G.R. No. 138814. April 16, 2009. CHICO-NAZARIO, J.
393, the
MAKATI STOCK EXCHANGE, INC. vs. MIGUEL V.
CAMPOS
This is a Petition for Review on Certiorari under Rule 45
seeking the reversal of the Decision dated 11 February
1997 and Resolution dated 18 May 1999 of the Court of
Appeals in CA-G.R. SP No. 38455.
The facts of the case are as follows:
SEC Case No. 02-94-4678 was instituted on 10
February 1994 by respondent Miguel V. Campos, who
filed with the Securities, Investigation and Clearing
Department (SICD) of the Securities and Exchange
Commission (SEC), a Petition against herein petitioners
Makati Stock Exchange, Inc. (MKSE) and MKSE
directors, Ma. Vivian Yuchengco, Adolfo M. Duarte,
Myron C. Papa, Norberto C. Nazareno, George Uy-
Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L.
Virata, and Antonio Garcia, Jr. Respondent, in said
Petition, sought: (1) the nullification of the Resolution
dated 3 June 1993 of the MKSE Board of Directors,
which allegedly deprived him of his right to participate
equally in the allocation of Initial Public Offerings (IPO)
of corporations registered with MKSE; (2) the delivery of
the IPO shares he was allegedly deprived of, for which
he would pay IPO prices; and (3) the payment of P2
million as moral damages, P1 million as exemplary
damages, and P500,000.00 as attorneys fees and
litigation expenses.
On 14 February 1994, the SICD issued an Order
granting respondents prayer for the issuance of a
Temporary Restraining Order to enjoin petitioners from
implementing or enforcing the 3 June 1993 Resolution of
the MKSE Board of Directors.
The SICD subsequently issued another Order on 10
March 1994 granting respondents application for a Writ
of Preliminary Injunction, to continuously enjoin, during
the pendency of SEC Case No. 02-94-4678, the
implementation or enforcement of the MKSE Board
Resolution in question. Petitioners assailed this SICD
Order dated 10 March 1994 in a Petition for Certiorari
filed with the SEC en banc, docketed as SEC-EB No.
393.
On 11 March 1994, petitioners filed a Motion to Dismiss
respondents Petition in SEC Case No. 02-94-4678,
based on the following grounds: (1) the Petition became
moot due to the cancellation of the license of MKSE; (2)
the SICD had no jurisdiction over the Petition; and (3)
the Petition failed to state a cause of action.
The SICD denied petitioners Motion to Dismiss in an
Order dated 4 May 1994. Petitioners again challenged
the 4 May 1994 Order of SICD before the SEC en banc
through another Petition for Certiorari, docketed as SEC-
EB No. 403.
In an Order dated 31 May 1995 in SEC-EB No.
SEC en banc nullified the 10 March 1994 Order of SICD
in SEC Case No. 02-94-4678 granting a Writ of
Preliminary Injunction in favor of respondent. Likewise,
in an Order dated 14 August 1995 in SEC-EB No. 403,
the SEC en banc annulled the 4 May 1994 Order of
SICD in SEC Case No. 02-94-4678 denying petitioners
Motion to Dismiss, and accordingly ordered the
dismissal of respondents Petition before the SICD.
Respondent filed a Petition for Certiorari with the Court
of Appeals assailing the Orders of the SEC en banc
dated 31 May 1995 and 14 August 1995 in SEC-EB No.
393 and SEC-EB No. 403, respectively. Respondents
Petition before the appellate court was docketed as CA-
G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated
its Decision in CA-G.R. SP No. 38455, granting
respondents Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for
annulment of the Orders dated May 31, 1995 and
August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null
and void and set aside.
Petitioners filed a Motion for Reconsideration of the
foregoing Decision but it was denied by the Court of
Appeals in a Resolution dated 18 May 1999.
Hence, the present Petition for Review raising the
following arguments:
I. THE SEC EN BANC DID NOT COMMIT GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT DISMISSED
THE PETITION FILED BY RESPONDENT BECAUSE
ON ITS FACE, IT FAILED TO STATE A CAUSE OF
ACTION.
II. THE GRANT OF THE IPO ALLOCATIONS IN FAVOR
OF RESPONDENT WAS A MERE ACCOMMODATION
GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF
THE MAKATI STOCK EXCHANGE, INC.
III. THE COURT OF APPEALS ERRED IN HOLDING
THAT THE SEC EN BANC COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WHEN IT MADE AN
EXTENDED INQUIRY AND PROCEEDED TO MAKE A
DETERMINATION AS TO THE TRUTH OF
RESPONDENTS ALLEGATIONS IN HIS PETITION
AND USED AS BASIS THE EVIDENCE ADDUCED
DURING THE HEARING ON THE APPLICATION FOR
THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A
STATED CAUSE OF ACTION.
IV. IPO ALLOCATIONS GRANTED TO BROKERS ARE
NOT TO BE BOUGHT BY THE BROKERS FOR
THEMSELVES BUT ARE TO BE DISTRIBUTED TO
THE INVESTING PUBLIC. HENCE, RESPONDENTS
CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT.
On 18 September 2001, counsel for respondent
manifested to this Court that his client died on 7 May
2001. In a Resolution dated 24 October 2001, the Court
directed the substitution of respondent by his surviving
spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by the
SEC en banc of respondents Petition in SEC Case No.
02-94-4678 for failure to state a cause of action. On the
other hand, respondent insists on the sufficiency of his
Petition and seeks the continuation of the proceedings
before the SICD.
A cause of action is the act or omission by which a party
violates a right of another. A complaint states a cause of
action where it contains three essential elements of a
cause of action, namely: (1) the legal right of the plaintiff,
(2) the correlative obligation of the defendant, and (3)
the act or omission of the defendant in violation of said
legal right. If these elements are absent, the complaint
becomes vulnerable to dismissal on the ground of failure
to state a cause of action.
If a defendant moves to dismiss the complaint on the
ground of lack of cause of action, he is regarded as
having hypothetically admitted all the averments thereof.
The test of sufficiency of the facts found in a complaint
as constituting a cause of action is whether or not
admitting the facts alleged, the court can render a valid
judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the
relevant and material facts well pleaded in the complaint
and inferences fairly deducible therefrom. Hence, if the
allegations in the complaint furnish sufficient basis by
which the complaint can be maintained, the same should
not be dismissed regardless of the defense that may be
assessed by the defendant.
Given the foregoing, the issue of whether respondents
Petition in SEC Case No. 02-94-4678 sufficiently states
a cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in
respondents Petition in SEC Case No. 02-94-4678, the
SICD may render a valid judgment in accordance with
the prayer of said Petition.
A reading of the exact text of respondents Petition in
SEC Case No. 02-94-4678 is, therefore, unavoidable.
Pertinent portions of the said Petition reads:
7. In recognition of petitioners invaluable services, the
general membership of respondent corporation [MKSE]
passed a resolution sometime in 1989 amending its
Articles of Incorporation, to include the following
provision therein:
ELEVENTH WHEREAS, Mr. Miguel Campos is the only
surviving incorporator of the Makati Stock Exchange,
Inc. who has maintained his membership;
WHEREAS, he has unselfishly served the Exchange in
various capacities, as governor from 1977 to the present
and as President from 1972 to 1976 and again as
President from 1988 to the present;
WHEREAS, such dedicated service and leadership
which has contributed to the advancement and well
being not only of the Exchange and its members but also
to the Securities industry, needs to be recognized and
appreciated;
WHEREAS, as such, the Board of Governors in its
meeting held on February 09, 1989 has correspondingly
adopted a resolution recognizing his valuable service to
the Exchange, reward the same, and preserve for
posterity such recognition by proposing a resolution to
the membership body which would make him as
Chairman Emeritus for life and install in the Exchange
premises a commemorative bronze plaque in his honor;
NOW, THEREFORE, for and in consideration of the
above premises, the position of the Chairman Emeritus
to be occupied by Mr. Miguel Campos during his lifetime
and irregardless of his continued membership in the
Exchange with the Privilege to attend all membership
meetings as well as the meetings of the Board of
Governors of the Exchange, is hereby created.
8. Hence, to this day, petitioner is not only an active
member of the respondent corporation, but its Chairman
Emeritus as well.
9. Correspondingly, at all times material to this petition,
as an active member and Chairman Emeritus of
respondent corporation, petitioner has always enjoyed
the right given to all the other members to participate
equally in the Initial Public Offerings (IPOs for brevity) of
corporations.
10. IPOs are shares of corporations offered for sale to
the public, prior to the listing in the trading floor of the
countrys two stock exchanges. Normally, Twenty Five
Percent (25%) of these shares are divided equally
between the two stock exchanges which in turn divide
these equally among their members, who pay therefor at
the offering price.
11. However, on June 3, 1993, during a meeting of the
Board of Directors of respondent-corporation, individual
respondents passed a resolution to stop giving petitioner
the IPOs he is entitled to, based on the ground that
these shares were allegedly benefiting Gerardo O.
Lanuza, Jr., who these individual respondents wanted to
get even with, for having filed cases before the
Securities and Exchange (SEC) for their disqualification
as member of the Board of Directors of respondent
corporation.
12. Hence, from June 3, 1993 up to the present time,
petitioner has been deprived of his right to subscribe to
the IPOs of corporations listing in the stock market at
their offering prices.
13. The collective act of the individual respondents in
depriving petitioner of his right to a share in the IPOs for
the aforementioned reason, is unjust, dishonest and
done in bad faith, causing petitioner substantial financial
damage.
There is no question that the Petition in SEC Case No.
02-94-4678 asserts a right in favor of respondent,
particularly, respondents alleged right to subscribe to the
IPOs of corporations listed in the stock market at their
offering prices; and stipulates the correlative obligation
of petitioners to respect respondents right, specifically,
by continuing to allow respondent to subscribe to the
IPOs of corporations listed in the stock market at their
offering prices.
However, the terms right and obligation in respondents
Petition are not magic words that would automatically
lead to the conclusion that such Petition sufficiently
states a cause of action. Right and obligation are legal
terms with specific legal meaning. A right is a claim or
title to an interest in anything whatsoever that is
enforceable by law. An obligation is defined in the Civil
Code as a juridical necessity to give, to do or not to do.
For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers the
definition given by Arias Ramos as a more complete
definition:
An obligation is a juridical relation whereby a person
(called the creditor) may demand from another (called
the debtor) the observance of a determinative conduct
(the giving, doing or not doing), and in case of breach,
may demand satisfaction from the assets of the latter.
The Civil Code enumerates the sources of obligations:
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Therefore, an obligation imposed on a person, and the
corresponding right granted to another, must be rooted
in at least one of these five sources. The mere assertion
of a right and claim of an obligation in an initiatory
pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a
conclusion of fact and law. A pleading should state the
ultimate facts essential to the rights of action or defense
asserted, as distinguished from mere conclusions of fact
or conclusions of law.[10] Thus, a Complaint or Petition
filed by a person claiming a right to the Office of the
President of this Republic, but without stating the source
of his purported right, cannot be said to have sufficiently
stated a cause of action. Also, a person claiming to be
the owner of a parcel of land cannot merely state that he
has a right to the ownership thereof, but must likewise
assert in the Complaint either a mode of acquisition of
ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case
No. 02-94-4678 does allege respondents right to
subscribe to the IPOs of corporations listed in the stock
market at their offering prices, and petitioners obligation
to continue respecting and observing such right, the
Petition utterly failed to lay down the source or basis of
respondents right and/or petitioners obligation.
Respondent merely quoted in his Petition the MKSE
Board Resolution, passed sometime in 1989, granting
him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from which
the Court can deduce that respondent, by virtue of his
position as Chairman Emeritus of MKSE, was granted by
law, contract, or any other legal source, the right to
subscribe to the IPOs of corporations listed in the stock
market at their offering prices.
A meticulous review of the Petition reveals that the
allocation of IPO shares was merely alleged to have
been done in accord with a practice normally observed
by the members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the
public, prior to their listing in the trading floor of the
countrys two stock exchanges. Normally, Twenty-Five
Percent (25%) of these shares are divided equally
between the two stock exchanges which in turn divide
these equally among their members, who pay therefor at
the offering price.
A practice or custom is, as a general rule, not a source
of a legally demandable or enforceable right. Indeed, in
labor cases, benefits which were voluntarily given by the
employer, and which have ripened into company
practice, are considered as rights that cannot be
diminished by the employer. Nevertheless, even in such
cases, the source of the employees right is not custom,
but ultimately, the law, since Article 100 of the Labor
Code explicitly prohibits elimination or diminution of
benefits.
There is no such law in this case that converts the
practice of allocating IPO shares to MKSE members, for
subscription at their offering prices, into an enforceable
or demandable right. Thus, even if it is hypothetically
admitted that normally, twenty five percent (25%) of the
IPOs are divided equally between the two stock
exchanges -- which, in turn, divide their respective
allocation equally among their members, including the
Chairman Emeritus, who pay for IPO shares at the
offering price -- the Court cannot grant respondents
prayer for damages which allegedly resulted from the
MKSE Board Resolution dated 3 June 1993 deviating
from said practice by no longer allocating any shares to
respondent.
Accordingly, the instant Petition should be granted. The
Petition in SEC Case No. 02-94-4678 should be
dismissed for failure to state a cause of action. It does
not matter that the SEC en banc, in its Order dated 14
August 1995 in SEC-EB No. 403, overstepped its
bounds by not limiting itself to the issue of whether
respondents Petition before the SICD sufficiently stated
a cause of action. The SEC en banc may have been
mistaken in considering extraneous evidence in granting
petitioners Motion to Dismiss, but its discussion thereof
are merely superfluous and obiter dictum. In the main,
the SEC en banc did correctly dismiss the Petition in
SEC Case No. 02-94-4678 for its failure to state the
basis for respondents alleged right, to wit:
Private respondent Campos has failed to establish the
basis or authority for his alleged right to participate
equally in the IPO allocations of the Exchange. He cited
paragraph 11 of the amended articles of incorporation of
the Exchange in support of his position but a careful
reading of the said provision shows nothing therein that
would bear out his claim. The provision merely created
the position of chairman emeritus of the Exchange but it
mentioned nothing about conferring upon the occupant
thereof the right to receive IPO allocations.
With the dismissal of respondents Petition in SEC Case
No. 02-94-4678, there is no more need for this Court to
resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision
of the Court of Appeals dated 11 February 1997 and its
Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
are REVERSED and SET ASIDE. The Orders dated 31
May 1995 and 14 August 1995 of the Securities and
Exchange Commission en banc in SEC-EB Case No.
393 and No. 403, respectively, are hereby reinstated. No
pronouncement as to costs. SO ORDERED.
G.R. No. 109125. December 2, 1994. VITUG, J.
ANG YU ASUNCION vs. CA
Assailed, in this petition for review, is the decision of the
Court of Appeals, dated 04 December 1991, in CA-G.R.
SP No. 26345 setting aside and declaring without force
and effect the orders of execution of the trial court, dated
30 August 1991 and 27 September 1991, in Civil Case
No. 87-41058.
The antecedents are recited in good detail by the
appellate court thusly:
On July 29, 1987 a Second Amended Complaint for
Specific Performance was filed by Ang Yu Asuncion and
Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu
Unjieng and Jose Tan before the Regional Trial Court,
Branch 31, Manila in Civil Case No. 87-41058, alleging,
among others, that plaintiffs are tenants or lessees of
residential and commercial spaces owned by defendants
described as Nos. 630-638 Ongpin Street, Binondo,
Manila; that they have occupied said spaces since 1935
and have been religiously paying the rental and
complying with all the conditions of the lease contract;
that on several occasions before October 9, 1986,
defendants informed plaintiffs that they are offering to
sell the premises and are giving them priority to acquire
the same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs made
a counter offer of P5-million; that plaintiffs thereafter
asked the defendants to put their offer in writing to which
request defendants acceded; that in reply to defendant's
letter, plaintiffs wrote them on October 24, 1986 asking
that they specify the terms and conditions of the offer to
sell; that when plaintiffs did not receive any reply, they
sent another letter dated January 28, 1987 with the
same request; that since defendants failed to specify the
terms and conditions of the offer to sell and because of
information received that defendants were about to sell
the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property to
them.
Defendants filed their answer denying the material
allegations of the complaint and interposing a special
defense of lack of cause of action.
After the issues were joined, defendants filed a motion
for summary judgment which was granted by the lower
court.
The trial court found that defendants' offer to sell was
never accepted by the plaintiffs for the reason that the
parties did not agree upon the terms and conditions of
the proposed sale, hence, there was no contract of sale
at all.
Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale at a
price of P11-million or below, plaintiffs will have the right
of first refusal. Thus the dispositive portion of the
decision states:
WHEREFORE, judgment is hereby rendered in favor of
the defendants and against the plaintiffs summarily
dismissing the complaint subject to the aforementioned
condition that if the defendants subsequently decide to
offer their property for sale for a purchase price of
Eleven Million Pesos or lower, then the plaintiffs has the
option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven
Million Pesos. SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this
Court in CA-G.R. CV No. 21123. In a decision
promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices
Vicente V. Mendoza and Fernando A. Santiago), this
Court affirmed with modification the lower court's
judgment, holding:
In resume, there was no meeting of the minds between
the parties concerning the sale of the property. Absent
such requirement, the claim for specific performance will
not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no
justifiable ground for its award. Summary judgment for
defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to
any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of
Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the
judgment appealed from is hereby AFFIRMED, but
subject to the following modification: The court a quo in
the aforestated decision gave the plaintiffs-appellants
the right of first refusal only if the property is sold for a
purchase price of Eleven Million pesos or lower;
however, considering the mercurial and uncertain forces
in our market economy today. We find no reason not to
grant the same right of first refusal to herein appellants
in the event that the subject property is sold for a price in
excess of Eleven Million pesos. No pronouncement as to
costs. SO ORDERED.
The decision of this Court was brought to the Supreme
Court by petition for review on certiorari. The Supreme
Court denied the appeal on May 6, 1991 "for
insufficiency in form and substances" (Annex H,
Petition).
On November 15, 1990, while CA-G.R. CV No. 21123
was pending consideration by this Court, the Cu Unjieng
spouses executed a Deed of Sale (Annex D, Petition)
transferring the property in question to herein petitioner
Buen Realty and Development Corporation, subject to
the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN
MILLION PESOS (P15,000,000.00), receipt of which in
full is hereby acknowledged, the VENDORS hereby
sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or
assigns, the above-described property with all the
improvements found therein including all the rights and
interest in the said property free from all liens and
encumbrances of whatever nature, except the pending
ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp
Tax, registration fees for the transfer of title in his favor
and other expenses incidental to the sale of above-
described property including capital gains tax and
accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in
the name of the Cu Unjieng spouses was cancelled and,
in lieu thereof, TCT No. 195816 was issued in the name
of petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the
subject property wrote a letter to the lessees demanding
that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner
stating that petitioner brought the property subject to the
notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the
Cu Unjiengs. The lessees filed a Motion for Execution
dated August 27, 1991 of the Decision in Civil Case No.
87-41058 as modified by the Court of Appeals in CA-
G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order
(Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution
filed by plaintiff represented by Atty. Antonio Albano.
Both defendants Bobby Cu Unjieng and Rose Cu
Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in
today's consideration of the motion as evidenced by the
rubber stamp and signatures upon the copy of the
Motion for Execution.
The gist of the motion is that the Decision of the Court
dated September 21, 1990 as modified by the Court of
Appeals in its decision in CA G.R. CV-21123, and
elevated to the Supreme Court upon the petition for
review and that the same was denied by the highest
tribunal in its resolution dated May 6, 1991 in G.R. No. L-
97276, had now become final and executory. As a
consequence, there was an Entry of Judgment by the
Supreme Court as of June 6, 1991, stating that the
aforesaid modified decision had already become final
and executory.
It is the observation of the Court that this property in
dispute was the subject of the Notice of Lis Pendens and
that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the
effect that should the defendants decide to offer the
property for sale for a price of P11 Million or lower, and
considering the mercurial and uncertain forces in our
market economy today, the same right of first refusal to
herein plaintiffs/appellants in the event that the subject
property is sold for a price in excess of Eleven Million
pesos or more.
WHEREFORE, defendants are hereby ordered to
execute the necessary Deed of Sale of the property in
litigation in favor of plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the consideration of P15 Million
pesos in recognition of plaintiffs' right of first refusal and
that a new Transfer Certificate of Title be issued in favor
of the buyer. All previous transactions involving the
same property notwithstanding the issuance of another
title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith. SO ORDERED.
On September 22, 1991 respondent Judge issued
another order, the dispositive portion of which reads:
WHEREFORE, let there be Writ of Execution issue in
the above-entitled case directing the Deputy Sheriff
Ramon Enriquez of this Court to implement said Writ of
Execution ordering the defendants among others to
comply with the aforesaid Order of this Court within a
period of one (1) week from receipt of this Order and for
defendants to execute the necessary Deed of Sale of the
property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration
of P15,000,000.00 and ordering the Register of Deeds of
the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation which
was previously executed between the latter and
defendants and to register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go. SO ORDERED.
On the same day, September 27, 1991 the
corresponding writ of execution (Annex C, Petition) was
issued. On 04 December 1991, the appellate court, on
appeal to it by private respondent, set aside and
declared without force and effect the above questioned
orders of the court a quo.
In this petition for review on certiorari, petitioners
contend that Buen Realty can be held bound by the writ
of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of
Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions
is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For
ready reference, we might point out some fundamental
precepts that may find some relevance to this
discussion.
An obligation is a juridical necessity to give, to do or not
to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various
sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the
prestation or conduct; required to be observed (to give,
to do or not to do); and (c) the subject persons who,
viewed from the demandability of the obligation, are the
active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art.
1157, Civil Code), which is a meeting of minds between
two persons whereby one binds himself, with respect to
the other, to give something or to render some service
(Art. 1305, Civil Code). A contract undergoes various
stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation
covers the period from the time the prospective
contracting parties indicate interest in the contract to the
time the contract is concluded (perfected). The
perfection of the contract takes place upon the
concurrence of the essential elements thereof. A
contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the
concurrence of offer and acceptance, on the object and
on the cause thereof. A contract which requires, in
addition to the above, the delivery of the object of the
agreement, as in a pledge or commodatum, is commonly
referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law,
such as in a donation of real property, is essential in
order to make the act valid, the prescribed form being
thereby an essential element thereof. The stage of
consummation begins when the parties perform their
respective undertakings under the contract culminating
in the extinguishment thereof.
Until the contract is perfected, it cannot, as an
independent source of obligation, serve as a binding
juridical relation.
In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is
perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer,
over which the latter agrees. Article 1458 of the Civil
Code provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in
a "Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent
the obligation to convey title from acquiring an obligatory
force. In Dignos vs. Court of Appeals (158 SCRA 375),
we have said that, although denominated a "Deed of
Conditional Sale," a sale is still absolute where the
contract is devoid of any proviso that title is reserved or
the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be
transferred to the buyer upon actual or constructive
delivery (e.g., by the execution of a public document) of
the property sold. Where the condition is imposed upon
the perfection of the contract itself, the failure of the
condition would prevent such perfection. If the condition
is imposed on the obligation of a party which is not
fulfilled, the other party may either waive the condition or
refuse to proceed with the sale (Art. 1545, Civil Code).
An unconditional mutual promise to buy and sell, as long
as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance
therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing
to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the
price, is what may properly be termed a perfected
contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article
1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. (1451a)
Observe, however, that the option is not the contract of
sale itself. The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option, a
bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their
respective undertakings.
Let us elucidate a little. A negotiation is formally initiated
by an offer. An imperfect promise (policitacion) is merely
an offer. Public advertisements or solicitations and the
like are ordinarily construed as mere invitations to make
offers or only as proposals. These relations, until a
contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn;
the withdrawal is effective immediately after its
manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the
offeree within which to accept the offer, the following
rules generally govern:
(1) If the period is not itself founded upon or supported
by a consideration, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offeror's coming
to know of such fact, by communicating that withdrawal
to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule
is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western
Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319,
Civil Code; Rural Bank of Parañaque, Inc., vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45
SCRA 368). The right to withdraw, however, must not be
exercised whimsically or arbitrarily; otherwise, it could
give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every
person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract
of "option" is deemed perfected, and it would be a
breach of that contract to withdraw the offer during the
agreed period. The option, however, is an independent
contract by itself, and it is to be distinguished from the
projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If, in fact, the
optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-
offeree, the latter may not sue for specific performance
on the proposed contract ("object" of the option) since it
has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care
should be taken of the real nature of the consideration
given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be
an "earnest money" in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is
an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under
Article 1458 of the Civil Code. Neither can the right of
first refusal, understood in its normal concept, per se be
brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 13199 of the same Code. An option or
an offer would require, among other things,10 a clear
certainty on both the object and the cause or
consideration of the envisioned contract. In a right of first
refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not
only on the grantor's eventual intention to enter into a
binding juridical relation with another but also on terms,
including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be
indefinite and inconclusive) but by, among other laws of
general application, the pertinent scattered provisions of
the Civil Code on human conduct.
Even on the premise that such right of first refusal has
been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a
writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action
for specific performance without thereby negating the
indispensable element of consensuality in the perfection
of contracts. It is not to say, however, that the right of
first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof,
given, for instance, the circumstances expressed in
Article 1912 of the Civil Code, can warrant a recovery for
damages.
The final judgment in Civil Case No. 87-41058, it must
be stressed, has merely accorded a "right of first refusal"
in favor of petitioners. The consequence of such a
declaration entails no more than what has heretofore
been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy
is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper
forum for the purpose.
Furthermore, whether private respondent Buen Realty
Development Corporation, the alleged purchaser of the
property, has acted in good faith or bad faith and
whether or not it should, in any case, be considered
bound to respect the registration of the lis pendens in
Civil Case No. 87-41058 are matters that must be
independently addressed in appropriate proceedings.
Buen Realty, not having been impleaded in Civil Case
No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted
from the ownership and possession of the property,
without first being duly afforded its day in court.
We are also unable to agree with petitioners that the
Court of Appeals has erred in holding that the writ of
execution varies the terms of the judgment in Civil Case
No. 87-41058, later affirmed in CA-G.R. CV-21123. The
Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance
with the decision of the trial court as modified by this
Court. As already stated, there was nothing in said
decision that decreed the execution of a deed of sale
between the Cu Unjiengs and respondent lessees, or the
fixing of the price of the sale, or the cancellation of title in
the name of petitioner (Limpin vs. IAC, 147 SCRA 516;
Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA
311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA,
122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil
Case No. 87-41058 could not have decreed at the time
the execution of any deed of sale between the Cu
Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in
ultimately setting aside the questioned Orders, dated 30
August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners. SO ORDERED.
G.R. No. 73345. Apr 7, 1993. CAMPOS, JR., J
SSS vs. MOONWALK DEVELOPMENT & HOUSING
CORPORATION
Before Us is a petition for review on certiorari of decision
1 of the then Intermediate Appellate Court affirming in
toto the decision of the former Court of First Instance of
Rizal, Seventh Judicial District, Branch XXIX, Pasay
City.
The facts as found by the Appellate Court are as follows:
"On February 20, 1980, the Social Security System, SSS
for brevity, filed a complaint in the Court of First Instance
of Rizal against Moonwalk Development & Housing
Corporation, Moonwalk for short, alleging that the former
had committed an error in failing to compute the 12%
interest due on delayed payments on the loan of
Moonwalk — resulting in a chain of errors in the
application of payments made by Moonwalk and, in an
unpaid balance on the principal loan agreement in the
amount of P7,053.77 and, also in not reflecting in its
statement or account an unpaid balance on the said
penalties for delayed payments in the amount of
P7,517,178.21 as of October 10, 1979.
Moonwalk answered denying SSS' claims and asserting
that SSS had the opportunity to ascertain the truth but
failed to do so.
The trial court set the case for pre-trial at which pre-trial
conference, the court issued an order giving both parties
thirty (30) days within which to submit a stipulation of
facts.
The Order of October 6, 1980 dismissing the complaint
followed the submission by the parties on September 19,
1980 of the following stipulation of Facts:
"1. On October 6, 1971, plaintiff approved the application
of defendant Moonwalk for an interim loan in the amount
of THIRTY MILLION PESOS (P30,000,000.00) for the
purpose of developing and constructing a housing
project in the provinces of Rizal and Cavite;
"2. Out of the approved loan of THIRTY MILLION
PESOS (P30,000,000.00), the sum of P9,595,000.00
was released to defendant Moonwalk as of November
28, 1973;
"3. A third Amended Deed of First Mortgage was
executed on December 18, 1973 Annex `D' providing for
restructuring of the payment of the released amount of
P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto,
mother and daughter respectively, under paragraph 5 of
the aforesaid Third Amended Deed of First Mortgage
substituted Associated Construction and Surveys
Corporation, Philippine Model Homes Development
Corporation, Mariano Z. Velarde and Eusebio T. Ramos,
as solidary obligors;
"5. On July 23, 1974, after considering additional
releases in the amount of P2,659,700.00, made to
defendant Moonwalk, defendant Moonwalk delivered to
the plaintiff a promissory note for TWELVE MILLION
TWO HUNDRED FIFTY FOUR THOUSAND SEVEN
HUNDRED PESOS (P12,254,700.00) Annex `E', signed
by Eusebio T. Ramos, and the said Rosita U. Alberto
and Rosita U. Alberto;
"6. Moonwalk made a total payment of P23,657,901.84
to SSS for the loan principal of P12,254,700.00 released
to it. The last payment made by Moonwalk in the amount
of P15,004,905.74 were based on the Statement of
Account, Annex "F" prepared by plaintiff SSS for
defendant;
"7. After settlement of the account stated in Annex 'F'
plaintiff issued to defendant Moonwalk the Release of
Mortgage for Moonwalk's mortgaged properties in Cavite
and Rizal, Annexes 'G' and 'H' on October 9, 1979 and
October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November
28, 1979 and followed up by another letter dated
December
17, 1979, plaintiff alleged that it committed an honest
mistake in releasing defendant.
"9. In a letter dated December 21, 1979, defendant's
counsel told plaintiff that it had completely paid its
obligations to SSS;
"10. The genuineness and due execution of the
documents marked as Annex (sic) 'A' to 'O' inclusive, of
the Complaint and the letter dated December 21, 1979
of the defendant's counsel to the plaintiff are admitted.
"Manila for Pasay City, September 2, 1980."
On October 6, 1990, the trial court issued an order
dismissing the complaint on the ground that the
obligation was already extinguished by the payment by
Moonwalk of its indebtedness to SSS and by the latter's
act of cancelling the real estate mortgages executed in
its favor by defendant Moonwalk. The Motion for
Reconsideration filed by SSS with the trial court was
likewise dismissed by the latter.
These orders were appealed to the Intermediate
Appellate Court. Respondent Court reduced the errors
assigned by the SSS into this issue: ". . . are
defendants-appellees, namely, Moonwalk Development
and Housing Corporation, Rosita U. Alberto, Rosita U.
Alberto, JMA House, Inc. still liable for the unpaid
penalties as claimed by plaintiff appellant or is their
obligation extinguished?" As We have stated earlier, the
respondent Court held that Moonwalk's obligation was
extinguished and affirmed the trial court.
Hence, this Petition wherein SSS raises the following
grounds for review:
"First, in concluding that the penalties due from
Moonwalk are "deemed waived and/or barred," the
appellate court disregarded the basic tenet that waiver of
a right must be express, made in a clear and
unequivocal manner. There is no evidence in the case at
bar to show that SSS made a clear, positive waiver of
the penalties, made with full knowledge of the
circumstances.
Second, it misconstrued the ruling that SSS funds are
trust funds, and SSS, being a mere trustee, cannot
perform acts affecting the same, including condonation
of penalties, that would diminish property rights of the
owners and beneficiaries thereof. (United Christian
Missionary Society v. Social Security Commission, 30
SCRA 982, 988 [1969]).
Third, it ignored the fact that penalty at the rate of 12%
p.a. is not inequitable.
Fourth, it ignored the principle that equity will cancel a
release on the ground of mistake of fact."
The same problem which confronted the respondent
court is presented before Us: Is the penalty demandable
even after the extinguishment of the principal obligation?
The former Intermediate Appellate Court, through
Justice Eduard P. Caguioa, held in the negative. It
reasoned, thus:
"2. As we have explained under No. 1, contrary to what
the plaintiff-appellant states in its Brief, what is sought to
be recovered in this case is not the 12% interest on the
loan but the 12% penalty for failure to pay on time the
amortization. What is sought to be enforced therefore is
the penal clause of the contract entered into between the
parties.
Now, what is a penal clause. A penal clause has been
defined as "an accessory obligation which the parties
attach to a principal obligation for the purpose of insuring
the performance thereof by imposing on the debtor a
special presentation (generally consisting in the payment
of a sum of money) in case the obligation is not fulfilled
or is irregularly or inadequately fulfilled" (3 Castan 8th
Ed. p. 118).
Now an accessory obligation has been defined as that
attached to a principal obligation in order to complete the
same or take its place in the case of breach (4 Puig
Peña Part 1 p. 76). Note therefore that an accessory
obligation is dependent for its existence on the existence
of a principal obligation. A principal obligation may exist
without an accessory obligation but an accessory
obligation cannot exist without a principal obligation. For
example, the contract of mortgage is an accessory
obligation to enforce the performance of the main
obligation of indebtedness.
An indebtedness can exist without the mortgage but a
mortgage cannot exist without the indebtedness, which
is the principal obligation. In the present case, the
principal obligation is the loan between the parties. The
accessory obligation of a penal clause is to enforce the
main obligation of payment of the loan. If therefore the
principal obligation does not exist the penalty being
accessory cannot exist.
Now then when is the penalty demandable? A penalty is
demandable in case of non performance or late
performance of the main obligation. In other words in
order that the penalty may arise there must be a breach
of the obligation either by total or partial non fulfillment or
there is non fulfillment in point of time which is called
mora or delay. The debtor therefore violates the
obligation in point of time if there is mora or delay. Now,
there is no mora or delay unless there is a demand. It is
noteworthy that in the present case during all the period
when the principal obligation was still subsisting,
although there were late amortizations there was no
demand made by the creditor, plaintiff-appellant for the
payment of the penalty. Therefore up to the time of the
letter of plaintiff-appellant there was no demand for the
payment of the penalty, hence the debtor was no in
mora in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued
its statement of account (Exhibit F) showing the total
obligation of Moonwalk as P15,004,905.74, and forthwith
demanded payment from defendant-appellee. Because
of the demand for payment, Moonwalk made several
payments on September 29, October 9 and 19, 1979
respectively, all in all totalling P15,004,905.74 which was
a complete payment of its obligation as stated in Exhibit
F. Because of this payment the obligation of Moonwalk
was considered extinguished, and pursuant to said
extinguishment, the real estate mortgages given by
Moonwalk were released on October 9, 1979 and
October 10, 1979 (Exhibits G and H).
For all purposes therefore the principal obligation of
defendant-appellee was deemed extinguished as well as
the accessory obligation of real estate mortgage; and
that is the reason for the release of all the Real Estate
Mortgages on October 9 and 10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal
clause which is also an accessory obligation must also
be deemed extinguished considering that the principal
obligation was considered extinguished, and the penal
clause being an accessory obligation. That being the
case, the demand for payment of the penal clause made
by plaintiff appellant in its demand letter dated
November 28, 1979 and its follow up letter dated
December 17, 1979 (which parenthetically are the only
demands for payment of the penalties) are therefore
ineffective as there was nothing to demand. It would be
otherwise, if the demand for the payment of the penalty
was made prior to the extinguishment of the obligation
because then the obligation of Moonwalk would consist
of: 1) the principal obligation 2) the interest of 12% on
the principal obligation and 3) the penalty of 12% for late
payment for after demand, Moonwalk would be in mora
and therefore liable for the penalty.
Let it be emphasized that at the time of the demand
made in the letters of November 28, 1979 and
December 17, 1979 as far as the penalty is concerned,
the defendant-appellee was not in default since there
was no mora prior to the demand. That being the case,
therefore, the demand made after the extinguishment of
the principal obligation which carried with it the
extinguishment of the penal clause being merely an
accessory obligation, was an exercise in futility.
3. At the time of the payment made of the full obligation
on October 10, 1979 together with the 12% interest by
defendant-appellee Moonwalk, its obligation was
extinguished. It being extinguished, there was no more
need for the penal clause. Now, it is to be noted that
penalty at anytime can be modified by the Court. Even
substantial performance under Art. 1234 authorizes the
Court to consider it as complete performance minus
damages. Now, Art, 1229 Civil Code of the Philippines
provides:
"ART. 1229. The judge shall equitably reduce the
penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable."
If the penalty can be reduced after the principal
obligation has been partly or irregularly complied with by
the debtor, which is nonetheless a breach of the
obligation, with more reason the penal clause is not
demandable when full obligation has been complied with
since in that case there is no breach of the obligation. In
the present case, there has been as yet no demand for
payment of the penalty at the time of the extinguishment
of the obligation, hence there was likewise an
extinguishment of the penalty.
Let Us emphasize that the obligation of defendant-
appellee was fully complied with by the debtor, that is,
the amount loaned together with the 12% interest has
been fully paid by the appellee. That being so, there is
no basis for demanding the penal clause since the
obligation has been extinguished. Here there has been a
waiver of the penal clause as it was not demanded
before the full obligation was fully paid and extinguished.
Again, emphasis must be made on the fact that plaintiff-
appellant has not lost anything under the contract since
in got back in full the amount loan (sic) as well as the
interest thereof. The same thing would have happened if
the obligation was paid on time, for then the penal
clause, under the terms of the contract would not apply.
Payment of the penalty does not mean gain or loss of
plaintiff-appellant since it is merely for the purpose of
enforcing the performance of the main obligation has
been fully complied with and extinguished, the penal
clause has lost its raison d' entre." 5
We find no reason to depart from the appellate court's
decision. We, however, advance the following reasons
for the denial of this petition.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal clause, he penalty
shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is
no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of this
Code."
A penal clause is an accessory undertaking to assume
greater liability in case of breach. It has a double
function:
(1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach.
From the foregoing, it is clear that a penal clause is
intended to prevent the obligor from defaulting in the
performance of his obligation. Thus, if there should be
default, the penalty may be enforced. One commentator
of the Civil Code wrote:
"Now when is the penalty deemed demandable in
accordance with the provisions of the Civil Code? We
must make a distinction between a positive and a
negative obligation. With regard to obligations which are
positive (to give and to do), the penalty is demandable
when the debtor is in mora; hence, the necessity of
demand by the debtor unless the same is excused . . ."
When does delay arise? Under the Civil Code, delay
begins from the time the obligee judicially or
extrajudicially demands from the obligor the performance
of the obligation.
"Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation."
There are only three instances when demand is not
necessary to render the obligor in default. These are the
following:
"(1) When the obligation or the law expressly so
declares;
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment
of the contract; or
(3) When the demand would be useless, as when the
obligor has rendered it beyond his power to perform."
This case does not fall within any of the established
exceptions. Hence, despite the provision in the
promissory note that "(a)ll amortization payments shall
be made every first five (5) days of the calendar month
until the principal and interest on the loan or any portion
thereof actually released has been fully paid," petitioner
is not excused from making a demand. It has been
established that at the time of payment of the full
obligation, private respondent
Moonwalk has long been delinquent in meeting its
monthly arrears and in paying the full amount of the loan
itself as the obligation matured sometime in January,
1977. But mere delinquency in payment does not
necessarily mean delay in the legal concept. To be in
default ". . . is different from mere delay in the
grammatical sense, because it involves the beginning of
a special condition or status which has its own peculiar
effects or results." In order that the debtor may be in
default it is necessary that the following requisites be
present: (1) that the obligation be demandable and
already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the
performance judicially and extrajudicially. Default
generally begins from the moment the creditor demands
the performance of the obligation.
Nowhere in this case did it appear that SSS demanded
from Moonwalk the payment of its monthly
amortizations.
Neither did it show that petitioner demanded the
payment of the stipulated penalty upon the failure of
Moonwalk to meet its monthly amortization. What the
complaint itself showed was that SSS tried to enforce
the obligation sometime in September, 1977 by
foreclosing the real estate mortgages executed by
Moonwalk in favor of SSS. But this foreclosure did not
push through upon Moonwalk's requests and promises
to pay in full. The next demand for payment happened
on October 1, 1979 when SSS issued a Statement of
Account to Moonwalk. And in accordance with said
statement, Moonwalk paid its loan in full. What is clear,
therefore, is that Moonwalk was never in default
because SSS never compelled performance. Though it
tried to foreclose the mortgages, SSS itself desisted
from doing so upon the entreaties of Moonwalk. If the
Statement of Account could properly be considered as
demand for payment, the demand was complied with on
time. Hence, no delay occurred and there was,
therefore, no occasion when the penalty became
demandable and enforceable. Since there was no
default in the performance of the main obligation —
payment of the loan — SSS was never entitled to
recover any penalty, not at the time it made the
Statement of Account and certainly, not after the
extinguishment of the principal obligation because then,
all the more that SSS had no reason to ask for the
penalties. Thus, there could never be any occasion for
waiver or even mistake in the application for payment
because there was nothing for SSS to waive as its right
to enforce the penalty did not arise. SSS, however, in
buttressing its claim that it never waived the penalties,
argued that the funds it held were trust funds and as
trustee, the petitioner could not perform acts affecting
the funds that would diminish property rights of the
owners and beneficiaries thereof. To support its claim,
SSS cited the case of United Christian Missionary
Society v. Social Security Commission.
We looked into the case and found out that it is not
applicable to the present case as it dealt not with the
right of the SSS to collect penalties which were provided
for in contracts which it entered into but with its right to
collect premiums and its duty to collect the penalty for
delayed payment or non-payment of premiums. The
Supreme Court, in that case, stated:
"No discretion or alternative is granted respondent
Commission in the enforcement of the law's mandate
that the employer who fails to comply with his legal
obligation to remit the premiums to the System within the
prescribed period shall pay a penalty of three (3%) per
month. The prescribed penalty is evidently of a punitive
character, provided by the legislature to assure that
employers do not take lightly the State's exercise of the
police power in the implementation of the Republic's
declared policy "to develop, establish gradually and
perfect a social security system which shall be suitable
to the needs of the people throughout the Philippines
and (to) provide protection to employers against the
hazards of disability, sickness, old age and death . . ."
Thus, We agree with the decision of the respondent
court on the matter which We quote, to wit:
"Note that the above case refers to the condonation of
the penalty for the non remittance of the premium which
is provided for by Section 22(a) of the Social Security
Act . . . In other words, what was sought to be condoned
was the penalty provided for by law for non remittance of
premium for coverage under the Social Security Act.
The case at bar does not refer to any penalty provided
for by law nor does it refer to the non remittance of
premium.
The case at bar refers to a contract of loan entered into
between plaintiff and defendant Moonwalk Development
and Housing Corporation. Note, therefore, that no
provision of law is involved in this case, nor is there any
penalty imposed by law nor a case about non-remittance
of premium required by law. The present case refers to a
contract of loan payable in installments not provided for
by law but by agreement of the parties. Therefore, the
ratio decidendi of the case of United Christian
Missionary Society vs. Social Security Commission
which plaintiff-appellant relies is not applicable in this
case; clearly, the Social Security Commission, which is a
creature of the Social Security Act cannot condone a
mandatory provision of law providing for the payment of
premiums and for penalties for non remittance. The life
of the Social Security Act is in the premiums because
these are the funds from which the Social Security Act
gets the money for its purposes and the non-remittance
of the premiums is penalized not by the Social Security
Commission but by law.
It is admitted that when a government created
corporation enters into a contract with private party
concerning a loan, it descends to the level of a private
person. Hence, the rules on contract applicable to
private parties are applicable to it. The argument
therefore that the Social Security Commission cannot
waive or condone the penalties which was applied in the
United Christian Missionary Society cannot apply in this
case. First, because what was not paid were
installments on a loan but premiums required by law to
be paid by the parties covered by the Social Security
Act.
Secondly, what is sought to be condoned or waived are
penalties not imposed by law for failure to remit
premiums required by law, but a penalty for non
payment provided for by the agreement of the parties in
the contract between them . . ."
WHEREFORE, in view of the foregoing, the petition is
DISMISSED and the decision of the respondent court is
AFFIRMED. SO ORDERED.
G.R. No. L-48889. May 11, 1989. GANCAYCO, J.
DBP vs. SPOUSES PATRICIO CONFESOR and
JOVITA VILLAFUERTE
The right to prescription may be waived or renounced.
There is no doubt that prescription has set in as to the
first promissory note of February 10, 1940. However,
when respondent Confesor executed the second
promissory note on April 11, 1961 whereby he promised
to pay the amount covered by the previous promissory
note on or before June 15, 1961, and upon failure to do
so, agreed to the foreclosure of the mortgage, said
respondent thereby effectively and expressly renounced
and waived his right to the prescription of the action
covering the first promissory note. This is not a mere
case of acknowledgment of a debt that has prescribed
but a new promise to pay the debt. The consideration of
the new promissory note is the pre-existing obligation
under the first promissory note. The statutory limitation
bars the remedy but does not discharge the debt.
The issue posed in this petition for review on certiorari is
the validity of a promissory note which was executed in
consideration of a previous promissory note the
enforcement of which had been barred by prescription.
On February 10, 1940 spouses Patricio Confesor and
Jovita Villafuerte obtained an agricultural loan from the
Agricultural and Industrial Bank (AIB), now the
Development Bank of the Philippines (DBP), in the sum
of P2,000.00, Philippine Currency, as evidenced by a
promissory note of said date whereby they bound
themselves jointly and severally to pay the account in
ten (10) equal yearly amortizations. As the obligation
remained outstanding and unpaid even after the lapse of
the aforesaid ten-year period, Confesor, who was by
then a member of the Congress of the Philippines,
executed a second promissory note on April 11, 1961
expressly acknowledging said loan and promising to pay
the same on or before June 15, 1961. The new
promissory note reads as follows —
"I hereby promise to pay the amount covered by my
promissory note on or before June 15, 1961. Upon my
failure to do so, I hereby agree to the foreclosure of my
mortgage. It is understood that if I can secure a
certificate of indebtedness from the government of my
back pay I will be allowed to pay the amount out of it."
Said spouses not having paid the obligation on the
specified date, the DBP filed a complaint dated
September 11, 1970 in the City Court of Iloilo City
against the spouses for the payment of the loan.
After trial on the merits a decision was rendered by the
inferior court on December 27, 1976, the dispositive part
of which reads as follows:
"WHEREFORE, premises considered, this Court renders
judgment, ordering the defendants Patricio Confesor and
Jovita Villafuerte Confesor to pay the plaintiff
Development Bank of the Philippines, jointly and
severally, (a) the sum of P5,760.96 plus additional daily
interest of P1.04 from September 17, 1970, the date
Complaint was filed, until said amount is paid; (b) the
sum of P576.00 equivalent to ten (10%) of the total claim
by way of attorney’s fees and incidental expenses plus
interest at the legal rate as of September 17, 1970, until
fully paid; and (c) the costs of the suit."
Defendants-spouses appealed therefrom to the Court of
First Instance of Iloilo wherein in due course a decision
was rendered on April 28, 1978 reversing the appealed
decision and dismissing the complaint and counter-claim
with costs against the plaintiff.
A motion for reconsideration of said decision filed by
plaintiff was denied in an order of August 10, 1978.
Hence this petition wherein petitioner alleges that the
decision of respondent judge is contrary to law and runs
counter to decisions of this Court when respondent
judge (a) refused to recognize the law that the right to
prescription may be renounced or waived; and (b) that in
signing the second promissory note respondent Patricio
Confesor can bind the conjugal partnership; or otherwise
said respondent became liable in his personal capacity.
The petition is impressed with merit.
The right to prescription may be waived or renounced.
Article 1112 of Civil Code provides:
"Art. 1112. Persons with capacity to alienate property
may renounce prescription already obtained, but not the
right to prescribe in the future.
Prescription is deemed to have been tacitly renounced
when the renunciation results from acts which imply the
abandonment of the right acquired."
There is no doubt that prescription has set in as to the
first promissory note of February 10, 1940. However,
when respondent Confesor executed the second
promissory note on April 11, 1961 whereby he promised
to pay the amount covered by the previous promissory
note on or before June 15, 1961, and upon failure to do
so, agreed to the foreclosure of the mortgage, said
respondent thereby effectively and expressly renounced
and waived his right to the prescription of the action
covering the first promissory note.
This Court had ruled in a similar case that —
". . . when a debt is already barred by prescription, it
cannot be enforced by the creditor. But a new contract
recognizing and assuming the prescribed debt would be
valid and enforceable . . ."
Thus, it has been held —
"Where, therefore, a party acknowledges the
correctness of a debt and promises to pay it after the
same has prescribed and with full knowledge of the
prescription he thereby waives the benefit of
prescription."
This is not a mere case of acknowledgment of a debt
that has prescribed but a new promise to pay the debt.
The consideration of the new promissory note is the pre-
existing obligation under the first promissory note. The
statutory limitation bars the remedy but does not
discharge the debt.
"A new express promise to pay a debt barred . . . win
take the case from the operation of the statute of
limitations as this proceeds upon the ground that as a
statutory limitation merely bars the remedy and does not
discharge the debt, there is something more than a mere
moral obligation to support a promise, to wit — a pre-
existing debt which is a sufficient consideration for the
new promise; the new promise upon this sufficient
consideration constitutes, in fact, a new cause of action."
". . . It is this new promise, either made in express terms
or deduced from an acknowledgment as a legal
implication, which is to be regarded as reanimating the
old promise, or as imparting vitality to the remedy (which
by lapse of time had become extinct) and thus enabling
the creditor to recover upon his original contract."
However, the court a quo held that in signing the
promissory note alone, respondent Confesor cannot
thereby bind his wife, respondent Jovita Villafuerte, citing
Article 166 of the New Civil Code which provides:
"Art. 166. Unless the wife has been declared a non
compos mentis or a spendthrift, or is under civil
interdiction or is confined in a leprosarium, the husband
cannot alienate or encumber any real property of the
conjugal partnership without the wife’s consent. If she
refuses unreasonably to give her consent, the court may
compel her to grant the same."
We disagree. Under Article 165 of the Civil Code, the
husband is the administrator of the conjugal partnership.
As such administrator, all debts and obligations
contracted by the husband for the benefit of the conjugal
partnership, are chargeable to the conjugal partnership.
5 No doubt, in this case, respondent Confesor signed
the second promissory note for the benefit of the
conjugal partnership. Hence the conjugal partnership is
liable for this obligation.
WHEREFORE, the decision subject of the petition is
reversed and set aside and another decision is hereby
rendered reinstating the decision of the City Court of
Iloilo City of December 27, 1976, without pronouncement
as to costs in this instance. This decision is immediately
executory and no motion for extension of time to file
motion for reconsideration shall be granted. SO
ORDERED.
G.R. No. 133347. April 23, 2010. NACHURA, J.
ABS-CBN vs. OFFICE OF THE OMBUDSMAN
Before us is a Motion for Reconsideration filed by
petitioners Eugenio, Jr., Oscar and Augusto Almeda, all
surnamed Lopez, in their capacity as officers and on
behalf of petitioner ABS-CBN Broadcasting Corporation
(ABS-CBN), of our Decision in G.R. No. 133347,
dismissing their petition for certiorari because of the
absence of grave abuse of discretion in the Ombudsman
Resolution which, in turn, found no probable cause to
indict respondents for the following violations of the
Revised Penal Code (RPC): (1) Article 298 Execution of
Deeds by Means of Violence or Intimidation; (2) Article
315, paragraphs 1[b], 2[a], and 3[a] Estafa; (3) Article
308 Theft; (4) Article 302 Robbery; (5) Article 312
Occupation of Real Property or Usurpation of Real
Rights in Property; and (6) Article 318 Other Deceits.
The assailed Decision disposed of the case on two (2)
points: (1) the dropping of respondents Roberto S.
Benedicto and Salvador (Buddy) Tan as respondents in
this case due to their death, consistent with our rulings in
People v. Bayotas and Benedicto v. Court of Appeals;
and (2) our finding that the Ombudsman did not commit
grave abuse of discretion in dismissing petitioners
criminal complaint against respondents.
Undaunted, petitioners ask for a reconsideration of our
Decision on the following grounds:
I. WITH DUE RESPECT, THE EXECUTION AND
VALIDITY OF THE LETTER-AGREEMENT DATED 8
JUNE 1973 ARE PLAINLY IRRELEVANT TO
ASCERTAINING THE CRIMINAL LIABILITY OF THE
RESPONDENTS AND, THEREFORE, THE ISSUE AS
TO WHETHER SAID AGREEMENT WAS RATIFIED OR
NOT IS IMMATERIAL IN THE PRESENT CASE.
II. WITH DUE RESPECT, RESPONDENTS
BENEDICTO AND TAN SHOULD NOT BE DROPPED
AS RESPONDENTS SIMPLY BECAUSE THEY MET
THEIR UNTIMELY DEMISE DURING THE PENDENCY
OF THE CASE.
Before anything else, we note that petitioners filed a
Motion to Refer the Case to the Court en banc.
Petitioners aver that the arguments contained in their
Motion for Reconsideration, such as: (1) the irrelevance
of the civil law concept of ratification in determining
whether a crime was committed; and (2) the continuation
of the criminal complaints against respondents
Benedicto and Tan who have both died, to prosecute
their possible civil liability therefor, present novel
questions of law warranting resolution by the Court en
banc.
In the main, petitioners argue that the Decision is
contrary to law because: (1) the ratification of the June 8,
1973 letter-agreement is immaterial to the determination
of respondents criminal liability for the aforestated
felonies in the RPC; and (2) the very case cited in our
Decision, i.e. People v. Bayotas, allows for the
continuation of a criminal case to prosecute civil liability
based on law and is independent of the civil liability
arising from the crime.
We disagree with petitioners. The grounds relied upon
by petitioners in both motions, being intertwined, shall be
discussed jointly. Before we do so, parenthetically, the
counsel for respondent Miguel V. Gonzales belatedly
informed this Court of his clients demise on July 20,
2007. Hence, as to Gonzales, the case must also be
dismissed.
Contrary to petitioners assertion, their motion for
reconsideration does not contain a novel question of law
as would merit the attention of this Court sitting en banc.
We also find no cogent reason to reconsider our
Decision.
First and foremost, there is, as yet, no criminal case
against respondents, whether against those who are
living or those otherwise dead.
The question posed by petitioners on this long-settled
procedural issue does not constitute a novel question of
law. Nowhere in People v. Bayotas does it state that a
criminal complaint may continue and be prosecuted as
an independent civil action. In fact, Bayotas, once and
for all, harmonized the rules on the extinguished and on
the subsisting liabilities of an accused who dies. We
definitively ruled:
From this lengthy disquisition, we summarize our ruling
herein:
1. Death of an accused pending appeal of his conviction
extinguishes his criminal liability as well as the civil
liability based solely thereon. As opined by Justice
Regalado, in this regard, the death of the accused prior
to final judgment terminates his criminal liability and only
the civil liability directly arising from and based solely on
the offense committed, i.e., civil liability ex delicto in
senso strictiore.
2. Corollarily, the claim for civil liability survives
notwithstanding the death of accused, if the same may
also be predicated on a source of obligation other than
delict. Article 1157 of the Civil Code enumerates these
other sources of obligation from which the civil liability
may arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) xxx xxx xxx
e) Quasi-delicts
3. Where the civil liability survives, as explained in
Number 2 above, an action for recovery thereof may be
pursued but only by filing a separate civil action and
subject to Section 1, Rule 111 of the 1985 Rules on
Criminal Procedure as amended. This separate civil
action may be enforced either against the
executor/administrator or the estate of the accused,
depending on the source of obligation upon which the
same is based as explained above.
4. Finally, the private offended party need not fear a
forfeiture of his right to file this separate civil action by
prescription, in cases where during the prosecution of
the criminal action and prior to its extinction, the private
offended party instituted together therewith the civil
action. In such case, the statute of limitations on the civil
liability is deemed interrupted during the pendency of the
criminal case, conformably with provisions of Article
1155 of the Civil Code, that should thereby avoid any
apprehension on a possible [de]privation of right by
prescription.
From the foregoing, it is quite apparent that Benedicto,
Tan, and Gonzales, who all died during the pendency of
this case, should be dropped as party respondents. If on
this score alone, our ruling does not warrant
reconsideration. We need not even delve into the explicit
declaration in Benedicto v. Court of Appeals.
Second, and more importantly, we dismissed the petition
for certiorari filed by petitioners because they failed to
show grave abuse of discretion on the part of the
Ombudsman when he dismissed petitioners criminal
complaint against respondents for lack of probable
cause. We reiterate that our inquiry was limited to a
determination of whether the Ombudsman committed
grave abuse of discretion when he found no probable
cause to indict respondents for various felonies under
the RPC. The invocation of our certiorari jurisdiction over
the act of a constitutional officer, such as the
Ombudsman, must adhere to the strict requirements
provided in the Rules of Court and in jurisprudence. The
determination of whether there was grave abuse of
discretion does not, in any way, constitute a novel
question of law.
We first pointed out in our Decision that the complaint-
affidavits of petitioners, apart from a blanket charge that
remaining respondents, Gonzales (who we thought was
alive at that time) and Exequiel Garcia, are officers of
KBS/RPN and/or alter egos of Benedicto, are bereft of
sufficient ground to engender a well-founded belief that
crimes have been committed and that respondents,
namely, Gonzales and Garcia, are probably guilty
thereof and should be held for trial. Certainly, no grave
abuse of discretion can be imputed to the Ombudsman
that would warrant a reversal of his Resolution.
The charges of individual petitioners Eugenio, Jr., Oscar
and Augusto Almeda against respondents, Gonzales
and Garcia, contained in their respective complaint-
affidavits simply consisted of the following:
1. Complaint-affidavit of Eugenio, Jr.
32.1. I was briefed that Senator Estanislao Fernandez in
representation of Benedicto, met with Senator Taada at
the Club Filipino in June 1976. Discussions were had on
how to arrive at the reasonable rental for the use of
ABS-CBN stations and facilities. A second meeting at
Club Filipino took place on July 7, 1976 between
Senators Taada and Fernandez, who brought along Atty.
Miguel Gonzales, a close associate and lawyer of
Benedicto and an officer of KBS. x x x x
38.2. The illegal takeover of ABS-CBN stations, studios
and facilities, and the loss and/or damages caused to
our assets occurred while Benedicto, Exequiel Garcia,
Miguel Gonzales, and Salvador Tan were in possession,
control and management of our network. Roberto S.
Benedicto was the Chairman of the Board of KBS-RPN
and its Chief Executive Officer (CEO), to whom most of
the KBS-RPN officers reported while he was in Metro
Manila. Miguel Gonzales, the Vice-President of KBS,
and Exequiel Garcia, the Treasurer, were the alter egos
of Benedicto whenever the latter was out of the country;
x x x.
2. Complaint-affidavit of Oscar
25. All the illegal activities as complained of above, were
done upon the orders, instructions and directives of
Roberto S. Benedicto, the Chairman of the Board and
Chief Executive Officer of the KBS/RPN group; Miguel
Gonzales and Exequiel Garcia, close colleagues and
business partners of Benedicto who were either
directors/officers KBS/RPN and who acted as
Benedictos alter egos whenever the latter was out of the
country; x x x.
38. Senator Estanislao Fernandez, in representation of
Benedicto, met with Senator Taada at the Club Filipino
on June 1976. Discussions were had on how to arrive at
the reasonable rental for the use of ABS stations and
facilities. A second meeting at Club Filipino took place
on July 7, 1976 between Senators Taada and
Fernandez, who brought along Atty. Mike Gonzales, a
close associate and friend of Benedicto and an officer of
KBS.
3. Complaint-affidavit of Augusto Almeda
21.1. Barely two weeks from their entry into the ABS
Broadcast Center, KBS personnel started making
unauthorized withdrawals from the ABS Stock Room. All
these withdrawals of supplies and equipment were made
under the orders of Benedicto, Miguel Gonzales,
Exequiel Garcia, and Salvador Tan, the Chairman, the
Vice-President, Treasurer, and the General Manager of
KBS, respectively. No payment was ever made by either
Benedicto or KBS for all the supplies and equipment
withdrawn from the ABS Broadcast Center.
31. Senator Estanislao Fernandez, in representation of
Benedicto, met with Senator Taada at the Club Filipino
on June 1976. Discussions were had on how to arrive at
the reasonable rental for the use of ABS stations and
facilities. A second meeting at Club Filipino took place
on July 7, 1976 between Senators Taada and
Fernandez, who brought along Atty. Mike Gonzales, a
close associate and friend of Benedicto and an officer of
KBS.
From the foregoing, it is beyond cavil that there is no
reason for us to depart from our policy of non-
interference with the Ombudsmans finding of probable
cause or lack thereof. On the strength of these
allegations, we simply could not find any rational basis to
impute grave abuse of discretion to the Ombudsmans
dismissal of the criminal complaints.
Third, we did not state in the Decision that ratification
extinguishes criminal liability. We simply applied
ratification in determining the conflicting claims of
petitioners regarding the execution of the letter-
agreement. Petitioners, desperate to attach criminal
liability to respondents acts, specifically to respondent
Benedicto, alleged in their complaint-affidavits that
Benedicto forced, coerced and intimidated petitioners
into signing the letter-agreement. In other words,
petitioners disown this letter-agreement that they were
supposedly forced into signing, such that this resulted in
a violation of Article 298 of the RPC (Execution of Deeds
by means of Violence or Intimidation).
However, three elements must concur in order for an
offender to be held liable under Article 298:
(1) that the offender has intent to defraud another.
(2) that the offender compels him to sign, execute, or
deliver any public instrument or document.
(3) that the compulsion is by means of violence or
intimidation.
The element of intent to defraud is not present because,
even if, initially, as claimed by petitioners, they were
forced to sign the letter-agreement, petitioners made
claims based thereon and invoked the provisions
thereof. In fact, petitioners wanted respondents to honor
the letter-agreement and to pay rentals for the use of the
ABS-CBN facilities. By doing so, petitioners effectively,
although they were careful not to articulate this fact,
affirmed their signatures in this letter-agreement.
True, ratification is primarily a principle in our civil law on
contracts. Yet, their subsequent acts in negotiating for
the rentals of the facilities ― which translate into
ratification of the letter-agreement ― cannot be
disregarded simply because ratification is a civil law
concept. The claims of petitioners must be consistent
and must, singularly, demonstrate respondents
culpability for the crimes they are charged with. Sadly,
petitioners failed in this regard because, to reiterate, they
effectively ratified and advanced the validity of this letter-
agreement in their claim against the estate of Benedicto.
Finally, we take note of the conflicting claim of
petitioners by filing a separate civil action to enforce a
claim against the estate of respondent Benedicto.
Petitioners do not even specifically deny this fact and
simply sidestep this issue which was squarely raised in
the Decision. The Rules of Court has separate
provisions for different claims against the estate of a
decedent under Section 5 of Rule 86 and Section 1 of
Rule 87:
RULE 86. SECTION 5. Claims which must be filed under
the notice. If not filed, barred; exceptions. All claims for
money against the decedent, arising from contract,
express or implied, whether the same be due, not due,
or contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and
judgment for money against the decedent, must be filed
within the time limited in the notice; otherwise they are
barred forever, except that they may be set forth as
counter claims in any action that the executor or
administrator may bring against the claimants. Xxx
Claims not yet due, or contingent, may be approved at
their present value.
RULE 87. SECTION 1. Actions which may and which
may not be brought against executor or administrator.
No action upon a claim for the recovery of money or debt
or interest thereon shall be commenced against the
executor or administrator; but actions to recover real or
personal property, or an interest therein, from the estate,
or to enforce a lien thereon, and actions to recover
damages for an injury to person or property, real or
personal, may be commenced against him.
If, as insisted by petitioners, respondents committed
felonies in forcing them to sign the letter-agreement,
petitioners should have filed an action against the
executor or administrator of Benedictos estate based on
Section 1, Rule 87 of the Rules of Court. But they did
not. Instead they filed a claim against the estate based
on contract, the unambiguous letter-agreement, under
Section 5, Rule 86 of the Rules of Court. The existence
of this claim against the estate of Benedicto as opposed
to the filing of an action against the executor or
administrator of Benedictos estate forecloses all issues
on the circumstances surrounding the execution of this
letter- agreement.
We are not oblivious of the fact that, in the milieu
prevailing during the Marcos years, incidences involving
intimidation of businessmen were not uncommon.
Neither are we totally unaware of the reputed closeness
of Benedicto to President Marcos. However, given the
foregoing options open to them under the Rules of
Court, petitioners choice of remedies by filing their claim
under Section 5, Rule 86 ― after Marcos had already
been ousted and full democratic space restored ―
works against their contention, challenging the validity of
the letter-agreement. Now, petitioners must live with the
consequences of their choice.
WHEREFORE, in light of the foregoing, the Motion to
Refer the Case to the Court en banc and the Motion for
Reconsideration are DENIED. SO ORDERED.
12 Phil. 453. TORRES, J.
ARTURO PELAYO vs. MARCELO LAURON ET AL.
On the 23d of November, 1900, Arturo Pelayo, a
physician residing in Cebu, filed a complaint against
Marcelo Lauron and Juana Abella setting forth that on or
about the 13th of October of said year, at night, the
plaintiff was called to the house of the defendants,
situated in San Nicolas, and that upon arrival he was
requested by them to render medical assistance to their
daughter-in-law who was about to give birth to a child;
that therefore, and after consultation with the attending
physician, Dr. Escaño, it was found necessary, on
account of the difficult birth, to remove the foetus by
means of forceps which operation was performed by the
plaintiff, who also had to remove the after-birth, in which
service he was occupied until the following morning, and
that afterwards, on the same day, he visited the patient
several times; that the just and equitable value of the
services rendered by him was P500, which the
defendants refuse to pay without alleging any good
reason therefor; that for said reason he prayed that
judgment be entered in his favor as against the
defendants, or any of them, for the sum of P500 and
costs, together with any other relief that might be
deemed proper.
In answer to the complaint counsel for the defendants
denied all of the allegations therein contained and
alleged as a special defense, that their daughter-in-law
had died in consequence of the said childbirth, and that
when she was alive she lived with her husband
independently and in a separate house without any
relation whatever with them, and that, if on the day when
she gave birth she was in the house of the defendants,
her stay there was accidental and due to fortuitous
circumstances; therefore, he prayed that the defendants
be absolved of the complaint with costs against the
plaintiff.
The plaintiff demurred to the above answer, and the
court below sustained the demurrer, directing the
defendants, on the 23d of January, 1907, to amend their
answer.
In compliance with this order the defendants presented,
on the same date, their amended answer, denying each
and every one of the allegations contained in the
complaint, and requesting that the same be dismissed
with costs.
As a result of the evidence adduced by both parties,
judgment was entered by the court below on the 5th of
April, 1907, whereby the defendants were absolved from
the former complaint, on account of the lack of sufficient
evidence to establish a right of action against the
defendants, with costs against the plaintiff, who
excepted to the said judgment and in addition moved for
a new trial on the ground that the judgment was contrary
to law; the motion was overruled and the plaintiff
excepted and in due course presented the
corresponding bill of exceptions. The motion of the
defendants requesting that the declaration contained in
the judgment that the defendants had demanded the
professional services of the plaintiff be eliminated
therefrom, for the reason that, according to the evidence,
no such request had been made, was also denied, and
to the decision the defendants excepted.
Assuming that it is a real fact acknowledged by the
defendants, that the plaintiff, by virtue of having been
sent for by the former, attended as physician and
rendered professional services to a daughter-in-law of
the said defendants during a difficult and laborious
childbirth, in order to decide the claim of the said
physician regarding the recovery of his fees, it becomes
necessary to decide who is bound to pay the bill,
whether the father and mother-in-law of the patient, or
the husband of the latter.
According to article 1089 of the Civil Code, obligations
are created by law, by contracts, by quasi-contracts, and
by illicit acts and omissions or by those in which any kind
of fault or negligence occurs.
Obligations arising from law are not presumed. Those
expressly determined in the code or in special laws, etc.,
are the only demandable ones. Obligations arising from
contracts have legal force between the contracting
parties and must be fulfilled in accordance with their
stipulations. (Arts, 1090 and 1091.)
The rendering of medical assistance in case of illness is
comprised among the mutual obligations to which
spouses are bound by way of mutual support. (Arts. 142
and 143.)
If every obligation consists in giving, doing, or not doing
something (art. 1088), and spouses are mutually bound
to support each other, there can be no question but that,
when either of them by reason of illness should be in
need of medical assistance, the other is under the
unavoidable obligation to furnish the necessary services
of a physician in order that health may be restored, and
he or she may be freed from the sickness by which life is
jeopardized; the party bound to furnish such support is
therefore liable for all expenses, including the fees of the
medical expert for his professional services. This liability
originates from the above-cited mutual obligation which
the law lias expressly established between the married
couple.
In the face of the above legal precepts it is
unquestionable that the person bound to pay the fees
due to the plaintiff for the professional services that he
rendered to the daughter-in-law of the defendants during
her childbirth is the husband of the patient and not her
father and mother-in-law, the defendants herein. The
fact that it was not the husband who called the plaintiff
and requested his assistance for his wife is no bar to the
fulfillment of the said obligation, as the defendants, in
view of the imminent danger to which the life of the
patient was at that moment exposed, considered that
medical assistance was urgently needed, and the
obligation of the husband to furnish his wife with the
indispensable services of a physician at such critical
moments is specially established by the law, as has
been seen, and compliance therewith is unavoidable;
therefore, the plaintiff, who believes that he is entitled to
recover his fees, must direct his action against the
husband who is under obligation to furnish medical
assistance to his lawful wife in such an emergency.
From the foregoing it may readily be understood that it
was improper to have brought an action against the
defendants simply because they were the parties who
called the plaintiff and requested him to assist the patient
during her difficult confinement, and also, possibly,
because they were her father and mother-in-law and the
sickness occurred in their house. The defendants were
not, nor are they now, under any obligation by virtue of
any legal provision, to pay the fees claimed, nor in
consequence of any contract entered into between them
and the plaintiff from which such obligation might have
arisen.
In applying the provisions of the Civil Code in an action
for support, the supreme court of Spain, while
recognizing the validity and efficiency of a contract to
furnish support wherein a person bound himself to
support another who was not his relative, established the
rule that the law does impose the obligation to pay for
the support of a stranger, but as the liability arose out of
a contract, the stipulations of the agreement must be
upheld. (Decision of May 11, 1897.)
Within the meaning of the law, the father and mother-in-
law are strangers with respect to the obligation that
devolves upon the husband to provide support, among
which is the furnishing of medical assistance to his wife
at the time of her confinement; and, on the other hand, it
does not appear that a contract existed between the
defendants and the plaintiff physician, for which reason it
is obvious that the former can not be compelled to pay
fees which they are under no liability to pay because it
does not appear that they consented to bind themselves.
The foregoing suffices to demonstrate that the first and
second errors assigned to the judgment below are
unfounded, because, if the plaintiff has no right of action
against the defendants, it is needless to declare whether
or not the use of forceps is a surgical operation.
Therefore, in view of the considerations hereinbefore set
forth, it is our opinion that the judgment appealed from
should be affirmed with the costs against the appellant.
So ordered.
G.R. No. 183204. Jan 13, 2014. DEL CASTILLO, J.
METROPOLITAN BANK AND TRUST COMPANY vs.
ANA GRACE ROSALES AND YO YUK TO
Bank deposits, which are in the nature of a simple loan
or mutuum, must be paid upon demand by the depositor.
This Petition for Review on Certiorari under Rule 45 of
the Rules of Court assails the April 2, 2008 Decision and
the May 30, 2008 Resolution of he Court of Appeals CA)
in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a
domestic banking corporation duly organized and
existing under the laws of the Philippines. Respondent
Ana Grace Rosales (Rosales) is the owner of China
Golden Bridge Travel Services, a travel agency.
Respondent Yo Yuk To is the mother of respondent
Rosales.
In 2000, respondents opened a Joint Peso Account with
petitioner’s Pritil-Tondo Branch.11 As of August 4, 2004,
respondents’ Joint Peso Account showed a balance of
₱2,515,693.52.
In May 2002, respondent Rosales accompanied her
client Liu Chiu Fang, a Taiwanese National applying for
a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in
Escolta to open a savings account, as required by the
PLRA. Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter
for her.
On March 3, 2003, respondents opened with petitioner’s
Pritil-Tondo Branch a Joint Dollar Account with an initial
deposit of US$14,000.00.
On July 31, 2003, petitioner issued a "Hold Out" order
against respondents’ accounts.
On September 3, 2003, petitioner, through its Special
Audit Department Head Antonio Ivan Aguirre, filed
before the Office of the Prosecutor of Manila a criminal
case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified
Documents, docketed as I.S. No. 03I-25014, against
respondent Rosales. Petitioner accused respondent
Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent
withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar
account with petitioner’s Escolta Branch. Petitioner
alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the
dollar account of Liu Chiu Fang; that in the afternoon of
the same day, respondent Rosales went to petitioner’s
Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to
withdraw her dollar deposits in cash; that Gutierrez told
respondent Rosales to come back the following day
because the bank did not have enough dollars; that on
February 6, 2003, respondent Rosales accompanied an
unidentified impostor of Liu Chiu Fang to the bank; that
the impostor was able to withdraw Liu Chiu Fang’s dollar
deposit in the amount of US$75,000.00; that on March 3,
2003, respondents opened a dollar account with
petitioner; and that the bank later discovered that the
serial numbers of the dollar notes deposited by
respondents in the amount of US$11,800.00 were the
same as those withdrawn by the impostor.
Respondent Rosales, however, denied taking part in the
fraudulent and unauthorized withdrawal from the dollar
account of Liu Chiu Fang. Respondent Rosales claimed
that she did not go to the bank on February 5, 2003.
Neither did she inform Gutierrez that Liu Chiu Fang was
going to close her account. Respondent Rosales further
claimed that after Liu Chiu Fang opened an account with
petitioner, she lost track of her. Respondent Rosales’
version of the events that transpired thereafter is as
follows:
On February 6, 2003, she received a call from Gutierrez
informing her that Liu Chiu Fang was at the bank to
close her account. At noon of the same day, respondent
Rosales went to the bank to make a transaction. While
she was transacting with the teller, she caught a glimpse
of a woman seated at the desk of the Branch Operating
Officer, Melinda Perez (Perez). After completing her
transaction, respondent Rosales approached Perez who
informed her that Liu Chiu Fang had closed her account
and had already left. Perez then gave a copy of the
Withdrawal Clearance issued by the PLRA to
respondent Rosales.
On June 16, 2003, respondent Rosales received a call
from Liu Chiu Fang inquiring about the extension of her
PLRA Visa and her dollar account. It was only then that
Liu Chiu Fang found out that her account had been
closed without her knowledge. Respondent Rosales then
went to the bank to inform Gutierrez and Perez of the
unauthorized withdrawal.
On June 23, 2003, respondent Rosales and Liu Chiu
Fang went to the PLRA Office, where they were
informed that the Withdrawal Clearance was issued on
the basis of a Special Power of Attorney (SPA) executed
by Liu Chiu Fang in favor of a certain Richard So. Liu
Chiu Fang, however, denied executing the SPA. The
following day, respondent Rosales, Liu Chiu Fang,
Gutierrez, and Perez met at the PLRA Office to discuss
the unauthorized withdrawal. During the conference, the
bank officers assured Liu Chiu Fang that the money
would be returned to her.
On December 15, 2003, the Office of the City Prosecutor
of Manila issued a Resolution dismissing the criminal
case for lack of probable cause. Unfazed, petitioner
moved for reconsideration.
On September 10, 2004, respondents filed before the
Regional Trial Court (RTC) of Manila a Complaint for
Breach of Obligation and Contract with Damages,
docketed as Civil Case No. 04110895 and raffled to
Branch 21, against petitioner. Respondents alleged that
they attempted several times to withdraw their deposits
but were unable to because petitioner had placed their
accounts under "Hold Out" status. No explanation,
however, was given by petitioner as to why it issued the
"Hold Out" order. Thus, they prayed that the "Hold Out"
order be lifted and that they be allowed to withdraw their
deposits. They likewise prayed for actual, moral, and
exemplary damages, as well as attorney’s fees.
Petitioner alleged that respondents have no cause of
action because it has a valid reason for issuing the "Hold
Out" order. It averred that due to the fraudulent scheme
of respondent Rosales, it was compelled to reimburse
Liu Chiu Fang the amount of US$75,000.00 and to file a
criminal complaint for Estafa against respondent
Rosales.
While the case for breach of contract was being tried,
the City Prosecutor of Manila issued a Resolution dated
February 18, 2005, reversing the dismissal of the
criminal complaint. An Information, docketed as Criminal
Case No. 05-236103, was then filed charging
respondent Rosales with Estafa before Branch 14 of the
RTC of Manila.
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision
finding petitioner liable for damages for breach of
contract.
The RTC ruled that it is the duty of petitioner to release
the deposit to respondents as the act of withdrawal of a
bank deposit is an act of demand by the creditor. The
RTC also said that the recourse of petitioner is against
its negligent employees and not against respondents.
The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered ordering [petitioner] METROPOLITAN
BANK & TRUST COMPANY to allow [respondents] ANA
GRACE ROSALES and YO YUK TO to withdraw their
Savings and Time Deposits with the agreed interest,
actual damages of ₱50,000.00, moral damages of
₱50,000.00, exemplary damages of ₱30,000.00 and
10% of the amount due [respondents] as and for
attorney’s fees plus the cost of suit. The counterclaim of
[petitioner] is hereby DISMISSED for lack of merit. SO
ORDERED.
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA. On April 2,
2008, the CA affirmed the ruling of the RTC but deleted
the award of actual damages because "the basis for
[respondents’] claim for such damages is the
professional fee that they paid to their legal counsel for
[respondent] Rosales’ defense against the criminal
complaint of [petitioner] for estafa before the Office of
the City Prosecutor of Manila and not this case." Thus,
the CA disposed of the case in this wise:
WHEREFORE, premises considered, the Decision dated
January 15, 2007 of the RTC, Branch 21, Manila in Civil
Case No. 04-110895 is AFFIRMED with
MODIFICATION that the award of actual damages to
[respondents] Rosales and Yo Yuk To is hereby
DELETED. SO ORDERED.
Petitioner sought reconsideration but the same was
denied by the CA in its May 30, 2008 Resolution.
Issues
Hence, this recourse by petitioner raising the following
issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-
OUT" PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT
APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT
PETITIONER’S EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANG’S FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF
MORAL DAMAGES, EXEMPLARY DAMAGES, AND
ATTORNEY’S FEES.
Petitioner’s Arguments
Petitioner contends that the CA erred in not applying the
"Hold Out" clause stipulated in the Application and
Agreement for Deposit Account. It posits that the said
clause applies to any and all kinds of obligation as it
does not distinguish between obligations arising ex
contractu or ex delictu. Petitioner also contends that the
fraud committed by respondent Rosales was clearly
established by evidence; thus, it was justified in issuing
the "Hold- Out" order. Petitioner likewise denies that its
employees were negligent in releasing the dollars. It
claims that it was the deception employed by respondent
Rosales that caused petitioner’s employees to release
Liu Chiu Fang’s funds to the impostor.
Lastly, petitioner puts in issue the award of moral and
exemplary damages and attorney’s fees. It insists that
respondents failed to prove that it acted in bad faith or in
a wanton, fraudulent, oppressive or malevolent manner.
Respondents’ Arguments
Respondents, on the other hand, argue that there is no
legal basis for petitioner to withhold their deposits
because they have no monetary obligation to petitioner.
They insist that petitioner miserably failed to prove its
accusations against respondent Rosales. In fact, no
documentary evidence was presented to show that
respondent Rosales participated in the unauthorized
withdrawal. They also question the fact that the list of the
serial numbers of the dollar notes fraudulently withdrawn
on February 6, 2003, was not signed or acknowledged
by the alleged impostor.
Respondents likewise maintain that what was
established during the trial was the negligence of
petitioner’s employees as they allowed the withdrawal of
the funds without properly verifying the identity of the
depositor.
Furthermore, respondents contend that their deposits
are in the nature of a loan; thus, petitioner had the
obligation to return the deposits to them upon demand.
Failing to do so makes petitioner liable to pay
respondents moral and exemplary damages, as well as
attorney’s fees.
Our Ruling: The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1)
whether petitioner breached its contract with
respondents, and
(2) if so, whether it is liable for damages. The issue of
whether petitioner’s employees were negligent in
allowing the withdrawal of Liu Chiu Fang’s dollar
deposits has no bearing in the resolution of this case.
Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply to the instant
case. Petitioner claims that it did not breach its contract
with respondents because it has a valid reason for
issuing the "Hold Out" order. Petitioner anchors its right
to withhold respondents’ deposits on the Application and
Agreement for Deposit Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for
any and all obligations with the Bank, all monies,
properties or securities of the Depositor now in or which
may hereafter come into the possession or under the
control of the Bank, whether left with the Bank for
safekeeping or otherwise, or coming into the hands of
the Bank in any way, for so much thereof as will be
sufficient to pay any or all obligations incurred by
Depositor under the Account or by reason of any other
transactions between the same parties now existing or
hereafter contracted, to sell in any public or private sale
any of such properties or securities of Depositor, and to
apply the proceeds to the payment of any
Depositor’s obligations heretofore mentioned.
x x x x JOINT ACCOUNT x x x x
The Bank may, at any time in its discretion and with or
without notice to all of the Depositors, assert a lien on
any balance of the Account and apply all or any part
thereof against any indebtedness, matured or
unmatured, that may then be owing to the Bank by any
or all of the Depositors. It is understood that if said
indebtedness is only owing from any of the Depositors,
then this provision constitutes the consent by all of the
depositors to have the Account answer for the said
indebtedness to the extent of the equal share of the
debtor in the amount credited to the Account. Petitioner’s
reliance on the "Hold Out" clause in the Application and
Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and
existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code,
to wit: law, contracts, quasi-contracts, delict, and
quasidelict.
In this case, petitioner failed to show that respondents
have an obligation to it under any law, contract,
quasicontract, delict, or quasi-delict. And although a
criminal case was filed by petitioner against respondent
Rosales, this is not enough reason for petitioner to issue
a "Hold Out" order as the case is still pending and no
final judgment of conviction has been rendered against
respondent Rosales. In fact, it is significant to note that
at the time petitioner issued the "Hold Out" order, the
criminal complaint had not yet been filed. Thus,
considering that respondent Rosales is not liable under
any of the five sources of obligation, there was no legal
basis for petitioner to issue the "Hold Out" order.
Accordingly, we agree with the findings of the RTC and
the CA that the "Hold Out" clause does not apply in the
instant case.
In view of the foregoing, we find that petitioner is guilty of
breach of contract when it unjustifiably refused to
release respondents’ deposit despite demand. Having
breached its contract with respondents, petitioner is
liable for damages.
Respondents are entitled to moral and exemplary
damages and attorney’s fees.
In cases of breach of contract, moral damages may be
recovered only if the defendant acted fraudulently or in
bad faith, or is "guilty of gross negligence amounting to
bad faith, or in wanton disregard of his contractual
obligations."
In this case, a review of the circumstances surrounding
the issuance of the "Hold Out" order reveals that
petitioner issued the "Hold Out" order in bad faith. First
of all, the order was issued without any legal basis.
Second, petitioner did not inform respondents of the
reason for the "Hold Out." Third, the order was issued
prior to the filing of the criminal complaint. Records show
that the "Hold Out" order was issued on July 31, 2003,
while the criminal complaint was filed only on September
3, 2003. All these taken together lead us to conclude
that petitioner acted in bad faith when it breached its
contract with respondents. As we see it then,
respondents are entitled to moral damages.
As to the award of exemplary damages, Article 2229 of
the Civil Code provides that exemplary damages may be
imposed "by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or
compensatory damages." They are awarded only if the
guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
In this case, we find that petitioner indeed acted in a
wanton, fraudulent, reckless, oppressive or malevolent
manner when it refused to release the deposits of
respondents without any legal basis. We need not
belabor the fact that the banking industry is impressed
with public interest. As such, "the highest degree of
diligence is expected, and high standards of integrity and
performance are even required of it." It must therefore
"treat the accounts of its depositors with meticulous care
and always to have in mind the fiduciary nature of its
relationship with them." For failing to do this, an award of
exemplary damages is justified to set an example. The
award of attorney's fees is likewise proper pursuant to
paragraph 1, Article 2208 of the Civil Code.
In closing, it must be stressed that while we recognize
that petitioner has the right to protect itself from fraud or
suspicions of fraud, the exercise of his right should be
done within the bounds of the law and in accordance
with due process, and not in bad faith or in a wanton
disregard of its contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The
assailed April 2, 2008 Decision and the May 30, 2008
Resolution of the Court of Appeals in CA-G.R. CV No.
89086 are hereby AFFIRMED. SO ORDERED.
G.R. No. 179337. April 30, 2008.
YNARES-SANTIAGO, J.
JOSEPH SALUDAGA vs. FEU
This Petition for Review on Certiorari under Rule 45 of
the Rules of Court assails the June 29, 2007 Decision of
the Court of Appeals in CA-G.R. CV No. 87050,
nullifying and setting aside the November 10, 2004
Decision of the Regional Trial Court of Manila, Branch 2,
in Civil Case No. 98-89483 and dismissing the complaint
filed by petitioner; as well as its August 23, 2007
Resolution denying the Motion for Reconsideration.
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law
student of respondent Far Eastern University (FEU)
when he was shot by Alejandro Rosete (Rosete), one of
the security guards on duty at the school premises on
August 18, 1996. Petitioner was rushed to FEU-Dr.
Nicanor Reyes Medical Foundation (FEU-NRMF) due to
the wound he sustained. Meanwhile, Rosete was
brought to the police station where he explained that the
shooting was accidental. He was eventually released
considering that no formal complaint was filed against
him.
Petitioner thereafter filed a complaint for damages
against respondents on the ground that they breached
their obligation to provide students with a safe and
secure environment and an atmosphere conducive to
learning. Respondents, in turn, filed a Third-Party
Complaint against Galaxy Development and
Management Corporation (Galaxy), the agency
contracted by respondent FEU to provide security
services within its premises and Mariano D. Imperial
(Imperial), Galaxys President, to indemnify them for
whatever would be adjudged in favor of petitioner, if any;
and to pay attorneys fees and cost of the suit. On the
other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.
On November 10, 2004, the trial court rendered a
decision in favor of petitioner, the dispositive portion of
which reads:
WHEREFORE, from the foregoing, judgment is hereby
rendered ordering:
1. FEU and Edilberto de Jesus, in his capacity as
president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual damages
with 12% interest per annum from the filing of the
complaint until fully paid; moral damages of
P300,000.00, exemplary damages of P500,000.00,
attorneys fees of P100,000.00 and cost of the suit;
2. Galaxy Management and Development Corp. and its
president, Col. Mariano Imperial to indemnify jointly and
severally 3rd party plaintiffs (FEU and Edilberto de Jesus
in his capacity as President of FEU) for the above-
mentioned amounts;
3. And the 4th party complaint is dismissed for lack of
cause of action. No pronouncement as to costs. SO
ORDERED.
Respondents appealed to the Court of Appeals which
rendered the assailed Decision, the decretal portion of
which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The
Decision dated November 10, 2004 is hereby
REVERSED and SET ASIDE. The complaint filed by
Joseph Saludaga against appellant Far Eastern
University and its President in Civil Case No. 98-89483
is DISMISSED. SO ORDERED.
Petitioner filed a Motion for Reconsideration which was
denied; hence, the instant petition based on the following
grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN
MANNER CONTRARY TO LAW AND
JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS
EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR
DAMAGES FOR THE INJURY RESULTING FROM A
GUNSHOT WOUND SUFFERED BY THE PETITIONER
FROM THE HANDS OF NO LESS THAN THEIR OWN
SECURITY GUARD IN VIOLATION OF THEIR BUILT-
IN CONTRACTUAL OBLIGATION TO PETITIONER,
BEING THEIR LAW STUDENT AT THAT TIME, TO
PROVIDE HIM WITH A SAFE AND SECURE
EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO
SHOT PETITIONER WHILE HE WAS WALKING ON
HIS WAY TO THE LAW LIBRARY OF RESPONDENT
FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE
CONTRACT FOR SECURITY SERVICES BETWEEN
GALAXY AND FEU NOTWITHSTANDING THE FACT
THAT PETITIONER, NOT BEING A PARTY TO IT, IS
NOT BOUND BY THE SAME UNDER THE PRINCIPLE
OF RELATIVITY OF CONTRACTS; and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN
SELECTING GALAXY AS THE AGENCY WHICH
WOULD PROVIDE SECURITY SERVICES WITHIN
THE PREMISES OF RESPONDENT FEU.
Petitioner is suing respondents for damages based on
the alleged breach of student-school contract for a safe
learning environment. The pertinent portions of
petitioners Complaint read:
6.0. At the time of plaintiffs confinement, the defendants
or any of their representative did not bother to visit and
inquire about his condition. This abject indifference on
the part of the defendants continued even after plaintiff
was discharged from the hospital when not even a word
of consolation was heard from them. Plaintiff waited for
more than one (1) year for the defendants to perform
their moral obligation but the wait was fruitless. This
indifference and total lack of concern of defendants
served to exacerbate plaintiffs miserable condition.
x x x x 11.0. Defendants are responsible for ensuring the
safety of its students while the latter are within the
University premises. And that should anything untoward
happens to any of its students while they are within the
Universitys premises shall be the responsibility of the
defendants. In this case, defendants, despite being
legally and morally bound, miserably failed to protect
plaintiff from injury and thereafter, to mitigate and
compensate plaintiff for said injury;
12.0. When plaintiff enrolled with defendant FEU, a
contract was entered into between them. Under this
contract, defendants are supposed to ensure that
adequate steps are taken to provide an atmosphere
conducive to study and ensure the safety of the plaintiff
while inside defendant FEUs premises. In the instant
case, the latter breached this contract when defendant
allowed harm to befall upon the plaintiff when he was
shot at by, of all people, their security guard who was
tasked to maintain peace inside the campus.
In Philippine School of Business Administration v. Court
of Appeals, we held that:
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. 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.
It is undisputed that petitioner was enrolled as a
sophomore law student in respondent FEU. As such,
there was created a contractual obligation between the
two parties. On petitioners part, he was obliged to
comply with the rules and regulations of the school. On
the other hand, respondent FEU, as a learning institution
is mandated to impart knowledge and equip its students
with the necessary skills to pursue higher education or a
profession. At the same time, it is obliged to ensure and
take adequate steps to maintain peace and order within
the campus.
It is settled that in culpa contractual, the mere proof of
the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of
relief. In the instant case, we find that, when petitioner
was shot inside the campus by no less the security
guard who was hired to maintain peace and secure the
premises, there is a prima facie showing that
respondents failed to comply with its obligation to
provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that
the shooting incident was a fortuitous event because
they could not have reasonably foreseen nor avoided the
accident caused by Rosete as he was not their
employee; and that they complied with their obligation to
ensure a safe learning environment for their students by
having exercised due diligence in selecting the security
services of Galaxy.
After a thorough review of the records, we find that
respondents failed to discharge the burden of proving
that they exercised due diligence in providing a safe
learning environment for their students. They failed to
prove that they ensured that the guards assigned in the
campus met the requirements stipulated in the Security
Service Agreement. Indeed, certain documents about
Galaxy were presented during trial; however, no
evidence as to the qualifications of Rosete as a security
guard for the university was offered.
Respondents also failed to show that they undertook
steps to ascertain and confirm that the security guards
assigned to them actually possess the qualifications
required in the Security Service Agreement. It was not
proven that they examined the clearances, psychiatric
test results, 201 files, and other vital documents
enumerated in its contract with Galaxy. Total reliance on
the security agency about these matters or failure to
check the papers stating the qualifications of the guards
is negligence on the part of respondents. A learning
institution should not be allowed to completely relinquish
or abdicate security matters in its premises to the
security agency it hired. To do so would result to
contracting away its inherent obligation to ensure a safe
learning environment for its students.
Consequently, respondents defense of force majeure
must fail. In order for force majeure to be considered,
respondents must show that no negligence or
misconduct was committed that may have occasioned
the loss. An act of God cannot be invoked to protect a
person who has failed to take steps to forestall the
possible adverse consequences of such a loss. Ones
negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be
partly the result of a persons participation whether by
active intervention, neglect or failure to act the whole
occurrence is humanized and removed from the rules
applicable to acts of God.
Article 1170 of the Civil Code provides that those who
are negligent in the performance of their obligations are
liable for damages. Accordingly, for breach of contract
due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for
damages. It is essential in the award of damages that
the claimant must have satisfactorily proven during the
trial the existence of the factual basis of the damages
and its causal connection to defendants acts.
In the instant case, it was established that petitioner
spent P35,298.25 for his hospitalization and other
medical expenses. While the trial court correctly
imposed interest on said amount, however, the case at
bar involves an obligation arising from a contract and not
a loan or forbearance of money. As such, the proper rate
of legal interest is six percent (6%) per annum of the
amount demanded. Such interest shall continue to run
from the filing of the complaint until the finality of this
Decision. After this Decision becomes final and
executory, the applicable rate shall be twelve percent
(12%) per annum until its satisfaction.
The other expenses being claimed by petitioner, such as
transportation expenses and those incurred in hiring a
personal assistant while recuperating were however not
duly supported by receipts. In the absence thereof, no
actual damages may be awarded. Nonetheless,
temperate damages under Art. 2224 of the Civil Code
may be recovered where it has been shown that the
claimant suffered some pecuniary loss but the amount
thereof cannot be proved with certainty. Hence, the
amount of P20,000.00 as temperate damages is
awarded to petitioner.
As regards the award of moral damages, there is no
hard and fast rule in the determination of what would be
a fair amount of moral damages since each case must
be governed by its own peculiar circumstances. The
testimony of petitioner about his physical suffering,
mental anguish, fright, serious anxiety, and moral shock
resulting from the shooting incident justify the award of
moral damages. However, moral damages are in the
category of an award designed to compensate the
claimant for actual injury suffered and not to impose a
penalty on the wrongdoer. The award is not meant to
enrich the complainant at the expense of the defendant,
but to enable the injured party to obtain means,
diversion, or amusements that will serve to obviate the
moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the
spiritual status quo ante, and should be proportionate to
the suffering inflicted. Trial courts must then guard
against the award of exorbitant damages; they should
exercise balanced restrained and measured objectivity
to avoid suspicion that it was due to passion, prejudice,
or corruption on the part of the trial court. We deem it
just and reasonable under the circumstances to award
petitioner moral damages in the amount of P100,000.00.
Likewise, attorneys fees and litigation expenses in the
amount of P50,000.00 as part of damages is reasonable
in view of Article 2208 of the Civil Code. However, the
award of exemplary damages is deleted considering the
absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus
solidarily liable with respondent FEU. In Powton
Conglomerate, Inc. v. Agcolicol, we held that:
[A] corporation is invested by law with a personality
separate and distinct from those of the persons
composing it, such that, save for certain exceptions,
corporate officers who entered into contracts in behalf of
the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate
director, trustee or officer along (although not
necessarily) with the corporation may so validly attach,
as a rule, only when (1) he assents to a patently unlawful
act of the corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when there is
a conflict of interest resulting in damages to the
corporation, its stockholders or other persons; (2) he
consents to the issuance of watered down stocks or
who, having knowledge thereof, does not forthwith file
with the corporate secretary his written objection thereto;
(3) he agrees to hold himself personally and solidarily
liable with the corporation; or (4) he is made by a
specific provision of law personally answerable for his
corporate action.
None of the foregoing exceptions was established in the
instant case; hence, respondent De Jesus should not be
held solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the
instant case is the breach of the school-student contract,
petitioner, in the alternative, also holds respondents
vicariously liable under Article 2180 of the Civil Code,
which provides:
Art. 2180. The obligation imposed by Article 2176 is
demandable not only for ones own acts or omissions,
but also for those of persons for whom one is
responsible.
x 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. x x x
x defendant, who acts as third-party plaintiff to enforce
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.
We agree with the findings of the Court of Appeals that
respondents cannot be held liable for damages under
Art. 2180 of the Civil Code because respondents are not
the employers of Rosete. The latter was employed by
Galaxy. The instructions issued by respondents Security
Consultant to Galaxy and its security guards are
ordinarily no more than requests commonly envisaged in
the contract for services entered into by a principal and a
security agency. They cannot be construed as the
element of control as to treat respondents as the
employers of Rosete.
As held in Mercury Drug Corporation v. Libunao:
In Soliman, Jr. v. Tuazon,[30] we held that where the
security agency recruits, hires and assigns the works of
its watchmen or security guards to a client, the employer
of such guards or watchmen is such agency, and not the
client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence
of a good father of a family cannot be demanded from
the said client:
[I]t is settled in our jurisdiction 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 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.
x x x x 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.
We now come to respondents Third Party Claim against
Galaxy. In Firestone Tire and Rubber Company of the
Philippines v. Tempengko, we held that:
The third-party complaint is, therefore, a procedural
device whereby a third party who is neither a party nor
privy to the act or deed complained of by the plaintiff,
may be brought into the case with leave of court, by the
against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in
respect of the plaintiffs claim. The third-party complaint
is actually independent of and separate and distinct from
the plaintiffs complaint. Were it not for this provision of
the Rules of Court, it would have to be filed
independently and separately from the original complaint
by the defendant against the third-party. But the Rules
permit defendant to bring in a third-party defendant or so
to speak, to litigate his separate cause of action in
respect of plaintiffs claim against a third-party in the
original and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of law
suits and of disposing expeditiously in one litigation the
entire subject matter arising from one particular set of
facts.
Respondents and Galaxy were able to litigate their
respective claims and defenses in the course of the trial
of petitioners complaint. Evidence duly supports the
findings of the trial court that Galaxy is negligent not only
in the selection of its employees but also in their
supervision. Indeed, no administrative sanction was
imposed against Rosete despite the shooting incident;
moreover, he was even allowed to go on leave of
absence which led eventually to his disappearance.
Galaxy also failed to monitor petitioners condition or
extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and
Imperial failed to make good their pledge to reimburse
petitioners medical expenses.
For these acts of negligence and for having supplied
respondent FEU with an unqualified security guard,
which resulted to the latters breach of obligation to
petitioner, it is proper to hold Galaxy liable to respondent
FEU for such damages equivalent to the above-
mentioned amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be
solidarily liable with Galaxy for being grossly negligent in
directing the affairs of the security agency. It was
Imperial who assured petitioner that his medical
expenses will be shouldered by Galaxy but said
representations were not fulfilled because they
presumed that petitioner and his family were no longer
interested in filing a formal complaint against them.
WHEREFORE, the petition is GRANTED. The June 29,
2007 Decision of the Court of Appeals in CA-G.R. CV
No. 87050 nullifying the Decision of the trial court and
dismissing the complaint as well as the August 23, 2007
Resolution denying the Motion for Reconsideration are
REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Manila, Branch 2, in Civil Case
No. 98-89483 finding respondent FEU liable for
damages for breach of its obligation to provide students
with a safe and secure learning atmosphere, is
AFFIRMED with the following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is
ORDERED to pay petitioner actual damages in the
amount of P35,298.25, plus 6% interest per annum from
the filing of the complaint until the finality of this
Decision. After this decision becomes final and
executory, the applicable rate shall be twelve percent
(12%) per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner
temperate damages in the amount of P20,000.00; moral
damages in the amount of P100,000.00; and attorneys
fees and litigation expenses in the amount of
P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De
Jesus is DISMISSED. The counterclaims of respondents
are likewise DISMISSED.
Galaxy Development and Management Corporation
(Galaxy) and its president, Mariano D. Imperial are
ORDERED to jointly and severally pay respondent FEU
damages equivalent to the above-mentioned amounts
awarded to petitioner. SO ORDERED.
G.R. No. 158911. March 4, 2008.
AUSTRIA-MARTINEZ, J.
MANILA ELECTRIC COMPANY vs. MATILDE
MACABAGDAL RAMOY
This resolves the Petition for Review on Certiorari under
Rule 45 of the Rules of Court, praying that the Decision
of the Court of Appeals (CA) dated December 16, 2002,
ordering petitioner Manila Electric Company
(MERALCO) to pay Leoncio Ramoy moral and
exemplary damages and attorney's fees, and the CA
Resolution dated July 1, 2003, denying petitioner's
motion for reconsideration, be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch
81, accurately summarized the facts as culled from the
records, thus:
The evidence on record has established that in the year
1987 the National Power Corporation (NPC) filed with
the MTC Quezon City a case for ejectment against
several persons allegedly illegally occupying its
properties in Baesa, Quezon City. Among the
defendants in the ejectment case was Leoncio Ramoy,
one of the plaintiffs in the case at bar. On April 28, 1989
after the defendants failed to file an answer in spite of
summons duly served, the MTC Branch 36, Quezon City
rendered judgment for the plaintiff [MERALCO] and
ordering the defendants to demolish or remove the
building and structures they built on the land of the
plaintiff and to vacate the premises. In the case of
Leoncio Ramoy, the Court found that he was occupying
a portion of Lot No. 72-B-2-B with the exact location of
his apartments indicated and encircled in the location
map as No. 7. A copy of the decision was furnished
Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131,
Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the
immediate disconnection of electric power supply to all
residential and commercial establishments beneath the
NPC transmission lines along Baesa, Quezon City (Exh.
7, p. 143, Record). Attached to the letter was a list of
establishments affected which included plaintiffs Leoncio
and Matilde Ramoy (Exh. 9), as well as a copy of the
court decision (Exh. 2). After deliberating on NPC's
letter, Meralco decided to comply with NPC's request
(Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued
notices of disconnection to all establishments affected
including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C),
Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-
E), Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-
G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado (Exh.
3-I).
In a letter dated August 17, 1990 Meralco requested
NPC for a joint survey to determine all the
establishments which are considered under NPC
property in view of the fact that the houses in the area
are very close to each other (Exh. 12). Shortly thereafter,
a joint survey was conducted and the NPC personnel
pointed out the electric meters to be disconnected (Exh.
13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the
plaintiffs [herein respondents] was disconnected
(Exhibits D to G, with submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are
the registered owners of a parcel of land covered by
TCT No. 326346, a portion of which was occupied by
plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza
and Cyrene S. Panado as lessees. When the Meralco
employees were disconnecting plaintiffs' power
connection, plaintiff Leoncio Ramoy objected by
informing the Meralco foreman that his property was
outside the NPC property and pointing out the
monuments showing the boundaries of his property.
However, he was threatened and told not to interfere by
the armed men who accompanied the Meralco
employees. After the electric power in Ramoy's
apartment was cut off, the plaintiffs-lessees left the
premises.
During the ocular inspection ordered by the Court and
attended by the parties, it was found out that the
residence of plaintiffs-spouses Leoncio and Matilde
Ramoy was indeed outside the NPC property. This was
confirmed by defendant's witness R.P. Monsale III on
cross-examination (TSN, October 13, 1993, pp. 10 and
11). Monsale also admitted that he did not inform his
supervisor about this fact nor did he recommend re-
connection of plaintiffs' power supply (Ibid., p. 14).
The record also shows that at the request of NPC,
defendant Meralco re-connected the electric service of
four customers previously disconnected none of whom
was any of the plaintiffs (Exh. 14).
The RTC decided in favor of MERALCO by dismissing
herein respondents' claim for moral damages, exemplary
damages and attorney's fees. However, the RTC
ordered MERALCO to restore the electric power supply
of respondents.
Respondents then appealed to the CA. In its Decision
dated December 16, 2002, the CA faulted MERALCO for
not requiring from National Power Corporation (NPC) a
writ of execution or demolition and in not coordinating
with the court sheriff or other proper officer before
complying with the NPC's request. Thus, the CA held
MERALCO liable for moral and exemplary damages and
attorney's fees. MERALCO's motion for reconsideration
of the Decision was denied per Resolution dated July 1,
2003.
Hence, herein petition for review on certiorari on the
following grounds:
I. THE COURT OF APPEALS GRAVELY ERRED
WHEN IT FOUND MERALCO NEGLIGENT WHEN IT
DISCONNECTED THE SUBJECT ELECTRIC SERVICE
OF RESPONDENTS.
II. THE COURT OF APPEALS GRAVELY ERRED
WHEN IT AWARDED MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY'S FEES AGAINST
MERALCO UNDER THE CIRCUMSTANCES THAT
THE LATTER ACTED IN GOOD FAITH IN THE
DISCONNECTION OF THE ELECTRIC SERVICES OF
THE RESPONDENTS.
The petition is partly meritorious.
MERALCO admits that respondents are its customers
under a Service Contract whereby it is obliged to supply
respondents with electricity. Nevertheless, upon request
of the NPC, MERALCO disconnected its power supply to
respondents on the ground that they were illegally
occupying the NPC's right of way. Under the Service
Contract, [a] customer of electric service must show his
right or proper interest over the property in order that he
will be provided with and assured a continuous electric
service. MERALCO argues that since there is a Decision
of the Metropolitan Trial Court (MTC) of Quezon City
ruling that herein respondents were among the illegal
occupants of the NPC's right of way, MERALCO was
justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO
is anchored on culpa contractual or breach of contract
for the latter's discontinuance of its service to
respondents under Article 1170 of the Civil Code which
provides:
Article 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages.
In Radio Communications of the Philippines, Inc. v.
Verchez, the Court expounded on the nature of culpa
contractual, thus:
In culpa contractual x x x the mere proof of the existence
of the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief. The law,
recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the
contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered.
The remedy serves to preserve the interests of the
promissee that may include his expectation interest,
which is his interest in having the benefit of his bargain
by being put in as good a position as he would have
been in had the contract been performed, or his reliance
interest, which is his interest in being reimbursed for loss
caused by reliance on the contract by being put in as
good a position as he would have been in had the
contract not been made; or his restitution interest, which
is his interest in having restored to him any benefit that
he has conferred on the other party. Indeed, agreements
can accomplish little, either for their makers or for
society, unless they are made the basis for action. The
effect of every infraction is to create a new duty, that is,
to make recompense to the one who has been injured by
the failure of another to observe his contractual
obligation unless he can show extenuating
circumstances, like proof of his exercise of due diligence
x x x or of the attendance of fortuitous event, to excuse
him from his ensuing liability.
Article 1173 also provides that the fault or negligence of
the obligor consists in the omission of that diligence
which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of
the time and of the place. The Court emphasized in
Ridjo Tape & Chemical Corporation v. Court of Appeals
that as a public utility, MERALCO has the obligation to
discharge its functions with utmost care and diligence.
The Court agrees with the CA that under the factual
milieu of the present case, MERALCO failed to exercise
the utmost degree of care and diligence required of it. To
repeat, it was not enough for MERALCO to merely rely
on the Decision of the MTC without ascertaining whether
it had become final and executory. Verily, only upon
finality of said Decision can it be said with
conclusiveness that respondents have no right or proper
interest over the subject property, thus, are not entitled
to the services of MERALCO.
Although MERALCO insists that the MTC Decision is
final and executory, it never showed any documentary
evidence to support this allegation. Moreover, if it were
true that the decision was final and executory, the most
prudent thing for MERALCO to have done was to
coordinate with the proper court officials in determining
which structures are covered by said court order.
Likewise, there is no evidence on record to show that
this was done by MERALCO.
The utmost care and diligence required of MERALCO
necessitates such great degree of prudence on its part,
and failure to exercise the diligence required means that
MERALCO was at fault and negligent in the performance
of its obligation. In Ridjo Tape, the Court explained:
[B]eing a public utility vested with vital public interest,
MERALCO is impressed with certain obligations towards
its customers and any omission on its part to perform
such duties would be prejudicial to its interest. For in the
final analysis, the bottom line is that those who do not
exercise such prudence in the discharge of their duties
shall be made to bear the consequences of such
oversight.
This being so, MERALCO is liable for damages under
Article 1170 of the Civil Code.
The next question is: Are respondents entitled to moral
and exemplary damages and attorney's fees?
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.
In the present case, MERALCO wilfully caused injury to
Leoncio Ramoy by withholding from him and his tenants
the supply of electricity to which they were entitled under
the Service Contract. This is contrary to public policy
because, as discussed above, MERALCO, being a vital
public utility, is expected to exercise utmost care and
diligence in the performance of its obligation. It was
incumbent upon MERALCO to do everything within its
power to ensure that the improvements built by
respondents are within the NPCs right of way before
disconnecting their power supply. The Court emphasized
in Samar II Electric Cooperative, Inc. v. Quijano that:
Electricity is a basic necessity the generation and
distribution of which is imbued with public interest, and
its provider is a public utility subject to strict regulation by
the State in the exercise of police power. Failure to
comply with these regulations will give rise to the
presumption of bad faith or abuse of right.
Thus, by analogy, MERALCO's failure to exercise
utmost care and diligence in the performance of its
obligation to Leoncio Ramoy, its customer, is tantamount
to bad faith. Leoncio Ramoy testified that he suffered
wounded feelings because of MERALCO's actions.
Furthermore, due to the lack of power supply, the
lessees of his four apartments on subject lot left the
premises. Clearly, therefore, Leoncio Ramoy is entitled
to moral damages in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was
the only one who testified regarding the effects on him of
MERALCO's electric service disconnection. His co-
respondents Matilde Ramoy, Rosemarie Ramoy, Ofelia
Durian and Cyrene Panado did not present any evidence
of damages they suffered.
It is a hornbook principle that damages may be awarded
only if proven. In Mahinay v. Velasquez, Jr., the Court
held thus:
In order that moral damages may be awarded, there
must be pleading and proof of moral suffering, mental
anguish, fright and the like. While respondent alleged in
his complaint that he suffered mental anguish, serious
anxiety, wounded feelings and moral shock, he failed to
prove them during the trial. Indeed, respondent should
have taken the witness stand and should have testified
on the mental anguish, serious anxiety, wounded
feelings and other emotional and mental suffering he
purportedly suffered to sustain his claim for moral
damages. Mere allegations do not suffice; they must be
substantiated by clear and convincing proof. No other
person could have proven such damages except the
respondent himself as they were extremely personal to
him.
In Keirulf vs. Court of Appeals, we held:
While no proof of pecuniary loss is necessary in order
that moral damages may be awarded, the amount of
indemnity being left to the discretion of the court, it is
nevertheless essential that the claimant should
satisfactorily show the existence of the factual basis of
damages and its causal connection to defendants acts.
This is so because moral damages, though incapable of
pecuniary estimation, are in the category of an award
designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer.
In Francisco vs. GSIS, the Court held that there must be
clear testimony on the anguish and other forms of
mental suffering. Thus, if the plaintiff fails to take the
witness stand and testify as to his/her social humiliation,
wounded feelings and anxiety, moral damages cannot
be awarded. In Cocoland Development Corporation vs.
National Labor Relations Commission, the Court held
that additional facts must be pleaded and proven to
warrant the grant of moral damages under the Civil
Code, these being, x x x social humiliation, wounded
feelings, grave anxiety, etc. that resulted therefrom.
x x x The award of moral damages must be anchored to
a clear showing that respondent actually experienced
mental anguish, besmirched reputation, sleepless nights,
wounded feelings or similar injury. There was no better
witness to this experience than respondent himself.
Since respondent failed to testify on the witness stand,
the trial court did not have any factual basis to award
moral damages to him.
Thus, only respondent Leoncio Ramoy, who testified as
to his wounded feelings, may be awarded moral
damages.
With regard to exemplary damages, Article 2232 of the
Civil Code provides that in contracts and quasi-
contracts, the court may award exemplary damages if
the defendant, in this case MERALCO, acted in a
wanton, fraudulent, reckless, oppressive, or malevolent
manner, while Article 2233 of the same Code provides
that such damages cannot be recovered as a matter of
right and the adjudication of the same is within the
discretion of the court.
The Court finds that MERALCO fell short of exercising
the due diligence required, but its actions cannot be
considered wanton, fraudulent, reckless, oppressive or
malevolent. Records show that MERALCO did take
some measures, i.e., coordinating with NPC officials and
conducting a joint survey of the subject area, to verify
which electric meters should be disconnected although
these measures are not sufficient, considering the
degree of diligence required of it. Thus, in this case,
exemplary damages should not be awarded.
Since the Court does not deem it proper to award
exemplary damages in this case, then the CA's award
for attorney's fees should likewise be deleted, as Article
2208 of the Civil Code states that in the absence of
stipulation, attorney's fees cannot be recovered except
in cases provided for in said Article, to wit:
Article 2208. In the absence of stipulation, attorneys fees
and expenses of litigation, other than judicial costs,
cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled
the plaintiff to litigate with third persons or to incur
expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the
plaintiff;
(4) In case of a clearly unfounded civil action or
proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid, just
and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household
helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens
compensation and employers liability laws;
(9) In a separate civil action to recover civil liability
arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and
equitable that attorneys fees and expenses of litigation
should be recovered.
In all cases, the attorneys fees and expenses of litigation
must be reasonable.
None of the grounds for recovery of attorney's fees are
present.
WHEREFORE, the petition is PARTLY GRANTED. The
Decision of the Court of Appeals is AFFIRMED with
MODIFICATION. The award for exemplary damages
and attorney's fees is DELETED. No costs. SO
ORDERED.
G.R. No. L-23749. April 29, 1977. BARREDO, J.
FAUSTINO CRUZ vs. J. M. TUASON & COMPANY,
INC.
Appeal from the order dated August 13, 1964 of the
Court of First Instance of Quezon City in Civil Case No.
Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and
Gregorio Araneta, Inc., dismissing the complaint of
appellant Cruz for the recovery of improvements he has
made on appellees' land and to compel appellees to
convey to him 3,000 square meters of land on three
grounds: (1) failure of the complaint to state a cause of
action; (2) the cause of action of plaintiff is
unenforceable under the Statute of Frauds; and (3) the
action of the plaintiff has already prescribed.
Actually, a perusal of plaintiff-appellant's complaint
below shows that he alleged two separate causes of
action, namely: (1) that upon request of the Deudors (the
family of Telesforo Deudor who laid claim on the land in
question on the strength of an "informacion posesoria" )
plaintiff made permanent improvements valued at
P30,400.00 on said land having an area of more or less
20 quinones and for which he also incurred expenses in
the amount of P7,781.74, and since defendants-
appellees are being benefited by said improvements, he
is entitled to reimbursement from them of said amounts
and (2) that in 1952, defendants availed of plaintiff's
services as an intermediary with the Deudors to work for
the amicable settlement of Civil Case No. Q-135, then
pending also in the Court of First Instance of Quezon
City, and involving 50 quinones of land, of Which the 20
quinones aforementioned form part, and notwithstanding
his having performed his services, as in fact, a
compromise agreement entered into on March 16, 1963
between the Deudors and the defendants was approved
by the court, the latter have refused to convey to him the
3,000 square meters of land occupied by him, (a part of
the 20 quinones above) which said defendants had
promised to do "within ten years from and after date of
signing of the compromise agreement", as consideration
for his services.
Within the Period allowed by the rules, the defendants
filed separate motions to dismiss alleging three Identical
grounds: (1) As regards that improvements made by
plaintiff, that the complaint states no cause of action, the
agreement regarding the same having been made by
plaintiff with the Deudors and not with the defendants,
hence the theory of plaintiff based on Article 2142 of the
Code on unjust enrichment is untenable; and (2) anent
the alleged agreement about plaintiffs services as
intermediary in consideration of which, defendants
promised to convey to him 3,000 square meters of land,
that the same is unenforceable under the Statute of
Frauds, there being nothing in writing about it, and, in
any event, (3) that the action of plaintiff to compel such
conveyance has already prescribed.
Plaintiff opposed the motion, insisting that Article 2142 of
the applicable to his case; that the Statute of Frauds
cannot be invoked by defendants, not only because
Article 1403 of the Civil Code refers only to "sale of real
property or of an interest therein" and not to promises to
convey real property like the one supposedly promised
by defendants to him, but also because, he, the plaintiff
has already performed his part of the agreement, hence
the agreement has already been partly executed and not
merely executory within the contemplation of the Statute;
and that his action has not prescribed for the reason that
defendants had ten years to comply and only after the
said ten years did his cause of action accrue, that is, ten
years after March 16, 1963, the date of the approval of
the compromise agreement, and his complaint was filed
on January 24, 1964.
Ruling on the motion to dismiss, the trial court issued the
herein impugned order of August 13, 1964:
In the motion, dated January 31, 1964, defendant
Gregorio Araneta, Inc. prayed that the complaint against
it be dismissed on the ground that (1) the claim on which
the action is founded is unenforceable under the
provision of the Statute of Frauds; and (2) the plaintiff's
action, if any has already prescribed. In the other motion
of February 11, 1964, defendant J. M. Tuason & Co.,
Inc. sought the dismissal of the plaintiffs complaint on
the ground that it states no cause of action and on the
Identical grounds stated in the motion to dismiss of
defendant Gregorio Araneta, Inc.
The said motions are duly opposed by the plaintiff.
From the allegations of the complaint, it appears that, by
virtue of an agreement arrived at in 1948 by the plaintiff
and the Deudors, the former assisted the latter in
clearing, improving, subdividing and selling the large
tract of land consisting of 50 quinones covered by the
informacion posesoria in the name of the late Telesforo
Deudor and incurred expenses, which are valued
approximately at P38,400.00 and P7,781.74,
respectively; and, for the reasons that said
improvements are being used and enjoyed by the
defendants, the plaintiff is seeking the reimbursement for
the services and expenses stated above from the
defendants.
Defendant J. M. Tuason & Co., Inc. claimed that, insofar
as the plaintiffs claim for the reimbursement of the
amounts of P38,400.00 and P7,781.74 is concerned, it is
not a privy to the plaintiff's agreement to assist the
Deudors n improving the 50 quinones. On the other
hand, the plaintiff countered that, by holding and utilizing
the improvements introduced by him, the defendants are
unjustly enriching and benefiting at the expense of the
plaintiff; and that said improvements constitute a lien or
charge of the property itself
On the issue that the complaint insofar as it claims the
reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the
Court is of the opinion that the same is well-founded. It is
found that the defendants are not parties to the
supposed express contract entered into by and between
the plaintiff and the Deudors for the clearing and
improvement of the 50 quinones. Furthermore in order
that the alleged improvement may be considered a lien
or charge on the property, the same should have been
made in good faith and under the mistake as to the title.
The Court can take judicial notice of the fact that the
tract of land supposedly improved by the plaintiff had
been registered way back in 1914 in the name of the
predecessors-in-interest of defendant J. M. Tuason &
Co., Inc. This fact is confirmed in the decision rendered
by the Supreme Court on July 31, 1956 in Case G. R.
No. L-5079 entitled J.M. Tuason & Co. Inc. vs. Geronimo
Santiago, et al., Such being the case, the plaintiff cannot
claim good faith and mistake as to the title of the land.
On the issue of statute of fraud, the Court believes that
same is applicable to the instant case. The allegation in
par. 12 of the complaint states that the defendants
promised and agreed to cede, transfer and convey unto
the plaintiff the 3,000 square meters of land in
consideration of certain services to be rendered then. it
is clear that the alleged agreement involves an interest
in real property. Under the provisions of See. 2(e) of
Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the
party charged.
On the issue of statute of limitations, the Court holds that
the plaintiff's action has prescribed. It is alleged in par.
11 of the complaint that, sometime in 1952, the
defendants approached the plaintiff to prevail upon the
Deudors to enter to a compromise agreement in Civil
Case No. Q-135 and allied cases. Furthermore, par. 13
and 14 of the complaint alleged that the plaintiff acted as
emissary of both parties in conveying their respective
proposals and counterproposals until the final settlement
was effected on March 16, 1953 and approved by Court
on April 11, 1953. In the present action, which was
instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between
him and the defendants in 1952, which was already
prescribed.
WHEREFORE, the plaintiffs complaint is hereby ordered
DISMISSED without pronouncement as to costs. SO
ORDERED. (Pp. 65-69, Rec. on Appeal,)
On August 22, 1964, plaintiff's counsel filed a motion for
reconsideration dated August 20, 1964 as follows:
Plaintiff through undersigned counsel and to this
Honorable Court, respectfully moves to reconsider its
Order bearing date of 13 August 1964, on the following
grounds:
1. THAT THE COMPLAINT STATES A SUFFICIENT
CAUSE OF ACTION AGAINST DEFENDANTS IN SO
FAR AS PLAINTIFF'S CLAIM PAYMENT OF SERVICES
AND REIMBURSEMENT OF HIS EXPENSES, IS
CONCERNED;
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE
3,000 SQ. MS., THE SAME HAS NOT PRESCRIBED
AND THE STATUTE OF FRAUDS IS NOT
APPLICABLE THERETO;
ARGUMENT
Plaintiff's complaint contains two (2) causes of action —
the first being an action for sum of money in the amount
of P7,781.74 representing actual expenses and
P38,400.00 as reasonable compensation for services in
improving the 50 quinones now in the possession of
defendants. The second cause of action deals with the
3,000 sq. ms. which defendants have agreed to transfer
into Plaintiff for services rendered in effecting the
compromise between the Deudors and defendants;
Under its order of August 3, 1964, this Honorable Court
dismissed the claim for sum of money on the ground that
the complaint does not state a cause of action against
defendants. We respectfully submit:
1. THAT THE COMPLAINT STATES A SUFFICIENT
CAUSE OF ACTION AGAINST DEFENDANTS IN SO
FAR AS PLAINTIFF'S CLAIM FOR PAYMENT OF
SERVICES AND REIMBURSEMENT OF HIS
EXPENSES IS CONCERNED. Said this Honorable
Court (at p. 2, Order):
ORDER
xxx xxx xxx
On the issue that the complaint, in so far as it claims the
reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the
Court is of the opinion that the same is well-founded. It is
found that the defendants are not parties to the
supposed express contract entered into by and between
the plaintiff and the Deudors for the clearing and
improvement of the 50 quinones. Furthermore, in order
that the alleged improvement may he considered a lien
or charge on the property, the same should have been
made in good faith and under the mistake as to title. The
Court can take judicial notice of the fact that the tract of
land supposedly improved by the plaintiff had been
registered way back in 1914 in the name of the
predecessors-in-interest of defendant J. M. Tuason &
Co., Inc. This fact is confirmed in the decision rendered
by the Supreme Court on July 31, 1956 in case G. R.
No. L-5079 entitled 'J M. Tuason & Co., Inc. vs,
Geronimo Santiago, et al.' Such being the case, the
plaintiff cannot claim good faith and mistake as to the
title of the land.
The position of this Honorable Court (supra) is that the
complaint does not state a cause of action in so far as
the claim for services and expenses is concerned
because the contract for the improvement of the
properties was solely between the Deudors and plaintiff,
and defendants are not privies to it. Now, plaintiff's
theory is that defendants are nonetheless liable since
they are utilizing and enjoying the benefit's of said
improvements. Thus under paragraph 16 of "he
complaint, it is alleged:
(16) That the services and personal expenses of plaintiff
mentioned in paragraph 7 hereof were rendered and in
fact paid by him to improve, as they in fact resulted in
considerable improvement of the 50 quinones, and
defendants being now in possession of and utilizing said
improvements should reimburse and pay plaintiff for
such services and expenses.
Plaintiff's cause of action is premised inter alia, on the
theory of unjust enrichment under Article 2142 of the civil
Code:
ART. 2142. Certain lawful voluntary and unilateral acts
give rise to the juridical relation of quasi-contract to the
end that no one shill be unjustly enriched or benefited at
the expense of another.
In like vein, Article 19 of the same Code enjoins that:
ART. 19. Every person must, in the exercise of his rights
and in the performance of his duties, act with justice,
give every-one his due and observe honesty and good
faith.
We respectfully draw the attention of this Honorable
Court to the fact that ARTICLE 2142 (SUPRA) DEALS
WITH QUASI-CONTRACTS or situations WHERE
THERE IS NO CONTRACT BETWEEN THE PARTIES
TO THE ACTION. Further, as we can readily see from
the title thereof (Title XVII), that the Same bears the
designation 'EXTRA CONTRACTUAL OBLIGATIONS' or
obligations which do not arise from contracts. While it is
true that there was no agreement between plaintiff and
defendants herein for the improvement of the 50
quinones since the latter are presently enjoying and
utilizing the benefits brought about through plaintiff's
labor and expenses, defendants should pay and
reimburse him therefor under the principle that 'no one
may enrich himself at the expense of another.'
In this posture, the complaint states a cause of action
against the defendants.
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE
3,000 SQ. MS. THE SAME HAS NOT PRESCRIBED
AND THE STATUTE OF FRAUDS IS NOT
APPLICABLE THERETO.
The Statute of Frauds is CLEARLY inapplicable to this
case:
At page 2 of this Honorable Court's order dated 13
August 1964, the Court ruled as follows:
ORDER
xxx xxx xxx
On the issue of statute of fraud, the Court believes that
same is applicable to the instant Case, The allegation in
par. 12 of the complaint states that the defendants
promised and agree to cede, transfer and convey unto
the plaintiff, 3,000 square meters of land in consideration
of certain services to be rendered then. It is clear that
the alleged agreement involves an interest in real
property. Under the provisions of Sec. 2(e) of Article
1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the
party charged.
To bring this issue in sharper focus, shall reproduce not
only paragraph 12 of the complaint but also the other
pertinent paragraphs therein contained. Paragraph 12
states thus:
COMPLAINT
xxx xxx xxx
12). That plaintiff conferred with the aforesaid
representatives of defendants several times and on
these occasions, the latter promised and agreed to cede,
transfer and convey unto plaintiff the 3,000 sq. ms. (now
known as Lots 16- B, 17 and 18) which plaintiff was then
occupying and continues to occupy as of this writing, for
and in consideration of the following conditions:
(a) That plaintiff succeed in convincing the DEUDORS to
enter into a compromise agreement and that such
agreement be actually entered into by and between the
DEUDORS and defendant companies;
(b) That as of date of signing the compromise
agreement, plaintiff shall be the owner of the 3,000 sq.
ms. but the documents evidencing his title over this
property shall be executed and delivered by defendants
to plaintiff within ten (10) years from and after date of
signing of the compromise agreement;
(c) That plaintiff shall, without any monetary expense of
his part, assist in clearing the 20 quinones of its
occupants;
13). That in order to effect a compromise between the
parties. plaintiff not only as well acted as emissary of
both parties in conveying their respective proposals and
counter- proposals until succeeded in convinzing the
DEUDORS to settle with defendants amicably. Thus, on
March 16, 1953, a Compromise Agreement was entered
into by and between the DEUDORS and the defendant
companies; and on April 11, 1953, this agreement was
approved by this Honorable Court;
14). That in order to comply with his other obligations
under his agreement with defendant companies, plaintiff
had to confer with the occupants of the property,
exposing himself to physical harm, convincing said
occupants to leave the premises and to refrain from
resorting to physical violence in resisting defendants'
demands to vacate;
That plaintiff further assisted defendants' employees in
the actual demolition and transfer of all the houses within
the perimeter of the 20 quinones until the end of 1955,
when said area was totally cleared and the houses
transferred to another area designated by the
defendants as 'Capt. Cruz Block' in Masambong,
Quezon City. (Pars. 12, 13 and 14, Complaint; Emphasis
supplied)
From the foregoing, it is clear then the agreement
between the parties mentioned in paragraph 12 (supra)
of the complaint has already been fully EXECUTED ON
ONE PART, namely by the plaintiff. Regarding the
applicability of the statute of frauds (Art. 1403, Civil
Code), it has been uniformly held that the statute of
frauds IS APPLICABLE ONLY TO EXECUTORY
CONTRACTS BUT NOT WHERE THE CONTRACT
HAS BEEN PARTLY EXECUTED:
SAME ACTION TO ENFORCE. — The statute of frauds
has been uniformly interpreted to be applicable to
executor and not to completed or contracts.
Performance of the contracts takes it out of the operation
of the statute. ...
The statute of the frauds is not applicable to contracts
which are either totally or partially performed, on the
theory that there is a wide field for the commission of
frauds in executory contracts which can only be
prevented by requiring them to be in writing, a facts
which is reduced to a minimum in executed contracts
because the intention of the parties becomes apparent
buy their execution and execution, in mots cases,
concluded the right the parties. ...
The partial performance may be proved by either
documentary or oral evidence. (At pp. 564-565,
Tolentino's Civil Code of the Philippines, Vol. IV, 1962
Ed.; Emphasis supplied).
Authorities in support of the foregoing rule are legion.
Thus Mr. Justice Moran in his 'Comments on the Rules
of Court', Vol. III, 1974 Ed., at p. 167, states:
2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY
TO EXECUTORY CONTRACTS: CONTRACTS WHICH
ARE EITHER TOTALLY OR PARTIALLY PERFORMED
ARE WITHOUT THE STATUE. The statute of frauds is
applicable only to executory contracts. It is neither
applicable to executed contracts nor to contracts partially
performed. The reason is simple. In executory contracts
there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of
the contracting parties. The statute has been enacted to
prevent fraud. On the
other hand the commission of fraud in executed
contracts is reduced to minimum in executed contracts
because (1) the intention of the parties is made apparent
by the execution and (2) execution concludes, in most
cases, the rights of the parties. (Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra)
one can readily see that the plaintiff has fulfilled ALL his
obligation under the agreement between him defendants
concerning the 3,000 sq. ms. over which the latter had
agreed to execute the proper documents of transfer.
This fact is further projected in paragraph 15 of the
complaint where plaintiff states;
15). That in or about the middle of 1963, after all the
conditions stated in paragraph 12 hereof had been
fulfilled and fully complied with, plaintiff demanded of
said defendants that they execute the Deed of
Conveyance in his favor and deliver the title certificate in
his name, over the 3,000 sq. ms. but defendants failed
and refused and continue to fail and refuse to heed his
demands. (par. 15, complaint; Emphasis supplied).
In view of the foregoing, we respectfully submit that this
Honorable court erred in holding that the statute of
frauds is applicable to plaintiff's claim over the 3,000 sq.
ms. There having been full performance of the contract
on plaintiff's part, the same takes this case out of the
context of said statute.
Plaintiff's Cause of Action had NOT Prescribed:
With all due respect to this Honorable court, we also
submit that the Court committed error in holding that this
action has prescribed:
ORDER
xxx xxx xxx
On the issue of the statute of limitations, the Court holds
that the plaintiff's action has prescribed. It is alleged in
par. III of the complaint that, sometime in 1952, the
defendants approached the plaintiff to prevail upon the
Deudors to enter into a compromise agreement in Civil
Case No. Q-135 and allied cases. Furthermore, pars. 13
and 14 of the complaint alleged that plaintiff acted as
emissary of both parties in conveying their respective
proposals and counterproposals until the final settlement
was affected on March 16, 1953 and approved by the
Court on April 11, 1953. In the present actin, which was
instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between
him and the defendants in 1952, which has already
proscribed. (at p. 3, Order).
The present action has not prescribed, especially when
we consider carefully the terms of the agreement
between plaintiff and the defendants. First, we must
draw the attention of this Honorable Court to the fact that
this is an action to compel defendants to execute a Deed
of Conveyance over the 3,000 sq. ms. subject of their
agreement. In paragraph 12 of the complaint, the terms
and conditions of the contract between the parties are
spelled out.
Paragraph 12 (b) of the complaint states:
(b) That as of date of signing the compromise
agreement, plaintiff shall be the owner of the 3,000 sq.
ms. but the documents evidencing his title over this
property shall be executed and delivered by defendants
to plaintiff within ten
(10) years from and after date of signing of the
compromise agreement.
The compromise agreement between defendants and
the Deudors which was conclude through the efforts of
plaintiff, was signed on 16 March 1953. Therefore, the
defendants had ten (10) years signed on 16 March 1953.
Therefore, the defendants had ten (10) years from said
date within which to execute the deed of conveyance in
favour of plaintiff over the 3,000 sq. ms. As long as the
10 years period has not expired, plaintiff had no right to
compel defendants to execute the document and the
latter were under no obligation to do so. Now, this 10-
year period elapsed on March 16, 1963. THEN and
ONLY THEN does plaintiff's cause of action plaintiff on
March 17, 1963.
Thus, under paragraph 15, of the complaint (supra)
plaintiff made demands upon defendants for the
execution of the deed 'in or about the middle of 1963.
Since the contract now sought to be enforced was not
reduced to writing, plaintiff's cause of action expires on
March 16, 1969 or six years from March 16, 1963 WHEN
THE CAUSE OF ACTION ACCRUED (Art. 1145, Civil
Code). In this posture, we gain respectfully submit that
this Honorable Court erred in holding that plaintiff's
action has prescribed.
PRAYER
WHEREFORE, it is respectfully prayed that " Honorable
Court reconsider its Order dated August 13, 1964; and
issue another order denying the motions to dismiss of
defendants G. Araneta, Inc. and J. M. Tuason Co. Inc.
for lack of merit. (Pp. 70-85, Record on Appeal.)
Defendants filed an opposition on the main ground that
"the arguments adduced by the plaintiff are merely
reiterations of his arguments contained in his Rejoinder
to Reply and Opposition, which have not only been
refuted in herein defendant's Motion to Dismiss and
Reply but already passed upon by this Honorable
Court."
On September 7, 1964, the trial court denied the motion
for reconsiderations thus:
After considering the plaintiff's Motion for
Reconsideration of August 20, 1964 and it appearing
that the grounds relied upon in said motion are mere
repetition of those already resolved and discussed by
this Court in the order of August 13, 1964, the instant
motion is hereby denied and the findings and
conclusions arrived at by the Court in its order of August
13, 1964 are hereby reiterated and affirmed. SO
ORDERED. (Page 90, Rec. on Appeal.)
Under date of September 24, 1964, plaintiff filed his
record on appeal.
In his brief, appellant poses and discusses the following
assignments of error:
I. THAT THE LOWER COURT ERRED IN DISMISSING
THE COMPLAINT ON THE GROUND THAT
APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS
ALLEGEDLY UNENFORCEABLE UNDER THE
STATUTE OF FRAUDS;
II. THAT THE COURT A QUO FURTHER COMMITTED
ERROR IN DISMISSING APPELLANT'S COMPLAINT
ON THE GROUND THAT HIS CLAIM OVER THE 3,000
SQ. MS. IS ALLEGEDLY BARRED BY THE STATUTE
OF LIMITATIONS; and
III. THAT THE LOWER COURT ERRED IN
DISMISSING THE COMPLAINT FOR FAILURE TO
STATE A CAUSE OF ACTION IN SO FAR AS
APPELLANT'S CLAIM FOR REIMBURSEMENT OF
EXPENSES AND FOR SERVICES RENDERED IN THE
IMPROVEMENT OF THE FIFTY (50) QUINONES IS
CONCERNED.
We agree with appellant that the Statute of Frauds was
erroneously applied by the trial court. It is elementary
that the Statute refers to specific kinds of transactions
and that it cannot apply to any that is not enumerated
therein. And the only agreements or contracts covered
thereby are the following:
(1) Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those do not comply with the Statute of Frauds as
set forth in this number, In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them of
such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a
sufficient memorandum:
(e) An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein:
(f) a representation as to the credit of a third person.
(3) Those where both parties are incapable of giving
consent to a contract. (Art. 1403, civil Code.)
In the instant case, what appellant is trying to enforce is
the delivery to him of 3,000 square meters of land which
he claims defendants promised to do in consideration of
his services as mediator or intermediary in effecting a
compromise of the civil action, Civil Case No. 135,
between the defendants and the Deudors. In no sense
may such alleged contract be considered as being a
"sale of real property or of any interest therein." Indeed,
not all dealings involving interest in real property come
under the Statute.
Moreover, appellant's complaint clearly alleges that he
has already fulfilled his part of the bargains to induce the
Deudors to amicably settle their differences with
defendants as, in fact, on March 16, 1963, through his
efforts, a compromise agreement between these parties
was approved by the court. In other words, the
agreement in question has already been partially
consummated, and is no longer merely executory. And it
is likewise a fundamental principle governing the
application of the Statute that the contract in dispute
should be purely executory on the part of both parties
thereto.
We cannot, however, escape taking judicial notice, in
relation to the compromise agreement relied upon by
appellant, that in several cases We have decided, We
have declared the same rescinded and of no effect. In J.
M. Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4
SCRA 123, the Court held:
It is also worthy of note that the compromise between
Deudors and Tuason, upon which Sanvictores
predicates his right to buy the lot he occupies, has been
validly rescinded and set aside, as recognized by this
Court in its decision in G.R. No. L-13768, Deudor vs.
Tuason, promulgated on May 30, 1961.
We repeated this observation in J.M. Tuason & Co., Inc.
vs. Teodosio Macalindong, 6 SCRA 938. Thus, viewed
from what would be the ultimate conclusion of
appellant's case, We entertain grave doubts as to
whether or not he can successfully maintain his alleged
cause of action against defendants, considering that the
compromise agreement that he invokes did not actually
materialize and defendants have not benefited
therefrom, not to mention the undisputed fact that, as
pointed out by appellees, appellant's other attempt to
secure the same 3,000 square meters via the judicial
enforcement of the compromise agreement in which they
were supposed to be reserved for him has already been
repudiated by the courts. (pp. 5-7. Brief of Appellee
Gregorio Araneta, Inc.)
As regards appellant's third assignment of error, We
hold that the allegations in his complaint do not
sufficiently
Appellants' reliance. on Article 2142 of Civil Code is
misplaced. Said article provides:
Certain lawful, voluntary and unilateral acts give rise to
the juridical relation of quasi-contract to the end that no
one shall be unjustly enriched or benefited at the
expense of another.
From the very language of this provision, it is obvious
that a presumed qauasi-contract cannot emerge as
against one party when the subject mater thereof is
already covered by an existing contract with another
party. Predicated on the principle that no one should be
allowed to unjustly enrich himself at the expense of
another, Article 2124 creates the legal fiction of a quasi-
contract precisely because of the absence of any actual
agreement between the parties concerned. Corollarily, if
the one who claims having enriched somebody has done
so pursuant to a contract with a third party, his cause of
action should be against the latter, who in turn may, if
there is any ground therefor, seek relief against the party
benefited. It is essential that the act by which the
defendant is benefited must have been voluntary and
unilateral on the part of the plaintiff. As one distinguished
civilian puts it, "The act is voluntary. because the actor in
quasi-contracts is not bound by any pre-existing
obligation to act. It is unilateral, because it arises from
the sole will of the actor who is not previously bound by
any reciprocal or bilateral agreement. The reason why
the law creates a juridical relations and imposes certain
obligation is to prevent a situation where a person is able
to benefit or take advantage of such lawful, voluntary
and unilateral acts at the expense of said actor."
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.)
In the case at bar, since appellant has a clearer and
more direct recourse against the Deudors with whom he
had entered into an agreement regarding the
improvements and expenditures made by him on the
land of appellees. it Cannot be said, in the sense
contemplated in Article 2142, that appellees have been
enriched at the expense of appellant.
In the ultimate. therefore, Our holding above that
appellant's first two assignments of error are well taken
cannot save the day for him. Aside from his having no
cause of action against appellees, there is one plain
error of omission.
We have found in the order of the trial court which is as
good a ground as any other for Us to terminate this case
favorably to appellees. In said order Which We have
quoted in full earlier in this opinion, the trial court ruled
that "the grounds relied upon in said motion are mere
repetitions of those already resolved and discussed by
this Court in the order of August 13, 1964", an
observation which We fully share. Virtually, therefore.
appellant's motion for reconsideration was ruled to be
pro-forma. Indeed, a cursory reading of the record on
appeal reveals that appellant's motion for
reconsideration above-quoted contained exactly the
same arguments and manner of discussion as his
February 6, 1964 "Opposition to Motion to Dismiss" of
defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on
Appeal) as well as his February 17, 1964 "Opposition to
Motion to Dismiss of Defendant J. M. Tuason & Co." (pp.
33-45, Rec. on Appeal and his February 29, 1964
"Rejoinder to Reply Oil Defendant J. M. Tuason & Co."
(pp. 52-64, Rec. on Appeal)
We cannot see anything in said motion for
reconsideration that is substantially different from the
above oppositions and rejoinder he had previously
submitted and which the trial court had already
considered when it rendered its main order of dismissal.
Consequently, appellant's motion for reconsideration did
not suspend his period for appeal. (Estrada vs. Sto.
Domingo, 28 SCRA 890, 905-6.)
And as this point was covered by appellees' "Opposition
to Motion for Reconsideration" (pp. 8689), hence, within
the frame of the issues below, it is within the ambit of
Our authority as the Supreme Court to consider the
same here even if it is not discussed in the briefs of the
parties. (Insular Life Assurance Co., Ltd. Employees
Association-NATU vs. Insular Life Assurance Co., Ltd.
[Resolution en banc of March 10, 1977 in G. R. No. L-
25291).
Now, the impugned main order was issued on August
13, 1964, while the appeal was made on September 24,
1964 or 42 days later. Clearly, this is beyond the 30-day
reglementary period for appeal. Hence, the subject order
of dismissal was already final and executory when
appellant filed his appeal.
WHEREFORE, the appeal of Faustino Cruz in this case
is dismissed. No costs.
GR No. L-44546. Jan 29, 1988. SARMIENTO, J.
RUSTICO ADILLE vs. CA
In issue herein are property and property rights, a
familiar subject of controversy and a wellspring of
enormous conflict that has led not only to protracted
legal entanglements but to even more bitter
consequences, like strained relationships and even the
forfeiture of lives. It is a question that likewise reflects a
tragic commentary on prevailing social and cultural
values and institutions, where, as one observer notes,
wealth and its accumulation are the basis of self-
fulfillment and where property is held as sacred as life
itself. "It is in the defense of his property," says this
modern thinker, that one "will mobilize his deepest
protective devices, and anybody that threatens his
possessions will arouse his most passionate enmity."
The task of this Court, however, is not to judge the
wisdom of values; the burden of reconstructing the social
order is shouldered by the political leadership -- and the
people themselves. The parties have come to this Court
for relief and accordingly, our responsibility is to give
them that relief pursuant to the decree of law.
The antecedent facts are quoted from the decision
appealed from:
x x x [Th]e land in question Lot 14694 of Cadastral
Survey of Albay located in Legaspi City with an area of
some 11,325 sq. m. originally belonged to one Felisa
Alzul as her own private property; she married twice in
her lifetime; the first, with one Bernabe Adille, with whom
she had as an only child, herein defendant, Rustico
Adillo; in her second marriage with one Procopio Asejo,
her children were herein plaintiffs, - now, sometime in
1939, said Felisa sold the property in pacto de retro to
certain 3rd persons, period of repurchase being 3 years,
but she died in 1942 without being able to redeem, and
after her death, but during the period of redemp-tion,
herein defendant repurchased, by himself alone, and
after that, he execu-ted a deed of extra-judicial partition
representing himself to be the only heir and child of his
mother Felisa with the consequence that he was able to
secure title in his name alone also, so that OCT No.
21137 in the name of his mother was transferred to his
name, that was in 1955; that was why after some efforts
of compromise had failed, his half-brothers and sisters,
herein plaintiffs, filed present case for partition with
account-ing on the position that he was only a trustee on
an implied trust when he redeemed, - and this is the
evidence, but as it also turned out that one of plaintiffs,
Emeteria Asejo was occupying a portion, defendant
counterclaimed for her to vacate that, -
Well then, after hearing the evidence, trial Judge
sustained defendant in his position that he was and
became absolute owner, he was not a trustee, and
therefore, dismissed case and also condemned plaintiff
occupant, Emeteria to vacate; it is because of this that
plaintiffs have come here and contend that trial Court
erred in:
"I. ... declaring the defendant absolute owner of the
property;
II. … not ordering the partition of the property; and
III. ... ordering one of the plaintiffs who is in possession
of the portion of the property to vacate the land, p. 1,
Appellants' brief.
which can be reduced to simple question of whether or
not on the basis of evidence and law, judgment
appealed from should be maintained.
The respondent Court of Appeals reversed the trial
court, and ruled for the plaintiffs-appellants, the private
respondents herein. The petitioner now appeals, by way
of certiorari, from the Appellate Court's decision.
We required the private respondents to file a comment
and thereafter, having given due course to the petition,
directed the parties to file their briefs. Only the petitioner,
however, filed a brief, and the private respondents
having failed to file one, we declared the case submitted
for decision.
The petition raises a purely legal issue: May a co-owner
acquire exclusive ownership over the property held in
common?
Essentially, it is the petitioner's contention that the
property subject of dispute devolved upon him upon the
failure of his co-heirs to join him in its redemption within
the period required by law. He relies on the provisions of
Article 1515 of the old Civil Code, Article 1613 of the
present Code, giving the vendee a retro the right to
demand redemption of the entire property.
There is no merit in this petition.
The right of repurchase may be exercised by a co-owner
with respect to his share alone. While the records show
that the petitioner redeemed the property in its entirety,
shouldering the expenses therefor, that did not make
him the owner of all of it. In other words, it did not put to
end the existing state of co-ownership.
Necessary expenses may be incurred by one co-owner,
subject to his right to collect reimbursement from the
remaining co-owners. There is no doubt that redemption
of property entails a necessary expense. Under the Civil
Code:
ART. 488. Each co-owner shall have a right to compel
the other co-owners to contribute to the expenses of
preserva-tion of the thing or right owned in common and
to the taxes. Any one of the latter may exempt himself
from this obligation by renouncing so much of his
undivided interest as may be equivalent to his share of
the expenses and taxes. No such waiver shall be made
if it is prejudicial to the co-ownership.
The result is that the property remains to be in a
condition of co-ownership. While a vendee a retro, under
Article 1613 of the Code, "may not be compelled to
consent to a partial redemption," the redemption by one
co-heir or co-owner of the property in its totality does not
vest in him ownership over it. Failure on the part of all
the co-owners to redeem it entitles the vendee a retro to
retain the property and consolidate title thereto in his
name. But the provision does not give to the redeeming
co-owner the right to the entire property. It does not
provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded
in securing title over the parcel in his name terminate the
existing co-ownership. While his half-brothers and
sisters are, as we said, liable to him for reimbursement
as and for their shares in redemption expenses, he
cannot claim exclusive right to the property owned in
common. Registration of property is not a means of
acquiring ownership. It operates as a mere notice of
existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the
property on behalf of the private respondents. The Civil
Code states:
ART. 1456. If property is acquired through mistake or
fraud, the person obtaining it is, by force of law,
consi-dered a trustee of an implied trust for the benefit of
the person from whom the property comes.
We agree with the respondent Court of Appeals that
fraud attended the registration of the property. The
petitioner's pretension that he was the sole heir to the
land in the affidavit of extrajudicial settlement he
executed preliminary to the registration thereof betrays a
clear effort on his part to defraud his brothers and sisters
and to exercise sole dominion over the property. The
aforequoted provision therefore applies.
It is the view of the respondent Court that the petitioner,
in taking over the property, did so either on behalf of his
co-heirs, in which event, he had constituted himself a
negotiorum gestor under Article 2144 of the Civil Code,
or for his exclusive benefit, in which case, he is guilty of
fraud, and must act as trustee, the private respondents
being the beneficiaries, under the Article 1456. The
evidence, of course, points to the second alternative, the
petitioner having asserted claims of exclusive ownership
over the property and having acted in fraud of his co-
heirs. He cannot therefore be said to have assumed the
mere management of the property abandoned by his co-
heirs, the situation Article 2144 of the Code
contemplates. In any case, as the respondent Court
itself affirms, the result would be the same whether it is
one or the other. The petitioner would remain liable to
the private respondents, his co-heirs.
This Court is not unaware of the well-established
principle that prescription bars any demand on property
(owned in common) held by another (co-owner) following
the required number of years. In that event, the party in
possession acquires title to the property and the state of
co-ownership is ended. In the case at bar, the property
was registered in 1955 by the petitioner, solely in his
name, while the claim of the private respondents was
presented in 1974. Has prescription, then, set in?
We hold in the negative. Prescription, as a mode of
terminating a relation of co-ownership, must have been
preceded by repudiation (of the co-ownership). The act
of repudiation, in turn, is subject to certain conditions: (1)
a co-owner repudiates the co-ownership; (2) such an act
of repudiation is clearly made known to the other co-
owners; (3) the evidence thereon is clear and
conclu-sive; and (4) he has been in possession through
open, continuous, exclusive, and notorious possession
of the property for the period required by law.
The instant case shows that the petitioner had not
complied with these requisites. We are not convinced
that he had repudiated the co-ownership; on the
contrary, he had deliberately kept the private
respondents in the dark by feigning sole heirship over
the estate under dispute. He cannot therefore be said to
have "made known" his efforts to deny the co-ownership.
Moreover, one of the private respondents, Emeteria
Asejo, is occupying a portion of the land up to the
present, yet, the petitioner has not taken pains to eject
her therefrom. As a matter of fact, he sought to recover
possession of that portion Emeteria is occupying only as
a counterclaim, and only after the private respondents
had first sought judicial relief.
It is true that registration under the Torrens system is
constructive notice of title, but it has likewise been our
holding that the Torrens title does not furnish a shield for
fraud. It is therefore no argument to say that the act of
registration is equivalent to notice of repudiation,
assuming there was one, notwithstanding the long-
standing rule that registration operates as a universal
notice of title.
For the same reason, we cannot dismiss the private
respondents' claims commenced in 1974 over the estate
registered in 1955. While actions to enforce a
constructive trust prescribes in ten years, reckoned from
the date of the registration of the property, we, as we
said, are not prepared to count the period from such a
date in this case. We note the petitioner's sub rosa
efforts to get hold of the property exclusively for himself
beginning with his fraudulent misrepresentation in his
unilateral affidavit of extrajudicial settlement that he is
"the only heir and child of his mother Felisa with the
consequence that he was able to secure title in his name
also." Accordingly, we hold that the right of the private
respondents commenced from the time they actually
discovered the petitioner's act of defraudation. According
to the respondent Court of Appeals, they "came to know
[of it] apparently only during the progress of the
litigation."Hence, prescription is not a bar.
Moreover, and as a rule, prescription is an affirmative
defense that must be pleaded either in a motion to
dismiss or in the answer otherwise it is deemed waived,
and here, the petitioner never raised that defense. There
are recognized exceptions to this rule, but the petitioner
has not shown why they apply.
WHEREFORE, there being no reversible error
committed by the respondent Court of Appeals, the
petition is DENIED. The Decision sought to be reviewed
is hereby AFFIRMED in toto. No pronouncement as to
costs. SO ORDERED.
GR No. 82670. Sep 15, 1989. CORTES, J.
DOMETILA M. ANDRES vs. MANUFACTURERS
HANOVER
Assailed in this petition for review on certiorari is the
judgment of the Court of Appeals, which, applying the
doctrine of solutio indebiti, reversed the decision of the
Regional Trial Court, Branch CV, Quezon City by
deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing
Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for
local and foreign buyers. Among its foreign buyers was
Facets Funwear Inc. (hereinafter referred to as
FACETS) of the United States.
In the course of the business transaction between the
two, FACETS from time to time remitted certain amounts
of money to petitioner in payment for the items it had
purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey,
Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine
National Bank, Sta. Cruz, Branch, Manila (hereinafter
referred to as PNB).
Acting on said instruction, FNSB instructed private
respondent Manufacturers Hanover and Trust
Corporation to effect the above-mentioned transfer
through its facilities and to charge the amount to the
account of FNSB with private respondent. Although
private respondent was able to send a telex to PNB to
pay petitioner $10,000.00 through the Pilipinas Bank,
where petitioner had an account, the payment was not
effected immediately because the payee designated in
the telex was only "Wearing Apparel." Upon query by
PNB, private respondent sent PNB another telex dated
August 27, 1980 stating that the payment was to be
made to "Irene's Wearing Apparel." On August 28, 1980,
petitioner received the remittance of $10,000.00 through
Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the
delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On
September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private
respondent about the delay and at the same time
amended its instruction by asking it to effect the payment
through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also
unaware that petitioner had already received the
remittance of $10,000.00 from PNB instructed the PCIB
to, pay $10,000.00 to petitioner. Hence, on September
11, 1980, petitioner received a second $10,000.00
remittance.
Private respondent debited the account of FNSB for the
second $10,000.00 remittance effected through PCIB.
However, when FNSB discovered that private
respondent had made a duplication of the remittance, it
asked for a recredit of its account in the amount of
$10,000.00. Private respondent complied with the
request.
Private respondent asked petitioner for the return of the
second remittance of $10,000.00 but the latter refused to
pay. On May 12, 1982 a complaint was filed with the
Regional Trial Court, Branch CV, Quezon City which
was decided in favor of petitioner as defendant. The trial
court ruled that Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance
was made not by mistake but by negligence and
petitioner was not unjustly enriched by virtue thereof
[Record, p. 234.] On appeal, the Court of Appeals held
that Art. 2154 is applicable and reversed the RTC
decision. The dispositive portion of the Court of
Appeals' decision reads as follows:
WHEREFORE, the appealed decision is hereby
REVERSED and SET ASIDE and another one entered
in favor of plaintiff-appellant and against defendant-
appellee Domelita (sic) M. Andres, doing business under
the name and style "Irene's Wearing Apparel" to
reimburse and/or return to plaintiff-appellant the amount
of $10,000.00, its equivalent in Philippine currency, with
interests at the legal rate from the filing of the complaint
on May 12, 1982 until the whole amount is fully paid,
plus twenty percent (20%) of the amount due as
attorney's fees; and to pay the costs.
With costs against defendant-appellee. SO ORDERED.
[Rollo, pp. 29-30.]
Thereafter, this petition was filed.
The sole issue in this case is whether or not the private
respondent has the right to recover the second
$10,000.00 remittance it had delivered to petitioner. The
resolution of this issue would hinge on the applicability of
Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right
to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish
Civil Code which provided that:
Art. 1895. If a thing is received when there was no right
to claim it and which, through an error, has been unduly
delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court,
speaking through Mr. Justice Bocobo explained the
nature of this article thus:
Article 1895 [now Article 2154] of the Civil Code
abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solutio
indebiti, is one of the concrete manifestations of the
ancient principle that no one shall enrich himself unjustly
at the expense of another. In the Roman Law Digest the
maxim was formulated thus: "Jure naturae acquum est,
neminem cum alterius detrimento et injuria fieri
locupletiorem". And the Partidas declared: "Ninguno
non deue enriquecerse tortizeramente con dano de
otro." Such axiom has grown through the centuries in
legislation, in the science of law and in court decisions.
The lawmaker has found it one of the helpful guides in
framing statutes and codes. Thus, it is unfolded in many
articles scattered in the Spanish Civil Code. (See for
example, articles, 360, 361, 464, 647, 648, 797, 1158,
1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.)
This time-honored aphorism has also been adopted by
jurists in their study of the conflict of rights. It has been
accepted by the courts, which have not hesitated to
apply it when the exigencies of right and equity
demanded its assertion. It is a part of that affluent
reservoir of justice upon which judicial discretion draws
whenever the statutory laws are inadequate because
they do not speak or do so with a confused voice. [at p.
632.]
For this article to apply the following requisites must
concur: "(1) that he who paid was not under obligation
to do so; and, (2) that payment was made by reason of
an essential mistake of fact" [City of Cebu v. Piccio, 110
Phil. 558, 563 (1960).]
It is undisputed that private respondent delivered the
second $10,000.00 remittance. However, petitioner
contends that the doctrine of solutio indebiti does not
apply because its requisites are absent.
First, it is argued that petitioner had the right to demand
and therefore to retain the second $10,000.00
remittance. It is alleged that even after the two
$10,000.00 remittances are credited to petitioner's
receivables from FACETS, the latter allegedly still had a
balance of $49,324.00. Hence, it is argued that the last
$10,000.00 remittance being in payment of a pre-
existing debt, petitioner was not thereby unjustly
enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of
garments and other textile products, was with FACETS.
It was the latter and not private respondent which was
indebted to petitioner. On the other hand, the contract
for the transmittal of dollars from the United States to
petitioner was entered into by private respondent with
FNSB. Petitioner, although named as the payee was not
privy to the contract of remittance of dollars. Neither
was private respondent a party to the contract of sale
between petitioner and FACETS. There being no
contractual relation between them, petitioner has no right
to apply the second $10,000.00 remittance delivered by
mistake by private respondent to the outstanding
account of FACETS.
Petitioner next contends that the payment by respondent
bank of the second $10,000.00 remittance was not made
by mistake but was the result of negligence of its
employees.
In connection with this the Court of Appeals made the
following finding of facts:
The fact that Facets sent only one remittance of
$10,000.00 is not disputed. In the written interrogatories
sent to the First National State Bank of New Jersey
through the Consulate General of the Philippines in New
York, Adelaide C. Schachel, the investigation and
reconciliation clerk in the said bank testified that a
request to remit a payment for Facet Funwear Inc. was
made in August, 1980. The total amount which the First
National State Bank of New Jersey actually requested
the plaintiff-appellant Manufacturers Hanover & Trust
Corporation to remit to Irene's Wearing Apparel was
US$10,000.00. Only one remittance was requested by
First National State Bank of New Jersey as per
instruction of Facets Funwear (Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of
US$10,000.00 is borne out by the fact that both
remittances have the same reference invoice number
which is 263 80. (Exhibits "A-1-Deposition of Mr.
Stanley Panasow" and "A-2-Deposition of Mr. Stanley
Panasow").
Plaintiff-appellant made the second remittance on the
wrong assumption that defendant-appellee did not
receive the first remittance of US$10,000.00 [Rollo, pp.
26-27.]
It is evident that the claim of petitioner is anchored on
the appreciation of the attendant facts which petitioner
would have this Court review. The Court holds that the
finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being
based on substantial evidence, is final and conclusive.
The rule regarding questions of fact being raised with
this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v.
Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA
138, thus:
The rule in this jurisdiction is that only questions of law
may be raised in a petition for certiorari under Rule 45 of
the Revised Rules of Court. "The jurisdiction of the
Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of
law imputed to it, its findings of fact being conclusive"
[Chan v. Court of Appeals, G.R. No. L-27488, June 30,
1970, 33 SCRA 737, reiterating a long line of decisions.]
This Court has emphatically declared that "it is not the
function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed
by the lower court" [Tiongco v. De la Merced, G.R. No.
L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of
Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA
865; Baniqued v. Court of Appeals, G. R. No. L-47531,
February 20, 1984, 127 SCRA 596.] "Barring, therefore,
a showing that the findings complained of are totally
devoid of support in the record, or that they are so
glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not
expected or required to examine or contrast the oral and
documentary evidence submitted by the parties" [Santa
Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17,
1966, 18 SCRA 973.] [at pp. 144-145.]
Petitioner invokes the equitable principle that when one
of two innocent persons must suffer by the wrongful act
of a third person, the loss must be borne by the one
whose negligence was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if
there is a provision of law specifically applicable to a
case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-
29701, March 16, 1987, 148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L-36958, July 10, 1986, 142
SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado,
G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz
v. Pahati, 98 Phil. 788 (1956).] Hence, the Court in the
case of De Garcia v. Court of Appeals, G.R. No. L-
20264, January 30, 1971, 37 SCRA 129, citing Aznar v.
Yapdiangco, G.R. No. L-18536, March 31, 1965, 13
SCRA 486, held:
. . . The common law principle that where one of two
innocent persons must suffer by a fraud perpetrated by
another, the law imposes the loss upon the party who,
by his misplaced confidence, has enabled the fraud to
be committed, cannot be applied in a case which is
covered by an express provision of the new Civil Code,
specifically Article 559. Between a common law
principle and a statutory provision, the latter must prevail
in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which
embodies the doctrine of solutio indebiti, applies in the
case at bar, the Court must reject the common law
principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's
claim, petitioner makes much of the fact that from the
time the second $10,000.00 remittance was made, five
hundred and ten days had elapsed before private
respondent demanded, the return thereof. Needless to
say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within
the six years prescriptive period for actions based upon
a quasi-contract [Art. 1145 of the New Civil Code.]
WHEREFORE, the petition is DENIED and the decision
of the Court of Appeals is hereby AFFIRMED. SO
ORDERED.
G.R. No. 124378. March 8, 2005. CHICO-NAZARIO, J.
NATIONAL POWER CORPORATION vs. CA
In this petition for review, petitioner seeks the reversal of
the Decision dated 21 December 1995 of the Court of
Appeals in CA-G.R. CV No. 44639, which affirmed with
modification the Decision dated 29 July 1991 of the
Regional Trial Court (RTC), 12th Judicial Region, Branch
9, Marawi City, in Civil Case No. 115-87, for Damages.
The Resolution dated 27 March 1996 that denied
petitioners motion for reconsideration is likewise
assailed.
The factual milieu, as gleaned from the records, follows:
Petitioner National Power Corporation (NPC) is a
government-owned and controlled corporation created
under Commonwealth Act No. 120, as amended. It is
tasked to undertake the development of hydroelectric
generations of power and the production of electricity
from nuclear, geothermal and other sources, as well as
the transmission of electric power on a nationwide basis.
Concomitant to its mandate, petitioner has, among other
things, the power to construct, operate and maintain
power plants, auxiliary plants, dams, reservoirs, pipes,
mains, transmission lines, power stations, and
substations, and other works for the purpose of
developing hydraulic power from any river, creek, lake,
spring, and waterfalls in the Philippines, and supplying
such power to the inhabitants.
On 15 November 1973, the Office of the President of the
Philippines issued Memorandum Order No. 398 -
Prescribing Measures to Preserve the Lake Lanao
Watershed, To Enforce the Reservation of Areas Around
the Lake Below Seven Hundred And Two Meters
Elevation, and for Other Purposes. Said decree
instructed the NPC to build the Agus Regulation Dam at
the mouth of Agus River in Lanao del Sur, at a normal
maximum water level of Lake Lanao at 702 meters
elevation. Pursuant thereto, petitioner built and operated
the said dam in 1978.
Private respondents Hadji Abdul Carim Abdullah and
Caris Abdullah were owners of fishponds in Barangay
Bacong, Municipality of Marantao, Lanao del Sur, while
private respondents Hadji Ali Langco and Diamael
Pangcatan had their fishponds built in Poona-Marantao,
also in the same province. All of these fishponds were
sited along the Lake Lanao shore. Private respondents
have spent substantial amounts to construct, maintain,
and stock their respective fishponds with fish fingerlings,
and make plantings along the adjoining foreshore areas
between 1984 and 1986.
In October and November of 1986, all the improvements
were washed away when the water level of the lake
escalated and the subject lakeshore area was flooded.
Private respondents blamed the inundation on the Agus
Regulation Dam built and operated by the NPC in 1978.
They theorized that NPC failed to increase the outflow of
water even as the water level of the lake rose due to the
heavy rains.
Thus, in December of 1986, the private respondents,
except for Caris Abdullah, wrote separate letters to the
NPCs Vice-President, a certain R.B. Santos, who was
based in Ditucalan, Iligan City. They sought assistance
and compensation for the damage suffered by each of
them. The private respondents pleas were shorn off by
NPC on the ground that it was mandated under
Memorandum Order No. 398 dated 15 November 1973
to build the dam and maintain the normal maximum lake
level of 702 meters, and that since its operation in 1978,
the water level never rose beyond 702 meters.
Furthermore, NPC retorted that visible monuments and
benchmarks indicating the 702-meter elevation had been
established around the lake from 1974 to 1983, which
should have served as a warning to the private
respondents not to introduce any improvements below
the 702-meter level as this was outlawed.
Left with no other recourse, the private respondents filed
a complaint for damages before the RTC of Marawi City,
Branch 9, on 24 February 1987, docketed as Civil Case
No. 115-87. They alleged that the negligence and
inexperience of NPCs employees assigned to operate
the Agus Regulation Dam were the proximate causes of
the damage caused to their properties and livelihood.
They prayed for damages corresponding to the cost of
their lost fishes plus the value of their destroyed fishpond
and the expenses and the fishes thereof. They, too,
asked for reimbursement of necessary expenses as may
be proved in the trial, moral and exemplary damages,
and the costs.
NPC denied the private respondents allegations, and
tossed back the disputations that: (a) the water level of
Lake Lanao never went beyond 702 meters, (b) NPC
employees were never remiss in the performance of
their duties, and (c) the private respondents alleged
fishponds were either located below the 702-meter level,
or must have been introduced when the water level was
abnormally low and as such, were within the prohibited
area as defined in Memorandum Order No. 398. In fine,
the NPC posited that the private respondents had no
cause of action against it.
The trial court created a committee composed of
representatives of both parties to conduct an ocular
inspection of the dam and its surrounding areas. On 29
July 1991, the trial court rendered a Decision in favor of
the private respondents. Thus, the trial court disposed:
WHEREFORE, for all the foregoing consideration,
judgment is hereby rendered in favor of plaintiffs Hadji
Abdul Carim Abdullah, Caris Abdullah, Hadji Langco and
Diamael Pangcatan and against defendant National
Power Corporation directing said defendant National
Power Corporation to pay unto Plaintiff Hadji Abdul
Carim Abdullah the sum of P410,000.00 in actual or
compensatory damages; to pay unto plaintiff Caris
Abdullah the sum of P208,000.00 in actual or
compensatory damages; to pay unto plaintiff Hadji Ali
Langco or his substitutes Said Langco; Jalila Langco;
Raga Langco; Namolawan Langco; Alikan Langco;
Dibolawan Langco; Binolawan Langco; Ismael Langco;
Bokari Langco; and Diamael Pangcatan the total sum of
P260,000.00 in actual or compensatory damages; and
the further sum of P20,000.00 in litigation expenses and
the costs.
Unflinched, the petitioner appealed to the Court of
Appeals, which in a Decision dated 21 December 1995,
affirmed the decision of the court a quo with modification
on the award of damages, to wit:
WHEREFORE, for all the foregoing considerations,
judgment is hereby rendered in favor of plaintiffs Hadji
Abdul Carim Abdullah, Caris Abdullah, Hadji Langco and
Diamael Pangcatan and against defendant National
Power Corporation directing said defendant National
Power Corporation to pay unto plaintiff Hadji Abdul
Carim Abdullah the sum of P350,000.00; unto plaintiff
Caris Abdullah the sum of P150,000.00; unto plaintiff
Hadji Ali Langcos heirs and Diamael Pangcatan the sum
of P210,000.00 as and for temperate or moderate
damages; as well as P20,000.00 as and for litigation
expenses and costs. Costs against appellant.
The subsequent motion for reconsideration having been
denied, petitioner interposes this appeal, contending that
the Court of Appeals seriously erred when it:
I. DISREGARDED THE MANDATE OF PRESIDENTIAL
MEMORANDUM ORDER NO. 398.
II. CONCLUDED THAT PETITIONER WAS
NEGLIGENT IN APPLYING PRESIDENTIAL
MEMORANDUM ORDER NO. 398, DESPITE THE
CLEAR ABSENCE OF EVIDENCE OF SUCH ALLEGED
NEGLIGENCE.
III. CONCLUDED THAT THE ADVERSE RESULT OF
AN OCULAR INSPECTION CONDUCTED BY THE
TRIAL COURT AT A MUCH LATER DATE AND
DURING THE TRIAL COULD BE USED, AS IT DID, AS
PROOF OF THE ALLEGED FLOODING IN
OCTOBER/NOVEMBER 1986.
IV. CONCLUDED AND SO HELD THAT PETITIONER
ALLEGEDLY FAILED TO PROVE THAT PRIVATE
RESPONDENTS FISHPONDS WERE SITUATED
BELOW THE 702-METER ELEVATION OF THE LAKE.
V. AWARDED TEMPERATE AND MODERATE
DAMAGES IN LIEU OF ACTUAL AND
COMPENSATORY DAMAGES, AT UNREASONABLE
AMOUNTS AT THAT, DESPITE THE CLEAR
ABSENCE OF LEGAL AND FACTUAL BASES FOR
SUCH AWARD.
Despite the manifold spin-off subjects raised, the
pertinent issue worthy of exploration at the core is
whether or not the Court of Appeals erred in affirming
the trial courts verdict that petitioner was legally
answerable for the damages endured by the private
respondents.
From the above-mentioned assignment of errors,
petitioner palpably disputes the findings of facts and the
appreciation of evidence made by the trial court and later
affirmed by respondent court. It is apodictic that in a
petition for review, only questions of law may be raised
for the reason that the Supreme Court is not a trier of
facts and generally does not weigh anew the evidence
already passed upon by the Court of Appeals.
Corollarily, the factual findings of the Court of Appeals
affirming those of the trial court bind this Court when
such findings are supported by substantial evidence. In
the case at hand, no reversible error could be attributed
to the Court of Appeals in espousing conclusions of facts
similar to the trial court on petitioners liability for the
damages suffered by private respondents.
Here are the reasons why:
Memorandum Order No. 398, also known as the law
Prescribing Measures to Preserve the Lake Lanao
Watershed, To Enforce the Reservation of Areas Around
the Lake Below Seven Hundred And Two Meters
Elevation, and for Other Purposes, clothes the NPC with
the power to build the Agus Regulation Dam and to
operate it for the purpose of generating energy. Twin to
such power are the duties: (1) to maintain the normal
maximum lake elevation at 702 meters, and (2) to build
benchmarks to warn the inhabitants in the area that
cultivation of land below said elevation is forbidden. The
wordings of the said presidential order cannot be any
clearer on this point. Thus
4. The National Power Corporation shall render financial
assistance to forest protection, tree farming,
reforestation and other conservation measures in
coordination with private timber concessionaires and the
Bureau of Forest Development. With the assistance and
cooperation of provincial and municipal officials, as well
as the Provincial Commander of the Philippine
Constabulary, NPC shall place in every town around the
lake, at the normal maximum lake elevation of seven
hundred and two meters, benchmarks warning that
cultivation of land below said elevation is prohibited.
By the bulk of evidence, NPC ostensibly reneged on
both duties.
With respect to its job to maintain the normal maximum
level of the lake at 702 meters, the Court of Appeals,
echoing the trial court, observed with alacrity that when
the water level rises due to the rainy season, the NPC
ought to release more water to the Agus River to avoid
flooding and prevent the water from going over the
maximum level. And yet, petitioner failed to do so,
resulting in the inundation of the nearby estates. The
facts, as unraveled by the trial court from the evidence
on record, established that before the construction of the
Agus Regulation Dam across the Agus River just beyond
the Marawi City Bridge, no report of damages to
landowners around the lake was ever heard. After its
construction and when it started functioning in 1978,
reports and complaints of damages sustained by
landowners around the lake due to overflooding became
widespread. The factual findings of the trial court rightly
support its conclusions on this respect -
Lake Lanao has only one outlet, the Agus River which in
effect is the natural regulator. When the Lake level is
high, more water leaves the lakes towards the Agus
River. Under such a natural course, overflooding is
remote because excess in water level of the lake, there
is a corresponding increase in the volume of water drain
down towards the Agus River and vice versa.
In order to achieve its goal of generating hydroelectric
power, defendant NPC constructed the Intake
Regulation Dam, the purpose of which being to control
and regulate the amount of water discharged into the
Agus River. With this dam, defendant NPC is able to
either increase or decrease the volume of water
discharged into the Agus River depending on the
amount of power to be generated. When the lake level
rises, specially during rainy days, it is indispensable to
wide open the dam to allow more water to flow to the
Agus River to prevent overflowing of the lakeshore and
the land around it. But the NPC cannot allow the water to
flow freely into its outlet the Agus River, because it will
adversely affect its hydroelectric power plants. It has to
hold back the water by its dam in order to maintain the
volume of water required to generate the power supply.
As a consequence of holding back the water, the lands
around the lake are inundated. This is even admitted by
defendants witness Mama Manongguiring.
Consequently, in October, November and December of
1986 when the lake level increased, farmlands in the
Basak area around Lake Lanao and fishponds were
inundated as a result of such holding back of water by
defendant NPC.
Petitioner adduced in evidence its company records to
bear out its claim that the water level of the lake was, at
no point in time, higher than 702 meters. The trial court
and the Court of Appeals, however, did not lend
credence to this piece of evidence. Both courts below
held that the data contained in petitioners records
collapse in the face of the actual state of the affected
areas. During the ocular inspection conducted by the
lower court where representatives of both parties were
present, it was established that in the subject areas, the
benchmarks as pointed out by the NPC representative,
could not be seen nor reached because they were totally
covered with water. This fact, by itself, constitutes an
unyielding proof that the water level did rise above the
benchmarks and inundated the properties in the area.
In the absence of any clear explanation on what other
factors could have explained the flooding in the
neighboring properties of the dam, it is fair to reasonably
infer that the incident happened because of want of care
on the part of NPC to maintain the water level of the dam
within the benchmarks at the maximum normal lake
elevation of 702 meters. An application of the doctrine of
res ipsa loquitur, the thing speaks for itself, comes to
fore. Where the thing which causes injury is shown to be
under the management of the defendant, and the
accident is such as in the ordinary course of things does
not happen if those who have the management use
proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the
accident arose from want of care.
NPC further attempts to dodge its burden by turning the
tables against private respondents. Petitioner would
entice this Court to believe that private respondents
brought the catastrophe upon themselves by
constructing their fishponds below the 702-meter level in
defiance of Memorandum Order No. 398. Yet, petitioner
failed to demonstrate that the subject fishponds were
situated at an area below the 702-meter level yardstick.
Allegation is one thing; proof is another. Save for its bare
claim, NPC was unable to indicate the position of the
fishponds vis--vis its benchmarks. But, how can it do so
when it cannot show its own benchmarks as they were
submerged in water?
This brings us to the second duty of NPC under
Memorandum Order No. 398 - to build and maintain
benchmarks to warn the inhabitants in the area that
cultivation of land below the 702-meter elevation is
forbidden.
Notably, despite the clear mandate of Memorandum
Order No. 398, petitioners own witness, Principal
Hydrologist Mama Manongguiring, testified that although
the dam was built in 1978, the benchmarks were
installed only in July and August of 1984 and that
apparently, many had already worn-out, to be replaced
only in October of 1986. As adroitly observed by the
Court of Appeals, it was only after many years from the
time it was built that NPC installed said benchmarks. At
that time, many farms and houses were already
swamped and many fishponds, including those of the
private respondents, damaged.
Consequently, even assuming that the fishponds were
erected below the 702-meter level, NPC must,
nonetheless, bear the brunt for such damages inasmuch
as it has the duty to erect and maintain the benchmarks
precisely to warn the owners of the neighboring
properties not to build fishponds below these marks.
Such benchmarks, likewise, serve the evidentiary
purpose of extricating NPC from liability in cases of
overflooding in the neighboring estates because all NPC
would have to do is point out that such constructions are
below the 702-meter allowable elevation. Without such
points of reference, the inhabitants in said areas are
clueless whether or not their improvements are within
the prohibited area. Conversely, without such
benchmarks, NPC has no way of telling if the fishponds,
subject matter of the present controversy, are indeed
below the prescribed maximum level of elevation.
NPC staunchly asserts that the damages, if any, were
due to a fortuitous event. Again, we cannot agree with
petitioner. We defer instead to the findings and opinions
expressed by the Court of Appeals that NPC cannot
escape liability on the mere excuse that the rise of water
was due to heavy rains that were acts of God. The rainy
season is an expected occurrence and the NPC cannot
stop doing its duty when the rains fall. In fact, it is during
these critical times that the NPC needs to be vigilant to
make sure that the lake level does not exceed the
maximum level. Indeed, negligence or imprudence is
human factor which makes the whole occurrence
humanized, as it were, and removed from the rules
applicable to acts of God.
NPC further enthuses that the principle of damnum
absque injuria, or damage without injury, applies in the
present case.
Again, we disagree. This principle means that although
there was physical damage, there was no legal injury, as
there was no violation of a legal right. The negligence of
NPC as a result of its inability to maintain the level of
water in its dams has been satisfactorily and extensively
established.
Article 2176 of the New Civil Code provides that
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. In crimes and quasi-delicts, the
defendant shall be liable for all damages, which are the
natural and probable consequences of the act or
omission complained of. It is not necessary that such
damages have been foreseen or could have reasonably
been foreseen by the defendant.
In the case at bar, both the appellate court and the trial
court uniformly found that it was such negligence on the
part of NPC which directly caused the damage to the
fishponds of private respondents. The degree of
damages suffered by the latter remains unrebutted and
there exists adequate documentary evidence that the
private respondents did have fishponds in their
respective locations and that these were inundated and
damaged when the water level escalated in October
1986.
However, as observed by the Court of Appeals, while the
private respondents claim reimbursement for actual or
compensatory damages, they failed to present
independent evidence to prove with a reasonable degree
of certainty the actual amount of loss. The private
respondents could only testify as to the amounts they
had spent to build and stock their respective fishponds
and as to the amount of earnings they would have made
had the fish been sold at current market prices. We find
no reason to deflect from the award of temperate or
moderate damages by the Court of Appeals in reduced
amounts, but are reasonable under the circumstances
conformably with Articles 2224 and 2225 of the New
Civil Code.
WHEREFORE, the instant petition is DENIED. The
Decision dated 21 December 1995 and the Resolution
dated 27 March 1996 of the Court of Appeals in CA-G.R.
CV No. 44639 are hereby AFFIRMED. Costs against
petitioner. SO ORDERED.
GR No. 71049. May 29, 1987. PARAS, J.
BERNARDINO JIMENEZ vs. CITY OF MANILA
This is a petition for review on certiorari of: (1) the
decision* of the Intermediate Appellate Court in AC-G.R.
No. 013887-CV Bernardino Jimenez v. Asiatic Integrated
Corporation and City of Manila, reversing the decision**
of the Court of First Instance of Manila, Branch XXII in
Civil Case No. 96390 between the same parties, but only
insofar as holding Asiatic Integrated Corporation solely
liable for damages and attorney's fees instead of making
the City of Manila jointly and solidarily liable with it as
prayed for by the petitioner and (2) the resolution of the
same Appellate Court denying his Partial Motion for
Recon-sideration (Rollo, p. 2).
The dispositive portion of the Intermediate Appellate
Court's decision is as follows:
"WHEREFORE, the decision appealed from is hereby
REVERSED. A new one is hereby entered ordering the
defendant Asiatic Integrated Corporation to pay the
plaintiff P221.90 actual medical ex-penses,P900.00 for
the amount paid for the operation and management of a
school bus, P20,000.00 as moral damages due to pains,
sufferings and sleepless nights and P10,000,00 as
attorney's fees. SO ORDERED." (p. 20, Rollo)
The findings of respondent Appellate Court are as
follows:
The evidence of the plaintiff (petitioner herein) shows
that in the morning of August 15, 1974 he, together with
his neighbors, went to Sta. Ana public market to buy
"bagoong" at the time when the public market was
flooded with ankle deep rainwater. After purchasing the
"bagoong" he turned around to return home but he
stepped on an uncovered open-ing which could not be
seen because of the dirty rainwater, causing a dirty and
rusty four-inch nail, stuck inside the uncovered opening,
to pierce the left leg of plaintiff-peti-tioner penetrating to
a depth of about one and a half inches. After
administering first aid treatment at a nearby drugstore,
his companions helped him hobble home. He felt ill and
developed fever and he had to be carried to Dr. Juanita
Mascardo. Despite the medicine administered to him by
the latter, his left leg swelled with great pain. He was
then rushed to the Veterans Memorial Hospital where he
had to be confined for twenty (20) days due to high fever
and severe pain.
Upon his discharge from the hospital, he had to walk
around with crutches for fifteen (15) days. His injury
pre-vented him from attending to the school buses he is
operating. As a result, he had to engage the services of
one Bienvenido Valdez to supervise his business for an
aggregate compensation of nine hundred pesos
(P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp.
13-20).
Petitioner sued for damages the City of Manila and the
Asiatic Integrated Corporation under whose
administra-tion the Sta. Ana Public Market had been
placed by virtue of a Management and Operating
Contract (Rollo, p. 47).
The lower court decided in favor of respondents, the
dispositive portion of the decision reading:
"WHEREFORE, judgment is hereby rendered in favor of
the defendants and against the plaintiff dismissing the
complaint with costs against the plaintiff. For lack of
sufficient evidence, the counterclaims of the defend-ants
are likewise dismissed." (Decision, Civil Case No.
96390, Rollo, p. 42).
As above stated, on appeal, the Intermediate Appel-late
Court held the Asiatic Integrated Corporation liable for
damages but absolved respondent City of Manila.
Hence this petition.
The lone assignment of error raised in this peti-tion is on
whether or not the Intermediate Appellate Court erred in
not ruling that respondent City of Manila should be jointly
and severally liable with Asiatic Integrated Corporation
for the injuries petitioner suffered.
In compliance with the resolution of July 1, 1985 of the
First Division of this Court (Rollo, p. 29) respondent City
of Manila filed its comment on August 13, 1985 (Rollo, p.
34) while petitioner filed its Reply on August 21, 1985.
(Rollo, p. 51).
Thereafter, the Court in the resolution of Septem-ber 11,
1985 (Rollo, p. 62) gave due course to the petition and
required both parties to submit simultaneous
memoranda.
Petitioner filed his memorandum on October 1, 1985
(Rollo, p. 65) while respondent filed its memorandum on
October 24, 1985 (Rollo, p. 82).
In the resolution of October 13, 1986, this case was
transferred to the Second Division of this Court, the
same having been assigned to a member of said
Division (Rollo, p. 92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court,
there is no doubt that the plaintiff suffered injuries when
he fell into a drainage opening without any cover in the
Sta. Ana Public Market. Defendants do not deny that
plaintiff was in fact injured although the Asiatic
Integrated Corporation tries to minimize the extent of the
injuries, claiming that it was only a small puncture and
that as a war veteran, plaintiff's hospitalization at the
War Veteran's Hospital was free. (Decision, AC-G.R. CV
No. 01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be
held liable for the injuries sustained by the petitioner
because under the Management and Operating
Contract, Asiatic Integrated Corporation assumed all
responsibility for damages which may be suffered by
third persons for any cause attri-butable to it.
It has also been argued that the City of Manila cannot be
held liable under Article I, Section 4 of Republic Act No.
409 as amended (Revised Charter of Manila) which
provides:
"The City shall not be liable or held for damages or
injuries to persons or property arising from the failure of
the Mayor, the Municipal Board, or any other City
Officer, to enforce the provisions of this chapter, or any
other law or ordinance, or from negligence of said
Mayor, Municipal Board, or any other officers while
enforcing or attempting to enforce said provisions."
This issue has been laid to rest in the case of City of
Manila v. Teotico (22 SCRA 269-272 /1968/) where the
Supreme Court squarely ruled that Republic Act No. 409
establishes a general rule regulating the liability of the
City of Manila for "damages or injury to persons or
property arising from the failure of city officers" to
enforce the provisions of said Act, "or any other law or
ordinance or from negligence" of the City "Mayor,
Municipal Board, or other officers while enforcing or
attempting to enforce said provisions."
Upon the other hand, Article 2189 of the Civil Code of
the Philippines which provides that:
"Provinces, cities and munici-palities shall be liable for
damages for the death of, or injuries suf-fered by any
person by reason of de-fective conditions of roads,
streets, bridges, public buildings and other public works
under their control or supervision."
constitutes a particular prescription making "provinces,
cities and municipalities x x x liable for damages for the
death of, or injury suffered by any person by reason" --
specifically -- "of the defective condition of roads,
streets, bridges, public buildings, and other public works
under their control or supervision." In other words, Art. 1,
sec. 4, R.A. No. 409 refers to liability arising from
negligence, in general, regardless of the object, thereof,
while Article 2189 of the Civil Code governs liability due
to "defective streets, public buildings and other public
works" in particular and is therefore decisive on this
specific case.
In the same suit, the Supreme Court clarified further that
under Article 2189 of the Civil Code, it is not neces-sary
for the liability therein established to attach, that the
defective public works belong to the province, city or
municipality from which responsibility is exacted. What
said article requires is that the province, city or
municipality has either "control or supervision" over the
public build-ing in question.
In the case at bar, there is no question that the Sta. Ana
Public Market, despite the Management and Operating
Contract between respondent City and Asiatic Integrated
Corporation remained under the control of the former.
For one thing, said contract is explicit in this regard,
when it provides:
"-II-
That immediately after the execu-tion of this contract, the
SECOND PARTY shall start the painting, cleaning,
sani-tizing and repair of the public markets and talipapas
and within ninety (90) days thereof, the SECOND
PARTY shall submit a program of improvement,
development, re-habilitation and reconstruction of the
city public markets and talipapas sub-ject to prior
approval of the FIRST PARTY. (Rollo, p. 44) xxx xxx
xxx
"-VI-
That all present personnel of the City public markets and
talipapas shall be retained by the SECOND PARTY as
long as their services remain satisfactory and they shall
be extended the same rights and privileges as
heretofore enjoyed by them. Provided, however, that the
SECOND PARTY shall have the right, subject to prior
approval of the FIRST PARTY to discharge any of the
present employees for cause. (Rollo, p. 45).
"-VII-
That the SECOND PARTY may from time to time be
required by the FIRST PARTY, or his duly authorized
represent-ative or representatives, to report on the
activities and operation of the City pub-lic markets and
talipapas and the facilities and conveniences installed
therein, particularly as to their cost of construction,
operation and maintenance in connection with the
stipulations contained in this Contract." (Ibid.)
The fact of supervision and control of the City over
subject public market was admitted by Mayor Ramon
Bagat-sing in his letter to Secretary of Finance Cesar
Virata which reads:
"These cases arose from the contro-versy over the
Management and Operating Contract entered into on
December 28, 1972 by and between the City of Manila
and the Asiatic Integrated Corporation, whereby in
consideration of a fixed service fee, the City hired the
services of the said corporation to undertake the
physical management, maintenance, rehabilitation and
development of the City's public mar-kets and 'Talipapas'
subject to the con-trol and supervision of the City.
xxx xxx xxx "It is believed that there is nothing
incongruous in the exercise of these powers vis-a-vis the
existence of the contract, inasmuch as the City retains
the power of supervision and control over its public
markets and talipapas under the terms of the contract."
(Exhibit 7-A.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for
the Sta. Ana Public Market whose primary duty is to take
direct supervision and control of that particular market,
more specifically, to check the safety of the place for the
public.
Thus the Asst. Chief of the Market Division and Deputy
Market Administrator of the City of Manila testified as
follows:
"Court: This market master is an employee of the City of
Manila?
Mr. Ymson: Yes, Your Honor.
Q: What are his functions?
A: Direct supervision and control over the market area
assigned to him". (T.s,n., pp. 41-42, Hearing of May 20,
1977.) xxx xxx
"Court: As far as you know there is or is there any
specific employee assigned with the task of see-ing to it
that the Sta. Ana Market is safe for the public?
"Mr. Ymson: Actually, as I stated, Your Honor, that the
Sta. Ana has its own market master. The primary duty of
market master is to make the direct supervision and
control of that particular market, the check or verifying
whether the place is safe for public safety is vested in
the market master." (T.s.n., pp. 24-25, Hearing of July
27, 1977.) (Underscoring supplied.) (Rollo, p. 76).
Finally, Section 30(g) of the Local Tax Code as
amended provides:
"The treasurer shall exercise direct and immediate
supervision, administration and control over public
markets and the personnel thereof, including those
whose duties concern the maintenance and up-keep of
the market and ordinances and other pertinent rules and
regulations." (Underscoring supplied.) (Rollo, p. 76)
The contention of respondent City of Manila that
petitioner should not have ventured to go to Sta. Ana
Public Market during a stormy weather is indeed
untenable. As observed by respondent Court of Appeals,
it is an error for the trial court to attribute the negligence
to herein petitioner. More specifically stated, the findings
of appellate court are as follows:
"x x x The trial court even chastised the plaintiff for going
to market on a rainy day just to buy bagoong. A
cus-tomer in a store has the right to assume that the
owner will comply with his duty to keep the premises
safe for customers. If he ventures to the store on the
basis of such assumption and is injured because the
owner did not com-ply with his duty, no negligence can
be imputed to the customer." (Decision, AC G.R. CV No.
01387, Rollo, p. 19).
As a defense against liability on the basis of a quasi-
delict, one must have exercised the diligence of a good
father of a family. (Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of
Manila to exercise reasonable care to keep the public
market reasonably safe for people frequenting the place
for their marketing needs.
While it may be conceded that the fulfillment of such
duties is extremely difficult during storms and floods, it
must however, be admitted that ordinary precautions
could have been taken during good weather to minimize
the dangers to life and limb under those difficult
circumstances.
For instance, the drainage hole could have been placed
under the stalls instead of on the passage ways. Even
more important is the fact, that the City should have
seen to that the openings were covered. Sadly, the
evidence indicates that long before petitioner fell into the
opening, it was already uncovered, and five (5) months
after the incident happened, the opening was still
uncovered. (Rollo, pp. 57; 69). Moreover, while there are
findings that during floods the vendors remove the iron
grills to hasten the flow of water (Decision, AC-G.R. CV
No. 01387, Rollo, p. 17), there is no showing that such
practice has ever been prohibited much less penalized
by the City of Manila. Neither was it shown that any sign
had been placed thereabouts to warn passers-by of the
impending danger.
To recapitulate, it appears evident that the City of Manila
is likewise liable for damages under Article 2189 of the
Civil Code, respondent City having retained control and
supervision over the Sta. Ana Public Market and as tort--
feasor under Article 2176 of the Civil Code on quasi--
delicts.
Petitioner had the right to assume that there were no
openings in the middle of the passageways and if any,
that they were adequately covered. Had the opening
been covered, petitioner could not have fallen into it.
Thus the negligence of the City of Manila is the
proximate cause of the injury suffered, the City is
therefore liable for the injury suf-fered by the petitioner.
Respondent City of Manila and Asiatic Integrated
Corporation being joint tort-feasors, are solidarily liable
under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of
Appeals is hereby MODIFIED, making the City of Manila
and the Asiatic Integrated Corporation solidarily liable to
pay the plaintiffs P221.90 actual medical expenses,
P900.00 for the amount paid for the operation and
management of the school bus, P20,000.00 as moral
damages due to pain, sufferings and sleepless nights
and P10,000.00 as attorney's fees. SO ORDERED.
G.R. No. 147839. June 8, 2006.
AUSTRIA-MARTINEZ, J.
GAISANO CAGAYAN, INC. vs. INSURANCE
COMPANY OF NORTH AMERICA
Before the Court is a petition for review on certiorari of
the Decision dated October 11, 2000 of the Court of
Appeals (CA) in CA-G.R. CV No. 61848 which set aside
the Decision dated August 31, 1998 of the Regional Trial
Court, Branch 138, Makati (RTC) in Civil Case No. 92-
322 and upheld the causes of action for damages of
Insurance Company of North America (respondent)
against Gaisano Cagayan, Inc. (petitioner); and the CA
Resolution dated April 11, 2001 which denied petitioners
motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is
the local distributor of products bearing trademarks
owned by Levi Strauss & Co.. IMC and LSPI separately
obtained from respondent fire insurance policies with
book debt endorsements. The insurance policies provide
for coverage on book debts in connection with ready-
made clothing materials which have been sold or
delivered to various customers and dealers of the
Insured anywhere in the Philippines. The policies
defined book debts as the unpaid account still appearing
in the Book of Account of the Insured 45 days after the
time of the loss covered under this Policy. The policies
also provide for the following conditions:
1. Warranted that the Company shall not be liable for
any unpaid account in respect of the merchandise sold
and delivered by the Insured which are outstanding at
the date of loss for a period in excess of six (6) months
from the date of the covering invoice or actual delivery of
the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the
Company within twelve (12) days after the close of every
calendar month all amount shown in their books of
accounts as unpaid and thus become receivable item
from their customers and dealers. x x x
Petitioner is a customer and dealer of the products of
IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by
petitioner, was consumed by fire. Included in the items
lost or destroyed in the fire were stocks of ready-made
clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for
damages against petitioner. It alleges that IMC and LSPI
filed with respondent their claims under their respective
fire insurance policies with book debt endorsements; that
as of February 25, 1991, the unpaid accounts of
petitioner on the sale and delivery of ready-made
clothing materials with IMC was P2,119,205.00 while
with LSPI it was P535,613.00; that respondent paid the
claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against
petitioner; that respondent made several demands for
payment upon petitioner but these went unheeded.
In its Answer with Counter Claim dated July 4, 1995,
petitioner contends that it could not be held liable
because the property covered by the insurance policies
were destroyed due to fortuities event or force majeure;
that respondents right of subrogation has no basis
inasmuch as there was no breach of contract committed
by it since the loss was due to fire which it could not
prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties;
that it never consented to paying the claim of the
insured.
At the pre-trial conference the parties failed to arrive at
an amicable settlement. Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision
dismissing respondents complaint. It held that the fire
was purely accidental; that the cause of the fire was not
attributable to the negligence of the petitioner; that it has
not been established that petitioner is the debtor of IMC
and LSPI; that since the sales invoices state that it is
further agreed that merely for purpose of securing the
payment of purchase price, the above-described
merchandise remains the property of the vendor until the
purchase price is fully paid, IMC and LSPI retained
ownership of the delivered goods and must bear the
loss.
Dissatisfied, petitioner appealed to the CA. On October
11, 2000, the CA rendered its decision setting aside the
decision of the RTC. The dispositive portion of the
decision reads:
WHEREFORE, in view of the foregoing, the appealed
decision is REVERSED and SET ASIDE and a new one
is entered ordering defendant-appellee Gaisano
Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount
paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time
of demand until fully paid;
2. the amount of P535,613.00 representing the amount
paid by the plaintiff-appellant to the insured Levi Strauss
Phil., Inc., plus legal interest from the time of demand
until fully paid. With costs against the defendant-
appellee. SO ORDERED.
The CA held that the sales invoices are proofs of sale,
being detailed statements of the nature, quantity and
cost of the thing sold; that loss of the goods in the fire
must be borne by petitioner since the proviso contained
in the sales invoices is an exception under Article 1504
(1) of the Civil Code, to the general rule that if the thing
is lost by a fortuitous event, the risk is borne by the
owner of the thing at the time the loss under the principle
of res perit domino; that petitioners obligation to IMC and
LSPI is not the delivery of the lost goods but the
payment of its unpaid account and as such the obligation
to pay is not extinguished, even if the fire is considered a
fortuitous event; that by subrogation, the insurer has the
right to go against petitioner; that, being a fire insurance
with book debt endorsements, what was insured was the
vendors interest as a creditor.
Petitioner filed a motion for reconsideration but it was
denied by the CA in its Resolution dated April 11, 2001.
Hence, the present petition for review on certiorari
anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT
THE INSURANCE IN THE INSTANT CASE WAS ONE
OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT
ALL RISK OVER THE SUBJECT GOODS IN THE
INSTANT CASE HAD TRANSFERRED TO
PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS AUTOMATIC SUBROGATION UNDER
ART. 2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.
Anent the first error, petitioner contends that the
insurance in the present case cannot be deemed to be
over credit since an insurance on credit belies not only
the nature of fire insurance but the express terms of the
policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the
insured goods to fire and not because of the non-
payment by petitioner of any obligation; that, even if the
insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against petitioner
for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI
under the fire insurance policies.
As to the second error, petitioner avers that despite
delivery of the goods, petitioner-buyer IMC and LSPI
assumed the risk of loss when they secured fire
insurance policies over the goods.
Concerning the third ground, petitioner submits that
there is no subrogation in favor of respondent as no valid
insurance could be maintained thereon by IMC and LSPI
since all risk had transferred to petitioner upon delivery
of the goods; that petitioner was not privy to the
insurance contract or the payment between respondent
and its insured nor was its consent or approval ever
secured; that this lack of privity forecloses any real
interest on the part of respondent in the obligation to
pay, limiting its interest to keeping the insured goods
safe from fire.
For its part, respondent counters that while ownership
over the ready- made clothing materials was transferred
upon delivery to petitioner, IMC and LSPI have insurable
interest over said goods as creditors who stand to suffer
direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing
materials since it failed to overcome the presumption of
liability under Article 1265 of the Civil Code; that the fire
was caused through petitioners negligence in failing to
provide stringent measures of caution, care and
maintenance on its property because electric wires do
not usually short circuit unless there are defects in their
installation or when there is lack of proper maintenance
and supervision of the property; that petitioner is guilty of
gross and evident bad faith in refusing to pay
respondents valid claim and should be liable to
respondent for contracted lawyers fees, litigation
expenses and cost of suit.
As a general rule, in petitions for review, the jurisdiction
of this Court in cases brought before it from the CA is
limited to reviewing questions of law which involves no
examination of the probative value of the evidence
presented by the litigants or any of them. The Supreme
Court is not a trier of facts; it is not its function to analyze
or weigh evidence all over again. Accordingly, findings of
fact of the appellate court are generally conclusive on
the Supreme Court.
Nevertheless, jurisprudence has recognized several
exceptions in which factual issues may be resolved by
this Court, such as: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the CA
went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial
court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the
petitioners main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted
by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would
justify a different conclusion. Exceptions (4), (5), (7), and
(11) apply to the present petition.
At issue is the proper interpretation of the questioned
insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since
such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioners stand.
It is well-settled that when the words of a contract are
plain and readily understood, there is no room for
construction. In this case, the questioned insurance
policies provide coverage for book debts in connection
with ready-made clothing materials which have been
sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines.; and defined book
debts as the unpaid account still appearing in the Book
of Account of the Insured 45 days after the time of the
loss covered under this Policy. Nowhere is it provided in
the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the
customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the
contract. Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and
not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because
it expressly reserved ownership of the goods by
stipulating in the sales invoices that [i]t is further agreed
that merely for purpose of securing the payment of the
purchase price the above described merchandise
remains the property of the vendor until the purchase
price thereof is fully paid.
The Court is not persuaded.
The present case clearly falls under paragraph (1),
Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain
at the sellers risk until the ownership therein is
transferred to the buyer, but when the ownership therein
is transferred to the buyer the goods are at the buyers
risk whether actual delivery has been made or not,
except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods
are at the buyers risk from the time of such delivery;
Thus, when the seller retains ownership only to insure
that the buyer will pay its debt, the risk of loss is borne
by the buyer. Accordingly, petitioner bears the risk of
loss of the goods delivered.
IMC and LSPI did not lose complete interest over the
goods. They have an insurable interest until full payment
of the value of the delivered goods. Unlike the civil law
concept of res perit domino, where ownership is the
basis for consideration of who bears the risk of loss, in
property insurance, ones interest is not determined by
concept of title, but whether insured has substantial
economic interest in the property.
Section 13 of our Insurance Code defines insurable
interest as every interest in property, whether real or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured. Parenthetically, under
Section 14 of the same Code, an insurable interest in
property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out
of which the expectancy arises.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and
neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that
he would be liable to loss should it be injured or
destroyed by the peril against which it is insured. Anyone
has an insurable interest in property who derives a
benefit from its existence or would suffer loss from its
destruction. Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has
any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendors lien.
In this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their Books
of Account 45 days after the time of the loss covered by
the policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioners argument that it is not liable because the fire
is a fortuitous event under Article 1174 of the Civil Code
is misplaced. As held earlier, petitioner bears the loss
under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this
case is not for loss of goods by fire but for petitioners
accounts with IMC and LSPI that remained unpaid 45
days after the fire. Accordingly, petitioners obligation is
for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money,
the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his
liability. The rationale for this is that the rule that an
obligor should be held exempt from liability when the
loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate
thing and there is no stipulation holding him liable even
in case of fortuitous event. It does not apply when the
obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, [i]n an obligation to
deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the
obligation. If the obligation is generic in the sense that
the object thereof is designated merely by its class or
genus without any particular designation or physical
segregation from all others of the same class, the loss or
destruction of anything of the same kind even without
the debtors fault and before he has incurred in delay will
not have the effect of extinguishing the obligation. This
rule is based on the principle that the genus of a thing
can never perish. Genus nunquan perit. An obligation to
pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.
Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is
relevant here is whether it has been established that
petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately
established its claim. Exhibits C to C-22 show that
petitioner has an outstanding account with IMC in the
amount of P2,119,205.00. Exhibit E is the check voucher
evidencing payment to IMC. Exhibit F is the subrogation
receipt executed by IMC in favor of respondent upon
receipt of the insurance proceeds. All these documents
have been properly identified, presented and marked as
exhibits in court. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of
respondent as insurer and IMC as the insured, but also
the amount paid to settle the insurance claim. The right
of subrogation accrues simply upon payment by the
insurance company of the insurance claim. Respondents
action against petitioner is squarely sanctioned by Article
2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and
he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.
Petitioner failed to refute respondents evidence.
As to LSPI, respondent failed to present sufficient
evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit F Levi Strauss, a letter
dated April 23, 1991 from petitioners General Manager,
Stephen S. Gaisano, Jr., since it is not an admission of
petitioners unpaid account with LSPI. It only confirms the
loss of Levis products in the amount of P535,613.00 in
the fire that razed petitioners building on February 25,
1991.
Moreover, there is no proof of full settlement of the
insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which LSPI
may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioners case for
recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The
assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals
in CA-G.R. CV No. 61848 are AFFIRMED with the
MODIFICATION that the order to pay the amount of
P535,613.00 to respondent is DELETED for lack of
factual basis. No pronouncement as to costs. SO
ORDERED.
G.R. No. 73867. Feb 29, 1988.
TELEFAST vs. Ignacio Castro Sr.
Petition for review on certiorari of the decision of the
Intermediate Appellate Court, dated 11 February 1986,
in AC-G.R. No. CV-70245, entitled "Ignacio Castro, Sr.,
et al., Plaintiffs-Appellees, versus Telefast
Communications/Philip-pine Wireless, Inc., Defendant-
Appellant".
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro, wife
of plaintiff Ignacio Castro, Sr. and mother of the other
plain-tiffs, passed away in Lingayen, Pangasinan. On the
same day, her daughter Sofia C. Crouch, who was then
vacationing in the Philippines, addressed a telegram to
plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg,
Indiana, U.S.A., 47170 announcing Consolacion's death.
The telegram was accepted by the defendant in its
Dagupan office, for transmission, after payment of the
required fees or charges.
The telegram never reached its addressee. Consolacion
was interred with only her daughter Sofia in attendance.
Neither the husband nor any of the other children of the
deceased, then all residing in the United States, returned
for the burial.
When Sofia returned to the United States, she
discovered that the wire she had caused the defendant
to send, had not been received. She and the other
plaintiffs there-upon brought action for damages arising
from defendant's breach of contract. The case was filed
in the Court of First Instance of Pangasinan and
docketed therein as Civil Case No. 15356. The only
defense of the defendant was that it was unable to
transmit the telegram because of "technical and
atmospheric factors beyond its control". No evidence
appears on record that defendant ever made any
attempt to advise the plaintiff Sofia C. Crouch as to why
it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial,
ordered the defendant (now petitioner) to pay the
plaintiffs (now private respondents) damages, as follows,
with interest at 6% per annum:
"1. Sofia C. Crouch, P31.92 and P16,000.00 as
compensatory damages and P20,000.00 as moral
damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's
fees, exemplary damages in the amount of P1,000.00 to
each of the plaintiffs and costs".
On appeal by petitioner, the Intermediate Appellate
Court affirmed the trial court's decision but eliminated
the award of P16,000.00 as compensatory damages to
Sofia C. Crouch and the award of P1,000.00 to each of
the private respondents as exemplary damages. The
award of P20,000.00 as moral damages to each of Sofia
C. Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro
was also reduced to P10,000.00 for each.
Petitioner appeals from the judgment of the appellate
court, contending that the award of moral damages
should be eliminated as defendant's negligent act was
not motivated by "fraud, malice or recklessness".
In other words, under petitioner's theory, it can only be
held liable for P31.92, the fee or charges paid by Sofica
C. Crouch for the telegram that was never sent to the
addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "those who in
the performance of their obligations are guilty of fraud,
negligence or delay, and those who in any manner
contravene the tenor thereof, are liable for damages".
Art. 2176 also provides that "whoever by act or omission
causes damage to another, there being fault or
negligence, is obliged to pay for the damage done".
In the case at bar, petitioner and private respondent
Sofia C. Crouch entered into a contract whereby, for a
fee, petitioner undertook to send said private
respondent's mes-sage overseas by telegram. This,
petitioner did not do, despite performance by said private
respondent of her obligation by paying the required
charges. Petitioner was therefore guilty of contravening
its obligation to said private respondent and is thus liable
for damages.
This liability is not limited to actual or quantified
damages. To sustain petitioner's contrary position in this
regard would result in an inequitous situation where
peti-tioner will only be held liable for the actual cost of a
telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the
case at bar. It states: "Moral damages include physical
suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury. Though incapable
of pecuniary computation, moral damages may be
recovered if they are the proximate results of the
defendant's wrongful act or omission."
Here, petitioner's act or omission, which amounted to
gross negligence, was precisely the cause of the
suffering private respondents had to undergo.
As the appellate court properly observed:
"[Who] can seriously dispute the shock, the mental
anguish and the sorrow that the overseas children must
have suffered upon learning of the death of their mother
after she had already been interred, without being given
the opportunity to even make a choice on whether they
wanted to pay her their last respects? There is no doubt
that these emotional sufferings were proximately caused
by appellant's omission and substantive law provides for
the justification for the award of moral damages".
We also sustain the trial court's award of P16,000.00 as
compensatory damages to Sofia C. Crouch representing
the expenses she incurred when she came to the
Philippines from the United States to testify before the
trial court. Had petitioner not been remiss in performing
its obligation, there would have been no need for this
suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is
likewise justified and, therefore, sustained in the amount
of P1,000.00 for each of the private respondents, as a
warning to all telegram companies to observe due
diligence in transmitting the messages of their
customers.
WHEREFORE, the petition is DENIED. The decision
appealed from is modified so that petitioner is held liable
to private respondents in the following amounts:
(1) P10,000.00 as moral damages, to each of private
respondents;
(2) P1,000.00 as exemplary damages, to each of private
respondents;
(3) P16,000.00 as compensatory damages, to private
respondent Sofia C. Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit. SO ORDERED.
G.R. No. 153004. November 5, 2004. QUISUMBING, J.
SANTOS VENTURA HOCORMA FOUNDATION, INC.
vs. ERNESTO V. SANTOS
Subject of the present petition for review on certiorari is
the Decision, dated January 30, 2002, as well as the
April 12, 2002, Resolution of the Court of Appeals in CA-
G.R. CV No. 55122. The appellate court reversed the
Decision, dated October 4, 1996, of the Regional Trial
Court of Makati City, Branch 148, in Civil Case No. 95-
811, and likewise denied petitioners Motion for
Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma
Foundation, Inc. (SVHFI) were the plaintiff and
defendant, respectively, in several civil cases filed in
different courts in the Philippines. On October 26, 1990,
the parties executed a Compromise Agreement which
amicably ended all their pending litigations. The
pertinent portions of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5
Million in the following manner:
a. P1.5 Million immediately upon the execution of this
agreement;
b. The balance of P13 Million shall be paid, whether in
one lump sum or in installments, at the discretion of the
Foundation, within a period of not more than two (2)
years from the execution of this agreement; provided,
however, that in the event that the Foundation does not
pay the whole or any part of such balance, the same
shall be paid with the corresponding portion of the land
or real properties subject of the aforesaid cases and
previously covered by the notices of lis pendens, under
such terms and conditions as to area, valuation, and
location mutually acceptable to both parties; but in no
case shall the payment of such balance be later than two
(2) years from the date of this agreement; otherwise,
payment of any unpaid portion shall only be in the form
of land aforesaid;
2. Immediately upon the execution of this agreement
(and [the] receipt of the P1.5 Million), plaintiff Santos
shall cause the dismissal with prejudice of Civil Cases
Nos. 88-743, 1413OR, TC-1024, 45366 and 18166 and
voluntarily withdraw the appeals in Civil Cases Nos.
4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R.
No. 24304) respectively and for the immediate lifting of
the aforesaid various notices of lis pendens on the real
properties aforementioned (by signing herein attached
corresponding documents, for such lifting); provided,
however, that in the event that defendant Foundation
shall sell or dispose of any of the lands previously
subject of lis pendens, the proceeds of any such sale, or
any part thereof as may be required, shall be partially
devoted to the payment of the Foundations obligations
under this agreement as may still be subsisting and
payable at the time of any such sale or sales;
5. Failure of compliance of any of the foregoing terms
and conditions by either or both parties to this
agreement shall ipso facto and ipso jure automatically
entitle the aggrieved party to a writ of execution for the
enforcement of this agreement.
In compliance with the Compromise Agreement,
respondent Santos moved for the dismissal of the
aforesaid civil cases. He also caused the lifting of the
notices of lis pendens on the real properties involved.
For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development
Exchange Livelihood Corporation two real properties,
which were previously subjects of lis pendens.
Discovering the disposition made by the petitioner,
respondent Santos sent a letter to the petitioner
demanding the payment of the remaining P13 million,
which was ignored by the latter. Meanwhile, on
September 30, 1991, the Regional Trial Court of Makati
City, Branch 62, issued a Decision approving the
compromise agreement.
On October 28, 1992, respondent Santos sent another
letter to petitioner inquiring when it would pay the
balance of P13 million. There was no response from
petitioner. Consequently, respondent Santos applied
with the Regional Trial Court of Makati City, Branch 62,
for the issuance of a writ of execution of its compromise
judgment dated September 30, 1991. The RTC granted
the writ. Thus, on March 10, 1993, the Sheriff levied on
the real properties of petitioner, which were formerly
subjects of the lis pendens. Petitioner, however, filed
numerous motions to block the enforcement of the said
writ. The challenge of the execution of the aforesaid
compromise judgment even reached the Supreme Court.
All these efforts, however, were futile.
On November 22, 1994, petitioners real properties
located in Mabalacat, Pampanga were auctioned. In the
said auction, Riverland, Inc. was the highest bidder for
P12 million and it was issued a Certificate of Sale
covering the real properties subject of the auction sale.
Subsequently, another auction sale was held on
February 8, 1995, for the sale of real properties of
petitioner in Bacolod City. Again, Riverland, Inc. was the
highest bidder. The Certificates of Sale issued for both
properties provided for the right of redemption within one
year from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a
Complaint for Declaratory Relief and Damages alleging
that there was delay on the part of petitioner in paying
the balance of P13 million. They further alleged that
under the Compromise Agreement, the obligation
became due on October 26, 1992, but payment of the
remaining P12 million was effected only on November
22, 1994. Thus, respondents prayed that petitioner be
ordered to pay legal interest on the obligation, penalty,
attorneys fees and costs of litigation. Furthermore, they
prayed that the aforesaid sales be declared final and not
subject to legal redemption.
In its Answer, petitioner countered that respondents
have no cause of action against it since it had fully paid
its obligation to the latter. It further claimed that the
alleged delay in the payment of the balance was due to
its valid exercise of its rights to protect its interests as
provided under the Rules. Petitioner counterclaimed for
attorneys fees and exemplary damages.
On October 4, 1996, the trial court rendered a
Decision[9] dismissing herein respondents complaint
and ordering them to pay attorneys fees and exemplary
damages to petitioner. Respondents then appealed to
the Court of Appeals. The appellate court reversed the
ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed
Decision is hereby REVERSED and judgment is hereby
rendered ordering appellee SVHFI to pay appellants
Santos and Riverland, Inc.: (1) legal interest on the
principal amount of P13 million at the rate of 12% per
annum from the date of demand on October 28, 1992 up
to the date of actual payment of the whole obligation;
and (2) P20,000 as attorneys fees and costs of suit. SO
ORDERED.
Hence this petition for review on certiorari where
petitioner assigns the following issues:
I. WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT
AWARDED LEGAL INTEREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND RIVERLAND,
INC., NOTWITHSTANDING THE FACT THAT NEITHER
IN THE COMPROMISE AGREEMENT NOR IN THE
COMPROMISE JUDGEMENT OF HON. JUDGE
DIOKNO PROVIDES FOR PAYMENT OF INTEREST
TO THE RESPONDENT
II. WHETHER OF NOT THE COURT OF APPEALS
ERRED IN AWARDING LEGAL IN[T]EREST IN FAVOR
OF THE RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING THE FACT
THAT THE OBLIGATION OF THE PETITIONER TO
RESPONDENT SANTOS TO PAY A SUM OF MONEY
HAD BEEN CONVERTED TO AN OBLIGATION TO
PAY IN KIND DELIVERY OF REAL PROPERTIES
OWNED BY THE PETITIONER WHICH HAD BEEN
FULLY PERFORMED
III. WHETHER OR NOT RESPONDENTS ARE
BARRED FROM DEMANDING PAYMENT OF
INTEREST BY REASON OF THE WAIVER PROVISION
IN THE COMPROMISE AGREEMENT, WHICH
BECAME THE LAW AMONG THE PARTIES
The only issue to be resolved is whether the
respondents are entitled to legal interest.
Petitioner SVHFI alleges that where a compromise
agreement or compromise judgment does not provide for
the payment of interest, the legal interest by way of
penalty on account of fault or delay shall not be due and
payable, considering that the obligation or loan, on which
the payment of legal interest could be based, has been
superseded by the compromise agreement.
Furthermore, the petitioner argues that the respondents
are barred by res judicata from seeking legal interest on
account of the waiver clause in the duly approved
compromise agreement. Article 4 of the compromise
agreement provides:
Plaintiff Santos waives and renounces any and all other
claims that he and his family may have on the defendant
Foundation arising from and in connection with the
aforesaid civil cases, and defendant Foundation, on the
other hand, also waives and renounces any and all
claims that it may have against plaintiff Santos in
connection with such cases.
Lastly, petitioner alleges that since the compromise
agreement did not provide for a period within which the
obligation will become due and demandable, it is
incumbent upon respondent Santos to ask for judicial
intervention for purposes of fixing the period. It is only
when a fixed period exists that the legal interests can be
computed.
Respondents profer that their right to damages is based
on delay in the payment of the obligation provided in the
Compromise Agreement. The Compromise Agreement
provides that payment must be made within the two-year
period from its execution. This was approved by the trial
court and became the law governing their contract.
Respondents posit that petitioners failure to comply
entitles them to damages, by way of interest.
The petition lacks merit.
A compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or put
an end to one already commenced. It is an agreement
between two or more persons, who, for preventing or
putting an end to a lawsuit, adjust their difficulties by
mutual consent in the manner which they agree on, and
which everyone of them prefers in the hope of gaining,
balanced by the danger of losing.
The general rule is that a compromise has upon the
parties the effect and authority of res judicata, with
respect to the matter definitely stated therein, or which
by implication from its terms should be deemed to have
been included therein. This holds true even if the
agreement has not been judicially approved.
In the case at bar, the Compromise Agreement was
entered into by the parties on October 26, 1990. It was
judicially approved on September 30, 1991. Applying
existing jurisprudence, the compromise agreement as a
consensual contract became binding between the
parties upon its execution and not upon its court
approval. From the time a compromise is validly entered
into, it becomes the source of the rights and obligations
of the parties thereto. The purpose of the compromise is
precisely to replace and terminate controverted claims.
In accordance with the compromise agreement, the
respondents asked for the dismissal of the pending civil
cases. The petitioner, on the other hand, paid the initial
P1.5 million upon the execution of the agreement. This
act of the petitioner showed that it acknowledges that the
agreement was immediately executory and enforceable
upon its execution.
As to the remaining P13 million, the terms and
conditions of the compromise agreement are clear and
unambiguous. It provides: b. The balance of P13 Million
shall be paid, whether in one lump sum or in
installments, at the discretion of the Foundation, within a
period of not more than two (2) years from the execution
of this agreement.
The two-year period must be counted from October 26,
1990, the date of execution of the compromise
agreement, and not on the judicial approval of the
compromise agreement on September 30, 1991. When
respondents wrote a demand letter to petitioner on
October 28, 1992, the obligation was already due and
demandable. When the petitioner failed to pay its due
obligation after the demand was made, it incurred delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
Delay as used in this article is synonymous to default or
mora which means delay in the fulfillment of obligations.
It is the non-fulfillment of the obligation with respect to
time.
In order for the debtor to be in default, it is necessary
that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2)
that the debtor delays performance; and (3) that the
creditor requires the performance judicially or
extrajudicially.
In the case at bar, the obligation was already due and
demandable after the lapse of the two-year period from
the execution of the contract. The two-year period ended
on October 26, 1992. When the respondents gave a
demand letter on October 28, 1992, to the petitioner, the
obligation was already due and demandable.
Furthermore, the obligation is liquidated because the
debtor knows precisely how much he is to pay and when
he is to pay it.
The second requisite is also present. Petitioner delayed
in the performance. It was able to fully settle its
outstanding balance only on February 8, 1995, which is
more than two years after the extra-judicial demand.
Moreover, it filed several motions and elevated adverse
resolutions to the appellate court to hinder the execution
of a final and executory judgment, and further delay the
fulfillment of its obligation.
Third, the demand letter sent to the petitioner on October
28, 1992, was in accordance with an extra-judicial
demand contemplated by law.
Verily, the petitioner is liable for damages for the delay in
the performance of its obligation. This is provided for in
Article 1170 of the New Civil Code.
When the debtor knows the amount and period when he
is to pay, interest as damages is generally allowed as a
matter of right. The complaining party has been deprived
of funds to which he is entitled by virtue of their
compromise agreement. The goal of compensation
requires that the complainant be compensated for the
loss of use of those funds. This compensation is in the
form of interest. In the absence of agreement, the legal
rate of interest shall prevail. The legal interest for loan as
forbearance of money is 12% per annum to be
computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article
1169 of the Civil Code.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision dated January 30, 2002 of the Court of Appeals and
its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are
AFFIRMED. Costs against petitioner. SO ORDERED.