G.R. No. 126467
Whether the Court of Appeals Erred in Absolving
Dr. Fuentes of any Liability
The Aganas assailed the dismissal by the trial court of the case against Dr. Fuentes on the ground that it is contrary to the
doctrine of res ipsa loquitur. According to them, the fact that the two pieces of gauze were left inside Natividad's body is a prima
facie evidence of Dr. Fuentes' negligence.
We are not convinced.
Literally, res ipsa loquitur means "the thing speaks for itself." It is the rule that the fact of the occurrence of an injury, taken with
the surrounding circumstances, may permit an inference or raise a presumption of negligence, or make out a plaintiff's prima
facie case, and present a question of fact for defendant to meet with an explanation.13 Stated differently, where the thing which
caused the injury, without the fault of the injured, is under the exclusive control of the defendant and the injury is such that it
should not have occurred if he, having such control used proper care, it affords reasonable evidence, in the absence of
explanation that the injury arose from the defendant's want of care, and the burden of proof is shifted to him to establish that he
has observed due care and diligence.14
From the foregoing statements of the rule, the requisites for the applicability of the doctrine of res ipsa loquitur are: (1) the
occurrence of an injury; (2) the thing which caused the injury was under the control and management of the defendant; (3) the
occurrence was such that in the ordinary course of things, would not have happened if those who had control or management
used proper care; and (4) the absence of explanation by the defendant. Of the foregoing requisites, the most instrumental is the
"control and management of the thing which caused the injury."15
We find the element of "control and management of the thing which caused the injury" to be wanting. Hence, the doctrine of res
ipsa loquitur will not lie.
It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He requested the assistance of Dr.
Fuentes only to perform hysterectomy when he (Dr. Ampil) found that the malignancy in her sigmoid area had spread to her left
ovary. Dr. Fuentes performed the surgery and thereafter reported and showed his work to Dr. Ampil. The latter examined it and
finding everything to be in order, allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed operating on
Natividad. He was about to finish the procedure when the attending nurses informed him that two pieces of gauze were missing.
A "diligent search" was conducted, but the misplaced gauzes were not found. Dr. Ampil then directed that the incision be closed.
During this entire period, Dr. Fuentes was no longer in the operating room and had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of the surgery room and all
personnel connected with the operation. Their duty is to obey his orders.16 As stated before, Dr. Ampil was the lead surgeon. In
Page 44 of 105
other words, he was the "Captain of the Ship." That he discharged such role is evident from his following conduct: (1) calling Dr.
Fuentes to perform a hysterectomy; (2) examining the work of Dr. Fuentes and finding it in order; (3) granting Dr. Fuentes'
permission to leave; and (4) ordering the closure of the incision. To our mind, it was this act of ordering the closure of the incision
notwithstanding that two pieces of gauze remained unaccounted for, that caused injury to Natividad's body. Clearly, the control
and management of the thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
In this jurisdiction, res ipsa loquitur is not a rule of substantive law, hence, does not per se create or constitute an independent or
separate ground of liability, being a mere evidentiary rule.17 In other words, mere invocation and application of the doctrine does
not dispense with the requirement of proof of negligence. Here, the negligence was proven to have been committed by Dr. Ampil
and not by Dr. Fuentes.
III - G.R. No. 126297
Whether PSI Is Liable for the Negligence of Dr. Ampil
The third issue necessitates a glimpse at the historical development of hospitals and the resulting theories concerning their
liability for the negligence of physicians.
Until the mid-nineteenth century, hospitals were generally charitable institutions, providing medical services to the lowest classes
of society, without regard for a patient's ability to pay.18 Those who could afford medical treatment were usually treated at home
by their doctors.19 However, the days of house calls and philanthropic health care are over. The modern health care industry
continues to distance itself from its charitable past and has experienced a significant conversion from a not-for-profit health care
to for-profit hospital businesses. Consequently, significant changes in health law have accompanied the business-related
changes in the hospital industry. One important legal change is an increase in hospital liability for medical malpractice. Many
courts now allow claims for hospital vicarious liability under the theories of respondeat superior, apparent authority, ostensible
authority, or agency by estoppel.20
In this jurisdiction, the statute governing liability for negligent acts is Article 2176 of the Civil Code, which reads:
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter.
A derivative of this provision is Article 2180, the rule governing vicarious liability under the doctrine of respondeat superior, thus:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of
persons for whom one is responsible.
x x x x x x
The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in
the service of the branches in which the latter are employed or on the occasion of their functions.
Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their
assigned tasks even though the former are not engaged in any business or industry.
x x x x x x
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.
A prominent civilist commented that professionals engaged by an employer, such as physicians, dentists, and pharmacists, are
not "employees" under this article because the manner in which they perform their work is not within the control of the latter
Page 45 of 105
(employer). In other words, professionals are considered personally liable for the fault or negligence they commit in the discharge
of their duties, and their employer cannot be held liable for such fault or negligence. In the context of the present case, "a
hospital cannot be held liable for the fault or negligence of a physician or surgeon in the treatment or operation of patients."21
The foregoing view is grounded on the traditional notion that the professional status and the very nature of the physician's calling
preclude him from being classed as an agent or employee of a hospital, whenever he acts in a professional capacity.22 It has
been said that medical practice strictly involves highly developed and specialized knowledge,23 such that physicians are
generally free to exercise their own skill and judgment in rendering medical services sans interference. 24 Hence, when a doctor
practices medicine in a hospital setting, the hospital and its employees are deemed to subserve him in his ministrations to the
patient and his actions are of his own responsibility.25
The case of Schloendorff v. Society of New York Hospital26 was then considered an authority for this view. The "Schloendorff
doctrine" regards a physician, even if employed by a hospital, as an independent contractor because of the skill he exercises and
the lack of control exerted over his work. Under this doctrine, hospitals are exempt from the application of the respondeat
superior principle for fault or negligence committed by physicians in the discharge of their profession.
However, the efficacy of the foregoing doctrine has weakened with the significant developments in medical care. Courts came to
realize that modern hospitals are increasingly taking active role in supplying and regulating medical care to patients. No longer
were a hospital's functions limited to furnishing room, food, facilities for treatment and operation, and attendants for its patients.
Thus, in Bing v. Thunig,27the New York Court of Appeals deviated from the Schloendorff doctrine, noting that modern hospitals
actually do far more than provide facilities for treatment. Rather, they regularly employ, on a salaried basis, a large staff of
physicians, interns, nurses, administrative and manual workers. They charge patients for medical care and treatment, even
collecting for such services through legal action, if necessary. The court then concluded that there is no reason to exempt
hospitals from the universal rule of respondeat superior.
In our shores, the nature of the relationship between the hospital and the physicians is rendered inconsequential in view of our
categorical pronouncement in Ramos v. Court of Appeals28 that for purposes of apportioning responsibility in medical negligence
cases, an employer-employee relationship in effect exists between hospitals and their attending and visiting physicians. This
Court held:
"We now discuss the responsibility of the hospital in this particular incident. The unique practice (among private hospitals) of
filling up specialist staff with attending and visiting "consultants," who are allegedly not hospital employees, presents problems in
apportioning responsibility for negligence in medical malpractice cases. However, the difficulty is more apparent than real.
In the first place, hospitals exercise significant control in the hiring and firing of consultants and in the conduct of their work within
the hospital premises. Doctors who apply for 'consultant' slots, visiting or attending, are required to submit proof of completion of
residency, their educational qualifications, generally, evidence of accreditation by the appropriate board (diplomate), evidence of
fellowship in most cases, and references. These requirements are carefully scrutinized by members of the hospital administration
or by a review committee set up by the hospital who either accept or reject the application. x x x.
After a physician is accepted, either as a visiting or attending consultant, he is normally required to attend clinico-pathological
conferences, conduct bedside rounds for clerks, interns and residents, moderate grand rounds and patient audits and perform
other tasks and responsibilities, for the privilege of being able to maintain a clinic in the hospital, and/or for the privilege of
admitting patients into the hospital. In addition to these, the physician's performance as a specialist is generally evaluated by a
peer review committee on the basis of mortality and morbidity statistics, and feedback from patients, nurses, interns and
residents. A consultant remiss in his duties, or a consultant who regularly falls short of the minimum standards acceptable to the
hospital or its peer review committee, is normally politely terminated.
In other words, private hospitals, hire, fire and exercise real control over their attending and visiting 'consultant' staff. While
'consultants' are not, technically employees, x x x, the control exercised, the hiring, and the right to terminate consultants all fulfill
the important hallmarks of an employer-employee relationship, with the exception of the payment of wages. In assessing whether
such a relationship in fact exists, the control test is determining. Accordingly, on the basis of the foregoing, we rule that for the
purpose of allocating responsibility in medical negligence cases, an employer-employee relationship in effect exists between
hospitals and their attending and visiting physicians. "
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But the Ramos pronouncement is not our only basis in sustaining PSI's liability. Its liability is also anchored upon the agency
principle of apparent authority or agency by estoppel and the doctrine of corporate negligence which have gained acceptance in
the determination of a hospital's liability for negligent acts of health professionals. The present case serves as a perfect platform
to test the applicability of these doctrines, thus, enriching our jurisprudence.
Apparent authority, or what is sometimes referred to as the "holding
out" theory, or doctrine of ostensible agency or agency by estoppel,29 has its origin from the law of agency. It imposes liability,
not as the result of the reality of a contractual relationship, but rather because of the actions of a principal or an employer in
somehow misleading the public into believing that the relationship or the authority exists.30 The concept is essentially one of
estoppel and has been explained in this manner:
"The principal is bound by the acts of his agent with the apparent authority which he knowingly permits the agent to assume, or
which he holds the agent out to the public as possessing. The question in every case is whether the principal has by his
voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant with business usages and the
nature of the particular business, is justified in presuming that such agent has authority to perform the particular act in question.31
The applicability of apparent authority in the field of hospital liability was upheld long time ago in Irving v. Doctor Hospital of Lake
Worth, Inc.32 There, it was explicitly stated that "there does not appear to be any rational basis for excluding the concept of
apparent authority from the field of hospital liability." Thus, in cases where it can be shown that a hospital, by its actions, has held
out a particular physician as its agent and/or employee and that a patient has accepted treatment from that physician in the
reasonable belief that it is being rendered in behalf of the hospital, then the hospital will be liable for the physician's negligence.
Our jurisdiction recognizes the concept of an agency by implication or estoppel. Article 1869 of the Civil Code reads:
ART. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without authority.
In this case, PSI publicly displays in the lobby of the Medical City Hospital the names and specializations of the physicians
associated or accredited by it, including those of Dr. Ampil and Dr. Fuentes. We concur with the Court of Appeals' conclusion that
it "is now estopped from passing all the blame to the physicians whose names it proudly paraded in the public directory leading
the public to believe that it vouched for their skill and competence." Indeed, PSI's act is tantamount to holding out to the public
that Medical City Hospital, through its accredited physicians, offers quality health care services. By accrediting Dr. Ampil and Dr.
Fuentes and publicly advertising their qualifications, the hospital created the impression that they were its agents, authorized to
perform medical or surgical services for its patients. As expected, these patients, Natividad being one of them, accepted the
services on the reasonable belief that such were being rendered by the hospital or its employees, agents, or servants. The trial
court correctly pointed out:
x x x regardless of the education and status in life of the patient, he ought not be burdened with the defense of absence of
employer-employee relationship between the hospital and the independent physician whose name and competence are certainly
certified to the general public by the hospital's act of listing him and his specialty in its lobby directory, as in the case herein. The
high costs of today's medical and health care should at least exact on the hospital greater, if not broader, legal responsibility for
the conduct of treatment and surgery within its facility by its accredited physician or surgeon, regardless of whether he is
independent or employed."33
The wisdom of the foregoing ratiocination is easy to discern. Corporate entities, like PSI, are capable of acting only through other
individuals, such as physicians. If these accredited physicians do their job well, the hospital succeeds in its mission of offering
quality medical services and thus profits financially. Logically, where negligence mars the quality of its services, the hospital
should not be allowed to escape liability for the acts of its ostensible agents.
We now proceed to the doctrine of corporate negligence or corporate responsibility.
One allegation in the complaint in Civil Case No. Q-43332 for negligence and malpractice is that PSI as owner, operator and
manager of Medical City Hospital, "did not perform the necessary supervision nor exercise diligent efforts in the supervision of
Page 47 of 105
Drs. Ampil and Fuentes and its nursing staff, resident doctors, and medical interns who assisted Drs. Ampil and Fuentes in the
performance of their duties as surgeons."34 Premised on the doctrine of corporate negligence, the trial court held that PSI is
directly liable for such breach of duty.
We agree with the trial court.
Recent years have seen the doctrine of corporate negligence as the judicial answer to the problem of allocating hospital's liability
for the negligent acts of health practitioners, absent facts to support the application of respondeat superior or apparent authority.
Its formulation proceeds from the judiciary's acknowledgment that in these modern times, the duty of providing quality medical
service is no longer the sole prerogative and responsibility of the physician. The modern hospitals have changed structure.
Hospitals now tend to organize a highly professional medical staff whose competence and performance need to be monitored by
the hospitals commensurate with their inherent responsibility to provide quality medical care.35
The doctrine has its genesis in Darling v. Charleston Community Hospital.36 There, the Supreme Court of Illinois held that "the
jury could have found a hospital negligent, inter alia, in failing to have a sufficient number of trained nurses attending the patient;
failing to require a consultation with or examination by members of the hospital staff; and failing to review the treatment rendered
to the patient." On the basis of Darling, other jurisdictions held that a hospital's corporate negligence extends to permitting a
physician known to be incompetent to practice at the hospital.37 With the passage of time, more duties were expected from
hospitals, among them: (1) the use of reasonable care in the maintenance of safe and adequate facilities and equipment; (2) the
selection and retention of competent physicians; (3) the overseeing or supervision of all persons who practice medicine within its
walls; and (4) the formulation, adoption and enforcement of adequate rules and policies that ensure quality care for its
patients.38 Thus, in Tucson Medical Center, Inc. v. Misevich,39 it was held that a hospital, following the doctrine of corporate
responsibility, has the duty to see that it meets the standards of responsibilities for the care of patients. Such duty includes the
proper supervision of the members of its medical staff. And in Bost v. Riley,40 the court concluded that a patient who enters a
hospital does so with the reasonable expectation that it will attempt to cure him. The hospital accordingly has the duty to make a
reasonable effort to monitor and oversee the treatment prescribed and administered by the physicians practicing in its premises.
In the present case, it was duly established that PSI operates the Medical City Hospital for the purpose and under the concept of
providing comprehensive medical services to the public. Accordingly, it has the duty to exercise reasonable care to protect from
harm all patients admitted into its facility for medical treatment. Unfortunately, PSI failed to perform such duty. The findings of the
trial court are convincing, thus:
x x x PSI's liability is traceable to its failure to conduct an investigation of the matter reported in the nota bene of the count nurse.
Such failure established PSI's part in the dark conspiracy of silence and concealment about the gauzes. Ethical considerations, if
not also legal, dictated the holding of an immediate inquiry into the events, if not for the benefit of the patient to whom the duty is
primarily owed, then in the interest of arriving at the truth. The Court cannot accept that the medical and the healing professions,
through their members like defendant surgeons, and their institutions like PSI's hospital facility, can callously turn their backs on
and disregard even a mere probability of mistake or negligence by refusing or failing to investigate a report of such seriousness
as the one in Natividad's case.
It is worthy to note that Dr. Ampil and Dr. Fuentes operated on Natividad with the assistance of the Medical City Hospital's staff,
composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that PSI, as the operator of the hospital,
has actual or constructive knowledge of the procedures carried out, particularly the report of the attending nurses that the two
pieces of gauze were missing. In Fridena v. Evans,41 it was held that a corporation is bound by the knowledge acquired by or
notice given to its agents or officers within the scope of their authority and in reference to a matter to which their authority
extends. This means that the knowledge of any of the staff of Medical City Hospital constitutes knowledge of PSI. Now, the
failure of PSI, despite the attending nurses' report, to investigate and inform Natividad regarding the missing gauzes amounts to
callous negligence. Not only did PSI breach its duties to oversee or supervise all persons who practice medicine within its walls,
it also failed to take an active step in fixing the negligence committed. This renders PSI, not only vicariously liable for the
negligence of Dr. Ampil under Article 2180 of the Civil Code, but also directly liable for its own negligence under Article 2176. In
Fridena, the Supreme Court of Arizona held:
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x x x In recent years, however, the duty of care owed to the patient by the hospital has expanded. The emerging trend is to hold
the hospital responsible where the hospital has failed to monitor and review medical services being provided within its walls. See
Kahn Hospital Malpractice Prevention, 27 De Paul . Rev. 23 (1977).
Among the cases indicative of the 'emerging trend' is Purcell v. Zimbelman, 18 Ariz. App. 75,500 P. 2d 335 (1972). In Purcell, the
hospital argued that it could not be held liable for the malpractice of a medical practitioner because he was an independent
contractor within the hospital. The Court of Appeals pointed out that the hospital had created a professional staff whose
competence and performance was to be monitored and reviewed by the governing body of the hospital, and the court held that a
hospital would be negligent where it had knowledge or reason to believe that a doctor using the facilities was employing a
method of treatment or care which fell below the recognized standard of care.
Subsequent to the Purcell decision, the Arizona Court of Appeals held that a hospital has certain inherent responsibilities
regarding the quality of medical care furnished to patients within its walls and it must meet the standards of responsibility
commensurate with this undertaking. Beeck v. Tucson General Hospital, 18 Ariz. App. 165, 500 P. 2d 1153 (1972). This court
has confirmed the rulings of the Court of Appeals that a hospital has the duty of supervising the competence of the doctors on its
staff. x x x.
x x x x x x
In the amended complaint, the plaintiffs did plead that the operation was performed at the hospital with its knowledge, aid, and
assistance, and that the negligence of the defendants was the proximate cause of the patient's injuries. We find that such
general allegations of negligence, along with the evidence produced at the trial of this case, are sufficient to support the
hospital's liability based on the theory of negligent supervision."
Anent the corollary issue of whether PSI is solidarily liable with Dr. Ampil for damages, let it be emphasized that PSI, apart from
a general denial of its responsibility, failed to adduce evidence showing that it exercised the diligence of a good father of a family
in the accreditation and supervision of the latter. In neglecting to offer such proof, PSI failed to discharge its burden under the
last paragraph of Article 2180 cited earlier, and, therefore, must be adjudged solidarily liable with Dr. Ampil. Moreover, as we
have discussed, PSI is also directly liable to the Aganas.
One final word. Once a physician undertakes the treatment and care of a patient, the law imposes on him certain obligations. In
order to escape liability, he must possess that reasonable degree of learning, skill and experience required by his profession. At
the same time, he must apply reasonable care and diligence in the exercise of his skill and the application of his knowledge, and
exert his best judgment.
WHEREFORE, we DENY all the petitions and AFFIRM the challenged Decision of the Court of Appeals in CA-G.R. CV No.
42062 and CA-G.R. SP No. 32198.
Costs against petitioners PSI and Dr. Miguel Ampil.
SO ORDERED.
G. R. No. 150843 - March 14, 2003
CATHAY PACIFIC AIRWAYS, LTD., Petitioner, vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL
VAZQUEZ, Respondents.
DAVIDE, JR., C.J.:
Page 49 of 105
Is an involuntary upgrading of an airline passengers accommodation from one class to a more superior class at no extra cost a
breach of contract of carriage that would entitle the passenger to an award of damages? This is a novel question that has to be
resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific Airways, Ltd., (hereinafter
Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among the many routes it
services is the Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay accords its frequent flyers membership
in its Marco Polo Club. The members enjoy several privileges, such as priority for upgrading of booking without any extra charge
whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class has priority for upgrading to First Class if
the Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of Cathay and are
Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes, together with their maid and two friends
Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked on Cathays Flight CX-905, with departure time at 9:20
p.m. Two hours before their time of departure, the Vazquezes and their companions checked in their luggage at Cathays check-
in counter at Kai Tak Airport and were given their respective boarding passes, to wit, Business Class boarding passes for the
Vazquezes and their two friends, and Economy Class for their maid. They then proceeded to the Business Class passenger
lounge.
When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No. 28, which was designated
for Business Class passengers. Dr. Vazquez presented his boarding pass to the ground stewardess, who in turn inserted it into
an electronic machine reader or computer at the gate. The ground stewardess was assisted by a ground attendant by the name
of Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw a message that there was a "seat change"
from Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes accommodations were upgraded to First Class. Dr. Vazquez
refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their guests, in the
Business Class; and moreover, they were going to discuss business matters during the flight. He also told Ms. Chiu that she
could have other passengers instead transferred to the First Class Section. Taken aback by the refusal for upgrading, Ms. Chiu
consulted her supervisor, who told her to handle the situation and convince the Vazquezes to accept the upgrading. Ms. Chiu
informed the latter that the Business Class was fully booked, and that since they were Marco Polo Club members they had the
priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so Ms. Chiu told them that if they would not avail
themselves of the privilege, they would not be allowed to take the flight. Eventually, after talking to his two friends, Dr. Vazquez
gave in. He and Mrs. Vazquez then proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathays Country Manager, demanded
that they be indemnified in the amount of P1million for the "humiliation and embarrassment" caused by its employees. They also
demanded "a written apology from the management of Cathay, preferably a responsible person with a rank of no less than the
Country Manager, as well as the apology from Ms. Chiu" within fifteen days from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays Country Manager Argus Guy Robson, informed the
Vazquezes that Cathay would investigate the incident and get back to them within a weeks time.
On 8 November 1996, after Cathays failure to give them any feedback within its self-imposed deadline, the Vazquezes instituted
before the Regional Trial Court of Makati City an action for damages against Cathay, praying for the payment to each of them the
amounts of P250,000 as temperate damages; P500,000 as moral damages; P500,000 as exemplary or corrective damages; and
P250,000 as attorneys fees.
In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay in Business Class, Ms.
Chiu "obstinately, uncompromisingly and in a loud, discourteous and harsh voice threatened" that they could not board and leave
Page 50 of 105
with the flight unless they go to First Class, since the Business Class was overbooked. Ms. Chius loud and stringent shouting
annoyed, embarrassed, and humiliated them because the incident was witnessed by all the other passengers waiting for
boarding. They also claimed that they were unjustifiably delayed to board the plane, and when they were finally permitted to get
into the aircraft, the forward storage compartment was already full. A flight stewardess instructed Dr. Vazquez to put his roll-on
luggage in the overhead storage compartment. Because he was not assisted by any of the crew in putting up his luggage, his
bilateral carpal tunnel syndrome was aggravated, causing him extreme pain on his arm and wrist. The Vazquezes also averred
that they "belong to the uppermost and absolutely top elite of both Philippine Society and the Philippine financial community, [and
that] they were among the wealthiest persons in the Philippine[s]."
In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the next better class of
accommodation, whenever an opportunity arises, such as when a certain section is fully booked. Priority in upgrading is given to
its frequent flyers, who are considered favored passengers like the Vazquezes. Thus, when the Business Class Section of Flight
CX-905 was fully booked, Cathays computer sorted out the names of favored passengers for involuntary upgrading to First
Class. When Ms. Chiu informed the Vazquezes that they were upgraded to First Class, Dr. Vazquez refused. He then stood at
the entrance of the boarding apron, blocking the queue of passengers from boarding the plane, which inconvenienced other
passengers. He shouted that it was impossible for him and his wife to be upgraded without his two friends who were traveling
with them. Because of Dr. Vazquezs outburst, Ms. Chiu thought of upgrading the traveling companions of the Vazquezes. But
when she checked the computer, she learned that the Vazquezes companions did not have priority for upgrading. She then tried
to book the Vazquezes again to their original seats. However, since the Business Class Section was already fully booked, she
politely informed Dr. Vazquez of such fact and explained that the upgrading was in recognition of their status as Cathays valued
passengers. Finally, after talking to their guests, the Vazquezes eventually decided to take the First Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the Vazquezes; none of
them shouted, humiliated, embarrassed, or committed any act of disrespect against them (the Vazquezes). Assuming that there
was indeed a breach of contractual obligation, Cathay acted in good faith, which negates any basis for their claim for temperate,
moral, and exemplary damages and attorneys fees. Hence, it prayed for the dismissal of the complaint and for payment of
P100,000 for exemplary damages and P300,000 as attorneys fees and litigation expenses.
During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was corroborated by his two
friends who were with him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de Dios.
For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma Barrientos, Comptroller
of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathays policy of upgrading the seat accommodation of
its Marco Polo Club members when an opportunity arises. The upgrading of the Vazquezes to First Class was done in good faith;
in fact, the First Class Section is definitely much better than the Business Class in terms of comfort, quality of food, and service
from the cabin crew. They also testified that overbooking is a widely accepted practice in the airline industry and is in accordance
with the International Air Transport Association (IATA) regulations. Airlines overbook because a lot of passengers do not show
up for their flight. With respect to Flight CX-905, there was no overall overbooking to a degree that a passenger was bumped off
or downgraded. Yuen and Robson also stated that the demand letter of the Vazquezes was immediately acted upon. Reports
were gathered from their office in Hong Kong and immediately forwarded to their counsel Atty. Remollo for legal advice.
However, Atty. Remollo begged off because his services were likewise retained by the Vazquezes; nonetheless, he undertook to
solve the problem in behalf of Cathay. But nothing happened until Cathay received a copy of the complaint in this case. For her
part, Ms. Chiu denied that she shouted or used foul or impolite language against the Vazquezes. Ms. Barrientos testified on the
amount of attorneys fees and other litigation expenses, such as those for the taking of the depositions of Yuen and Chiu.
In its decision1 of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:
WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor of
plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd., ordering the latter to pay each plaintiff the
following:
a) Nominal damages in the amount of P100,000.00 for each plaintiff;
b) Moral damages in the amount of P2,000,000.00 for each plaintiff;
Page 51 of 105
c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;
d) Attorneys fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff; and
e) Costs of suit.
SO ORDERED.
According to the trial court, Cathay offers various classes of seats from which passengers are allowed to choose regardless of
their reasons or motives, whether it be due to budgetary constraints or whim. The choice imposes a clear obligation on Cathay to
transport the passengers in the class chosen by them. The carrier cannot, without exposing itself to liability, force a passenger to
involuntarily change his choice. The upgrading of the Vazquezes accommodation over and above their vehement objections was
due to the overbooking of the Business Class. It was a pretext to pack as many passengers as possible into the plane to
maximize Cathays revenues. Cathays actuations in this case displayed deceit, gross negligence, and bad faith, which entitled
the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,2 deleted the award for exemplary damages;
and it reduced the awards for moral and nominal damages for each of the Vazquezes to P250,000 and P50,000, respectively,
and the attorneys fees and litigation expenses to P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the contract of carriage
without the formers consent. There was a breach of contract not because Cathay overbooked the Business Class Section of
Flight CX-905 but because the latter pushed through with the upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be discourteous to, Dr. Vazquez,
although it might seemed that way to the latter, who was a member of the elite in Philippine society and was not therefore used
to being harangued by anybody. Ms. Chiu was a Hong Kong Chinese whose fractured Chinese was difficult to understand and
whose manner of speaking might sound harsh or shrill to Filipinos because of cultural differences. But the Court of Appeals did
not find her to have acted with deliberate malice, deceit, gross negligence, or bad faith. If at all, she was negligent in not offering
the First Class accommodations to other passengers. Neither can the flight stewardess in the First Class Cabin be said to have
been in bad faith when she failed to assist Dr. Vazquez in lifting his baggage into the overhead storage bin. There is no proof that
he asked for help and was refused even after saying that he was suffering from "bilateral carpal tunnel syndrome." Anent the
delay of Yuen in responding to the demand letter of the Vazquezes, the Court of Appeals found it to have been sufficiently
explained.
The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which were denied by the
Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral damages has no basis, since
the Court of Appeals found that there was no "wanton, fraudulent, reckless and oppressive" display of manners on the part of its
personnel; and that the breach of contract was not attended by fraud, malice, or bad faith. If any damage had been suffered by
the Vazquezes, it was damnum absque injuria, which is damage without injury, damage or injury inflicted without injustice, loss or
damage without violation of a legal right, or a wrong done to a man for which the law provides no remedy. Cathay also invokes
our decision in United Airlines, Inc. v. Court of Appeals3 where we recognized that, in accordance with the Civil Aeronautics
Boards Economic Regulation No. 7, as amended, an overbooking that does not exceed ten percent cannot be considered
deliberate and done in bad faith. We thus deleted in that case the awards for moral and exemplary damages, as well as
attorneys fees, for lack of proof of overbooking exceeding ten percent or of bad faith on the part of the airline carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for moral and nominal
damages and attorneys fees in view of the breach of contract committed by Cathay for transferring them from the Business Class
to First Class Section without prior notice or consent and over their vigorous objection. They likewise argue that the issuance of
passenger tickets more than the seating capacity of each section of the plane is in itself fraudulent, malicious and tainted with
bad faith.
Page 52 of 105
The key issues for our consideration are whether (1) by upgrading the seat accommodation of the Vazquezes from Business
Class to First Class Cathay breached its contract of carriage with the Vazquezes; (2) the upgrading was tainted with fraud or bad
faith; and (3) the Vazquezes are entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons whereby one agrees to give something or render some service to another
for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) an
object certain which is the subject of the contract; and (3) the cause of the obligation which is established. 4 Undoubtedly, a
contract of carriage existed between Cathay and the Vazquezes. They voluntarily and freely gave their consent to an agreement
whose object was the transportation of the Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business
Class Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes to Cathay.
The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it constitute a breach of
contract?
Breach of contract is defined as the "failure without legal reason to comply with the terms of a contract."5 It is also defined as the
"[f]ailure, without legal excuse, to perform any promise which forms the whole or part of the contract." 6
In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger with confirmed
reservation or the downgrading of a passengers seat accommodation from one class to a lower class. In this case, what
happened was the reverse. The contract between the parties was for Cathay to transport the Vazquezes to Manila on a Business
Class accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were
given boarding cards indicating their seat assignments in the Business Class Section. However, during the boarding time, when
the Vazquezes presented their boarding passes, they were informed that they had a seat change from Business Class to First
Class. It turned out that the Business Class was overbooked in that there were more passengers than the number of seats.
Thus, the seat assignments of the Vazquezes were given to waitlisted passengers, and the Vazquezes, being members of the
Marco Polo Club, were upgraded from Business Class to First Class.
We note that in all their pleadings, the Vazquezes never denied that they were members of Cathays Marco Polo Club. They
knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost when an
opportunity arises. But, just like other privileges, such priority could be waived. The Vazquezes should have been consulted first
whether they wanted to avail themselves of the privilege or would consent to a change of seat accommodation before their seat
assignments were given to other passengers. Normally, one would appreciate and accept an upgrading, for it would mean a
better accommodation. But, whatever their reason was and however odd it might be, the Vazquezes had every right to decline
the upgrade and insist on the Business Class accommodation they had booked for and which was designated in their boarding
passes. They clearly waived their priority or preference when they asked that other passengers be given the upgrade. It should
not have been imposed on them over their vehement objection. By insisting on the upgrade, Cathay breached its contract of
carriage with the Vazquezes.
We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad faith. Thus, we
resolve the second issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can be so
conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or mudslinging
unless convincingly substantiated by whoever is alleging them.
Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a deceitful
scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals or omits to state
material facts and, by reason of such omission or concealment, the other party was induced to give consent that would not
otherwise have been given.7
Page 53 of 105
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the nature of
fraud.8
We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the upgrading
through insidious words or deceitful machination or through willful concealment of material facts. Upon boarding, Ms. Chiu told
the Vazquezes that their accommodations were upgraded to First Class in view of their being Gold Card members of Cathays
Marco Polo Club. She was honest in telling them that their seats were already given to other passengers and the Business Class
Section was fully booked. Ms. Chiu might have failed to consider the remedy of offering the First Class seats to other
passengers. But, we find no bad faith in her failure to do so, even if that amounted to an exercise of poor judgment.
Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the First
Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the cabin crew;
thus, the difference in fare between the First Class and Business Class at that time was $250.9 Needless to state, an upgrading
is for the better condition and, definitely, for the benefit of the passenger.
We are not persuaded by the Vazquezes argument that the overbooking of the Business Class Section constituted bad faith on
the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as amended, provides:
Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights or
portions of flights originating from or terminating at, or serving a point within the territory of the Republic of the Philippines insofar
as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines, for which he holds
confirmed reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and
excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not exceeding 10% of the
seating capacity of the aircraft shall not be considered as a deliberate and willful act of non-accommodation.
It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and therefore does
not amount to bad faith.10 Here, while there was admittedly an overbooking of the Business Class, there was no evidence of
overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was refused to board the aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000. Article 2220 of the Civil Code
provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Although incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendants wrongful act or omission. 11 Thus, case law establishes the following
requisites for the award of moral damages: (1) there must be an injury clearly sustained by the claimant, whether physical,
mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is predicated on any of
the cases stated in Article 2219 of the Civil Code.12
Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier is guilty
of fraud or bad faith or where the mishap resulted in the death of a passenger.13 Where in breaching the contract of carriage the
airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable
consequences of the breach of the obligation which the parties had foreseen or could have reasonably foreseen. In such a case
the liability does not include moral and exemplary damages.14
Page 54 of 105
In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary upgrading of the Vazquezes
seat accommodation, was not attended by fraud or bad faith. The Court of Appeals award of moral damages has, therefore, no
leg to stand on.
The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the grant of exemplary
damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent
manner.15 Such requisite is absent in this case. Moreover, to be entitled thereto the claimant must first establish his right to
moral, temperate, or compensatory damages.16 Since the Vazquezes are not entitled to any of these damages, the award for
exemplary damages has no legal basis. And where the awards for moral and exemplary damages are eliminated, so must the
award for attorneys fees.17
The most that can be adjudged in favor of the Vazquezes for Cathays breach of contract is an award for nominal damages under
Article 2221 of the Civil Code, which reads as follows:
Article 2221 of the Civil Code provides:
Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathays Memorandum filed with this Court, it prayed only for the deletion of the award for moral
damages. It deferred to the Court of Appeals discretion in awarding nominal damages; thus:
As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of Appeals
discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the normally-appreciated gesture of
petitioner to upgrade their accommodations, petitioner may have disturbed the respondents-spouses wish to be with their
companions (who traveled to Hong Kong with them) at the Business Class on their flight to Manila. Petitioner regrets that in its
desire to provide the respondents-spouses with additional amenities for the one and one-half (1 1/2) hour flight to Manila,
unintended tension ensued.18
Nonetheless, considering that the breach was intended to give more benefit and advantage to the Vazquezes by upgrading their
Business Class accommodation to First Class because of their valued status as Marco Polo members, we reduce the award for
nominal damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of Appeals regarding the
awards adjudged by the trial court:
We are not amused but alarmed at the lower courts unbelievable alacrity, bordering on the scandalous, to award excessive
amounts as damages. In their complaint, appellees asked for P1 million as moral damages but the lower court awarded P4
million; they asked for P500,000.00 as exemplary damages but the lower court cavalierly awarded a whooping P10 million; they
asked for P250,000.00 as attorneys fees but were awarded P2 million; they did not ask for nominal damages but were awarded
P200,000.00. It is as if the lower court went on a rampage, and why it acted that way is beyond all tests of reason. In fact the
excessiveness of the total award invites the suspicion that it was the result of "prejudice or corruption on the part of the trial
court."
The presiding judge of the lower court is enjoined to hearken to the Supreme Courts admonition in Singson vs. CA (282 SCRA
149 [1997]), where it said:
The well-entrenched principle is that the grant of moral damages depends upon the discretion of the court based on the
circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably and
scandalously excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court.
and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:
Page 55 of 105
Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not prey on international
airlines for damage awards, like "trophies in a safari." After all neither the social standing nor prestige of the passenger should
determine the extent to which he would suffer because of a wrong done, since the dignity affronted in the individual is a quality
inherent in him and not conferred by these social indicators. 19
We adopt as our own this observation of the Court of Appeals.
WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of 24 July 2001 in CA-G.R.
CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages and attorneys fees are set aside and
deleted, and the award for nominal damages is reduced to P5,000.
No pronouncement on costs.
SO ORDERED.
[G.R. No. 142305. December 10, 2003.]
SINGAPORE AIRLINES LIMITED, Petitioner, v. ANDION FERNANDEZ, Respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari assailing the Decision 1 of the Court of Appeals which affirmed in toto the decision 2 of
the Regional Trial Court of Pasig City, Branch 164 in Civil Case No. 60985 filed by the respondent for damages.chanrob1es
virtua1 1aw 1ibrary
The Case for the Respondent
Respondent Andion Fernandez is an acclaimed soprano here in the Philippines and abroad. At the time of the incident, she was
availing an educational grant from the Federal Republic of Germany, pursuing a Master’s Degree in Music majoring in Voice. 3
She was invited to sing before the King and Queen of Malaysia on February 3 and 4, 1991. For this singing engagement, an
airline passage ticket was purchased from petitioner Singapore Airlines which would transport her to Manila from Frankfurt,
Germany on January 28, 1991. From Manila, she would proceed to Malaysia on the next day. 4 It was necessary for the
respondent to pass by Manila in order to gather her wardrobe; and to rehearse and coordinate with her pianist her repertoire for
the aforesaid performance.
The petitioner issued the respondent a Singapore Airlines ticket for Flight No. SQ 27, leaving Frankfurt, Germany on January 27,
1991 bound for Singapore with onward connections from Singapore to Manila. Flight No. SQ 27 was scheduled to leave
Frankfurt at 1:45 in the afternoon of January 27, 1991, arriving at Singapore at 8:50 in the morning of January 28, 1991. The
connecting flight from Singapore to Manila, Flight No. SQ 72, was leaving Singapore at 11:00 in the morning of January 28,
1991, arriving in Manila at 2:20 in the afternoon of the same day. 5
On January 27, 1991, Flight No. SQ 27 left Frankfurt but arrived in Singapore two hours late or at about 11:00 in the morning of
January 28, 1991. By then, the aircraft bound for Manila had left as scheduled, leaving the respondent and about 25 other
passengers stranded in the Changi Airport in Singapore. 6
Upon disembarkation at Singapore, the respondent approached the transit counter who referred her to the nightstop counter and
Page 56 of 105
told the lady employee thereat that it was important for her to reach Manila on that day, January 28, 1991. The lady employee
told her that there were no more flights to Manila for that day and that respondent had no choice but to stay in Singapore. Upon
respondent’s persistence, she was told that she can actually fly to Hong Kong going to Manila but since her ticket was non-
transferable, she would have to pay for the ticket. The respondent could not accept the offer because she had no money to pay
for it. 7 Her pleas for the respondent to make arrangements to transport her to Manila were unheeded. 8
The respondent then requested the lady employee to use their phone to make a call to Manila. Over the employees’ reluctance,
the respondent telephoned her mother to inform the latter that she missed the connecting flight. The respondent was able to
contact a family friend who picked her up from the airport for her overnight stay in Singapore. 9
The next day, after being brought back to the airport, the respondent proceeded to petitioner’s counter which says: "Immediate
Attention To Passengers with Immediate Booking." There were four or five passengers in line. The respondent approached
petitioner’s male employee at the counter to make arrangements for immediate booking only to be told: "Can’t you see I am
doing something." She explained her predicament but the male employee uncaringly retorted: "It’s your problem, not ours." 10
The respondent never made it to Manila and was forced to take a direct flight from Singapore to Malaysia on January 29, 1991,
through the efforts of her mother and travel agency in Manila. Her mother also had to travel to Malaysia bringing with her
respondent’s wardrobe and personal things needed for the performance that caused them to incur an expense of about P50,000.
11
As a result of this incident, the respondent’s performance before the Royal Family of Malaysia was below par. Because of the
rude and unkind treatment she received from the petitioner’s personnel in Singapore, the respondent was engulfed with fear,
anxiety, humiliation and embarrassment causing her to suffer mental fatigue and skin rashes. She was thereby compelled to
seek immediate medical attention upon her return to Manila for "acute urticaria." 12
On June 15, 1993, the RTC rendered a decision with the following dispositive portion:chanrob1es virtual 1aw library
ACCORDINGLY and as prayed for, defendant Singapore Airlines is ordered to pay herein plaintiff Andion H. Fernandez the sum
of:chanrob1es virtual 1aw library
1. FIFTY THOUSAND (P50,000.00) PESOS as compensatory or actual damages;
2. TWO HUNDRED and FIFTY THOUSAND (P250,000.00) PESOS as moral damages considering plaintiff’s professional
standing in the field of culture at home and abroad;
3. ONE HUNDRED THOUSAND (P100,000.00) PESOS as exemplary damages;
4. SEVENTY-FIVE THOUSAND (P75,000.00) PESOS as attorney’s fees; and
5. To pay the costs of suit.
SO ORDERED. 13
The petitioner appealed the decision to the Court of Appeals.
On June 10, 1998, the CA promulgated the assailed decision finding no reversible error in the appealed decision of the trial
court. 14
Forthwith, the petitioner filed the instant petition for review, raising the following errors:chanrob1es virtual 1aw library
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE DECISION OF THE TRIAL COURT THAT
AWARDED DAMAGES TO RESPONDENT FOR THE ALLEGED FAILURE OF THE PETITIONER TO EXERCISE
EXTRAORDINARY DILIGENCE.
Page 57 of 105
II
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER ACTED IN BAD FAITH.
III
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE PETITIONER’S COUNTERCLAIMS. 15
The petitioner assails the award of damages contending that it exercised the extraordinary diligence required by law under the
given circumstances. The delay of Flight No. SQ 27 from Frankfurt to Singapore on January 28, 1991 for more than two hours
was due to a fortuitous event and beyond petitioner’s control. Inclement weather prevented the petitioner’s plane coming from
Copenhagen, Denmark to arrive in Frankfurt on time on January 27, 1991. The plane could not take off from the airport as the
place was shrouded with fog. This delay caused a "snowball effect" whereby the other flights were consequently delayed. The
plane carrying the respondent arrived in Singapore two (2) hours behind schedule. 16 The delay was even compounded when
the plane could not travel the normal route which was through the Middle East due to the raging Gulf War at that time. It had to
pass through the restricted Russian airspace which was more congested. 17
Under these circumstances, petitioner therefore alleged that it cannot be faulted for the delay in arriving in Singapore on January
28, 1991 and causing the respondent to miss her connecting flight to Manila.
The petitioner further contends that it could not also be held in bad faith because its personnel did their best to look after the
needs and interests of the passengers including the Respondent. Because the respondent and the other 25 passengers missed
their connecting flight to Manila, the petitioner automatically booked them to the flight the next day and gave them free hotel
accommodations for the night. It was respondent who did not take petitioner’s offer and opted to stay with a family friend in
Singapore.
The petitioner also alleges that the action of the respondent was baseless and it tarnished its good name and image earned
through the years for which, it was entitled to damages in the amount of P1,000,000; exemplary damages of P500,000; and
attorney’s fees also in the amount of P500,000. 18
The petition is barren of merit.
When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises.
The passenger then has every right to expect that he be transported on that flight and on that date. If he does not, then the
carrier opens itself to a suit for a breach of contract of carriage. 19
The contract of air carriage is a peculiar one. Imbued with public interest, the law requires common carriers to carry the
passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons with due
regard for all the circumstances. 20 In an action for breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that is necessary to prove is the existence of the contract and the fact
of its non-performance by the carrier. 21
In the case at bar, it is undisputed that the respondent carried a confirmed ticket for the two-legged trip from Frankfurt to Manila:
1) Frankfurt-Singapore; and 2) Singapore-Manila. In her contract of carriage with the petitioner, the respondent certainly
expected that she would fly to Manila on Flight No. SQ 72 on January 28, 1991. Since the petitioner did not transport the
respondent as covenanted by it on said terms, the petitioner clearly breached its contract of carriage with the Respondent. The
respondent had every right to sue the petitioner for this breach. The defense that the delay was due to fortuitous events and
beyond petitioner’s control is unavailing. In PAL v. CA, 22 we held that:chanrob1es virtual 1aw library
. . . Undisputably, PAL’s diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such occurrence did
not terminate PAL’s contract with its passengers. Being in the business of air carriage and the sole one to operate in the country,
PAL is deemed to be equipped to deal with situations as in the case at bar. What we said in one case once again must be
stressed, i.e., the relation of carrier and passenger continues until the latter has been landed at the port of destination and has
Page 58 of 105
left the carrier’s premises. Hence, PAL necessarily would still have to exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded passengers until they have reached their final destination . . .
x x x
". . . If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be the sole and only cause (Art. 1755 C.C.,
Art. 1733 C.C.). Since part of the failure to comply with the obligation of common carrier to deliver its passengers safely to their
destination lay in the defendant’s failure to provide comfort and convenience to its stranded passengers using extraordinary
diligence, the cause of non-fulfillment is not solely and exclusively due to fortuitous event, but due to something which defendant
airline could have prevented, defendant becomes liable to plaintiff."cralaw virtua1aw library
Indeed, in the instant case, petitioner was not without recourse to enable it to fulfill its obligation to transport the respondent
safely as scheduled as far as human care and foresight can provide to her destination. Tagged as a premiere airline as it claims
to be and with the complexities of air travel, it was certainly well-equipped to be able to foresee and deal with such situation. The
petitioner’s indifference and negligence by its absence and insensitivity was exposed by the trial court, thus:chanrob1es virtual
1aw library
(a) Under Section 9.1 of its Traffic Manual (Exhibit 4)." . . flights can be delayed to await the uplift of connecting cargo and
passengers arriving on a late in-bound flight . . ." As adverted to by the trial court, . . . "Flight SQ-27/28 maybe delayed for about
half an hour to transfer plaintiff to her connecting flight. As pointed out above, delay is normal in commercial air transportation"
(RTC Decision, p. 22); or
(b) Petitioner airlines could have carried her on one of its flights bound for Hongkong and arranged for a connecting flight from
Hongkong to Manila all on the same date. But then the airline personnel who informed her of such possibility told her that she
has to pay for that flight. Regrettably, respondent did not have sufficient funds to pay for it. (TSN, 30 March 1992, pp. 8–9; RTC
Decision, pp. 22–23) Knowing the predicament of the respondent, petitioner did not offer to shoulder the cost of the ticket for that
flight; or
(c) As noted by the trial court from the account of petitioner’s witness, Bob Khkimyong, that "a passenger such as the plaintiff
could have been accommodated in another international airline such as Lufthansa to bring the plaintiff to Singapore early enough
from Frankfurt provided that there was prior communication from that station to enable her to catch the connecting flight to
Manila because of the urgency of her business in Manila . . . (RTC Decision, p. 23)
The petitioner’s diligence in communicating to its passengers the consequences of the delay in their flights was wanting. As
elucidated by the trial court:chanrob1es virtual 1aw library
It maybe that delay in the take off and arrival of commercial aircraft could not be avoided and may be caused by diverse factors
such as those testified to by defendant’s pilot. However, knowing fully well that even before the plaintiff boarded defendant’s
Jumbo aircraft in Frankfurt bound for Singapore, it has already incurred a delay of two hours. Nevertheless, defendant did not
take the trouble of informing plaintiff, among its other passengers of such a delay and that in such a case, the usual practice of
defendant airline will be that they have to stay overnight at their connecting airport; and much less did it inquire from the plaintiff
and the other 25 passengers bound for Manila whether they are amenable to stay overnight in Singapore and to take the
connecting flight to Manila the next day. Such information should have been given and inquiries made in Frankfurt because even
the defendant airline’s manual provides that in case of urgency to reach his or her destination on the same date, the head office
of defendant in Singapore must be informed by telephone or telefax so as the latter may make certain arrangements with other
airlines in Frankfurt to bring such a passenger with urgent business to Singapore in such a manner that the latter can catch up
with her connecting flight such as S-27/28 without spending the night in Singapore . . . 23
The respondent was not remiss in conveying her apprehension about the delay of the flight when she was still in Frankfurt. Upon
the assurance of petitioner’s personnel in Frankfurt that she will be transported to Manila on the same date, she had every right
to expect that obligation fulfilled. She testified, to wit:chanrob1es virtual 1aw library
Q: Now, since you were late, when the plane that arrived from Frankfurt was late, did you not make arrangements so that your
flight from Singapore to Manila would be adjusted?
Page 59 of 105
A: I asked the lady at the ticket counter, the one who gave the boarding pass in Frankfurt and I asked her, "Since my flight going
to Singapore would be late, what would happen to my Singapore-Manila flight?" and then she said, "Don’t worry, Singapore
Airlines would be responsible to bring you to Manila on the same date." And then they have informed the name of the officer, or
whatever, that our flight is going to be late. 24
When a passenger contracts for a specific flight, he has a purpose in making that choice which must be respected. This choice,
once exercised, must not be impaired by a breach on the part of the airline without the latter incurring any liability. 25 For
petitioner’s failure to bring the respondent to her destination, as scheduled, we find the petitioner clearly liable for the breach of
its contract of carriage with the Respondent.
We are convinced that the petitioner acted in bad faith. Bad faith means a breach of known duty through some motive of interest
or ill will. Self-enrichment or fraternal interest, and not personal ill will, may well have been the motive; but it is malice
nevertheless. 26 Bad faith was imputed by the trial court when it found that the petitioner’s employees at the Singapore airport
did not accord the respondent the attention and treatment allegedly warranted under the circumstances. The lady employee at
the counter was unkind and of no help to her. The respondent further alleged that without her threats of suing the company, she
was not allowed to use the company’s phone to make long distance calls to her mother in Manila. The male employee at the
counter where it says: "Immediate Attention to Passengers with Immediate Booking" was rude to her when he curtly retorted that
he was busy attending to other passengers in line. The trial court concluded that this inattentiveness and rudeness of petitioner’s
personnel to respondent’s plight was gross enough amounting to bad faith. This is a finding that is generally binding upon the
Court which we find no reason to disturb.
Article 2232 of the Civil Code provides that in a contractual or quasi-contractual relationship, exemplary damages may be
awarded only if the defendant had acted in a "wanton, fraudulent, reckless, oppressive or malevolent manner." In this case,
petitioner’s employees acted in a wanton, oppressive or malevolent manner. The award of exemplary damages is, therefore,
warranted in this case.chanrob1es virtua1 1aw 1ibrary
WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. NO. 171545 : December 19, 2007]
EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS, Petitioners, v. NG SHEUNG NGOR**doing business under
the name and style "KEN MARKETING," KEN APPLIANCE DIVISION, INC. and BENJAMIN E. GO, Respondents.
DECISION
CORONA, J.:
This Petition for Review on Certiorari 1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 83112
and its resolution3 denying reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,4 Ken Appliance Division, Inc. and Benjamin E. Go filed an action for
annulment and/or reformation of documents and contracts5 against petitioner Equitable PCI Bank (Equitable) and its employees,
Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of Cebu City.6 They claimed that Equitable
induced them to avail of its peso and dollar credit facilities by offering low interest rates7 so they accepted Equitable's proposal
and signed the bank's pre-printed promissory notes on various dates beginning 1996. They, however, were unaware that the
documents contained identical escalation clauses granting Equitable authority to increase interest rates without their consent.8
Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in the promissory
notes.9 In fact, they continuously availed of and benefited from Equitable's credit facilities for five years.10
Page 60 of 105
After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured respondents'
loans amounting to US$228,200 and P1,000,000.11 The trial court, however, invalidated the escalation clause contained therein
because it violated the principle of mutuality of contracts.12 Nevertheless, it took judicial notice of the steep depreciation of the
peso during the intervening period13 and declared the existence of extraordinary deflation.14 Consequently, the RTC ordered the
use of the 1996 dollar exchange rate in computing respondents' dollar-denominated loans.15Lastly, because the business
reputation of respondents was (allegedly) severely damaged when Equitable froze their accounts, 16 the trial court awarded moral
and exemplary damages to them.17
The dispositive portion of the February 5, 2004 RTC decision18 provided:
WHEREFORE, premises considered, judgment is hereby rendered:
A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold status;
B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as moral damages;
C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as exemplary damages;
D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and severally, the sum of [t]wo [m]illion
[p]esos as moral and exemplary damages;
E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay [respondents'] attorney's fees in the sum
of P300,000; litigation expenses in the sum of P50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal obligation for the peso loan as
well as the unpaid obligation for the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows:
1) 12% per annum for the peso loans;
2) 8% per annum for the dollar loans. The basis for the payment of the dollar obligation is the conversion rate of P26.50 per
dollar availed of at the time of incurring of the obligation in accordance with Article 1250 of the Civil Code of the Philippines;
H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal loan obligations and interest.
SO ORDERED.19
Equitable and respondents filed their respective notices of appeal. 20
In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and respondents "failed to
submit proof that they paid their respective appeal fees."21
WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the above-entitled case
is DENIED due course. As of February 27, 2004, the Decision dated February 5, 2004, is considered final and executory in
so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are concerned.22 (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the RTC23 on the ground that it did in fact pay the appeal
fees. Respondents, on the other hand, prayed for the issuance of a writ of execution.24
On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of merit 25 and
ordered the issuance of a writ of execution in favor of respondents.26 According to the RTC, because respondents did not move
Page 61 of 105
for the reconsideration of the previous order (denying due course to the parties' notices of appeal),27 the February 5, 2004
decision became final and executory as to both parties and a writ of execution against Equitable was in order.28
A writ of execution was thereafter issued29 and three real properties of Equitable were levied upon.30
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. 31 It, however, withdrew that
petition on March 30, 200432 and instead filed a petition for certiorari with an application for an injunction in the CA to enjoin the
implementation and execution of the March 24, 2004 omnibus order.33
On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was correspondingly
issued.34
Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public auction on July 1,
2004. Respondents were the highest bidders and certificates of sale were issued to them. 35
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who conducted the sale in
contempt for proceeding with the auction despite the injunction order of the CA.36
On October 28, 2005, the CA dismissed the petition for certiorari .37 It found Equitable guilty of forum shopping because the bank
filed its petition for certiorari in the CA several hours before withdrawing its petition for relief in the RTC.38 Moreover, Equitable
failed to disclose, both in the statement of material dates and certificate of non-forum shopping (attached to its petition
for certiorari in the CA), that it had a pending petition for relief in the RTC.39
Equitable moved for reconsideration40 but it was denied.41 Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn on the same day the
petition for certiorari was filed.42 It likewise avers that its petition for certiorari was meritorious because the RTC committed grave
abuse of discretion in issuing the March 24, 2004 omnibus order which was based on an erroneous assumption. The March 1,
2004 order denying its notice of appeal for non payment of appeal fees was erroneous because it had in fact paid the required
fees.43Thus, the RTC, by issuing its March 24, 2004 omnibus order, effectively prevented Equitable from appealing the patently
wrong February 5, 2004 decision.44
This petition is meritorious.
Equitable Was Not Guilty Of Forum shopping
Forum shopping exists when two or more actions involving the same transactions, essential facts and circumstances are filed
and those actions raise identical issues, subject matter and causes of action.45The test is whether, in two or more pending cases,
there is identity of parties, rights or causes of actions and reliefs.46
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of action. The petition
for relief from the denial of its notice of appeal was based on the RTC's judgment or final order preventing it from taking an
appeal by "fraud, accident, mistake or excusable negligence."47 On the other hand, its petition for certiorari in the CA, a special
civil action, sought to correct the grave abuse of discretion amounting to lack of jurisdiction committed by the RTC. 48
In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In a petition for certiorari, the
order is rendered by a court without or in excess of its jurisdiction.
Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to withdraw its petition for relief in
the RTC on the same day (in fact just four hours and forty minutes after) it filed the petition for certiorari in the CA. Even if
Equitable failed to disclose that it had a pending petition for relief in the RTC, it rectified what was doubtlessly a careless
oversight by withdrawing the petition for relief just a few hours after it filed its petition for certiorari in the CA â€• a clear indication
that it had no intention of maintaining the two actions at the same time.
Page 62 of 105
The Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March 24, 2004 Orders
Section 1, Rule 65 of the Rules of Court provides:
Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial function has acted
without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy or adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and
justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all
pleadings and documents relevant and pertinent thereto, and a sworn certificate of non-forum shopping as provided in the third
paragraph of Section 3, Rule 46.
There are two substantial requirements in a petition for certiorari . These are:
1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in excess of his or its jurisdiction
or with grave abuse of discretion amounting to lack or excess of jurisdiction; andcralawlibrary
2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that the public respondent
patently and grossly abused his discretion and that abuse amounted to an evasion of positive duty or a virtual refusal to perform
a duty enjoined by law or to act at all in contemplation of law, as where the power was exercised in an arbitrary and despotic
manner by reason of passion or hostility.49
The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents. However, it declared
that the February 5, 2004 decision was final and executory only with respect to Equitable.50 As expected, the March 24, 2004
omnibus order denied Equitable's motion for reconsideration and granted respondents' motion for the issuance of a writ of
execution.51
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al. from appealing
the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with indecent haste, effectively
obviating or defeating Equitable's right to avail of possible legal remedies. No matter how we look at it, the RTC committed grave
abuse of discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of law, we hold that there was
none. The RTC denied due course to its notice of appeal in the March 1, 2004 order. It affirmed that denial in the March 24, 2004
omnibus order. Hence, there was no way Equitable could have possibly appealed the February 5, 2004 decision. 52
Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a plain, speedy and adequate
remedy in the ordinary course of law.53 A petition for relief under Rule 38 is an equitable remedy allowed only in exceptional
circumstances or where there is no other available or adequate remedy.54
Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.
Equitable Raised Pure Questions of Law in Its Petition For Review
The jurisdiction of this Court in Rule 45 petitions is limited to questions of law.55 There is a question of law "when the doubt or
controversy concerns the correct application of law or jurisprudence to a certain set of facts; or when the issue does not call for
the probative value of the evidence presented, the truth or falsehood of facts being admitted."56
Page 63 of 105
Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the nullity of the RTC's
February 5, 2004 decision. Equitable points out that that decision was patently erroneous, specially the exorbitant award of
damages, as it was inconsistent with existing law and jurisprudence.57
The Promissory Notes Were Valid
The RTC upheld the validity of the promissory notes despite respondents' assertion that those documents were contracts of
adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party. 58 The participation of the other
party is limited to affixing his signature or his "adhesion" to the contract.59 For this reason, contracts of adhesion are strictly
construed against the party who drafted it.60
It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as binding as
ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes void only when the dominant
party takes advantage of the weakness of the other party, completely depriving the latter of the opportunity to bargain on equal
footing.61
That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had been truly prejudicial to
respondents, they would have walked out and negotiated with another bank at the first available instance. But they did not.
Instead, they continuously availed of Equitable's credit facilities for five long years.
While the RTC categorically found that respondents had outstanding dollar - and peso-denominated loans with Equitable, it,
however, failed to ascertain the total amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial court did
not explain how it arrived at the amounts of US$228,200 and P1,000,000.62 In Metro Manila Transit Corporation v. D.M.
Consunji,63 we reiterated that this Court is not a trier of facts and it shall pass upon them only for compelling reasons which
unfortunately are not present in this case.64 Hence, we ordered the partial remand of the case for the sole purpose of determining
the amount of actual damages.65
Escalation Clause Violated The Principle Of Mutuality Of Contracts
Escalation clauses are not void per se. However, one "which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement"
is void. Clauses of that nature violate the principle of mutuality of contracts.66 Article 130867 of the Civil Code holds that a contract
must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. 68
For this reason, we have consistently held that a valid escalation clause provides:
1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the Monetary
Board; andcralawlibrary
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the
Monetary Board (de-escalation clause).69
The RTC found that Equitable's promissory notes uniformly stated:
If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as shall be determined by the
bank.70
Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents had no choice
but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation clause did not
contain the necessary provisions for validity, that is, it neither provided that the rate of interest would be increased only if allowed
by law or the Monetary Board, nor allowed de-escalation. For these reasons, the escalation clause was void.
Page 64 of 105
With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank71 we held that, because the
escalation clause was annulled, the principal amount of the loan was subject to the original or stipulated rate of interest. Upon
maturity, the amount due was subject to legal interest at the rate of 12% per annum.72
Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-denominated loans and 20%
p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal interest
of 12% p.a. on all amounts due.
There Was No Extraordinary Deflation
Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is, beyond the
common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the obligation. Extraordinary deflation, on the other hand, involves an inverse
situation.73
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value of the currency
at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven:
1. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP);74
2. that the obligation was contractual in nature;75 and
3. that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation.76
Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover, although the
obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or
deflation).77 The RTC never mentioned that there was a such stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of
maturity.78
The Award Of Moral And Exemplary Damages Lacked Basis
Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered, not to impose a
penalty to the wrongdoer.79 To be entitled to moral damages, a claimant must prove:
1. That he or she suffered besmirched reputation, or physical, mental or psychological suffering sustained by the claimant;
2. That the defendant committed a wrongful act or omission;
3. That the wrongful act or omission was the proximate cause of the damages the claimant sustained;
4. The case is predicated on any of the instances expressed or envisioned by Article 221980 and 222081 .82
In culpa contractual or breach of contract, moral damages are recoverable only if the defendant acted fraudulently or in bad faith
or in wanton disregard of his contractual obligations.83 The breach must be wanton, reckless, malicious or in bad faith, and
oppressive or abusive.84
Page 65 of 105
The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any month thereafter prior to the
maturity of the loan)85 or the amount due (principal plus interest) due on July 9, 2001.86 Consequently, Equitable applied
respondents' deposits to their loans upon maturity.
The relationship between a bank and its depositor is that of creditor and debtor.87 For this reason, a bank has the right to set-off
the deposits in its hands for the payment of a depositor's indebtedness.88
Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its legal right to set-off or
compensation. However, the RTC mistakenly (or, as it now appears, deliberately) concluded that Equitable acted "fraudulently or
in bad faith or in wanton disregard" of its contractual obligations despite the absence of proof. The undeniable fact was that,
whatever damage respondents sustained was purely the consequence of their failure to pay their loans. There was
therefore absolutely no basis for the award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents were not entitled to moral damages, neither should
they be awarded exemplary damages.89 And if respondents were not entitled to moral and exemplary damages, neither could
they be awarded attorney's fees and litigation expenses.90
ACCORDINGLY, the petition is hereby GRANTED.
The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP No. 83112 are
hereby REVERSED and SET ASIDE.
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case No. CEB-26983 is
hereby ANNULLED for being rendered with grave abuse of discretion amounting to lack or excess of jurisdiction. All proceedings
undertaken pursuant thereto are likewise declared null and void.
The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is hereby SET
ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due
course.chanrobles virtual law library
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is
accordingly SET ASIDE. New judgment is hereby entered:
1. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing," Ken Appliance Division,
Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank the principal amount of their dollar - and peso-denominated loans;
2. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing," Ken Appliance Division,
Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:
a) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9, 2001;
b) 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9, 2001;91
c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,92 the total amount due on July 9, 2001 shall earn legal
interest at 12% p.a. from the time petitioner Equitable PCI Bank demanded payment, whether judicially or extra-judicially;
andcralawlibrary
d) after this Decision becomes final and executory, the applicable rate shall be 12% p.a. until full satisfaction;
3. all other claims and counterclaims are dismissed.
Page 66 of 105
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts due on the respective
dollar-denominated and peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing business under the
name and style of "Ken Marketing," Ken Appliance Division and Benjamin E. Go.
SO ORDERED.
HEIRS OF SERVANDO FRANCO, G.R. No. 159709

Petitioners,
Present:
LEONARDO-DE CASTRO,
- versus - Acting Chairperson,
BERSAMIN,
DEL CASTILLO,
VILLARAMA, JR, and
PERLAS-BERNABE, JJ.
SPOUSES VERONICA AND DANILO Promulgated:
GONZALES,
Respondents. June 27, 2012
x-----------------------------------------------------------------------------------------x
DECISION
BERSAMIN, J.:
There is novation when there is an irreconcilable incompatibility between the old and the new obligations. There is no novation in
case of only slight modifications; hence, the old obligation prevails.
The petitioners challenge the decision promulgated on March 19, 2003,[1] whereby the Court of Appeals (CA) upheld the issuance
of a writ of execution by the Regional Trial Court (RTC), Branch 16, in Malolos, Bulacan.
Antecedents
The Court adopts the following summary of the antecedents rendered by the Court in Medel v. Court of Appeals,[2] the
case from which this case originated, to wit:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained
a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business
under the name Gonzales Credit Enterprises, in the amount of P50,000.00, payable in two months. Veronica
gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one
month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the
loan, payable on January 7, 1986.
Page 67 of 105
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount
of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence
the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount
of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia
Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to
execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum
of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them
out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all
their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount
of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. They
executed a promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date August 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT
ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the
sum of PESOS ........ FIVE HUNDRED THOUSAND ..... (P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge p
er annum from date hereof until fully paid according to the amortization schedule contained
herein. (Underscoring supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and payable and I/WE
hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the amount due and demand
able as penalty charges in the form of liquidated damages until fully paid; and the
further sum of TWENTY FIVE PER CENT (25%) thereof in full, without
deductions as Attorney's Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses. (Underscoring supplied)
I, WE further agree that in the event the present rate of interest on loan is increased by law
or the Central Bank of the Philippines, the holder shall have the option to apply and collect the
increased interest charges without notice although the original interest have already been
collected wholly or partially unless the contrary is required by law.
It is also a special condition of this contract that the parties herein agree that the amount of
peso-obligation under this agreement is based on the present value of peso, and if there be any
change in the value thereof, due to extraordinary inflation or deflation, or any other cause or
reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value
of the peso then prevailing at the time of the complete fulfillment of obligation.
Page 68 of 105
Demand and notice of dishonor waived. Holder may accept partial payments and grant
renewals of this note or extension of payments, reserving rights against each and all indorsers
and all parties to this note.
IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all
his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests
and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the
Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount
of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged
that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who
borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited
therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he
(Servando Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the
loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel
of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with
additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for
attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and that
substantial payments made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four promissory
notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged
by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court
applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money,
goods or credit is 12% per annum."
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay
plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1%
per month as penalty, until the entire amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and
severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month as
penalty from November 19,1985 until the whole amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount
of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986,
until the whole amount is fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00
as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.
Page 69 of 105
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid
loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the
Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per
annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that the Usury Law having
become legally inexistent with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender
and borrower could agree on any interest that may be charged on the loan. The Court of Appeals further held
that "the imposition of an additional amount equivalent to 1% per month of the amount due and demandable
as penalty charges in the form of liquidated damages until fully paid was allowed by law.
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the
Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby
ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service
charge per annum effective July 23, 1986, plus 1% per month of the total amount due and
demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.
SO ORDERED.
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By
resolution dated November 25, 1997, the Court of Appeals denied the motion.[3]
On review, the Court in Medel v. Court of Appeals struck down as void the stipulation on the interest for being iniquitous
or unconscionable, and revived the judgment of the RTC rendered on December 9, 1991, viz:
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment
REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan,
Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED.[4]
Upon the finality of the decision in Medel v. Court of Appeals, the respondents moved for execution.[5] Servando Franco
opposed,[6] claiming that he and the respondents had agreed to fix the entire obligation at P775,000.00.[7] According to Servando,
their agreement, which was allegedly embodied in a receipt dated February 5, 1992,[8] whereby he made an initial payment
of P400,000.00 and promised to pay the balance of P375,000.00 on February 29, 1992, superseded the July 23, 1986 promissory
note.
The RTC granted the motion for execution over Servandos opposition, thus:
Page 70 of 105
There is no doubt that the decision dated December 9, 1991 had already been affirmed and had already
become final and executory. Thus, in accordance with Sec. 1 of Rule 39 of the 1997 Rules of Civil Procedure,
execution shall issue as a matter of right. It has likewise been ruled that a judgment which has acquired finality
becomes immutable and unalterable and hence may no longer be modified at any respect except only to
correct clerical errors or mistakes (Korean Airlines Co. Ltd. vs. C.A., 247 SCRA 599). In this respect, the
decision deserves to be respected.
The argument about the modification of the contract or non-participation of defendant Servando Franco
in the proceedings on appeal on the alleged belief that the payment he made had already absolved him from
liability is of no moment. Primarily, the decision was for him and Leticia Medel to pay the plaintiffs jointly and
severally the amounts stated in the Decision. In other words, the liability of the defendants thereunder is
solidary. Based on this aspect alone, the new defense raised by defendant Franco is unavailing.
WHEREFORE, in the light of all the foregoing, the Court hereby grants the Motion for Execution of
Judgment.
Accordingly, let a writ of execution be issued for implementation by the Deputy Sheriff of this Court.
SO ORDERED.[9]
On March 8, 2001, the RTC issued the writ of execution.[10]
Servando moved for reconsideration,[11] but the RTC denied his motion.[12]
On March 19, 2003, the CA affirmed the RTC through its assailed decision, ruling that the execution was proper because of
Servandos failure to comply with the terms of the compromise agreement, stating: [13]
Petitioner cannot deny the fact that there was no full compliance with the tenor of the compromise
agreement. Private respondents on their part did not disregard the payments made by the petitioner. They
even offered that whatever payments made by petitioner, it can be deducted from the principal obligation
including interest. However, private respondents posit that the payments made cannot alter, modify or revoke
the decision of the Supreme Court in the instant case.
In the case of Prudence Realty and Development Corporation vs. Court of Appeals, the Supreme Court
ruled that:
When the terms of the compromise judgment is violated, the aggrieved party must move for
its execution, not its invalidation.
It is clear from the aforementioned jurisprudence that even if there is a compromise agreement and the
terms have been violated, the aggrieved party, such as the private respondents, has the right to move for the
issuance of a writ of execution of the final judgment subject of the compromise agreement.
Moreover, under the circumstances of this case, petitioner does not stand to suffer any harm or
prejudice for the simple reason that what has been asked by private respondents to be the subject of a writ of
execution is only the balance of petitioners obligation after deducting the payments made on the basis of the
compromise agreement.
Page 71 of 105
WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE and
consequently DISMISSED for lack of merit.
SO ORDERED.
His motion for reconsideration having been denied,[14] Servando appealed. He was eventually substituted by his heirs, now the
petitioners herein, on account of his intervening death. The substitution was pursuant to the resolution dated June 15, 2005.[15]
Issue
The petitioners submit that the CA erred in ruling that:
I
THE 9 DECEMBER 1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS,
BULACAN WAS NOT NOVATED BY THE COMPROMISE AGREEMENT BETWEEN THE PARTIES ON 5
FEBRUARY 1992.
II
THE LIABILITY OF THE PETITIONER TO RESPONDENTS SHOULD BE BASED ON THE DECEMBER 1991
DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN AND NOT ON
THE COMPROMISE AGREEMENT EXECUTED IN 1992.
The petitioners insist that the RTC could not validly enforce a judgment based on a promissory note that had been already novated;
that the promissory note had been impliedly novated when the principal obligation of P500,000.00 had been fixed at P750,000.00,
and the maturity date had been extended from August 23, 1986 to February 29, 1992.
In contrast, the respondents aver that the petitioners seek to alter, modify or revoke the final and executory decision of the Court;
that novation did not take place because there was no complete incompatibility between the promissory note and the memorandum
receipt; that Servandos previous payment would be deducted from the total liability of the debtors based on the RTCs decision.
Issue
Was there a novation of the August 23, 1986 promissory note when respondent Veronica Gonzales issued the February
5, 1992 receipt?
Ruling
The petition lacks merits.
I
Novation did not transpire because no
irreconcilable incompatibility existed
between the promissory note and the receipt
Page 72 of 105
To buttress their claim of novation, the petitioners rely on the receipt issued on February 5, 1992 by respondent Veronica whereby
Servandos obligation was fixed at P750,000.00. They insist that even the maturity date was extended until February 29, 1992.
Such changes, they assert, were incompatible with those of the original agreement under the promissory note.
The petitioners assertion is wrong.
A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either by changing
the object or the principal conditions, or by substituting the person of the debtor, or by subrogating a third person in the rights of
the creditor.[16] For a valid novation to take place, there must be, therefore: (a) a previous valid obligation; (b) an agreement of the
parties to make a new contract; (c) an extinguishment of the old contract; and (d) a valid new contract.[17] In short, the new obligation
extinguishes the prior agreement only when the substitution is unequivocally declared, or the old and the new obligations are
incompatible on every point. A compromise of a final judgment operates as a novation of the judgment obligation upon compliance
with either of these two conditions.[18]
The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible with the old one under the
promissory note, viz:
February 5, 1992
Received from SERVANDO FRANCO BPI Managers Check No. 001700 in the amount of P400,00.00
as partial payment of loan. Balance of P375,000.00 to be paid on or before FEBRUARY 29, 1992. In case of
default an interest will be charged as stipulated in the promissory note subject of this case.
(Sgd)
V. Gonzalez[19]
To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate the old contract
in favor of a new one. In the absence of the express agreement, the old and the new obligations must be incompatible on every
point.[20] According to California Bus Lines, Inc. v. State Investment House, Inc.:[21]
The extinguishment of the old obligation by the new one is a necessary element of novation which may be
effected either expressly or impliedly. The term expressly means that the contracting parties incontrovertibly
disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no
specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility
between the two contracts. While there is really no hard and fast rule to determine what might constitute to be
a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the new obligations.
There is incompatibility when the two obligations cannot stand together, each one having its independent existence. If the two
obligations cannot stand together, the latter obligation novates the first.[22] Changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must affect any of the essential elements of the obligation, such as its object,
Page 73 of 105
cause or principal conditions thereof; otherwise, the change is merely modificatory in nature and insufficient to extinguish the
original obligation.[23]
In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the respondents only thereby recognized
the original obligation by stating in the receipt that the P400,000.00 was partial payment of loan and by referring to the promissory
note subject of the case in imposing the interest. The loan mentioned in the receipt was still the same loan involving
the P500,000.00 extended to Servando. Advertence to the interest stipulated in the promissory note indicated that the contract still
subsisted, not replaced and extinguished, as the petitioners claim.
The receipt dated February 5, 1992 was only the proof of Servandos payment of his obligation as confirmed by the decision of the
RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has ruled that an obligation to pay
a sum of money is not novated by an instrument that expressly recognizes the old, or changes only the terms of payment, or adds
other obligations not incompatible with the old ones, or the new contract merely supplements the old one.[24] A new contract that is
a mere reiteration, acknowledgment or ratification of the old contract with slight modifications or alterations as to the cause or
object or principal conditions can stand together with the former one, and there can be no incompatibility between
them.[25] Moreover, a creditors acceptance of payment after demand does not operate as a modification of the original contract. [26]
Worth noting is that Servandos liability was joint and solidary with his co-debtors. In a solidary obligation, the creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously.[27] The choice to determine against whom the
collection is enforced belongs to the creditor until the obligation is fully satisfied.[28] Thus, the obligation was being enforced against
Servando, who, in order to escape liability, should have presented evidence to prove that his obligation had already been cancelled
by the new obligation or that another debtor had assumed his place. In case of change in the person of the debtor, the substitution
must be clear and express,[29] and made with the consent of the creditor.[30] Yet, these circumstances did not obtain herein, proving
precisely that Servando remained a solidary debtor against whom the entire or part of the obligation might be enforced.
Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an extension of
the term or period of the maturity date does not result in novation.[31]
II
Total liability to be reduced by P400,000.00
The petitioners argue that Servandos remaining liability amounted to only P375,000.00, the balance indicated in the February 5,
1992 receipt. Accordingly, the balance was not yet due because the respondents did not yet make a demand for payment.
The petitioners cannot be upheld.
Page 74 of 105
The balance of P375,000.00 was premised on the taking place of a novation. However, as found now, novation did not take place.
Accordingly, Servandos obligation, being solidary, remained to be that decreed in the December 9, 1991 decision of the RTC,
inclusive of interests, less the amount of P400,000.00 that was meanwhile paid by him.
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on March 19, 2003; ORDERS the
Regional Trial Court, Branch 16, in Malolos, Bulacan to proceed with the execution based on its decision rendered on December
9, 1991, deducting the amount of P400,000.00 already paid by the late Servando Franco; and DIRECTS the petitioners to pay the
costs of suit.
SO ORDERED.
[G.R. No. 128690. February 28, 2000]
ABS-CBN BROADCASTING CORP. vs. HON. CA, et al.
FIRST DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB 28 2000.
G.R. No. 128690 (ABS-CBN Broadcasting Corp. vs. Honorable Court of Appeals, et al.)
On 21 January 1999, we promulgated our decision in this case whose dispositive portion reads as follows:
WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of
Appeals in CA-G.R. CV No. 44125 is hereby REVERSED except as to the unappealed award of
attorney's fees in favor of VIVA Productions, Inc.
On 12 February 1999 petitioner filed a Manifestation with Motion for Partial Reconsideration of the Decision insofar as it finds that
petitioner did not appeal from the award of attorney's fees in favor of Viva Productions, Inc. Petitioner claims that it likewise
challenged that award, for its petition, it alleges as one of the errors of law committed by the Court of Appeals that
D.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AWARDING ATTORNEY'S FEES IN FAVOR

OF PRIVATE RESPONDENTS
Petitioner further claims that in its argument therein it attacked, among other things the award of attorney's fees to VIVA
Productions, Inc, and it made a similar presentation in its Memorandum.
In its Comment/Opposition to the Partial Motion for Reconsideration, private respondent Republic Broadcasting System, Inc. (RBS)
observed that, in reality, attorney's fees to RBS was reversed in our decision. As the decision states the key issues in the case are
(1) whether there was a perfected contract between VIVA and ABS-CBN, and (2) whether RBS is entitled to damages and
attorney's fees. We held that the first issue should be resolved against ABS-CBN, thereby affirming the decision of the Court of
Appeals that there was no perfected contract between ABS-CBN and VIVA. It follows then that the decision of the Court of Appeals
Page 75 of 105
was not entirely reversed and that ABS-CBN's petition was not entirely granted, as, it merely deleted the award of damages and
attorney's fees to RBS. RBS then suggests that the dispositive portion be modified to reflect that the decision of the Court of
Appeals was merely modified by deleting the award of damages and attorney's fees to RBS; or to state that said decision is affirmed
except as to the award of damages and attorney's fees to RBS, which is deleted.
In their comment and Opposition to petitioner's Partial Motion for Reconsideration, private respondents VIVA Productions, Inc.,
and Vicente del Rosario assert that petitioner could not have validly assigned as error the award of attorney's fees to VIVA and
that it could not question our discretion to take into consideration that assignment of error. They claim that in its appeal from the
decision of the trial court to the Court of Appeals, petitioner did not question the trial court's award of attorney's fees to VIVA. In its
Appellee's Brief filed with the Court of Appeals petitioner had consistently refused and failed to challenge the attorney's fees
awarded to VIVA.
Petitioner filed a Motion to Expunge from the Record the Comment/Opposition of private respondent RBS for being defective in
substance and in form, as RBS has no business making any opposition considering that the Partial Motion for Reconsideration did
not affect it. Its Comment/Opposition is not a responsive to the Motion for Reconsideration. It is more for a motion for
reconsideration. Yet, RBS filed no motion for reconsideration.
On 30 March 1999 RBS filed an Opposition to the Motion to Expunge.
On 13 April 1999 petitioner filed a Reply to the Comment/Opposition of VIVA and Vicente del Rosario. Anent its failure to appeal
the trial court's award of attorney's fees to VIVA , petitioner asseverated that:
Viva and Del Rosario themselves brought up the matter to the said appellate court where in their
appellant's brief they argued the sole issue, that:
THE TRIAL COURT ERRED IN NOT FINDING THAT DEFENDANTS-APPELLANTS

VIVA AND DEL ROSARIO ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES
AND ADDITIONAL ATTORNEY'S FEES
After a meticulous assessment of the issues raised and arguments adduced in the aforementioned pleadings, we are convinced
that since petitioner has not challenged before the Court of Appeals the trial court's award in the amount of P212,000, which was
affirmed by the Court of Appeals in connection with the appeal of VIVA and Del Rosario, petitioners cannot now be heard to claim
a right to contest the award of the Court of Appeals. It would have been entirely different if the Court of Appeals increased the
award, as prayed for by VIVA and Del Rosario.
WHEREFORE, petitioner's Partial Motion for Reconsideration of the Decision of 21 January 1999 is DENIED for want of sufficient
merit.
Very truly yours,
(Sgd.) VIRGINIA ANCHETA-SORIANO
Clerk of Court
G.R. No. 194366 : October 10, 2012
NAPOLEON D. NERI, ALICIA D. NERI-MONDEJAR, VISMINDA D. NERI-CHAMBERS, ROSA D. NERI-MILLAN, DOUGLAS

D. NERI, EUTROPIA D. ILLUT-COCKINOS AND VICTORIA D. ILLUT-PIALA, Petitioners, v. HEIRS OF HADJI YUSOP UY
AND JULPHA* IBRAHIM UY, Respondents.
Page 76 of 105
DECISION
PERLAS-BERNABE, J.:
In this Petition for Review on Certiorari1Ï‚rÎ½ll under Rule 45 of the Rules of Court, petitioners Napoleon D. Neri (Napoleon),
Alicia D. Neri-Mondejar (Alicia), Visminda D. Neri-Chambers (Visminda), Rosa D. Neri-Millan (Rosa), Douglas D. Neri (Douglas),
Eutropia D. Illut-Cockinos (Eutropia), and Victoria D. Illut-Piala (Victoria) seek to reverse and set aside the April 27, 2010
Decision2Ï‚rÎ½ll and October 18, 2010 Resolution3Ï‚rÎ½llof the Court of Appeals (CA) in CA-G.R. CV No. 01031-MIN which
annulled the October 25, 2004 Decision4Ï‚rÎ½ll of the Regional Trial Court (RTC) of Panabo City, Davao del Norte and instead,
entered a new one dismissing petitioners complaint for annulment of sale, damages and attorneys feesagainst herein
respondents heirs of spouses Hadji Yusop Uy and Julpha Ibrahim Uy (heirs of Uy).
The Facts
During her lifetime, Anunciacion Neri (Anunciacion) had seven children, two (2) from her first marriage with Gonzalo Illut
(Gonzalo), namely: Eutropia and Victoria, and five (5) from her second marriage with Enrique Neri (Enrique), namely: Napoleon,
Alicia, Visminda, Douglas and Rosa. Throughout the marriage of spouses Enrique and Anunciacion, they acquired several
homestead properties with a total area of 296,555 square meters located in Samal, Davao del Norte, embraced by Original
Certificate of Title (OCT) Nos. (P-7998) P-21285Ï‚rÎ½ll , (P-14608) P-51536Ï‚rÎ½ll and P-20551 (P-8348)7issued on February 15,
1957, August 27, 1962 and July 7, 1967, respectively.
On September 21, 1977, Anunciacion died intestate. Her husband, Enrique, in his personal capacity and as natural guardian of
his minor children Rosa and Douglas, together with Napoleon, Alicia, and Vismindaexecuted an Extra-Judicial Settlement of the
Estate with Absolute Deed of Sale8Ï‚rÎ½ll on July 7, 1979, adjudicating among themselves the said homestead properties, and
thereafter, conveying themto the late spouses Hadji Yusop Uy and Julpha Ibrahim Uy (spouses Uy)for a consideration
of P 80,000.00.
On June 11, 1996, the children of Enrique filed a complaint for annulment of saleof the said homestead properties against
spouses Uy (later substituted by their heirs)before the RTC, docketed as Civil Case No.96-28, assailing the validity of the sale for
having been sold within the prohibited period. Thecomplaint was later amended to include Eutropia and Victoriaas additional
plaintiffs for having been excluded and deprived of their legitimes as childrenof Anunciacion from her first marriage.
In their amended answer with counterclaim, the heirs of Uy countered that the sale took place beyond the 5-year prohibitory
period from the issuance of the homestead patents. They also denied knowledge of Eutropia and Victorias exclusionfrom the
extrajudicial settlement and sale of the subject properties, and interposed further the defenses of prescription and laches.
The RTC Ruling
On October 25, 2004, the RTC rendered a decision ordering, among others, the annulment of the Extra-Judicial Settlement of
the Estate with Absolute Deed of Sale. It ruled that while the sale occurred beyond the 5-year prohibitory period, the sale is still
void because Eutropia and Victoria were deprived of their hereditary rights and that Enrique had no judicial authority to sell the
shares of his minor children, Rosa and Douglas.
Consequently, it rejected the defenses of laches and prescription raised by spouses Uy, who claimed possession of the subject
properties for 17 years, holding that co-ownership rights are imprescriptible.
The CA Ruling
On appeal, the CAreversed and set aside the ruling of the RTC in its April 27, 2010 Decision and dismissed the complaint of the
petitioners. It held that, while Eutropia and Victoria had no knowledge of the extrajudicial settlement and sale of the subject
properties and as such, were not bound by it, the CA found it unconscionable to permit the annulment of the sale considering
spouses Uys possession thereof for 17 years, and thatEutropia and Victoriabelatedlyfiled their actionin 1997, ormore than two
Page 77 of 105
years fromknowledge of their exclusion as heirs in 1994 when their stepfather died. It, however, did not preclude the excluded
heirs from recovering their legitimes from their co-heirs.
Similarly, the CA declared the extrajudicial settlement and the subsequent saleas valid and binding with respect to Enrique and
hischildren, holding that as co-owners, they have the right to dispose of their respective shares as they consider necessary or
fit.While recognizing Rosa and Douglas to be minors at that time, they were deemed to have ratified the sale whenthey failed to
question it upon reaching the age of majority.Italso found laches to have set in because of their inaction for a long period of time.
The Issues
In this petition, petitioners imputeto the CA the following errors:
I. WHEN IT UPHELDTHE VALIDITY OF THE "EXTRA JUDICIAL SETTLEMENT OF THE ESTATE WITH ABSOLUTE DEED OF
SALE" AS FAR AS THE SHARES OF EUTROPIA AND VICTORIA WERE CONCERNED, THEREBY DEPRIVING THEM OF
THEIR INHERITANCE;
II. WHEN IT DID NOT NULLIFY OR ANNUL THE "EXTRA JUDICIAL SETTLEMENT OF THE ESTATE WITH ABSOLUTE DEED
OF SALE" WITH RESPECT TO THE SHARESOF ROSA AND DOUGLAS, THEREBY DEPRIVING THEM OF THEIR
INHERITANCE; and
III. WHEN IT FOUND THAT LACHES OR PRESCRIPTION HAS SET IN.
The Ruling of the Court
The petitionis meritorious.
It bears to stress that all the petitioners herein are indisputably legitimate children of Anunciacion from her first and second
marriages with Gonzalo and Enrique, respectively, and consequently, are entitled to inherit from her in equal shares, pursuant to
Articles 979 and 980 of the Civil Code which read:
ART. 979. Legitimate children and their descendants succeed the parents and other ascendants, without distinction as to sex or
age, and even if they should come from different marriages.
xxx
ART. 980. The children of the deceased shall always inherit from him in their own right, dividing the inheritance in equal shares.
As such, upon the death of Anunciacion on September 21, 1977, her children and Enrique acquired their respective
inheritances,9Ï‚rÎ½ll entitling them to their pro indiviso shares in her whole estate, as follows:
Enrique 9/16 (1/2 of the conjugal assets + 1/16)

Eutropia 1/16
Victoria 1/16
Napoleon 1/16
Alicia 1/16
Visminda 1/16
Rosa 1/16
Douglas 1/16
Page 78 of 105
Hence, in the execution of the Extra-Judicial Settlement of the Estate with Absolute Deed of Sale in favor of spouses Uy, all the
heirs of Anunciacionshould have participated. Considering that Eutropia and Victoria were admittedly excluded and that then
minors Rosa and Douglas were not properly represented therein, the settlement was not valid and binding uponthem and
consequently, a total nullity.
Section 1, Rule 74 of the Rules of Court provides:chanroblesvirtuallawlibrary
SECTION 1. Extrajudicial settlement by agreement between heirs. x x x
The fact of the extrajudicial settlement or administration shall be published in a newspaper of general circulation in the manner
provided in the next succeeding section; but no extrajudicial settlement shall be binding upon any person who has not
participated therein or had no notice thereof. (Underscoring added)
The effect of excluding the heirs in the settlement of estate was further elucidated in Segura v. Segura,10Ï‚rÎ½ll thus:
It is clear that Section 1 of Rule 74 does not apply to the partition in question which was null and void as far as the plaintiffs were
concerned. The rule covers only valid partitions. The partition in the present case was invalid because it excluded six of the nine
heirs who were entitled to equal shares in the partitioned property. Under the rule "no extrajudicial settlement shall be binding
upon any person who has not participated therein or had no notice thereof." As the partition was a total nullity and did not affect
the excluded heirs, it was not correct for the trial court to hold that their right to challenge the partition had prescribed after two
years from its execution
However, while the settlement of the estate is null and void, the subsequent sale of the subject propertiesmade by Enrique and
his children, Napoleon, Alicia and Visminda, in favor of the respondents isvalid but only with respect to their proportionate shares
therein.It cannot be denied that these heirs have acquired their respective shares in the properties of Anunciacion from the
moment of her death11and that, as owners thereof, they can very well sell their undivided share in the estate.12Ï‚rÎ½ll
With respect to Rosa and Douglas who were minors at the time of the execution of the settlement and sale, their natural guardian
and father, Enrique, represented them in the transaction. However, on the basis of the laws prevailing at that time, Enrique was
merely clothed with powers of administration and bereft of any authority to dispose of their 2/16 shares in the estate of their
mother, Anunciacion.
Articles 320 and 326 of the Civil Code, the laws in force at the time of the execution of the settlement and sale, provide:
ART. 320. The father, or in his absence the mother, is the legal administrator of the property pertaining to the child under
parental authority. If the property is worth more than two thousand pesos, the father or mother shall give a bond subject to the
approval of the Court of First Instance.
ART. 326. When the property of the child is worth more than two thousand pesos, the father or mother shall be considered a
guardian of the childs property, subject to the duties and obligations of guardians under the Rules of Court.
Corollarily, Section 7, Rule 93 of the Rules of Court also provides:
SEC. 7. Parents as Guardians. When the property of the child under parental authority is worth two thousand pesos or less, the
father or the mother, without the necessity of court appointment, shall be his legal guardian. When the property of the child is
worth more than two thousand pesos, the father or the mother shall be considered guardian of the childs property, with the duties
and obligations of guardians under these Rules, and shall file the petition required by Section 2 hereof. For good reasons, the
court may, however, appoint another suitable persons.
Administration includes all acts for the preservation of the property and the receipt of fruits according to the natural purpose of
the thing. Any act of disposition or alienation, or any reduction in the substance of the patrimony of child, exceeds the limits of
administration.13Ï‚rÎ½ll Thus, a father or mother, as the natural guardian of the minor under parental authority, does not have the
power to dispose or encumber the property of the latter. Such power is granted by law only to a judicial guardian of the wards
Page 79 of 105
property and even then only with courts prior approval secured in accordance with the proceedings set forth by the Rules of
Court.14Ï‚rÎ½ll
Consequently, the disputed sale entered into by Enrique in behalf of his minor children without the proper judicial authority,
unless ratified by them upon reaching the age of majority,15Ï‚rÎ½ll is unenforceable in accordance with Articles 1317 and 1403(1)
of the Civil Code which provide:
ART. 1317. No one may contract in the name of another without being authorized by the latter or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
ART. 1403. The following contracts are unenforceable, unless they are ratified:chanroblesvirtuallawlibrary
(1) Those entered into the name of another person by one who has been given no authority or legal representation, or who has
acted beyond his powers;
xxx
Ratification means that one under no disability voluntarily adopts and gives sanction to some unauthorized act or defective
proceeding, which without his sanction would not be binding on him. It is this voluntary choice, knowingly made, which amounts
to a ratification of what was theretofore unauthorized, and becomes the authorized act of the party so making the
ratification.16Ï‚rÎ½ll Once ratified, expressly or impliedly such as when the person knowingly received benefits from it, the contract
is cleansed from all its defects from the moment it was constituted, 17Ï‚rÎ½ll as it has a retroactive effect.
Records, however, show that Rosa had ratified the extrajudicial settlement of the estate with absolute deed of sale. In Napoleon
and Rosas Manifestation18Ï‚rÎ½ll before the RTC dated July 11, 1997,they stated:
"Concerning the sale of our parcel of land executed by our father, Enrique Neri concurred in and conformed to by us and our
other two sisters and brother (the other plaintiffs), in favor of Hadji Yusop Uy and his spouse Hadja Julpa Uy on July 7, 1979, we
both confirmed that the same was voluntary and freely made by all of us and therefore the sale was absolutely valid and
enforceable as far as we all plaintiffs in this case are concerned;" (Underscoring supplied)
In their June 30, 1997 Joint-Affidavit,19Ï‚rÎ½ll Napoleon and Rosa also alleged:
"That we are surprised that our names are included in this case since we do not have any intention to file a case against Hadji
Yusop Uy and Julpha Ibrahim Uy and their family and we respect and acknowledge the validity of the Extra-Judicial Settlement of
the Estate with Absolute Deed of Sale dated July 7, 1979;" (Underscoring supplied)
Clearly, the foregoing statements constitutedratification of the settlement of the estate and the subsequent sale, thus, purging all
the defects existing at the time of its execution and legitimizing the conveyance of Rosas 1/16 share in the estate of Anunciacion
to spouses Uy. The same, however, is not true with respect to Douglas for lack of evidence showing ratification.
Considering, thus, that the extrajudicial settlement with sale is invalid and therefore, not binding on Eutropia, Victoria and
Douglas, only the shares ofEnrique, Napoleon, Alicia, Visminda and Rosa in the homestead properties have effectivelybeen
disposed in favor of spouses Uy. "A person can only sell what he owns, or is authorized to sell and the buyer can as a
consequence acquire no more than what the sellercan legally transfer."20Ï‚rÎ½ll On this score, Article 493 of the Civil Codeis
relevant, which provides:
Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto, and he may therefore
alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when personal rights are involved.
Page 80 of 105
But the effect of the alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which may be
allotted to him in the division upon the termination of the co-ownership.
Consequently, spouses Uy or their substituted heirs became pro indiviso co-owners of the homestead properties with Eutropia,
Victoria and Douglas, who retained title to their respective 1/16 shares. They were deemed to be holding the 3/16 shares of
Eutropia, Victoria and Douglas under an implied constructive trust for the latters benefit, conformably with Article 1456 of the Civil
Code which states:"if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the person from whom the property comes." As such, it is only fair, just and equitable
that the amount paid for their shares equivalent to P 5,000.0021Ï‚rÎ½ll each or a total of P 15,000.00 be returned to spouses Uy
with legal interest.
On the issue of prescription, the Court agrees with petitioners that the present action has not prescribed in so far as it seeks to
annul the extrajudicial settlement of the estate. Contrary to the ruling of the CA, the prescriptive period of 2 years provided in
Section 1 Rule 74 of the Rules of
Court reckoned from the execution of the extrajudicial settlement finds no application to petitioners Eutropia, Victoria and
Douglas, who were deprived of their lawful participation in the subject estate. Besides, an "action or defense for the declaration
of the inexistence of a contract does not prescribe" in accordance with Article 1410 of the Civil Code.
However, the action to recover property held in trust prescribes after 10 years from the time the cause of action
accrues,22Ï‚rÎ½ll which is from the time of actual notice in case of unregistered deed.23Ï‚rÎ½ll In this case, Eutropia, Victoria and
Douglas claimed to have knowledge of the extrajudicial settlement with sale after the death of their father, Enrique, in 1994 which
spouses Uy failed to refute. Hence, the complaint filed in 1997 was well within the prescriptive period of 10 years.
WHEREFORE, the instant petition is GRANTED. The April 27, 2010 Decision and October 18, 2010 Resolution of the Court of
Appeals are REVERSED and SET ASIDE and a new judgment is entered:
1. Declaring the Extra-Judicial Settlement of the Estate of Anunciacion Neri NULL and VOID;
2. Declaring the Absolute Deed of Sale in favor of the late spouses Hadji Yusop Uy and Julpha Ibrahim Uy as regards the 13/16
total shares of the late Enrique Neri, Napoleon Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-
Millan VALID;
3. Declaring Eutropia D. Illut-Cockinos, Victoria D. Illut-Piala and Douglas D. Neri as the LAWFUL OWNERS of the 3/16 portions
of the subject homestead properties, covered by Original Certificate of Title Nos. (P-7998) P-2128, (P-14608) P-5153 and P-
20551 (P-8348); and
4. Ordering the estate of the late Enrique Neri, as well as Napoleon Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers
and Rosa D. Neri-Millan to return to the respondents jointly and solidarily the amount paid corresponding to the 3/16 shares of
Eutropia, Victoria and Douglas in the total amount of P 15,000.00, with legal interest at 6% per annum computed from the time of
payment until finality of this decision and 12% per annum thereafter until fully paid.
No pronouncement as to costs.Ï‚rÎ±lÎ±Ï‰lÎ¹brÎ±r
SO ORDERED.
EN BANC
[G.R. NO. 155001 - January 21, 2004]
Page 81 of 105
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B. BOÑE,
MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON,
REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION-NATIONAL LABOR UNION (MWU-NLU),
and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION (PALEA), Petitioners, v. PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, Respondents,
MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS AVIATION SYSTEMS CORPORATION, MACROASIA-

EUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION, MIASCOR CATERING
SERVICES CORPORATION, MIASCOR AIRCRAFT MAINTENANCE CORPORATION, and MIASCOR LOGISTICS
CORPORATION, Petitioners-in-Intervention,
FLORESTE ALCONIS, GINA ALNAS, REY AMPOLOQUIO, ROSEMARIE ANG, EUGENE ARADA, NENETTE BARREIRO,
NOEL BARTOLOME, ALDRIN BASTADOR, ROLETTE DIVINE BERNARDO, MINETTE BRAVO, KAREN BRECILLA, NIDA
CAILAO, ERWIN CALAR, MARIFEL CONSTANTINO, JANETTE CORDERO, ARNOLD FELICITAS, MARISSA GAYAGOY,
ALEX GENERILLO, ELIZABETH GRAY, ZOILO HERICO, JACQUELINE IGNACIO, THELMA INFANTE, JOEL JUMAO-AS,
MARIETTA LINCHOCO, ROLLY LORICO, FRANCIS AUGUSTO MACATOL, MICHAEL MALIGAT, DENNIS MANALO, RAUL
MANGALIMAN, JOEL MANLANGIT, CHARLIE MENDOZA, HAZNAH MENDOZA, NICHOLS MORALES, ALLEN OLAÑO,
CESAR ORTAL, MICHAEL ORTEGA, WAYNE PLAZA, JOSELITO REYES, ROLANDO REYES, AILEEN SAPINA, RAMIL
TAMAYO, PHILLIPS TAN, ANDREW UY, WILLIAM VELASCO, EMILIO VELEZ, NOEMI YUPANO, MARY JANE ONG,
RICHARD RAMIREZ, CHERYLE MARIE ALFONSO, LYNDON BAUTISTA, MANUEL CABOCAN AND NEDY
LAZO, Respondents-in-Intervention,
NAGKAISANG MARALITA NG TAÑONG ASSOCIATION, INC., Respondents-in-Intervention,
[G.R. NO. 155547 January 21, 2004]
SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA, Petitioners, v. PHILIPPINE

INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation and Communications, and
SECRETARY SIMEON A. DATUMANONG, in his capacity as Head of the Department of Public Works and Highways,
respondents, JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,
PROSPERO C. NOGRALES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O.
MACARANBON, Respondents-Intervenors,
NAGKAISANG MARALITA NG TAÑONG ASSOCIATION, INC., Respondents-in-Intervention,
[G.R. NO. 155661 January 21, 2004]
CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA
ROSA, DINA C. DE LEON, VIRGIE CATAMIN, RONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON and
Page 82 of 105
SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS (SMPP), Petitioners, v. PHILIPPINE INTERNATIONAL AIR

TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of Transportation
and Communications, Respondents,
NAGKAISANG MARALITA NG TAÑONG ASSOCIATION, INC., Respondents-in-Intervention.
RESOLUTION
PUNO, J.:
Before this Court are the separate Motions for Reconsideration filed by respondent Philippine International Air Terminals Co.,
Inc. (PIATCO), respondents-intervenors Jacinto V. Paras, Rafael P. Nantes, Eduardo C. Zialcita, Willie Buyson Villarama,
Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon and Benasing O. Macaranbon, all members of the House of
Representatives (Respondent Congressmen), 1respondents-intervenors who are employees of PIATCO and other workers of the
Ninoy Aquino International Airport International Passenger Terminal III (NAIA IPT III) (PIATCO Employees) 2 and respondents-
intervenors Nagkaisang Maralita ng Tañong Association, Inc., (NMTAI) 3 of the Decision of this Court dated May 5, 2003
declaring the contracts for the NAIA IPT III project null and void.
Briefly, the proceedings. On October 5, 1994, Asias Emerging Dragon Corp. (AEDC) submitted an unsolicited proposal to the
Philippine Government through the Department of Transportation and Communication (DOTC) and Manila International Airport
Authority (MIAA) for the construction and development of the NAIA IPT III under a build-operate-and-transfer arrangement
pursuant to R.A. No. 6957, as amended by R.A. No. 7718 (BOT Law). 4 In accordance with the BOT Law and its Implementing
Rules and Regulations (Implementing Rules), the DOTC/MIAA invited the public for submission of competitive and comparative
proposals to the unsolicited proposal of AEDC. On September 20, 1996 a consortium composed of the Peoples Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank)
(collectively, Paircargo Consortium), submitted their competitive proposal to the Prequalification Bids and Awards Committee
(PBAC).
After finding that the Paircargo Consortium submitted a bid superior to the unsolicited proposal of AEDC and after failure by
AEDC to match the said bid, the DOTC issued the notice of award for the NAIA IPT III project to the Paircargo Consortium, which
later organized into herein respondent PIATCO. Hence, on July 12, 1997, the Government, through then DOTC Secretary Arturo
T. Enrile, and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the Build-Operate-and-
Transfer Arrangement of the Ninoy Aquino International Airport Passenger Terminal III" (1997 Concession Agreement). On
November 26, 1998, the 1997 Concession Agreement was superseded by the Amended and Restated Concession Agreement
(ARCA) containing certain revisions and modifications from the original contract. A series of supplemental agreements was also
entered into by the Government and PIATCO. The First Supplement was signed on August 27, 1999, the Second Supplement on
September 4, 2000, and the Third Supplement on June 22, 2001 (collectively, Supplements) (the 1997 Concession Agreement,
ARCA and the Supplements collectively referred to as the PIATCO Contracts).
On September 17, 2002, various petitions were filed before this Court to annul the 1997 Concession Agreement, the ARCA
and the Supplements and to prohibit the public respondents DOTC and MIAA from implementing them.
Page 83 of 105
In a decision dated May 5, 2003, this Court granted the said petitions and declared the 1997 Concession Agreement, the ARCA
and the Supplements null and void.
Respondent PIATCO, respondent-Congressmen and respondents-intervenors now seek the reversal of the May 5, 2003 decision
and pray that the petitions be dismissed. In the alternative, PIATCO prays that the Court should not strike down the entire 1997
Concession Agreement, the ARCA and its supplements in light of their separability clause. Respondent-Congressmen and
NMTAI also pray that in the alternative, the cases at bar should be referred to arbitration pursuant to the provisions of the ARCA.
PIATCO-Employees pray that the petitions be dismissed and remanded to the trial courts for trial on the merits or in the
alternative that the 1997 Concession Agreement, the ARCA and the Supplements be declared valid and binding.
I
Procedural Matters
A. Lack of Jurisdiction
Private respondents and respondents-intervenors reiterate a number of procedural issues which they insist deprived this Court of
jurisdiction to hear and decide the instant cases on its merits. They continue to claim that the cases at bar raise factual questions
which this Court is ill-equipped to resolve, hence, they must be remanded to the trial court for reception of evidence. Further,
they allege that although designated as petitions for certiorari and prohibition, the cases at bar are actually actions for nullity of
contracts over which the trial courts have exclusive jurisdiction. Even assuming that the cases at bar are special civil actions
for certiorari and prohibition, they contend that the principle of hierarchy of courts precludes this Court from taking primary
jurisdiction over them.
We are not persuaded.
There is a question of fact when doubt or difference arises as to the truth or falsity of the facts alleged. 5 Even a cursory reading
of the cases at bar will show that the Court decided them by interpreting and applying the Constitution, the BOT Law, its
Implementing Rules and other relevant legal principles on the basis of clearly undisputed facts. All the operative facts were
settled, hence, there is no need for a trial type determination of their truth or falsity by a trial court.
We reject the unyielding insistence of PIATCO Employees that the following factual issues are critical and beyond the capability
of this Court to resolve, viz: (a) whether the National Economic Development Authority- Investment Coordinating Committee
(NEDA-ICC) approved the Supplements; (b) whether the First Supplement created ten (10) new financial obligations on the part
of the government; and (c) whether the 1997 Concession Agreement departed from the draft Concession Agreement contained
in the Bid Documents.6
The factual issue of whether the NEDA-ICC approved the Supplements is hardly relevant. It is clear in our Decision that the
PIATCO contracts were invalidated on other and more substantial grounds. It did not rely on the presence or absence of NEDA-
ICC approval of the Supplements. On the other hand, the last two issues do not involve disputed facts. Rather, they involve
contractual provisions which are clear and categorical and need only to be interpreted. The interpretation of contracts and
the determination of whether their provisions violate our laws or contravene any public policy is a legal issue which this Court
may properly pass upon.
Respondents corollary contention that this Court violated the hierarchy of courts when it entertained the cases at bar must also
fail. The rule on hierarchy of courts in cases falling within the concurrent jurisdiction of the trial courts and appellate courts
generally applies to cases involving warring factual allegations. For this reason, litigants are required to repair to the trial courts
at the first instance to determine the truth or falsity of these contending allegations on the basis of the evidence of the parties.
Cases which depend on disputed facts for decision cannot be brought immediately before appellate courts as they are not triers
of facts.
It goes without saying that when cases brought before the appellate courts do not involve factual but legal questions, a strict
application of the rule of hierarchy of courts is not necessary. As the cases at bar merely concern the construction of the
Constitution, the interpretation of the BOT Law and its Implementing Rules and Regulations on undisputed contractual provisions
and government actions, and as the cases concern public interest, this Court resolved to take primary jurisdiction over them. This
Page 84 of 105
choice of action follows the consistent stance of this Court to settle any controversy with a high public interest component in a
single proceeding and to leave no root or branch that could bear the seeds of future litigation. The suggested remand of the
cases at bar to the trial court will stray away from this policy.7
b. Legal Standing
Respondent PIATCO stands pat with its argument that petitioners lack legal personality to file the cases at bar as they are not
real parties in interest who are bound principally or subsidiarily to the PIATCO Contracts. Further, respondent PIATCO contends
that petitioners failed to show any legally demandable or enforceable right to justify their standing to file the cases at bar.
These arguments are not difficult to deflect. The determination of whether a person may institute an action or become a party to
a suit brings to fore the concepts of real party in interest, capacity to sue and standing to sue. To the legally discerning, these
three concepts are different although commonly directed towards ensuring that only certain parties can maintain an action. 8 As
defined in the Rules of Court, a real party in interest is the party who stands to be benefited or injured by the judgment in the suit
or the party entitled to the avails of the suit.9Capacity to sue deals with a situation where a person who may have a cause of
action is disqualified from bringing a suit under applicable law or is incompetent to bring a suit or is under some legal disability
that would prevent him from maintaining an action unless represented by a guardian ad litem. Legal standing is relevant in the
realm of public law. In certain instances, courts have allowed private parties to institute actions challenging the validity of
governmental action for violation of private rights or constitutional principles.10 In these cases, courts apply the doctrine of legal
standing by determining whether the party has a direct and personal interest in the controversy and whether such party
has sustained or is in imminent danger of sustaining an injury as a result of the act complained of, a standard which is
distinct from the concept of real party in interest.11 Measured by this yardstick, the application of the doctrine on legal standing
necessarily involves a preliminary consideration of the merits of the case and is not purely a procedural issue. 12
Considering the nature of the controversy and the issues raised in the cases at bar, this Court affirms its ruling that the
petitioners have the requisite legal standing. The petitioners in G.R. NOS. 155001 and 155661 are employees of service
providers operating at the existing international airports and employees of MIAA while petitioners-intervenors are service
providers with existing contracts with MIAA and they will all sustain direct injury upon the implementation of the PIATCO
Contracts. The 1997 Concession Agreement and the ARCA both provide that upon the commencement of operations at the
NAIA IPT III, NAIA Passenger Terminals I and II will cease to be used as international passenger terminals.13 Further, the ARCA
provides:
(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to any service or
operation currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal I, or extend any concession
agreement which may expire subsequent hereto, except to the extent that the continuation of the existing services and
operations shall lapse on or before the In-Service Date.14
Beyond iota of doubt, the implementation of the PIATCO Contracts, which the petitioners and petitioners-intervenors denounce
as unconstitutional and illegal, would deprive them of their sources of livelihood. Under settled jurisprudence, one's employment,
profession, trade, or calling is a property right and is protected from wrongful interference. 15 It is also self evident that the
petitioning service providers stand in imminent danger of losing legitimate business investments in the event the PIATCO
Contracts are upheld.
Over and above all these, constitutional and other legal issues with far-reaching economic and social implications are embedded
in the cases at bar, hence, this Court liberally granted legal standing to the petitioning members of the House of Representatives.
First, at stake is the build-operate-andtransfer contract of the countrys premier international airport with a projected capacity of
10 million passengers a year. Second, the huge amount of investment to complete the project is estimated to be
P13,000,000,000.00. Third, the primary issues posed in the cases at bar demand a discussion and interpretation of the
Constitution, the BOT Law and its implementing rules which have not been passed upon by this Court in previous cases. They
can chart the future inflow of investment under the BOT Law.
Before writing finis to the issue of legal standing, the Court notes the bid of new parties to participate in the cases at bar as
respondents-intervenors, namely, (1) the PIATCO Employees and (2) NMTAI (collectively, the New Respondents-Intervenors).
After the Courts Decision, the New Respondents-Intervenors filed separate Motions for Reconsideration-In-Intervention alleging
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prejudice and direct injury. PIATCO employees claim that "they have a direct and personal interest [in the controversy]... since
they stand to lose their jobs should the governments contract with PIATCO be declared null and void." 16 NMTAI, on the other
hand, represents itself as a corporation composed of responsible tax-paying Filipino citizens with the objective of "protecting and
sustaining the rights of its members to civil liberties, decent livelihood, opportunities for social advancement, and to a good,
conscientious and honest government."17
The Rules of Court govern the time of filing a Motion to Intervene. Section 2, Rule 19 provides that a Motion to Intervene should
be filed "before rendition of judgment...." The New Respondents-Intervenors filed their separate motions after a decision has
been promulgated in the present cases. They have not offered any worthy explanation to justify their late intervention.
Consequently, their Motions for Reconsideration-In-Intervention are denied for the rules cannot be relaxed to await litigants who
sleep on their rights. In any event, a sideglance at these late motions will show that they hoist no novel arguments.
c. Failure to Implead an Indispensable Party
PIATCO next contends that petitioners should have impleaded the Republic of the Philippines as an indispensable party. It
alleges that petitioners sued the DOTC, MIAA and the DPWH in their own capacities or as implementors of the PIATCO
Contracts and not as a contract party or as representatives of the Government of the Republic of the Philippines. It then
leapfrogs to the conclusion that the "absence of an indispensable party renders ineffectual all the proceedings subsequent to the
filing of the complaint including the judgment."18
PIATCOs allegations are inaccurate. The petitions clearly bear out that public respondents DOTC and MIAA were impleaded
as parties to the PIATCO Contracts and not merely as their implementors. The separate petitions filed by the MIAA
employees19 and members of the House of Representatives20 alleged that "public respondents are impleaded herein because
they either executed the PIATCO Contracts or are undertaking acts which are related to the PIATCO Contracts. They are
interested and indispensable parties to this Petition."21 Thus, public respondents DOTC and MIAA were impleaded as parties to
the case for having executed the contracts.
More importantly, it is also too late in the day for PIATCO to raise this issue. If PIATCO seriously views the non-inclusion of the
Republic of the Philippines as an indispensable party as fatal to the petitions at bar, it should have raised the issue at the onset
of the proceedings as a ground to dismiss. PIATCO cannot litigate issues on a piecemeal basis, otherwise, litigations shall be
like a shore that knows no end. In any event, the Solicitor General, the legal counsel of the Republic, appeared in the cases at
bar in representation of the interest of the government.
II
Pre-qualification of PIATCO
The Implementing Rules provide for the unyielding standards the PBAC should apply to determine the financial capability of a
bidder for pre-qualification purposes: (i) proof of the ability of the project proponent and/or the consortium to provide a minimum
amount of equity to the project and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or
members of the consortium are banking with them, that they are in good financial standing, and that they have
adequate resources.22 The evident intent of these standards is to protect the integrity and insure the viability of the project by
seeing to it that the proponent has the financial capability to carry it out. As a further measure to achieve this intent, it maintains
a certain debt-to-equity ratio for the project.
At the pre-qualification stage, it is most important for a bidder to show that it has the financial capacity to undertake the project by
proving that it can fulfill the requirement on minimum amount of equity. For this purpose, the Bid Documents require in no
uncertain terms:
The minimum amount of equity to which the proponents financial capability will be based shall be thirty percent (30%) of the
project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid Documents. This is to correlate with
the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft concession agreement. The debt portion of the project
financing should not exceed 70% of the actual project cost.23
In relation thereto, section 2.01 (a) of the ARCA provides:
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Section 2.01 Project Scope.
The scope of the project shall include:
(a) Financing the project at an actual Project cost of not less than Three Hundred Fifty Million United States Dollars
(US$350,000,000.00) while maintaining a debt-to-equity ratio of 70:30, provided that if the actual Project costs should exceed the
aforesaid amount, Concessionaire shall ensure that the debt-to-equity ratio is maintained;24
Under the debt-to-equity restriction, a bidder may only seek financing of the NAIA IPT III Project up to 70% of the project cost.
Thirty percent (30%) of the cost must come in the form of equity or investment by the bidder itself. It cannot be overly
emphasized that the rules require a minimum amount of equity to ensure that a bidder is not merely an operator or implementor
of the project but an investor with a substantial interest in its success. The minimum equity requirement also guarantees the
Philippine government and the general public, who are the ultimate beneficiaries of the project, that a bidder will not be indifferent
to the completion of the project. The discontinuance of the project will irreparably damage public interest more than private
interest.
In the cases at bar, after applying the investment ceilings provided under the General Banking Act and considering the maximum
amounts that each member of the consortium may validly invest in the project, it is daylight clear that the Paircargo Consortium,
at the time of pre-qualification, had a net worth equivalent to only 6.08% of the total estimated project cost.25 By any
reckoning, a showing by a bidder that at the time of pre-qualification its maximum funds available for investment amount to only
6.08% of the project cost is insufficient to satisfy the requirement prescribed by the Implementing Rules that the project
proponent must have the ability to provide at least 30% of the total estimated project cost. In peso and centavo terms, at the time
of pre-qualification, the Paircargo Consortium had maximum funds available for investment to the NAIA IPT III Project only in the
amount of P558,384,871.55, when it had to show that it had the ability to provide at least P2,755,095,000.00. The huge disparity
cannot be dismissed as of de minimis importance considering the high public interest at stake in the project.
PIATCO nimbly tries to sidestep its failure by alleging that it submitted not only audited financial statements but also testimonial
letters from reputable banks attesting to the good financial standing of the Paircargo Consortium. It contends that in adjudging
whether the Paircargo Consortium is a pre-qualified bidder, the PBAC should have considered not only its financial statements
but other factors showing its financial capability.
Anent this argument, the guidelines provided in the Bid Documents are instructive:
3.3.4 FINANCING AND FINANCIAL PREQUALIFICATIONS REQUIREMENTS
Minimum Amount of Equity
Each member of the proponent entity is to provide evidence of networth in cash and assets representing the proportionate
share in the proponent entity. Audited financial statements for the past five (5) years as a company for each member are to be
provided.
Project Loan Financing
Testimonial letters from reputable banks attesting that each of the members of the ownership entity are banking with them, in
good financial standing and having adequate resources are to be provided.26
It is beyond refutation that Paircargo Consortium failed to prove its ability to provide the amount of at least
P2,755,095,000.00, or 30% of the estimated project cost. Its submission of testimonial letters attesting to its good financial
standing will not cure this failure. At best, the said letters merely establish its credit worthiness or its ability to obtain loans to
finance the project. They do not, however, prove compliance with the aforesaid requirement of minimum amount of equity in
relation to the prescribed debt-to-equity ratio. This equity cannot be satisfied through possible loans.
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In sum, we again hold that given the glaring gap between the net worth of Paircargo and PAGS combined with the amount of
maximum funds that Security Bank may invest by equity in a non-allied undertaking, Paircargo Consortium, at the time of pre-
qualification, failed to show that it had the ability to provide 30% of the project cost and necessarily, its financial capability for the
project cannot pass muster.
III
Concession Agreement
Again, we brightline the principle that in public bidding, bids are submitted in accord with the prescribed terms, conditions and
parameters laid down by government and pursuant to the requirements of the project bidded upon. In light of these parameters,
bidders formulate competing proposals which are evaluated to determine the bid most favorable to the government. Once the
contract based on the bid most favorable to the government is awarded, all that is left to be done by the parties is to execute the
necessary agreements and implement them. There can be no substantial or material change to the parameters of the project,
including the essential terms and conditions of the contract bidded upon, after the contract award. If there were changes and the
contracts end up unfavorable to government, the public bidding becomes a mockery and the modified contracts must be struck
down.
Respondents insist that there were no substantial or material amendments in the 1997 Concession Agreement as to the
technical aspects of the project, i.e., engineering design, technical soundness, operational and maintenance methods and
procedures of the project or the technical proposal of PIATCO. Further, they maintain that there was no modification of the
financial features of the project, i.e., minimum project cost, debt-to-equity ratio, the operations and maintenance budget, the
schedule and amount of annual guaranteed payments, or the financial proposal of PIATCO. A discussion of some of these
changes to determine whether they altered the terms and conditions upon which the bids were made is again in order.
a. Modification on Fees and Charges to be collected by PIATCO
PIATCO clings to the contention that the removal of the groundhandling fees, airline office rentals and porterage fees from the
category of fees subject to MIAA regulation in the 1997 Concession Agreement does not constitute a substantial amendment as
these fees are not really public utility fees. In other words, PIATCO justifies the re-classification under the 1997 Concession
Agreement on the ground that these fees are non-public utility revenues.
We disagree. The removal of groundhandling fees, airline office rentals and porterage fees from the category of "Public Utility
Revenues" under the draft Concession Agreement and its re-classification to "Non-Public Utility Revenues" under the 1997
Concession Agreement is significant and has far reaching consequence. The 1997 Concession Agreement provides that with
respect to Non-Public Utility Revenues, which include groundhandling fees, airline office rentals and porterage fees, 27 "[PIATCO]
may make any adjustments it deems appropriate without need for the consent of GRP or any government agency."28 In
contrast, the draft Concession Agreement specifies these fees as part of Public Utility Revenues and can be adjusted "only once
every two yearsand in accordance with the Parametric Formula" and "the adjustments shall be made effective only after the
written express approval of the MIAA."29 The Bid Documents themselves clearly provide:
4.2.3 Mechanism for Adjustment of Fees and Charges
4.2.3.1 Periodic Adjustment in Fees and Charges
Adjustments in the fees and charges enumerated hereunder, whether or not falling within the purview of public utility
revenues, shall be allowed only once every two years in accordance with the parametric formula attached hereto as Annex 4.2f.
Provided that the adjustments shall be made effective only after the written express approval of MIAA. Provided, further, that
MIAAs approval, shall be contingent only on conformity of the adjustments to the said parametric formula.
The fees and charges to be regulated in the above manner shall consist of the following:
.. ..
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c) groundhandling fees;
d) rentals on airline offices;
.. ..
(f) porterage fees;
.. .. 30
The plain purpose in re-classifying groundhandling fees, airline office rentals and porterage fees as non-public utility fees is to
remove them from regulation by the MIAA. In excluding these fees from government regulation, the danger to public interest
cannot be downplayed.
We are not impressed by the effort of PIATCO to depress this prejudice to public interest by its contention that in the 1997
Concession Agreement governing Non-Public Utility Revenues, it is provided that "[PIATCO] shall at all times be judicious in
fixing fees and charges constituting Non-Public Utility Revenues in order to ensure that End Users are not unreasonably
deprived of services."31 PIATCO then peddles the proposition that the said provision confers upon MIAA "full regulatory
powers to ensure that PIATCO is charging non-public utility revenues at judicious rates."32 To the trained eye, the argument will
not fly for it is obviously non sequitur. Fairly read, it is PIATCO that wields the power to determine the judiciousness of the said
fees and charges. In the draft Concession Agreement the power was expressly lodged with the MIAA and any adjustment can
only be done once every two years. The changes are not insignificant specks as interpreted by PIATCO.
PIATCO further argues that there is no substantial change in the 1997 Concession Agreement with respect to fees and charges
PIATCO is allowed to impose which are not covered by Administrative Order No. 1, Series of 1993 33 as the "relevant provision of
the 1997 Concession Agreement is practically identical with the draft Concession Agreement."34
We are not persuaded. Under the draft Concession Agreement, PIATCO may impose fees and charges other than those fees
and charges previously imposed or collected at the Ninoy Aquino International Airport Passenger Terminal I, subject to the
written approval of MIAA.35 Further, the draft Concession Agreement provides that MIAA reserves the right to regulate these
new fees and charges if in its judgment the users of the airport shall be deprived of a free option for the services they cover.36In
contrast, under the 1997 Concession Agreement, the MIAA merely retained the right to approve any imposition of new
fees and charges which were not previously collected at the Ninoy Aquino International Airport Passenger Terminal I. The
agreement did not contain an equivalent provision allowing MIAA to reserve the right to regulate the adjustments of
these new fees and charges.37 PIATCO justifies the amendment by arguing that MIAA can establish terms before approval of
new fees and charges, inclusive of the mode for their adjustment.
PIATCOs stance is again a strained one. There would have been no need for an amendment if there were no change in the
power to regulate on the part of MIAA. The deletion of MIAAs reservation of its right to regulate the price adjustments of new fees
and charges can have no other purpose but to dilute the extent of MIAAs regulation in the collection of these fees. Again, the
amendment diminished the authority of MIAA to protect the public interest in case of abuse by PIATCO.
b. Assumption by the Government of the liabilities of PIATCO in the event of the latters default
PIATCO posits the thesis that the new provisions in the 1997 Concession Agreement in case of default by PIATCO on its loans
were merely meant to prescribe and limit the rights of PIATCOs creditors with regard to the NAIA Terminal III. PIATCO alleges
that Section 4.04 of the 1997 Concession Agreement simply provides that PIATCOs creditors have no right to foreclose the NAIA
Terminal III.
We cannot concur. The pertinent provisions of the 1997 Concession Agreement state:
Section 4.04 Assignment.
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.. ..
(b) In the event Concessionaire should default in the payment of an Attendant Liability, and the default has resulted in the
acceleration of the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors and
Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred eighty (180) Days from
receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and
assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified, to be substituted as concessionaire and
operator of the Development Facility in accordance with the terms and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility, likewise under the terms and conditions of this Agreement; Provided that
if at the end of the 180-day period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its
choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant assumption of
Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter shall form and
organize a concession company qualified to take over the operation of the Development Facility. If the concession company
should elect to designate an operator for the Development Facility, the concession company shall in good faith identify and
designate a qualified operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice. If
the concession company, acting in good faith and with due diligence, is unable to designate a qualified operator within the
aforesaid period, then GRP shall at the end of the 180-day period take over the Development Facility and assume Attendant
Liabilities.
A plain reading of the above provision shows that it spells out in limpid language the obligation of government in case of default
by PIATCO on its loans. There can be no blinking from the fact that in case of PIATCOs default, the government will assume
PIATCOs Attendant Liabilities as defined in the 1997 Concession Agreement.38 This obligation is not found in the draft
Concession Agreement and the change runs roughshod to the spirit and policy of the BOT Law which was crafted precisely to
prevent government from incurring financial risk.
In any event, PIATCO pleads that the entire agreement should not be struck down as the 1997 Concession Agreement contains
a separability clause.
The plea is bereft of merit. The contracts at bar which made a mockery of the bidding process cannot be upheld and must be
annulled in their entirety for violating law and public policy. As demonstrated, the contracts were substantially amended after their
award to the successful bidder on terms more beneficial to PIATCO and prejudicial to public interest. If this flawed process would
be allowed, public bidding will cease to be competitive and worse, government would not be favored with the best bid. Bidders
will no longer bid on the basis of the prescribed terms and conditions in the bid documents but will formulate their bid in
anticipation of the execution of a future contract containing new and better terms and conditions that were not previously
available at the time of the bidding. Such a public bidding will not inure to the public good. The resulting contracts cannot be
given half a life but must be struck down as totally lawless.
IV.
Direct Government Guarantee
The respondents further contend that the PIATCO Contracts do not contain direct government guarantee provisions. They assert
that section 4.04 of the ARCA, which superseded sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement, is but a
"clarification and explanation"39 of the securities allowed in the bid documents. They allege that these provisions merely provide
for "compensation to PIATCO"40 in case of a government buy-out or takeover of NAIA IPT III. The respondents, particularly
respondent PIATCO, also maintain that the guarantee contained in the contracts, if any, is an indirect guarantee allowed under
the BOT Law, as amended.41
We do not agree. Section 4.04(c), Article IV42 of the ARCA should be read in conjunction with section 1.06, Article I,43 in the
same manner that sections 4.04(b) and (c), Article IV of the 1997 Concession Agreement should be related to Article 1.06 of the
same contract. Section 1.06, Article I of the ARCA and its counterpart provision in the 1997 Concession Agreement define in no
uncertain terms the meaning of "attendant liabilities." They tell us of the amounts that the Government has to pay in the event
Page 90 of 105
respondent PIATCO defaults in its loan payments to its Senior Lenders and no qualified transferee or nominee is chosen by the
Senior Lenders or is willing to take over from respondent PIATCO.
A reasonable reading of all these relevant provisions would reveal that the ARCA made the Government liable to pay "all
amounts. .. from time to time owed or which may become owing by Concessionaire [PIATCO] to Senior Lenders or any
other persons or entities who have provided, loaned, or advanced funds or provided financial facilities to
Concessionaire [PIATCO] for the Project [NAIA Terminal 3]."44 These amounts include "without limitation, all principal,
interest, associated fees, charges, reimbursements, and other related expenses... whether payable at maturity, by
acceleration or otherwise."45 They further include amounts owed by respondent PIATCO to its "professional consultants and
advisers, suppliers, contractors and sub-contractors" as well as "fees, charges and expenses of any agents or trustees" of the
Senior Lenders or any other persons or entities who have provided loans or financial facilities to respondent PIATCO in relation
to NAIA IPT III.46 The counterpart provision in the 1997 Concession Agreement specifying the attendant liabilities that the
Government would be obligated to pay should PIATCO default in its loan obligations is equally onerous to the Government as
those contained in the ARCA. According to the 1997 Concession Agreement, in the event the Government is forced to
prematurely take over NAIA IPT III as a result of respondent PIATCOs default in the payment of its loan obligations to its Senior
Lenders, it would be liable to pay the following amounts as "attendant liabilities":
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the Concessionaire
as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and sub-contractors.47
These provisions reject respondents contention that what the Government is obligated to pay, in the event that respondent
PIATCO defaults in the payment of its loans, is merely termination payment or just compensation for its takeover of NAIA IPT III.
It is clear from said section 1.06 that what the Government would pay is the sum total of all the debts, including all interest,
fees and charges, that respondent PIATCO incurred in pursuance of the NAIA IPT III Project. This reading is consistent with
section 4.04 of the ARCA itself which states that the Government "shall make a termination payment to Concessionaire
[PIATCO] equal to the Appraised Value (as hereinafter defined) of the Development Facility [NAIA Terminal III] or the sum of
the Attendant Liabilities, if greater." For sure, respondent PIATCO will not receive any amount less than sufficient to
cover its debts, regardless of whether or not the value of NAIA IPT III, at the time of its turn over to the Government,
may actually be less than the amount of PIATCOs debts. The scheme is a form of direct government guarantee for it is
undeniable that it leaves the government no option but to pay the "attendant liabilities" in the event that the Senior Lenders are
unable or unwilling to appoint a qualified nominee or transferee as a result of PIATCOs default in the payment of its Senior
Loans. As we stressed in our Decision, this Court cannot depart from the legal maxim that "those that cannot be done directly
cannot be done indirectly."chanroblesvirtuallawlibrary
This is not to hold, however, that indirect government guarantee is not allowed under the BOT Law, as amended. The intention to
permit indirect government guarantee is evident from the Senate deliberations on the amendments to the BOT Law. The idea is
to allow for reasonable government undertakings, such as to authorize the project proponent to undertake related ventures within
the project area, in order to encourage private sector participation in development projects. 48 An example cited by then Senator
Gloria Macapagal-Arroyo, one of the sponsors of R.A. No. 7718, is the Mandaluyong public market which was built under the
Build-and-Transfer ("BT") scheme wherein instead of the government paying for the transfer, the project proponent was allowed
to operate the upper floors of the structure as a commercial mall in order to recoup their investments. 49 It was repeatedly
stressed in the deliberations that in allowing indirect government guarantee, the law seeks to encourage both the government
and the private sector to formulate reasonable and innovative government undertakings in pursuance of BOT projects. In no way,
however, can the government be made liable for the debts of the project proponent as this would be tantamount to a direct
government guarantee which is prohibited by the law. Such liability would defeat the very purpose of the BOT Law which is to
encourage the use of private sector resources in the construction, maintenance and/or operation of development projects with
no, or at least minimal, capital outlay on the part of the government.
The respondents again urge that should this Court affirm its ruling that the PIATCO Contracts contain direct government
guarantee provisions, the whole contract should not be nullified. They rely on the separability clause in the PIATCO Contracts.
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The BOT Law and its implementing rules provide that there are three (3) essential requisites for an unsolicited proposal to be
accepted: (1) the project involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct
government guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by
publication other interested parties to a public bidding and conducted the same.50 The failure to fulfill any of the requisites will
result in the denial of the proposal. Indeed, it is further provided that a direct government guarantee, subsidy or equity provision
will "necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal."51 In fine, the mere inclusion
of a direct government guarantee in an unsolicited proposal is fatal to the proposal. There is more reason to invalidate a contract
if a direct government guarantee provision is inserted later in the contract via a backdoor amendment. Such an amendment
constitutes a crass circumvention of the BOT Law and renders the entire contract void.
Respondent PIATCO likewise claims that in view of the fact that other BOT contracts such as the JANCOM contract, the Manila
Water contract and the MRT contract had been considered valid, the PIATCO contracts should be held valid as well. 52 There is
no parity in the cited cases. For instance, a reading of Metropolitan Manila Development Authority v. JANCOM
Environmental Corporation 53 will show that its issue is different from the issues in the cases at bar. In the JANCOM case, the
main issue is whether there is a perfected contract between JANCOM and the Government. The resolution of the issue hinged
on the following: (1) whether the conditions precedent to the perfection of the contract were complied with; (2) whether there is a
valid notice of award; and (3) whether the signature of the Secretary of the Department of Environment and Natural Resources is
sufficient to bind the Government. These issue and sub-issues are clearly distinguishable and different. For one, the issue of
direct government guarantee was not considered by this Court when it held the JANCOM contract valid, yet, it is a key reason for
invalidating the PIATCO Contracts. It is a basic principle in law that cases with dissimilar facts cannot have similar disposition.
This Court, however, is not unmindful of the reality that the structures comprising the NAIA IPT III facility are almost complete
and that funds have been spent by PIATCO in their construction. For the government to take over the said facility, it has to
compensate respondent PIATCO as builder of the said structures. The compensation must be just and in accordance with law
and equity for the government can not unjustly enrich itself at the expense of PIATCO and its investors.
II.
Temporary takeover of business affected with public interest in times of national emergency
Section 17, Article XII of the 1987 Constitution grants the State in times of national emergency the right to temporarily take over
the operation of any business affected with public interest. This right is an exercise of police power which is one of the inherent
powers of the State.
Police power has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in
order to promote the general welfare."54 It consists of two essential elements. First, it is an imposition of restraint upon liberty or
property. Second, the power is exercised for the benefit of the common good. Its definition in elastic terms underscores its all-
encompassing and comprehensive embrace.55 It is and still is the "most essential, insistent, and illimitable"56 of the States
powers. It is familiar knowledge that unlike the power of eminent domain, police power is exercised without provision for
just compensation for its paramount consideration is public welfare.57
It is also settled that public interest on the occasion of a national emergency is the primary consideration when the government
decides to temporarily take over or direct the operation of a public utility or a business affected with public interest. The nature
and extent of the emergency is the measure of the duration of the takeover as well as the terms thereof. It is the State that
prescribes such reasonable terms which will guide the implementation of the temporary takeover as dictated by the exigencies of
the time. As we ruled in our Decision, this power of the State can not be negated by any party nor should its exercise be a source
of obligation for the State.
Section 5.10(c), Article V of the ARCA provides that respondent PIATCO "shall be entitled to reasonable compensation for the
duration of the temporary takeover by GRP, which compensation shall take into account the reasonable cost for the use of the
Terminal and/or Terminal Complex."58 It clearly obligates the government in the exercise of its police power to compensate
respondent PIATCO and this obligation is offensive to the Constitution. Police power can not be diminished, let alone defeated
by any contract for its paramount consideration is public welfare and interest.59
Page 92 of 105
Again, respondent PIATCOs reliance on the case of Heirs of Suguitan v. City of Mandaluyong 60 to justify its claim for
reasonable compensation for the Governments temporary takeover of NAIA IPT III in times of national emergency is erroneous.
What was involved in Heirs of Suguitan is the exercise of the states power of eminent domain and not of police power, hence,
just compensation was awarded. The cases at bar will not involve the exercise of the power of eminent domain.
III.
Monopoly
Section 19, Article XII of the 1987 Constitution mandates that the State prohibit or regulate monopolies when public interest so
requires. Monopolies are not per se prohibited. Given its susceptibility to abuse, however, the State has the bounden duty to
regulate monopolies to protect public interest. Such regulation may be called for, especially in sensitive areas such as the
operation of the countrys premier international airport, considering the public interest at stake.
By virtue of the PIATCO contracts, NAIA IPT III would be the only international passenger airport operating in the Island of
Luzon, with the exception of those already operating in Subic Bay Freeport Special Economic Zone ("SBFSEZ"), Clark Special
Economic Zone ("CSEZ") and in Laoag City. Undeniably, the contracts would create a monopoly in the operation of an
international commercial passenger airport at the NAIA in favor of PIATCO.
The grant to respondent PIATCO of the exclusive right to operate NAIA IPT III should not exempt it from regulation by the
government. The government has the right, indeed the duty, to protect the interest of the public. Part of this duty is to assure that
respondent PIATCOs exercise of its right does not violate the legal rights of third parties. We reiterate our ruling that while the
service providers presently operating at NAIA Terminals I and II do not have the right to demand for the renewal or extension of
their contracts to continue their services in NAIA IPT III, those who have subsisting contracts beyond the In-Service Date of NAIA
IPT III can not be arbitrarily or unreasonably treated.
Finally, the Respondent Congressmen assert that at least two (2) committee reports by the House of Representatives found the
PIATCO contracts valid and contend that this Court, by taking cognizance of the cases at bar, reviewed an action of a co-equal
body.61 They insist that the Court must respect the findings of the said committees of the House of Representatives.62 With due
respect, we cannot subscribe to their submission. There is a fundamental difference between a case in court and an investigation
of a congressional committee. The purpose of a judicial proceeding is to settle the dispute in controversy by adjudicating the
legal rights and obligations of the parties to the case. On the other hand, a congressional investigation is conducted in aid of
legislation.63 Its aim is to assist and recommend to the legislature a possible action that the body may take with regard to a
particular issue, specifically as to whether or not to enact a new law or amend an existing one. Consequently, this Court cannot
treat the findings in a congressional committee report as binding because the facts elicited in congressional hearings are not
subject to the rigors of the Rules of Court on admissibility of evidence. The Court in assuming jurisdiction over the petitions at bar
simply performed its constitutional duty as the arbiter of legal disputes properly brought before it, especially in this instance when
public interest requires nothing less.
WHEREFORE, the motions for reconsideration filed by the respondent PIATCO, respondent Congressmen and the respondents-
in-intervention are DENIED with finality.
SO ORDERED.
G. R. No. 146364 - June 3, 2004
COLITO T. PAJUYO, Petitioner, vs. COURT OF APPEALS and EDDIE GUEVARRA, Respondents.
DECISION
Page 93 of 105
CARPIO, J.:
The Case
Before us is a petition for review1 of the 21 June 2000 Decision2 and 14 December 2000 Resolution of the Court of Appeals in
CA-G.R. SP No. 43129. The Court of Appeals set aside the 11 November 1996 decision3 of the Regional Trial Court of Quezon
City, Branch 81,4 affirming the 15 December 1995 decision5 of the Metropolitan Trial Court of Quezon City, Branch 31.6
The Antecedents
In June 1979, petitioner Colito T. Pajuyo ("Pajuyo") paid P400 to a certain Pedro Perez for the rights over a 250-square meter lot
in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials on the lot. Pajuyo and his family lived in
the house from 1979 to 7 December 1985.
On 8 December 1985, Pajuyo and private respondent Eddie Guevarra ("Guevarra") executed a Kasunduan or agreement.
Pajuyo, as owner of the house, allowed Guevarra to live in the house for free provided Guevarra would maintain the cleanliness
and orderliness of the house. Guevarra promised that he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that Guevarra vacate the house.
Guevarra refused.
Pajuyo filed an ejectment case against Guevarra with the Metropolitan Trial Court of Quezon City, Branch 31 ("MTC").
In his Answer, Guevarra claimed that Pajuyo had no valid title or right of possession over the lot where the house stands
because the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing. Guevarra pointed out that
from December 1985 to September 1994, Pajuyo did not show up or communicate with him. Guevarra insisted that neither he
nor Pajuyo has valid title to the lot.
On 15 December 1995, the MTC rendered its decision in favor of Pajuyo. The dispositive portion of the MTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered for the plaintiff and against defendant, ordering the latter to:
A) vacate the house and lot occupied by the defendant or any other person or persons claiming any right under him;
B) pay unto plaintiff the sum of THREE HUNDRED PESOS (P300.00) monthly as reasonable compensation for the use of the
premises starting from the last demand;
C) pay plaintiff the sum of P3,000.00 as and by way of attorneys fees; and
D) pay the cost of suit.
SO ORDERED.7
Aggrieved, Guevarra appealed to the Regional Trial Court of Quezon City, Branch 81 ("RTC").
On 11 November 1996, the RTC affirmed the MTC decision. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, the Court finds no reversible error in the decision appealed from, being in accord with the
law and evidence presented, and the same is hereby affirmed en toto.
SO ORDERED.8
Page 94 of 105
Guevarra received the RTC decision on 29 November 1996. Guevarra had only until 14 December 1996 to file his appeal with
the Court of Appeals. Instead of filing his appeal with the Court of Appeals, Guevarra filed with the Supreme Court a "Motion for
Extension of Time to File Appeal by Certiorari Based on Rule 42" ("motion for extension"). Guevarra theorized that his appeal
raised pure questions of law. The Receiving Clerk of the Supreme Court received the motion for extension on 13 December 1996
or one day before the right to appeal expired.
On 3 January 1997, Guevarra filed his petition for review with the Supreme Court.
On 8 January 1997, the First Division of the Supreme Court issued a Resolution9 referring the motion for extension to the Court
of Appeals which has concurrent jurisdiction over the case. The case presented no special and important matter for the Supreme
Court to take cognizance of at the first instance.
On 28 January 1997, the Thirteenth Division of the Court of Appeals issued a Resolution10 granting the motion for extension
conditioned on the timeliness of the filing of the motion.
On 27 February 1997, the Court of Appeals ordered Pajuyo to comment on Guevaras petition for review. On 11 April 1997,
Pajuyo filed his Comment.
On 21 June 2000, the Court of Appeals issued its decision reversing the RTC decision. The dispositive portion of the decision
reads:
WHEREFORE, premises considered, the assailed Decision of the court a quo in Civil Case No. Q-96-26943
is REVERSED and SET ASIDE; and it is hereby declared that the ejectment case filed against defendant-appellant is without
factual and legal basis.
SO ORDERED.11
Pajuyo filed a motion for reconsideration of the decision. Pajuyo pointed out that the Court of Appeals should have dismissed
outright Guevarras petition for review because it was filed out of time. Moreover, it was Guevarras counsel and not Guevarra
who signed the certification against forum-shopping.
On 14 December 2000, the Court of Appeals issued a resolution denying Pajuyos motion for reconsideration. The dispositive
portion of the resolution reads:
WHEREFORE, for lack of merit, the motion for reconsideration is hereby DENIED. No costs.
SO ORDERED.12
The Ruling of the MTC
The MTC ruled that the subject of the agreement between Pajuyo and Guevarra is the house and not the lot. Pajuyo is the owner
of the house, and he allowed Guevarra to use the house only by tolerance. Thus, Guevarras refusal to vacate the house on
Pajuyos demand made Guevarras continued possession of the house illegal.
The Ruling of the RTC
The RTC upheld the Kasunduan, which established the landlord and tenant relationship between Pajuyo and Guevarra. The
terms of the Kasunduan bound Guevarra to return possession of the house on demand.
The RTC rejected Guevarras claim of a better right under Proclamation No. 137, the Revised National Government Center
Housing Project Code of Policies and other pertinent laws. In an ejectment suit, the RTC has no power to decide Guevarras
Page 95 of 105
rights under these laws. The RTC declared that in an ejectment case, the only issue for resolution is material or physical
possession, not ownership.
The Ruling of the Court of Appeals
The Court of Appeals declared that Pajuyo and Guevarra are squatters. Pajuyo and Guevarra illegally occupied the contested lot
which the government owned.
Perez, the person from whom Pajuyo acquired his rights, was also a squatter. Perez had no right or title over the lot because it is
public land. The assignment of rights between Perez and Pajuyo, and the Kasunduan between Pajuyo and Guevarra, did not
have any legal effect. Pajuyo and Guevarra are in pari delicto or in equal fault. The court will leave them where they are.
The Court of Appeals reversed the MTC and RTC rulings, which held that the Kasunduan between Pajuyo and Guevarra created
a legal tie akin to that of a landlord and tenant relationship. The Court of Appeals ruled that the Kasunduan is not a lease
contract but a commodatum because the agreement is not for a price certain.
Since Pajuyo admitted that he resurfaced only in 1994 to claim the property, the appellate court held that Guevarra has a better
right over the property under Proclamation No. 137. President Corazon C. Aquino ("President Aquino") issued Proclamation No.
137 on 7 September 1987. At that time, Guevarra was in physical possession of the property. Under Article VI of the Code of
Policies Beneficiary Selection and Disposition of Homelots and Structures in the National Housing Project ("the Code"), the
actual occupant or caretaker of the lot shall have first priority as beneficiary of the project. The Court of Appeals concluded that
Guevarra is first in the hierarchy of priority.
In denying Pajuyos motion for reconsideration, the appellate court debunked Pajuyos claim that Guevarra filed his motion for
extension beyond the period to appeal.
The Court of Appeals pointed out that Guevarras motion for extension filed before the Supreme Court was stamped "13
December 1996 at 4:09 PM" by the Supreme Courts Receiving Clerk. The Court of Appeals concluded that the motion for
extension bore a date, contrary to Pajuyos claim that the motion for extension was undated. Guevarra filed the motion for
extension on time on 13 December 1996 since he filed the motion one day before the expiration of the reglementary period on 14
December 1996. Thus, the motion for extension properly complied with the condition imposed by the Court of Appeals in its 28
January 1997 Resolution. The Court of Appeals explained that the thirty-day extension to file the petition for review was deemed
granted because of such compliance.
The Court of Appeals rejected Pajuyos argument that the appellate court should have dismissed the petition for review because
it was Guevarras counsel and not Guevarra who signed the certification against forum-shopping. The Court of Appeals pointed
out that Pajuyo did not raise this issue in his Comment. The Court of Appeals held that Pajuyo could not now seek the dismissal
of the case after he had extensively argued on the merits of the case. This technicality, the appellate court opined, was clearly an
afterthought.
The Issues
Pajuyo raises the following issues for resolution:
WHETHER THE COURT OF APPEALS ERRED OR ABUSED ITS AUTHORITY AND DISCRETION TANTAMOUNT TO LACK
OF JURISDICTION:
1) in GRANTING, instead of denying, Private Respondents Motion for an Extension of thirty days to file petition for review at the
time when there was no more period to extend as the decision of the Regional Trial Court had already become final and
executory.
2) in giving due course, instead of dismissing, private respondents Petition for Review even though the certification against
forum-shopping was signed only by counsel instead of by petitioner himself.
Page 96 of 105
3) in ruling that the Kasunduan voluntarily entered into by the parties was in fact a commodatum, instead of a Contract of Lease
as found by the Metropolitan Trial Court and in holding that "the ejectment case filed against defendant-appellant is without legal
and factual basis".
4) in reversing and setting aside the Decision of the Regional Trial Court in Civil Case No. Q-96-26943 and in holding that the
parties are in pari delicto being both squatters, therefore, illegal occupants of the contested parcel of land.
5) in deciding the unlawful detainer case based on the so-called Code of Policies of the National Government Center Housing
Project instead of deciding the same under the Kasunduan voluntarily executed by the parties, the terms and conditions of which
are the laws between themselves.13
The Ruling of the Court
The procedural issues Pajuyo is raising are baseless. However, we find merit in the substantive issues Pajuyo is submitting for
resolution.
Procedural Issues
Pajuyo insists that the Court of Appeals should have dismissed outright Guevarras petition for review because the RTC decision
had already become final and executory when the appellate court acted on Guevarras motion for extension to file the petition.
Pajuyo points out that Guevarra had only one day before the expiry of his period to appeal the RTC decision. Instead of filing the
petition for review with the Court of Appeals, Guevarra filed with this Court an undated motion for extension of 30 days to file a
petition for review. This Court merely referred the motion to the Court of Appeals. Pajuyo believes that the filing of the motion for
extension with this Court did not toll the running of the period to perfect the appeal. Hence, when the Court of Appeals received
the motion, the period to appeal had already expired.
Decisions of the regional trial courts in the exercise of their appellate jurisdiction are appealable to the Court of Appeals by
petition for review in cases involving questions of fact or mixed questions of fact and law.14 Decisions of the regional trial courts
involving pure questions of law are appealable directly to this Court by petition for review.15 These modes of appeal are now
embodied in Section 2, Rule 41 of the 1997 Rules of Civil Procedure.
Guevarra believed that his appeal of the RTC decision involved only questions of law. Guevarra thus filed his motion for
extension to file petition for review before this Court on 14 December 1996. On 3 January 1997, Guevarra then filed his petition
for review with this Court. A perusal of Guevarras petition for review gives the impression that the issues he raised were pure
questions of law. There is a question of law when the doubt or difference is on what the law is on a certain state of facts. 16 There
is a question of fact when the doubt or difference is on the truth or falsity of the facts alleged.17
In his petition for review before this Court, Guevarra no longer disputed the facts. Guevarras petition for review raised these
questions: (1) Do ejectment cases pertain only to possession of a structure, and not the lot on which the structure stands? (2)
Does a suit by a squatter against a fellow squatter constitute a valid case for ejectment? (3) Should a Presidential Proclamation
governing the lot on which a squatters structure stands be considered in an ejectment suit filed by the owner of the structure?
These questions call for the evaluation of the rights of the parties under the law on ejectment and the Presidential Proclamation.
At first glance, the questions Guevarra raised appeared purely legal. However, some factual questions still have to be resolved
because they have a bearing on the legal questions raised in the petition for review. These factual matters refer to the metes and
bounds of the disputed property and the application of Guevarra as beneficiary of Proclamation No. 137.
The Court of Appeals has the power to grant an extension of time to file a petition for review. In Lacsamana v. Second Special
Cases Division of the Intermediate Appellate Court,18 we declared that the Court of Appeals could grant extension of time in
appeals by petition for review. In Liboro v. Court of Appeals,19 we clarified that the prohibition against granting an extension of
time applies only in a case where ordinary appeal is perfected by a mere notice of appeal. The prohibition does not apply in a
Page 97 of 105
petition for review where the pleading needs verification. A petition for review, unlike an ordinary appeal, requires preparation
and research to present a persuasive position.20 The drafting of the petition for review entails more time and effort than filing a
notice of appeal.21 Hence, the Court of Appeals may allow an extension of time to file a petition for review.
In the more recent case of Commissioner of Internal Revenue v. Court of Appeals,22 we held that Liboros clarification
of Lacsamana is consistent with the Revised Internal Rules of the Court of Appeals and Supreme Court Circular No. 1-91. They
all allow an extension of time for filing petitions for review with the Court of Appeals. The extension, however, should be limited to
only fifteen days save in exceptionally meritorious cases where the Court of Appeals may grant a longer period.
A judgment becomes "final and executory" by operation of law. Finality of judgment becomes a fact on the lapse of the
reglementary period to appeal if no appeal is perfected.23 The RTC decision could not have gained finality because the Court of
Appeals granted the 30-day extension to Guevarra.
The Court of Appeals did not commit grave abuse of discretion when it approved Guevarras motion for extension. The Court of
Appeals gave due course to the motion for extension because it complied with the condition set by the appellate court in its
resolution dated 28 January 1997. The resolution stated that the Court of Appeals would only give due course to the motion for
extension if filed on time. The motion for extension met this condition.
The material dates to consider in determining the timeliness of the filing of the motion for extension are (1) the date of receipt of
the judgment or final order or resolution subject of the petition, and (2) the date of filing of the motion for extension. 24 It is the date
of the filing of the motion or pleading, and not the date of execution, that determines the timeliness of the filing of that motion or
pleading. Thus, even if the motion for extension bears no date, the date of filing stamped on it is the reckoning point for
determining the timeliness of its filing.
Guevarra had until 14 December 1996 to file an appeal from the RTC decision. Guevarra filed his motion for extension before
this Court on 13 December 1996, the date stamped by this Courts Receiving Clerk on the motion for extension. Clearly,
Guevarra filed the motion for extension exactly one day before the lapse of the reglementary period to appeal.
Assuming that the Court of Appeals should have dismissed Guevarras appeal on technical grounds, Pajuyo did not ask the
appellate court to deny the motion for extension and dismiss the petition for review at the earliest opportunity. Instead, Pajuyo
vigorously discussed the merits of the case. It was only when the Court of Appeals ruled in Guevarras favor that Pajuyo raised
the procedural issues against Guevarras petition for review.
A party who, after voluntarily submitting a dispute for resolution, receives an adverse decision on the merits, is estopped from
attacking the jurisdiction of the court.25 Estoppel sets in not because the judgment of the court is a valid and conclusive
adjudication, but because the practice of attacking the courts jurisdiction after voluntarily submitting to it is against public policy. 26
In his Comment before the Court of Appeals, Pajuyo also failed to discuss Guevarras failure to sign the certification against
forum shopping. Instead, Pajuyo harped on Guevarras counsel signing the verification, claiming that the counsels verification is
insufficient since it is based only on "mere information."
A partys failure to sign the certification against forum shopping is different from the partys failure to sign personally the
verification. The certificate of non-forum shopping must be signed by the party, and not by counsel.27 The certification of counsel
renders the petition defective.28
On the other hand, the requirement on verification of a pleading is a formal and not a jurisdictional requisite.29 It is intended
simply to secure an assurance that what are alleged in the pleading are true and correct and not the product of the imagination
or a matter of speculation, and that the pleading is filed in good faith.30 The party need not sign the verification. A partys
representative, lawyer or any person who personally knows the truth of the facts alleged in the pleading may sign the
verification.31
We agree with the Court of Appeals that the issue on the certificate against forum shopping was merely an afterthought. Pajuyo
did not call the Court of Appeals attention to this defect at the early stage of the proceedings. Pajuyo raised this procedural issue
too late in the proceedings.
Page 98 of 105
Absence of Title over the Disputed Property will not Divest the Courts of Jurisdiction to Resolve the Issue of
Possession
Settled is the rule that the defendants claim of ownership of the disputed property will not divest the inferior court of its jurisdiction
over the ejectment case.32 Even if the pleadings raise the issue of ownership, the court may pass on such issue to determine
only the question of possession, especially if the ownership is inseparably linked with the possession.33 The adjudication on the
issue of ownership is only provisional and will not bar an action between the same parties involving title to the land. 34 This
doctrine is a necessary consequence of the nature of the two summary actions of ejectment, forcible entry and unlawful detainer,
where the only issue for adjudication is the physical or material possession over the real property.35
In this case, what Guevarra raised before the courts was that he and Pajuyo are not the owners of the contested property and
that they are mere squatters. Will the defense that the parties to the ejectment case are not the owners of the disputed lot allow
the courts to renounce their jurisdiction over the case? The Court of Appeals believed so and held that it would just leave the
parties where they are since they are in pari delicto.
We do not agree with the Court of Appeals.
Ownership or the right to possess arising from ownership is not at issue in an action for recovery of possession. The parties
cannot present evidence to prove ownership or right to legal possession except to prove the nature of the possession when
necessary to resolve the issue of physical possession.36 The same is true when the defendant asserts the absence of title over
the property. The absence of title over the contested lot is not a ground for the courts to withhold relief from the parties in an
ejectment case.
The only question that the courts must resolve in ejectment proceedings is - who is entitled to the physical possession of the
premises, that is, to the possession de facto and not to the possession de jure.37 It does not even matter if a partys title to the
property is questionable,38 or when both parties intruded into public land and their applications to own the land have yet to be
approved by the proper government agency.39 Regardless of the actual condition of the title to the property, the party in
peaceable quiet possession shall not be thrown out by a strong hand, violence or terror. 40 Neither is the unlawful withholding of
property allowed. Courts will always uphold respect for prior possession.
Thus, a party who can prove prior possession can recover such possession even against the owner himself. 41 Whatever may be
the character of his possession, if he has in his favor prior possession in time, he has the security that entitles him to remain on
the property until a person with a better right lawfully ejects him.42 To repeat, the only issue that the court has to settle in an
ejectment suit is the right to physical possession.
In Pitargue v. Sorilla,43 the government owned the land in dispute. The government did not authorize either the plaintiff or the
defendant in the case of forcible entry case to occupy the land. The plaintiff had prior possession and had already introduced
improvements on the public land. The plaintiff had a pending application for the land with the Bureau of Lands when the
defendant ousted him from possession. The plaintiff filed the action of forcible entry against the defendant. The government was
not a party in the case of forcible entry.
The defendant questioned the jurisdiction of the courts to settle the issue of possession because while the application of the
plaintiff was still pending, title remained with the government, and the Bureau of Public Lands had jurisdiction over the case. We
disagreed with the defendant. We ruled that courts have jurisdiction to entertain ejectment suits even before the resolution of the
application. The plaintiff, by priority of his application and of his entry, acquired prior physical possession over the public land
applied for as against other private claimants. That prior physical possession enjoys legal protection against other private
claimants because only a court can take away such physical possession in an ejectment case.
While the Court did not brand the plaintiff and the defendant in Pitargue44 as squatters, strictly speaking, their entry into the
disputed land was illegal. Both the plaintiff and defendant entered the public land without the owners permission. Title to the land
remained with the government because it had not awarded to anyone ownership of the contested public land. Both the plaintiff
and the defendant were in effect squatting on government property. Yet, we upheld the courts jurisdiction to resolve the issue of
possession even if the plaintiff and the defendant in the ejectment case did not have any title over the contested land.
Page 99 of 105
Courts must not abdicate their jurisdiction to resolve the issue of physical possession because of the public need to preserve the
basic policy behind the summary actions of forcible entry and unlawful detainer. The underlying philosophy behind ejectment
suits is to prevent breach of the peace and criminal disorder and to compel the party out of possession to respect and resort to
the law alone to obtain what he claims is his.45 The party deprived of possession must not take the law into his own
hands.46 Ejectment proceedings are summary in nature so the authorities can settle speedily actions to recover possession
because of the overriding need to quell social disturbances.47
We further explained in Pitargue the greater interest that is at stake in actions for recovery of possession. We made the
following pronouncements in Pitargue:
The question that is before this Court is: Are courts without jurisdiction to take cognizance of possessory actions involving these
public lands before final award is made by the Lands Department, and before title is given any of the conflicting claimants? It is
one of utmost importance, as there are public lands everywhere and there are thousands of settlers, especially in newly opened
regions. It also involves a matter of policy, as it requires the determination of the respective authorities and functions of two
coordinate branches of the Government in connection with public land conflicts.
Our problem is made simple by the fact that under the Civil Code, either in the old, which was in force in this country before the
American occupation, or in the new, we have a possessory action, the aim and purpose of which is the recovery of the physical
possession of real property, irrespective of the question as to who has the title thereto. Under the Spanish Civil Code we had the
accion interdictal, a summary proceeding which could be brought within one year from dispossession (Roman Catholic Bishop of
Cebu vs. Mangaron, 6 Phil. 286, 291); and as early as October 1, 1901, upon the enactment of the Code of Civil Procedure (Act
No. 190 of the Philippine Commission) we implanted the common law action of forcible entry (section 80 of Act No. 190), the
object of which has been stated by this Court to be "to prevent breaches of the peace and criminal disorder which would
ensue from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage
must accrue to those persons who, believing themselves entitled to the possession of property, resort to force to gain
possession rather than to some appropriate action in the court to assert their claims." (Supia and Batioco vs. Quintero
and Ayala, 59 Phil. 312, 314.) So before the enactment of the first Public Land Act (Act No. 926) the action of forcible entry was
already available in the courts of the country. So the question to be resolved is, Did the Legislature intend, when it vested the
power and authority to alienate and dispose of the public lands in the Lands Department, to exclude the courts from entertaining
the possessory action of forcible entry between rival claimants or occupants of any land before award thereof to any of the
parties? Did Congress intend that the lands applied for, or all public lands for that matter, be removed from the jurisdiction of the
judicial Branch of the Government, so that any troubles arising therefrom, or any breaches of the peace or disorders caused by
rival claimants, could be inquired into only by the Lands Department to the exclusion of the courts? The answer to this question
seems to us evident. The Lands Department does not have the means to police public lands; neither does it have the means to
prevent disorders arising therefrom, or contain breaches of the peace among settlers; or to pass promptly upon conflicts of
possession. Then its power is clearly limited to disposition and alienation, and while it may decide conflicts of
possession in order to make proper award, the settlement of conflicts of possession which is recognized in the court
herein has another ultimate purpose, i.e., the protection of actual possessors and occupants with a view to the
prevention of breaches of the peace. The power to dispose and alienate could not have been intended to include the
power to prevent or settle disorders or breaches of the peace among rival settlers or claimants prior to the final
award. As to this, therefore, the corresponding branches of the Government must continue to exercise power and jurisdiction
within the limits of their respective functions. The vesting of the Lands Department with authority to administer, dispose,
and alienate public lands, therefore, must not be understood as depriving the other branches of the Government of the
exercise of the respective functions or powers thereon, such as the authority to stop disorders and quell breaches of
the peace by the police, the authority on the part of the courts to take jurisdiction over possessory actions arising
therefrom not involving, directly or indirectly, alienation and disposition.
Our attention has been called to a principle enunciated in American courts to the effect that courts have no jurisdiction to
determine the rights of claimants to public lands, and that until the disposition of the land has passed from the control of the
Federal Government, the courts will not interfere with the administration of matters concerning the same. (50 C. J. 1093-1094.)
We have no quarrel with this principle. The determination of the respective rights of rival claimants to public lands is different
from the determination of who has the actual physical possession or occupation with a view to protecting the same and
preventing disorder and breaches of the peace. A judgment of the court ordering restitution of the possession of a parcel of land
to the actual occupant, who has been deprived thereof by another through the use of force or in any other illegal manner, can
never be "prejudicial interference" with the disposition or alienation of public lands. On the other hand, if courts were deprived
Page 100 of 105

of jurisdiction of cases involving conflicts of possession, that threat of judicial action against breaches of the peace
committed on public lands would be eliminated, and a state of lawlessness would probably be produced between
applicants, occupants or squatters, where force or might, not right or justice, would rule.
It must be borne in mind that the action that would be used to solve conflicts of possession between rivals or conflicting
applicants or claimants would be no other than that of forcible entry. This action, both in England and the United States and in
our jurisdiction, is a summary and expeditious remedy whereby one in peaceful and quiet possession may recover the
possession of which he has been deprived by a stronger hand, by violence or terror; its ultimate object being to prevent breach of
the peace and criminal disorder. (Supia and Batioco vs. Quintero and Ayala, 59 Phil. 312, 314.) The basis of the remedy is mere
possession as a fact, of physical possession, not a legal possession. (Mediran vs. Villanueva, 37 Phil. 752.) The title or right to
possession is never in issue in an action of forcible entry; as a matter of fact, evidence thereof is expressly banned, except to
prove the nature of the possession. (Second 4, Rule 72, Rules of Court.) With this nature of the action in mind, by no stretch of
the imagination can conclusion be arrived at that the use of the remedy in the courts of justice would constitute an interference
with the alienation, disposition, and control of public lands. To limit ourselves to the case at bar can it be pretended at all that its
result would in any way interfere with the manner of the alienation or disposition of the land contested? On the contrary, it would
facilitate adjudication, for the question of priority of possession having been decided in a final manner by the courts, said
question need no longer waste the time of the land officers making the adjudication or award. (Emphasis ours)
The Principle of Pari Delicto is not Applicable to Ejectment Cases
The Court of Appeals erroneously applied the principle of pari delicto to this case.
Articles 1411 and 1412 of the Civil Code48 embody the principle of pari delicto. We explained the principle of pari delicto in these
words:
The rule of pari delicto is expressed in the maxims ex dolo malo non eritur actio and in pari delicto potior est conditio defedentis.
The law will not aid either party to an illegal agreement. It leaves the parties where it finds them. 49
The application of the pari delicto principle is not absolute, as there are exceptions to its application. One of these exceptions is
where the application of the pari delicto rule would violate well-established public policy.50
In Drilon v. Gaurana,51 we reiterated the basic policy behind the summary actions of forcible entry and unlawful detainer. We
held that:
It must be stated that the purpose of an action of forcible entry and detainer is that, regardless of the actual condition of the title
to the property, the party in peaceable quiet possession shall not be turned out by strong hand, violence or terror. In affording
this remedy of restitution the object of the statute is to prevent breaches of the peace and criminal disorder which would ensue
from the withdrawal of the remedy, and the reasonable hope such withdrawal would create that some advantage must accrue to
those persons who, believing themselves entitled to the possession of property, resort to force to gain possession rather than to
some appropriate action in the courts to assert their claims. This is the philosophy at the foundation of all these actions of forcible
entry and detainer which are designed to compel the party out of possession to respect and resort to the law alone to obtain what
he claims is his.52
Clearly, the application of the principle of pari delicto to a case of ejectment between squatters is fraught with danger. To shut out
relief to squatters on the ground of pari delicto would openly invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally occupied, emboldened by the knowledge that the courts would
leave them where they are. Nothing would then stand in the way of the ousted squatter from re-claiming his prior possession at
all cost.
Petty warfare over possession of properties is precisely what ejectment cases or actions for recovery of possession seek to
prevent.53 Even the owner who has title over the disputed property cannot take the law into his own hands to regain possession
of his property. The owner must go to court.
Page 101 of 105

Courts must resolve the issue of possession even if the parties to the ejectment suit are squatters. The determination of priority
and superiority of possession is a serious and urgent matter that cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law restrains property owners from taking the law into their own hands.
However, the principle of pari delicto as applied by the Court of Appeals would give squatters free rein to dispossess fellow
squatters or violently retake possession of properties usurped from them. Courts should not leave squatters to their own devices
in cases involving recovery of possession.
Possession is the only Issue for Resolution in an Ejectment Case
The case for review before the Court of Appeals was a simple case of ejectment. The Court of Appeals refused to rule on the
issue of physical possession. Nevertheless, the appellate court held that the pivotal issue in this case is who between Pajuyo
and Guevarra has the "priority right as beneficiary of the contested land under Proclamation No. 137." 54 According to the Court of
Appeals, Guevarra enjoys preferential right under Proclamation No. 137 because Article VI of the Code declares that the actual
occupant or caretaker is the one qualified to apply for socialized housing.
The ruling of the Court of Appeals has no factual and legal basis.
First. Guevarra did not present evidence to show that the contested lot is part of a relocation site under Proclamation No. 137.
Proclamation No. 137 laid down the metes and bounds of the land that it declared open for disposition to bona fide residents.
The records do not show that the contested lot is within the land specified by Proclamation No. 137. Guevarra had the burden to
prove that the disputed lot is within the coverage of Proclamation No. 137. He failed to do so.
Second. The Court of Appeals should not have given credence to Guevarras unsubstantiated claim that he is the beneficiary of
Proclamation No. 137. Guevarra merely alleged that in the survey the project administrator conducted, he and not Pajuyo
appeared as the actual occupant of the lot.
There is no proof that Guevarra actually availed of the benefits of Proclamation No. 137. Pajuyo allowed Guevarra to occupy the
disputed property in 1985. President Aquino signed Proclamation No. 137 into law on 11 March 1986. Pajuyo made his earliest
demand for Guevarra to vacate the property in September 1994.
During the time that Guevarra temporarily held the property up to the time that Proclamation No. 137 allegedly segregated the
disputed lot, Guevarra never applied as beneficiary of Proclamation No. 137. Even when Guevarra already knew that Pajuyo was
reclaiming possession of the property, Guevarra did not take any step to comply with the requirements of Proclamation No. 137.
Third. Even assuming that the disputed lot is within the coverage of Proclamation No. 137 and Guevarra has a pending
application over the lot, courts should still assume jurisdiction and resolve the issue of possession. However, the jurisdiction of
the courts would be limited to the issue of physical possession only.
In Pitargue,55 we ruled that courts have jurisdiction over possessory actions involving public land to determine the issue of
physical possession. The determination of the respective rights of rival claimants to public land is, however, distinct from the
determination of who has the actual physical possession or who has a better right of physical possession.56 The administrative
disposition and alienation of public lands should be threshed out in the proper government agency. 57
The Court of Appeals determination of Pajuyo and Guevarras rights under Proclamation No. 137 was premature. Pajuyo and
Guevarra were at most merely potential beneficiaries of the law. Courts should not preempt the decision of the administrative
agency mandated by law to determine the qualifications of applicants for the acquisition of public lands. Instead, courts should
expeditiously resolve the issue of physical possession in ejectment cases to prevent disorder and breaches of peace. 58
Pajuyo is Entitled to Physical Possession of the Disputed Property
Guevarra does not dispute Pajuyos prior possession of the lot and ownership of the house built on it. Guevarra expressly
admitted the existence and due execution of the Kasunduan. The Kasunduan reads:
Page 102 of 105

Ako, si COL[I]TO PAJUYO, may-ari ng bahay at lote sa Bo. Payatas, Quezon City, ay nagbibigay pahintulot kay G. Eddie
Guevarra, na pansamantalang manirahan sa nasabing bahay at lote ng "walang bayad." Kaugnay nito, kailangang panatilihin
nila ang kalinisan at kaayusan ng bahay at lote.
Sa sandaling kailangan na namin ang bahay at lote, silay kusang aalis ng walang reklamo.
Based on the Kasunduan, Pajuyo permitted Guevarra to reside in the house and lot free of rent, but Guevarra was under
obligation to maintain the premises in good condition. Guevarra promised to vacate the premises on Pajuyos demand but
Guevarra broke his promise and refused to heed Pajuyos demand to vacate.
These facts make out a case for unlawful detainer. Unlawful detainer involves the withholding by a person from another of the
possession of real property to which the latter is entitled after the expiration or termination of the formers right to hold
possession under a contract, express or implied.59
Where the plaintiff allows the defendant to use his property by tolerance without any contract, the defendant is necessarily bound
by an implied promise that he will vacate on demand, failing which, an action for unlawful detainer will lie.60 The defendants
refusal to comply with the demand makes his continued possession of the property unlawful.61 The status of the defendant in
such a case is similar to that of a lessee or tenant whose term of lease has expired but whose occupancy continues by tolerance
of the owner.62
This principle should apply with greater force in cases where a contract embodies the permission or tolerance to use the
property. The Kasunduan expressly articulated Pajuyos forbearance. Pajuyo did not require Guevarra to pay any rent but only to
maintain the house and lot in good condition. Guevarra expressly vowed in the Kasunduan that he would vacate the property on
demand. Guevarras refusal to comply with Pajuyos demand to vacate made Guevarras continued possession of the property
unlawful.
We do not subscribe to the Court of Appeals theory that the Kasunduan is one of commodatum.
In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the
same for a certain time and return it.63 An essential feature of commodatum is that it is gratuitous. Another feature
of commodatum is that the use of the thing belonging to another is for a certain period.64 Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which
the commodatum is constituted.65If the bailor should have urgent need of the thing, he may demand its return for temporary
use.66 If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the
contractual relation is called a precarium.67 Under the Civil Code, precarium is a kind of commodatum.68
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While
the Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property in good condition. The imposition of
this obligation makes the Kasunduan a contract different from a commodatum. The effects of the Kasunduan are also different
from that of a commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of permission would result in the termination of the lease.69 The tenants withholding of
the property would then be unlawful. This is settled jurisprudence.
Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra as bailee would still have
the duty to turn over possession of the property to Pajuyo, the bailor. The obligation to deliver or to return the thing received
attaches to contracts for safekeeping, or contracts of commission, administration and commodatum.70 These contracts certainly
involve the obligation to deliver or return the thing received.71
Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra
pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.
Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra
cannot now impugn the Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
Page 103 of 105

The Kasunduan is not void for purposes of determining who between Pajuyo and Guevarra has a right to physical possession of
the contested property. The Kasunduan is the undeniable evidence of Guevarras recognition of Pajuyos better right of physical
possession. Guevarra is clearly a possessor in bad faith. The absence of a contract would not yield a different result, as there
would still be an implied promise to vacate.
Guevarra contends that there is "a pernicious evil that is sought to be avoided, and that is allowing an absentee squatter who
(sic) makes (sic) a profit out of his illegal act."72 Guevarra bases his argument on the preferential right given to the actual
occupant or caretaker under Proclamation No. 137 on socialized housing.
We are not convinced.
Pajuyo did not profit from his arrangement with Guevarra because Guevarra stayed in the property without paying any rent.
There is also no proof that Pajuyo is a professional squatter who rents out usurped properties to other squatters. Moreover, it is
for the proper government agency to decide who between Pajuyo and Guevarra qualifies for socialized housing. The only issue
that we are addressing is physical possession.
Prior possession is not always a condition sine qua non in ejectment.73 This is one of the distinctions between forcible entry and
unlawful detainer.74 In forcible entry, the plaintiff is deprived of physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and prove prior possession. 75 But in unlawful detainer, the
defendant unlawfully withholds possession after the expiration or termination of his right to possess under any contract, express
or implied. In such a case, prior physical possession is not required.76
Pajuyos withdrawal of his permission to Guevarra terminated the Kasunduan. Guevarras transient right to possess the property
ended as well. Moreover, it was Pajuyo who was in actual possession of the property because Guevarra had to seek Pajuyos
permission to temporarily hold the property and Guevarra had to follow the conditions set by Pajuyo in the Kasunduan. Control
over the property still rested with Pajuyo and this is evidence of actual possession.
Pajuyos absence did not affect his actual possession of the disputed property. Possession in the eyes of the law does not mean
that a man has to have his feet on every square meter of the ground before he is deemed in possession.77 One may acquire
possession not only by physical occupation, but also by the fact that a thing is subject to the action of ones will. 78 Actual or
physical occupation is not always necessary.79
Ruling on Possession Does not Bind Title to the Land in Dispute
We are aware of our pronouncement in cases where we declared that "squatters and intruders who clandestinely enter into titled
government property cannot, by such act, acquire any legal right to said property."80 We made this declaration because the
person who had title or who had the right to legal possession over the disputed property was a party in the ejectment suit and
that party instituted the case against squatters or usurpers.
In this case, the owner of the land, which is the government, is not a party to the ejectment case. This case is between squatters.
Had the government participated in this case, the courts could have evicted the contending squatters, Pajuyo and Guevarra.
Since the party that has title or a better right over the property is not impleaded in this case, we cannot evict on our own the
parties. Such a ruling would discourage squatters from seeking the aid of the courts in settling the issue of physical possession.
Stripping both the plaintiff and the defendant of possession just because they are squatters would have the same dangerous
implications as the application of the principle of pari delicto. Squatters would then rather settle the issue of physical possession
among themselves than seek relief from the courts if the plaintiff and defendant in the ejectment case would both stand to lose
possession of the disputed property. This would subvert the policy underlying actions for recovery of possession.
Since Pajuyo has in his favor priority in time in holding the property, he is entitled to remain on the property until a person who
has title or a better right lawfully ejects him. Guevarra is certainly not that person. The ruling in this case, however, does not
preclude Pajuyo and Guevarra from introducing evidence and presenting arguments before the proper administrative agency to
establish any right to which they may be entitled under the law.81
Page 104 of 105

In no way should our ruling in this case be interpreted to condone squatting. The ruling on the issue of physical possession does
not affect title to the property nor constitute a binding and conclusive adjudication on the merits on the issue of ownership. 82 The
owner can still go to court to recover lawfully the property from the person who holds the property without legal title. Our ruling
here does not diminish the power of government agencies, including local governments, to condemn, abate, remove or demolish
illegal or unauthorized structures in accordance with existing laws.
Attorneys Fees and Rentals
The MTC and RTC failed to justify the award of P3,000 attorneys fees to Pajuyo. Attorneys fees as part of damages are awarded
only in the instances enumerated in Article 2208 of the Civil Code.83 Thus, the award of attorneys fees is the exception rather
than the rule.84 Attorneys fees are not awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate.85 We therefore delete the attorneys fees awarded to Pajuyo.
We sustain the P300 monthly rentals the MTC and RTC assessed against Guevarra. Guevarra did not dispute this factual finding
of the two courts. We find the amount reasonable compensation to Pajuyo. The P300 monthly rental is counted from the last
demand to vacate, which was on 16 February 1995.
WHEREFORE, we GRANT the petition. The Decision dated 21 June 2000 and Resolution dated 14 December 2000 of the Court
of Appeals in CA-G.R. SP No. 43129 are SET ASIDE. The Decision dated 11 November 1996 of the Regional Trial Court of
Quezon City, Branch 81 in Civil Case No. Q-96-26943, affirming the Decision dated 15 December 1995 of the Metropolitan Trial
Court of Quezon City, Branch 31 in Civil Case No. 12432, is REINSTATED with MODIFICATION. The award of attorneys fees is
deleted. No costs.
SO ORDERED.
Page 105 of 105

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CIVIL LAW REVIEW 2 – OBLIGATION & CONTRACTS CASES

[G.R. No. L-10134. June 29, 1957.]

SABINA EXCONDE, Plaintiff-Appellant, v. DELFIN CAPUNO and DANTE CAPUNO, Defendants-Appellees.

Magno T. Bueser for Appellant.

BAUTISTA ANGELO, J.:

Bengzon, Montemayor, Labrador and Endencia, JJ., concur.

Paras, C.J., concurs in the result.

REYES, J.B.L., J., dissenting:chanrob1es virtual 1aw library

Padilla and Reyes, A., JJ., concur.

[G.R. No. L-14342. May 30, 1960.]

Abad Santos & Pablo for Petitioner.

Sycip, Quisumbing, Salazar & Associates for Respondents.

Bautista Angelo and Concepción, JJ., concur in the result.

[G.R. No. L-29025. October 4, 1971.]

Leovollo C . Agustin, for Plaintiffs-Appellants.

REYES, J.B.L., J., concurring:chanrob1es virtual 1aw library

MAKALINTAL, J., dissenting:chanrob1es virtual 1aw library

Judgment was therefore rendered by the trial court as follows:jgc:chanrobles.com.ph

"2. Absolving the other defendants.

Concepcion, C.J., Villamor and Makasiar, JJ., concur.

Dizon, J., took no part.

REYES, J.B.L., J., concurring:chanrob1es virtual 1aw library

MAKALINTAL, J., dissenting:chanrob1es virtual 1aw library

Zaldivar, Castro and Fernando, JJ., concur.

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

Jose S. Amadora & Associates for petitioners.

Padilla Law Office for respondents.

This is the case.

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

Fernan, Padilla and Teehankee, C.J., JJ, took no part.

MELENCIO-HERRERA, J., concurring and dissenting:

xxx xxx xxx

2) Teachers and professors

xxx xxx xxx

4) Directors of trade establishments, with regard to apprentices;'

Article 352 of the Civil Code further provides:

xxx xxx xxx

GUTIERREZ, JR., J., concurring:

MELENCIO-HERRERA, J., concurring and dissenting:

xxx xxx xxx

2) Teachers and professors

xxx xxx xxx

4) Directors of trade establishments, with regard to apprentices;'

Article 352 of the Civil Code further provides:

xxx xxx xxx

GUTIERREZ, JR., J., concurring:

G.R. No. 84698 February 4, 1992

PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO M.

Balgos and Perez for petitioners.chanrobles virtual law library

Collantes, Ramirez & Associates for private respondents.

Melencio-Herrera, Paras, Regalado and Nocon, JJ., concur.

G.R. No. 66207. May 18, 1992.]

Mariano Y. Navarro for Republic Central Colleges.

(2) Teachers and professors;

(4) Directors of trade establishments with regard to apprentices;

this Court in the instant case.

Gutierrez, Jr. Bidin, Davide, Jr. and Romero, JJ., concur.

G.R. NO. 156109 : November 18, 2004]

The second challenged Order denied petitioner's Motion for Reconsideration.

Ruling of the Regional Trial Court

Aggrieved, petitioner filed the present Petition on pure questions of law.8

The Court's Ruling

The Petition is meritorious.