Garcia, Jr. Respondent, in said Petition, sought: (1) the In an Order dated 31 May 1995 in SEC-EB No.
o. 393, the
Obligations and Contracts
Prof. William Varias
Chapter 1 - General Provisions
(Arts. 1156-1162)
Some Key Concepts
 Criticism of the definition
 Elements of an obligation
 Sources of an obligation
1. Makati Stock Exchange, et. al. v. Miguel
Campos, et. al.
G.R. No. 138814 April 16, 2009
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45
seeking the reversal of the Decision2 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
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 ₱2 million as moral
damages, ₱1 million as exemplary damages, and
₱500,000.00 as attorney’s fees and litigation expenses.
On 14 February 1994, the SICD issued an Order
granting respondent’s 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 respondent’s 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 respondent’s 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 petitioner’s 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.
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 respondent’s 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.
Respondent’s 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 respondent’s 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
1
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 RESPONDENT’S 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, RESPONDENT’S CLAIM FOR DAMAGES
IS ILLUSORY AND HIS PETITION A NUISANCE SUIT.3
On 18 September 2001, counsel for respondent
manifested to this Court that his client died on 7 May
2001. In a Resolution dated 24 October 2001, the Court
directed the substitution of respondent by his surviving
spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by
the SEC en banc of respondent’s Petition in SEC Case
No. 02-94-4678 for failure to state a cause of action.
On the other hand, respondent insists on the
sufficiency of his Petition and seeks the continuation of
the proceedings before the SICD.
A cause of action is the act or omission by which a party
violates a right of another.4 A complaint states a cause
of action where it contains three essential elements of
a cause of action, namely: (1) the legal right of the
plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the
defendant in violation of said legal right. If these
elements are absent, the complaint becomes
vulnerable to dismissal on the ground of failure to state
a cause of action.
If a defendant moves to dismiss the complaint on the
ground of lack of cause of action, he is regarded as
having hypothetically admitted all the averments
thereof. The test of sufficiency of the facts found in a
complaint as constituting a cause of action is whether
or not admitting the facts alleged, the court can render
a valid judgment upon the same in accordance with the
prayer thereof. The hypothetical admission extends to
the relevant and material facts well pleaded in the
complaint and inferences fairly deducible therefrom.
Hence, if the allegations in the complaint furnish
sufficient basis by which the complaint can be
maintained, the same should not be dismissed
regardless of the defense that may be assessed by the
defendant.5
Given the foregoing, the issue of whether respondent’s
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 respondent’s 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 respondent’s Petition in
SEC Case No. 02-94-4678 is, therefore, unavoidable.
Pertinent portions of the said Petition reads:
7. In recognition of petitioner’s 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
2
attend all membership meetings as well as the 13. The collective act of the individual respondents in (1) Law;
meetings of the Board of Governors of the Exchange, is depriving petitioner of his right to a share in the IPOs
hereby created." for the aforementioned reason, is unjust, dishonest (2) Contracts;
and done in bad faith, causing petitioner substantial
8. Hence, to this day, petitioner is not only an active financial damage.6 (3) Quasi-contracts;
member of the respondent corporation, but its
Chairman Emeritus as well. There is no question that the Petition in SEC Case No. (4) Acts or omissions punished by law; and
02-94-4678 asserts a right in favor of respondent,
9. Correspondingly, at all times material to this particularly, respondent’s alleged right to subscribe to (5) Quasi-delicts.
petition, as an active member and Chairman Emeritus the IPOs of corporations listed in the stock market at
of respondent corporation, petitioner has always their offering prices; and stipulates the correlative Therefore, an obligation imposed on a person, and the
enjoyed the right given to all the other members to obligation of petitioners to respect respondent’s right, corresponding right granted to another, must be
participate equally in the Initial Public Offerings (IPOs specifically, by continuing to allow respondent to rooted in at least one of these five sources. The mere
for brevity) of corporations. subscribe to the IPOs of corporations listed in the stock assertion of a right and claim of an obligation in an
market at their offering prices. initiatory pleading, whether a Complaint or Petition,
10. IPOs are shares of corporations offered for sale to without identifying the basis or source thereof, is
the public, prior to the listing in the trading floor of the
However, the terms right and obligation in merely a conclusion of fact and law. A pleading should
country’s two stock exchanges. Normally, Twenty Five respondent’s Petition are not magic words that would state the ultimate facts essential to the rights of action
Percent (25%) of these shares are divided equally automatically lead to the conclusion that such Petition or defense asserted, as distinguished from mere
between the two stock exchanges which in turn divide sufficiently states a cause of action. Right and conclusions of fact or conclusions of law.10 Thus, a
these equally among their members, who pay therefor obligation are legal terms with specific legal meaning. Complaint or Petition filed by a person claiming a right
at the offering price. A right is a claim or title to an interest in anything to the Office of the President of this Republic, but
whatsoever that is enforceable by law.7 An obligation without stating the source of his purported right,
11. However, on June 3, 1993, during a meeting of the is defined in the Civil Code as a juridical necessity to cannot be said to have sufficiently stated a cause of
Board of Directors of respondent-corporation, give, to do or not to do.8 For every right enjoyed by any action. Also, a person claiming to be the owner of a
individual respondents passed a resolution to stop person, there is a corresponding obligation on the part parcel of land cannot merely state that he has a right
giving petitioner the IPOs he is entitled to, based on the of another person to respect such right. Thus, Justice to the ownership thereof, but must likewise assert in
ground that these shares were allegedly benefiting J.B.L. Reyes offers9 the definition given by Arias Ramos the Complaint either a mode of acquisition of
Gerardo O. Lanuza, Jr., who these individual as a more complete definition: ownership or at least a certificate of title in his name.
respondents wanted to get even with, for having filed
cases before the Securities and Exchange (SEC) for An obligation is a juridical relation whereby a person In the case at bar, although the Petition in SEC Case No.
their disqualification as member of the Board of (called the creditor) may demand from another (called 02-94-4678 does allege respondent’s right to subscribe
Directors of respondent corporation. the debtor) the observance of a determinative conduct to the IPOs of corporations listed in the stock market
(the giving, doing or not doing), and in case of breach, at their offering prices, and petitioners’ obligation to
12. Hence, from June 3, 1993 up to the present time, may demand satisfaction from the assets of the latter. continue respecting and observing such right, the
petitioner has been deprived of his right to subscribe Petition utterly failed to lay down the source or basis
to the IPOs of corporations listing in the stock market The Civil Code enumerates the sources of obligations: of respondent’s right and/or petitioners’ obligation.
at their offering prices.
Art. 1157. Obligations arise from: Respondent merely quoted in his Petition the MKSE
Board Resolution, passed sometime in 1989, granting

3
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
country’s two stock exchanges. Normally, Twenty-Five
Percent (25%) of these shares are divided equally
between the two stock exchanges which in turn divide
these equally among their members, who pay therefor
at the offering price.11 (Emphasis supplied)
A practice or custom is, as a general rule, not a source
of a legally demandable or enforceable right.12
Indeed, in labor cases, benefits which were voluntarily
given by the employer, and which have ripened into
company practice, are considered as rights that cannot
be diminished by the employer.13 Nevertheless, even
in such cases, the source of the employees’ right is not
custom, but ultimately, the law, since Article 100 of the
Labor Code explicitly prohibits elimination or
diminution of benefits.
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 WHEREFORE, the Petition is GRANTED. The Decision of
shares at the offering price -- the Court cannot grant the Court of Appeals dated 11 February 1997 and its
respondent’s prayer for damages which allegedly Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
resulted from the MKSE Board Resolution dated 3 June are REVERSED and SET ASIDE. The Orders dated 31
1993 deviating from said practice by no longer May 1995 and 14 August 1995 of the Securities and
allocating any shares to respondent.1avvphi1 Exchange Commission en banc in SEC-EB Case No. 393
and No. 403, respectively, are hereby reinstated. No
Accordingly, the instant Petition should be granted. pronouncement as to costs.
The Petition in SEC Case No. 02-94-4678 should be
dismissed for failure to state a cause of action. It does SO ORDERED.
not matter that the SEC en banc, in its Order dated 14
August 1995 in SEC-EB No. 403, overstepped its bounds MINITA V. CHICO-NAZARIO
by not limiting itself to the issue of whether Associate Justice
respondent’s Petition before the SICD sufficiently
stated a cause of action. The SEC en banc may have WE CONCUR:
been mistaken in considering extraneous evidence in
granting petitioners’ Motion to Dismiss, but its CONSUELO YNARES-SANTIAGO
discussion thereof are merely superfluous and obiter Associate Justice
dictum. In the main, the SEC en banc did correctly Chairperson
dismiss the Petition in SEC Case No. 02-94-4678 for its MA. ALICIA AUSTRIA-MARTINEZ
failure to state the basis for respondent’s alleged right, Associate Justice ANTONIO EDUARDO B.
to wit: NACHURA
Associate Justice
Private respondent Campos has failed to establish the
basis or authority for his alleged right to participate DIOSDADO M. PERALTA
equally in the IPO allocations of the Exchange. He cited Associate Justice
paragraph 11 of the amended articles of incorporation
of the Exchange in support of his position but a careful ATTESTATION
reading of the said provision shows nothing therein
that would bear out his claim. The provision merely I attest that the conclusions in the above Decision were
created the position of chairman emeritus of the reached in consultation before the case was assigned
Exchange but it mentioned nothing about conferring to the writer of the opinion of the Court’s Division.
upon the occupant thereof the right to receive IPO
allocations.14 CONSUELO YNARES-SANTIAGO
Associate Justice
With the dismissal of respondent’s Petition in SEC Case Chairperson, Third Division
No. 02-94-4678, there is no more need for this Court
to resolve the propriety of the issuance by SCID of a CERTIFICATION
writ of preliminary injunction in said case.
4
Pursuant to Section 13, Article VIII of the Constitution,
and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision
were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s
Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Per Resolution of 24 October 2001.
2 Penned by Associate Justice Eubulo G. Verzola with
Associate Justices Jesus M. Elbinias and Hilarion L.
Aquino, concurring; rollo, pp. 30-36.
3 Rollo, p. 144.
4 Revised Rules of Court, Rule 2, Section 2.
5 Fil-Estate Golf and Development, Inc. v. Court of
Appeals, 333 Phil. 465, 490-491 (1996).
6 Rollo, pp. 50-52.
7 Bailey v. Miller, 91 N.E. 24, 25, Ind. App. 475, cited in
37A Words and Phrases 363.
8 Civil Code, Article 1156.
9 Lawyer’s Journal, 31 January 1951, p. 47.
10 Abad v. Court of First Instance of Pangasinan, G.R.
Nos. 58507-08, 26 February 1992, 206 SCRA 567, 579-
580.
11 Rollo, pp. 51-52.
12 A distinction, however, should be made between
Municipal Law and Public International Law. Custom is
one of the primary sources of International Law, and is
thus a source of legal rights within such sphere.
13 Arco Metal Products Co., Inc. v. Samahan ng mga
Manggagawa sa Arco Metal-NAFLU, G.R. No. 170734,
14 May 2008, 554 SCRA 110, 118.
14 Rollo, p. 95.
2. Ang Yu Asuncion v. CA
G.R. No. 109125 December 2, 1994
VITUG, J.:
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
5
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.
6
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.1
On 04 December 1991, the appellate court, on appeal
to it by private respondent, set aside and declared
without force and effect the above questioned orders
of the court a quo.
In this petition for review on certiorari, petitioners
contend that Buen Realty can be held bound by the
writ of execution by virtue of the notice of lis pendens,
carried over on TCT No. 195816 issued in the name of
Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate
transactions is the adoption of such arrangements as
the right of first refusal, a purchase option and a
contract to sell. For ready reference, we might point
out some fundamental precepts that may find some
relevance to this discussion.
An obligation is a juridical necessity to give, to do or
not to do (Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential
elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the
various sources of obligations (law, contracts, 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,
7
the contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to
another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as
in a "Contract to Sell" where invariably the ownership
of the thing sold is retained until the fulfillment of a
positive suspensive condition (normally, the full
payment of the purchase price), the breach of the
condition will prevent the obligation to convey title
from acquiring an obligatory force.2 In Dignos vs. Court
of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still
absolute where the contract is devoid of any proviso
that title is reserved or the right to unilaterally rescind
is stipulated, e.g., until or unless the price is paid.
Ownership will then be transferred to the buyer upon
actual or constructive delivery (e.g., by the execution
of a public document) of the property sold. Where the
condition is imposed upon the perfection of the
contract itself, the failure of the condition would
prevent such perfection.3 If the condition is imposed
on the obligation of a party which is not fulfilled, the
other party may either waive the condition or refuse to
proceed with the sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as
long as the object is made determinate and the price is
fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the
thing to be sold and the price to be paid, when coupled
with a valuable consideration distinct and separate
from the price, is what may properly be termed a
perfected contract of option. This contract is legally
binding, and in sales, it conforms with the second
paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price. (1451a)6
Observe, however, that the option is not the contract
of sale itself.7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely,
i.e., the offer is accepted before a breach of the option,
a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with
their respective undertakings.8
Let us elucidate a little. A negotiation is formally
initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements
or solicitations and the like are ordinarily construed as
mere invitations to make offers or only as proposals.
These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time
prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer,
at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as
by its mailing and not necessarily when the offeree
learns of the withdrawal (Laudico vs. Arias, 43 Phil.
270). Where a period is given to the offeree within
which to accept the offer, the following rules generally
govern:
(1) If the period is not itself founded upon or supported
by a consideration, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if
an acceptance has been made, before the offeror's
coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code;
see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948,
holding that this rule is applicable to a unilateral
promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97
Phil. 249; see also Art. 1319, Civil Code; Rural Bank of
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
8
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.11 It is not to say, however,
that the right of first refusal would be inconsequential
for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the
circumstances expressed in Article 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 13 that decreed the execution of a deed of
sale between the Cu Unjiengs and respondent lessees,
or the fixing of the price of the sale, or the cancellation
of title in the name of petitioner (Limpin vs. IAC, 147
SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC,
143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor
vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in
Civil Case No. 87-41058 could not have decreed at the
time the execution of any deed of sale between the Cu
Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in
ultimately setting aside the questioned Orders, dated
30 August 1991 and 27 September 1991, of the court a
quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr.,
Romero, Bellosillo, Melo, Quiason, Puno and Mendoza,
JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.
#Footnotes
1 Rollo, pp. 32-38.
2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186
SCRA 375.
3 See People's Homesite and Housing Corp. vs. Court
of Appeals, 133 SCRA 777.
4 Delta Motor Corporation vs. Genuino, 170 SCRA 29.
9
5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian
Tek, 102 Phil. 948.
6 It is well to note that when the consideration given,
for what otherwise would have been an option,
partakes the nature in reality of a part payment of the
purchase price (termed as "earnest money" and
considered as an initial payment thereof), an actual
contract of sale is deemed entered into and
enforceable as such.
7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.
8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil.
948.
9 Article 1319, Civil Code, provides:
Art. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer. (Emphasis
supplied.)
10 It is also essential for an option to be binding that
valuable consideration distinct from the price should
be given (see Montilla vs. Court of Appeals, 161 SCRA
167; Sps. Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M.
Tuason & Co., Inc., 78 SCRA 331).
11 See Article 1315 and 1318, Civil Code; Madrigal &
Co. vs. Stevenson & Co., 15 Phil. 38; Salonga vs.
Ferrales, 105 SCRA 359).
12 Art. 19. Every person must, in the exercise of his
rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty
and good faith.
13 The decision referred to reads:
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 —
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.
3. Metropolitan Bank v. Rosales, et. al.
G.R. No. 183204 January 13, 2014
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan
or mutuum,1 must be paid upon demand by the
depositor.2
This Petition for Review on Certiorari3 under Rule 45
of the Rules of Court assails the April 2, 2008 Decision4
and the May 30, 2008 Resolution5 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.6
Respondent Ana Grace Rosales (Rosales) is the owner
of China Golden Bridge Travel Services,7 a travel
agency.8 Respondent Yo Yuk To is the mother of
respondent Rosales.9
In 2000, respondents opened a Joint Peso Account10
with petitioner’s Pritil-Tondo Branch.11 As of August 4,
2004, respondents’ Joint Peso Account showed a
balance of ₱2,515,693.52.12
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.13 Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter
for her.14
On March 3, 2003, respondents opened with
petitioner’s Pritil-Tondo Branch a Joint Dollar
Account15 with an initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order
against respondents’ accounts.17
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-25014,18 against
respondent Rosales.19 Petitioner accused respondent
Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent
10
withdrawal of US$75,000.00 from Liu Chiu Fang’s
dollar account with petitioner’s Escolta Branch.20
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;21
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;22 that Gutierrez told respondent Rosales to
come back the following day because the bank did not
have enough dollars;23 that on February 6, 2003,
respondent Rosales accompanied an unidentified
impostor of Liu Chiu Fang to the bank;24 that the
impostor was able to withdraw Liu Chiu Fang’s dollar
deposit in the amount of US$75,000.00;25 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.26
Respondent Rosales, however, denied taking part in
the fraudulent and unauthorized withdrawal from the
dollar account of Liu Chiu Fang.27 Respondent Rosales
claimed that she did not go to the bank on February 5,
2003.28 Neither did she inform Gutierrez that Liu Chiu
Fang was going to close her account.29 Respondent
Rosales further claimed that after Liu Chiu Fang
opened an account with petitioner, she lost track of
her.30 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.31 At noon of the same day,
respondent Rosales went to the bank to make a
transaction.32 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).33 After completing her transaction,
respondent Rosales approached Perez who informed
her that Liu Chiu Fang had closed her account and had
already left.34 Perez then gave a copy of the
Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 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.36 It was only then that Liu Chiu Fang found
out that her account had been closed without her
knowledge.37 Respondent Rosales then went to the
bank to inform Gutierrez and Perez of the
unauthorized withdrawal.38 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.39 Liu Chiu Fang, however, denied
executing the SPA.40 The following day, respondent
Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the
PLRA Office to discuss the unauthorized withdrawal.41
During the conference, the bank officers assured Liu
Chiu Fang that the money would be returned to her.42
On December 15, 2003, the Office of the City
Prosecutor of Manila issued a Resolution dismissing
the criminal case for lack of probable cause.43
Unfazed, petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the
Regional Trial Court (RTC) of Manila a Complaint44 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.45 No
explanation, however, was given by petitioner as to
why it issued the "Hold Out" order.46 Thus, they
prayed that the "Hold Out" order be lifted and that
they be allowed to withdraw their deposits.47 They
likewise prayed for actual, moral, and exemplary
damages, as well as attorney’s fees.48
Petitioner alleged that respondents have no cause of
action because it has a valid reason for issuing the
"Hold Out" order.49 It averred that due to the
fraudulent scheme of respondent Rosales, it was
compelled to reimburse Liu Chiu Fang the amount of
US$75,000.0050 and to file a criminal complaint for
Estafa against respondent Rosales.51
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.52 An Information, docketed as
Criminal Case No. 05-236103,53 was then filed
charging respondent Rosales with Estafa before Branch
14 of the RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision55
finding petitioner liable for damages for breach of
contract.56 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.57 The RTC also said that the recourse
of petitioner is against its negligent employees and not
against respondents.58 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
11
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.59
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."60
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.61
Petitioner sought reconsideration but the same was
denied by the CA in its May 30, 2008 Resolution.62
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.63
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.64 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.65 Petitioner also contends that
the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified
in issuing the "Hold-Out" order.67 Petitioner likewise
denies that its employees were negligent in releasing
the dollars.68 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.69
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.70
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.71 They insist that petitioner miserably
failed to prove its accusations against respondent
Rosales.72 In fact, no documentary evidence was
presented to show that respondent Rosales
participated in the unauthorized withdrawal.73 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.74 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.75 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.76 Failing to
do so makes petitioner liable to pay respondents moral
and exemplary damages, as well as attorney’s fees.77
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:
12
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.
xxxx
JOINT ACCOUNT
xxxx
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.78
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 115779 of the Civil
Code, to wit: law, contracts, quasi-contracts, delict,
and quasi-delict. In this case, petitioner failed to show
that respondents have an obligation to it under any
law, contract, quasi-contract, 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.1âwphi1
In cases of breach of contract, moral damages may be
recovered only if the defendant acted fraudulently or
in bad faith,80 or is "guilty of gross negligence
amounting to bad faith, or in wanton disregard of his
contractual obligations."81
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."82 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, 2003,83 while the criminal complaint was filed
only on September 3, 2003.84 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 222985
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.86
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.87 As such, "the highest degree of
diligence is expected, and high standards of integrity
and performance are even required of it."88 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."89 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 220890 of the Civil
Code.
In closing, it must be stressed that while we recognize
that petitioner has the right to protect itself from fraud
13
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.
Pursuant to Section 13, Article VIII of the Constitution 15 Joint Dollar Account No. 0224-01041-0; Records,
and the Division Chairperson s Attestation, I certify Volume I, p. 12.
that the conclusions in the above Decision had been
reached in consultation before the case was assigned 78 Records, Volume II, p. 346.
to the writer of the opinion of the Court’s Division.
79 Article 1157. Obligations arise from:
MARIA LOURDES P. A. SERENO
Chief Justice (1) Law;
Footnotes (2) Contracts;

MARIANO C. DEL CASTILLO 1 Allied Banking Corporation v. Lim Sio Wan 573 Phil. (3) Quasi-contracts;
Associate Justice 89 102 2008).
(4) Acts or omissions punished by law; and
WE CONCUR: 2 Bank of the Philippine Islands v. Court of Appeals,
G.R. No. 104612, May 10 1994 232 SCRA 302, 309- 310. (5) Quasi-delicts.
ANTONIO T. CARPIO
Associate Justice 3 Rollo, pp. 11-41. 80 Article 2220. Willful injury to property may be a
Chairperson legal ground for awarding moral damages if the court
ARTURO D. BRION 4 CA rollo, pp. 125-149; penned by Associate Justice should find that, under the circumstances, such
Associate Justice JOSE PORTUGAL PEREZ Remedios A. Salazar-Fernando and concurred in by damages are justly due. The same rule applies to
Associate Justice Associate Justices Rosalinda Asuncion-Vicente and breaches of contract where the defendant acted
Sesinando E. Villon. fraudulently or in bad faith.
ESTELA M. PERLAS-BERNABE
Associate Justice 5 Id. at 170-171. 81 Bankard, Inc. v. Dr. Feliciano, 529 Phil. 53, 61 (2006).

ATTESTATION 6 Rollo, p. 276. 82 CA rollo, p. 133.

I attest that the conclusions in the above Decision had 7 Sometimes referred to in the records as "China 83 Id. at 126.
been reached in consultation before the case was Golden Bridge Travel and Tours, Inc."
assigned to the writer of the opinion of the Court’s 84 Id.
Division. 8 Rollo, p. 239.
85 Article 2229. Exemplary or corrective damages are
ANTONIO T CARPIO 9 Id. imposed, by way of example or correction for the
Associate Justice public good, in addition to the moral, temperate,
Chairperson 10 Joint Peso Account No. 224-322405145-0; Records, liquidated or compensatory damages.
Volume I, p. 9.
CERTIFICATION 86 Article 2232 of the Civil Code provides that: In
contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a

14
wanton, fraudulent, reckless, oppressive, or
malevolent manner.
87 Solidbank Corporation v. Spouses Arrieta, 492 Phil.
95, 104-105 (2005) and Prudential Bank v. Lim, 511
Phil. 100, 114 (2005).
88 Solidbank Corporation v. Spouses Arrieta, id. at 104.
89 Id.
90 Article 2208. In the absence of stipulation,
attorney's fees and expenses of litigation, other than
judicial costs cannot be recovered except:
(1) When exemplary damages are awarded.
xxxx
4. OSG v. Ayala Land
G.R. No. 177056 September 18, 2009
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on
Certiorari,1 under Rule 45 of the Revised Rules of
Court, filed by petitioner Office of the Solicitor General
(OSG), seeking the reversal and setting aside of the
Decision2 dated 25 January 2007 of the Court of
Appeals in CA-G.R. CV No. 76298, which affirmed in
toto the Joint Decision3 dated 29 May 2002 of the
Regional Trial Court (RTC) of Makati City, Branch 138,
in Civil Cases No. 00-1208 and No. 00-1210; and (2) the
Resolution4 dated 14 March 2007 of the appellate
court in the same case which denied the Motion for
Reconsideration of the OSG. The RTC adjudged that
respondents Ayala Land Incorporated (Ayala Land),
Robinsons Land Corporation (Robinsons), Shangri-la
Plaza Corporation (Shangri-la), and SM Prime Holdings,
Inc. (SM Prime) could not be obliged to provide free
parking spaces in their malls to their patrons and the
general public.
Respondents Ayala Land, Robinsons, and Shangri-la
maintain and operate shopping malls in various
locations in Metro Manila. Respondent SM Prime
constructs, operates, and leases out commercial
buildings and other structures, among which, are SM
City, Manila; SM Centerpoint, Sta. Mesa, Manila; SM
City, North Avenue, Quezon City; and SM Southmall,
Las Piñas.
The shopping malls operated or leased out by
respondents have parking facilities for all kinds of
motor vehicles, either by way of parking spaces inside
the mall buildings or in separate buildings and/or
adjacent lots that are solely devoted for use as parking
spaces. Respondents Ayala Land, Robinsons, and SM
Prime spent for the construction of their own parking
facilities. Respondent Shangri-la is renting its parking
facilities, consisting of land and building specifically
used as parking spaces, which were constructed for the
lessor’s account.
Respondents expend for the maintenance and
administration of their respective parking facilities.
They provide security personnel to protect the vehicles
parked in their parking facilities and maintain order
within the area. In turn, they collect the following
parking fees from the persons making use of their
parking facilities, regardless of whether said persons
are mall patrons or not:
Respondent Parking Fees
Ayala Land
On weekdays, ₱25.00 for the first four hours and
₱10.00 for every succeeding hour; on weekends, flat
rate of ₱25.00 per day
Robinsons
₱20.00 for the first three hours and ₱10.00 for every
succeeding hour
Shangri-la
Flat rate of ₱30.00 per day
SM Prime
₱10.00 to ₱20.00 (depending on whether the parking
space is outdoors or indoors) for the first three hours
and 59 minutes, and ₱10.00 for every succeeding hour
or fraction thereof
The parking tickets or cards issued by respondents to
vehicle owners contain the stipulation that
respondents shall not be responsible for any loss or
damage to the vehicles parked in respondents’ parking
facilities.
In 1999, the Senate Committees on Trade and
Commerce and on Justice and Human Rights
conducted a joint investigation for the following
purposes: (1) to inquire into the legality of the
prevalent practice of shopping malls of charging
parking fees; (2) assuming arguendo that the collection
of parking fees was legally authorized, to find out the
basis and reasonableness of the parking rates charged
by shopping malls; and (3) to determine the legality of
the policy of shopping malls of denying liability in cases
of theft, robbery, or carnapping, by invoking the waiver
clause at the back of the parking tickets. Said Senate
Committees invited the top executives of respondents,
who operate the major malls in the country; the
officials from the Department of Trade and Industry
(DTI), Department of Public Works and Highways
(DPWH), Metro Manila Development Authority
(MMDA), and other local government officials; and the
Philippine Motorists Association (PMA) as
representative of the consumers’ group.
15
After three public hearings held on 30 September, 3
November, and 1 December 1999, the afore-
mentioned Senate Committees jointly issued Senate
Committee Report No. 2255 on 2 May 2000, in which
they concluded:
In view of the foregoing, the Committees find that the
collection of parking fees by shopping malls is contrary
to the National Building Code and is therefor [sic]
illegal. While it is true that the Code merely requires
malls to provide parking spaces, without specifying
whether it is free or not, both Committees believe that
the reasonable and logical interpretation of the Code
is that the parking spaces are for free. This
interpretation is not only reasonable and logical but
finds support in the actual practice in other countries
like the United States of America where parking spaces
owned and operated by mall owners are free of
charge.
Figuratively speaking, the Code has "expropriated" the
land for parking – something similar to the subdivision In light of the foregoing, the Committees on Trade and
law which require developers to devote so much of the Commerce and Justice and Human Rights hereby
land area for parks. recommend the following:
Moreover, Article II of R.A. No. 9734 (Consumer Act of
the Philippines) provides that "it is the policy of the
State to protect the interest of the consumers,
promote the general welfare and establish standards
of conduct for business and industry." Obviously, a
contrary interpretation (i.e., justifying the collection of
parking fees) would be going against the declared
policy of R.A. 7394.
Section 201 of the National Building Code gives the
responsibility for the administration and enforcement
of the provisions of the Code, including the imposition
of penalties for administrative violations thereof to the
Secretary of Public Works. This set up, however, is not
being carried out in reality.
In the position paper submitted by the Metropolitan
Manila Development Authority (MMDA), its chairman,
Jejomar C. Binay, accurately pointed out that the
Secretary of the DPWH is responsible for the
implementation/enforcement of the National Building
Code. After the enactment of the Local Government
Code of 1991, the local government units (LGU’s) were
tasked to discharge the regulatory powers of the
DPWH. Hence, in the local level, the Building Officials
enforce all rules/ regulations formulated by the DPWH
relative to all building plans, specifications and designs
including parking space requirements. There is,
however, no single national department or agency
directly tasked to supervise the enforcement of the
provisions of the Code on parking, notwithstanding the
national character of the law.6
Senate Committee Report No. 225, thus, contained the
following recommendations:
1. The Office of the Solicitor General should institute
the necessary action to enjoin the collection of parking
fees as well as to enforce the penal sanction provisions
of the National Building Code. The Office of the
Solicitor General should likewise study how refund can
be exacted from mall owners who continue to collect
parking fees.
2. The Department of Trade and Industry pursuant to
the provisions of R.A. No. 7394, otherwise known as
the Consumer Act of the Philippines should enforce the
provisions of the Code relative to parking. Towards this
end, the DTI should formulate the necessary
implementing rules and regulations on parking in
shopping malls, with prior consultations with the local
government units where these are located.
Furthermore, the DTI, in coordination with the DPWH,
should be empowered to regulate and supervise the
construction and maintenance of parking
establishments.
3. Finally, Congress should amend and update the
National Building Code to expressly prohibit shopping
malls from collecting parking fees by at the same time,
prohibit them from invoking the waiver of liability.7
Respondent SM Prime thereafter received information
that, pursuant to Senate Committee Report No. 225,
the DPWH Secretary and the local building officials of
Manila, Quezon City, and Las Piñas intended to
institute, through the OSG, an action to enjoin
respondent SM Prime and similar establishments from
collecting parking fees, and to impose upon said
establishments penal sanctions under Presidential
Decree No. 1096, otherwise known as the National
Building Code of the Philippines (National Building
Code), and its Implementing Rules and Regulations
(IRR). With the threatened action against it,
respondent SM Prime filed, on 3 October 2000, a
Petition for Declaratory Relief8 under Rule 63 of the
Revised Rules of Court, against the DPWH Secretary
and local building officials of Manila, Quezon City, and
Las Piñas. Said Petition was docketed as Civil Case No.
00-1208 and assigned to the RTC of Makati City, Branch
138, presided over by Judge Sixto Marella, Jr. (Judge
Marella). In its Petition, respondent SM Prime prayed
for judgment:
a) Declaring Rule XIX of the Implementing Rules and
Regulations of the National Building Code as ultra vires,
hence, unconstitutional and void;
b) Declaring [herein respondent SM Prime]’s clear legal
right to lease parking spaces appurtenant to its
16
department stores, malls, shopping centers and other Case No. 00-1210 with Civil Case No. 00-1208 pending interest in the controversy; and (d) the issue involved
commercial establishments; and before Judge Marella of RTC of Makati, Branch 138. is ripe for judicial determination.

c) Declaring the National Building Code of the
Philippines Implementing Rules and Regulations as
ineffective, not having been published once a week for
three (3) consecutive weeks in a newspaper of general
circulation, as prescribed by Section 211 of Presidential
Decree No. 1096.
[Respondent SM Prime] further prays for such other
reliefs as may be deemed just and equitable under the
premises.9
The very next day, 4 October 2000, the OSG filed a
Petition for Declaratory Relief and Injunction (with
Prayer for Temporary Restraining Order and Writ of
Preliminary Injunction)10 against respondents. This
Petition was docketed as Civil Case No. 00-1210 and
raffled to the RTC of Makati, Branch 135, presided over
by Judge Francisco B. Ibay (Judge Ibay). Petitioner
prayed that the RTC:
1. After summary hearing, a temporary restraining
order and a writ of preliminary injunction be issued
restraining respondents from collecting parking fees
from their customers; and
As a result of the pre-trial conference held on the SM, the petitioner in Civil Case No. 001-1208 [sic] is a
morning of 8 August 2001, the RTC issued a Pre-Trial mall operator who stands to be affected directly by the
Order12 of even date which limited the issues to be position taken by the government officials sued
resolved in Civil Cases No. 00-1208 and No. 00-1210 to namely the Secretary of Public Highways and the
the following: Building Officials of the local government units where
it operates shopping malls. The OSG on the other hand
1. Capacity of the plaintiff [OSG] in Civil Case No. 00- acts on a matter of public interest and has taken a
1210 to institute the present proceedings and relative position adverse to that of the mall owners whom it
thereto whether the controversy in the collection of sued. The construction of new and bigger malls has
parking fees by mall owners is a matter of public been announced, a matter which the Court can take
welfare. judicial notice and the unsettled issue of whether mall
operators should provide parking facilities, free of
2. Whether declaratory relief is proper. charge needs to be resolved.15
3. Whether respondent Ayala Land, Robinsons, As to the third and most contentious issue, the RTC
Shangri-La and SM Prime are obligated to provide pronounced that:
parking spaces in their malls for the use of their
patrons or the public in general, free of charge. The Building Code, which is the enabling law and the
Implementing Rules and Regulations do not impose
4. Entitlement of the parties of [sic] award of that parking spaces shall be provided by the mall
damages.13 owners free of charge. Absent such directive[,] Ayala
Land, Robinsons, Shangri-la and SM [Prime] are under
On 29 May 2002, the RTC rendered its Joint Decision in no obligation to provide them for free. Article 1158 of
Civil Cases No. 00-1208 and No. 00-1210. the Civil Code is clear:

2. After hearing, judgment be rendered declaring that
the practice of respondents in charging parking fees is
violative of the National Building Code and its
Implementing Rules and Regulations and is therefore
invalid, and making permanent any injunctive writ
issued in this case.
The RTC resolved the first two issues affirmatively. It
ruled that the OSG can initiate Civil Case No. 00-1210
under Presidential Decree No. 478 and the
Administrative Code of 1987.14 It also found that all
the requisites for an action for declaratory relief were
present, to wit:
"Obligations derived from law are not presumed. Only
those expressly determined in this Code or in special
laws are demandable and shall be regulated by the
precepts of the law which establishes them; and as to
what has not been foreseen, by the provisions of this
Book (1090).["]

Other reliefs just and equitable under the premises are
likewise prayed for.11
On 23 October 2000, Judge Ibay of the RTC of Makati
City, Branch 135, issued an Order consolidating Civil
The requisites for an action for declaratory relief are:
(a) there is a justiciable controversy; (b) the
controversy is between persons whose interests are
adverse; (c) the party seeking the relief has a legal
xxxx
The provision on ratios of parking slots to several
variables, like shopping floor area or customer area
found in Rule XIX of the Implementing Rules and

17
Regulations cannot be construed as a directive to
provide free parking spaces, because the enabling law,
the Building Code does not so provide. x x x.
To compel Ayala Land, Robinsons, Shangri-La and SM
[Prime] to provide parking spaces for free can be
considered as an unlawful taking of property right
without just compensation.
Parking spaces in shopping malls are privately owned
and for their use, the mall operators collect fees. The
legal relationship could be either lease or deposit. In
either case[,] the mall owners have the right to collect
money which translates into income. Should parking
spaces be made free, this right of mall owners shall be
gone. This, without just compensation. Further, loss of
effective control over their property will ensue which
is frowned upon by law.
The presence of parking spaces can be viewed in
another light. They can be looked at as necessary
facilities to entice the public to increase patronage of
their malls because without parking spaces, going to
their malls will be inconvenient. These are[,]
however[,] business considerations which mall
operators will have to decide for themselves. They are
not sufficient to justify a legal conclusion, as the OSG
would like the Court to adopt that it is the obligation of
the mall owners to provide parking spaces for free.16
The RTC then held that there was no sufficient
evidence to justify any award for damages.
The RTC finally decreed in its 29 May 2002 Joint
Decision in Civil Cases No. 00-1208 and No. 00-1210
that:
FOR THE REASONS GIVEN, the Court declares that
Ayala Land[,] Inc., Robinsons Land Corporation,
Shangri-la Plaza Corporation and SM Prime Holdings[,]
Inc. are not obligated to provide parking spaces in their
malls for the use of their patrons or public in general,
free of charge.
All counterclaims in Civil Case No. 00-1210 are
dismissed.
No pronouncement as to costs.17
CA-G.R. CV No. 76298 involved the separate appeals of
the OSG18 and respondent SM Prime19 filed with the
Court of Appeals. The sole assignment of error of the
OSG in its Appellant’s Brief was:
THE TRIAL COURT ERRED IN HOLDING THAT THE
NATIONAL BUILDING CODE DID NOT INTEND MALL
PARKING SPACES TO BE FREE OF CHARGE[;]20
while the four errors assigned by respondent SM Prime
in its Appellant’s Brief were:
I Even so, since CA-G.R. CV No. 76298 also included the
THE TRIAL COURT ERRED IN FAILING TO DECLARE
RULE XIX OF THE IMPLEMENTING RULES AS HAVING
BEEN ENACTED ULTRA VIRES, HENCE,
UNCONSTITUTIONAL AND VOID.
II
THE TRIAL COURT ERRED IN FAILING TO DECLARE
THE IMPLEMENTING RULES INEFFECTIVE FOR NOT
HAVING BEEN PUBLISHED AS REQUIRED BY LAW.
III
THE TRIAL COURT ERRED IN FAILING TO DISMISS THE
OSG’S PETITION FOR DECLARATORY RELIEF AND
INJUNCTION FOR FAILURE TO EXHAUST
ADMINISTRATIVE REMEDIES.
IV
THE TRIAL COURT ERRED IN FAILING TO DECLARE
THAT THE OSG HAS NO LEGAL CAPACITY TO SUE
AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST IN
THE INSTANT CASE.21
Respondent Robinsons filed a Motion to Dismiss
Appeal of the OSG on the ground that the lone issue
raised therein involved a pure question of law, not
reviewable by the Court of Appeals.
The Court of Appeals promulgated its Decision in CA-
G.R. CV No. 76298 on 25 January 2007. The appellate
court agreed with respondent Robinsons that the
appeal of the OSG should suffer the fate of dismissal,
since "the issue on whether or not the National
Building Code and its implementing rules require
shopping mall operators to provide parking facilities to
the public for free" was evidently a question of law.
appeal of respondent SM Prime, which raised issues
worthy of consideration, and in order to satisfy the
demands of substantial justice, the Court of Appeals
proceeded to rule on the merits of the case.
In its Decision, the Court of Appeals affirmed the
capacity of the OSG to initiate Civil Case No. 00-1210
before the RTC as the legal representative of the
government,22 and as the one deputized by the
Senate of the Republic of the Philippines through
Senate Committee Report No. 225.
The Court of Appeals rejected the contention of
respondent SM Prime that the OSG failed to exhaust
administrative remedies. The appellate court
explained that an administrative review is not a
condition precedent to judicial relief where the
18
question in dispute is purely a legal one, and nothing
of an administrative nature is to be or can be done.
The Court of Appeals likewise refused to rule on the
validity of the IRR of the National Building Code, as
such issue was not among those the parties had agreed
to be resolved by the RTC during the pre-trial
conference for Civil Cases No. 00-1208 and No. 00-
1210. Issues cannot be raised for the first time on
appeal. Furthermore, the appellate court found that
the controversy could be settled on other grounds,
without touching on the issue of the validity of the IRR.
It referred to the settled rule that courts should refrain
from passing upon the constitutionality of a law or
implementing rules, because of the principle that bars
judicial inquiry into a constitutional question, unless
the resolution thereof is indispensable to the
determination of the case.
Lastly, the Court of Appeals declared that Section 803
of the National Building Code and Rule XIX of the IRR
were clear and needed no further construction. Said
provisions were only intended to control the
occupancy or congestion of areas and structures. In the
absence of any express and clear provision of law,
respondents could not be obliged and expected to
provide parking slots free of charge.
The fallo of the 25 January 2007 Decision of the Court
of Appeals reads:
WHEREFORE, premises considered, the instant appeals
are DENIED. Accordingly, appealed Decision is hereby
AFFIRMED in toto.23
In its Resolution issued on 14 March 2007, the Court of
Appeals denied the Motion for Reconsideration of the
OSG, finding that the grounds relied upon by the latter
had already been carefully considered, evaluated, and
passed upon by the appellate court, and there was no
strong and cogent reason to modify much less reverse
the assailed judgment.
The OSG now comes before this Court, via the instant
Petition for Review, with a single assignment of error:
THE COURT OF APPEALS SERIOUSLY ERRED IN
AFFIRMING THE RULING OF THE LOWER COURT THAT
RESPONDENTS ARE NOT OBLIGED TO PROVIDE FREE
PARKING SPACES TO THEIR CUSTOMERS OR THE
PUBLIC.24
The OSG argues that respondents are mandated to
provide free parking by Section 803 of the National
Building Code and Rule XIX of the IRR.
According to Section 803 of the National Building Code:
SECTION 803. Percentage of Site Occupancy
(a) Maximum site occupancy shall be governed by the
use, type of construction, and height of the building
and the use, area, nature, and location of the site; and
subject to the provisions of the local zoning
requirements and in accordance with the rules and
regulations promulgated by the Secretary.
In connection therewith, Rule XIX of the old IRR,25
provides:
RULE XIX – PARKING AND LOADING SPACE
REQUIREMENTS
Pursuant to Section 803 of the National Building
Code (PD 1096) providing for maximum site
occupancy, the following provisions on parking and
loading space requirements shall be observed:
1. The parking space ratings listed below are
minimum off-street requirements for specific
uses/occupancies for buildings/structures:
1.1 The size of an average automobile parking slot
shall be computed as 2.4 meters by 5.00 meters for
perpendicular or diagonal parking, 2.00 meters by 6.00
meters for parallel parking. A truck or bus
parking/loading slot shall be computed at a minimum
of 3.60 meters by 12.00 meters. The parking slot shall
be drawn to scale and the total number of which shall
be indicated on the plans and specified whether or not
parking accommodations, are attendant-managed.
(See Section 2 for computation of parking
requirements).
xxxx
1.7 Neighborhood shopping center – 1 slot/100 sq.
m. of shopping floor area
The OSG avers that the aforequoted provisions should
be read together with Section 102 of the National
Building Code, which declares:
SECTION 102. Declaration of Policy
It is hereby declared to be the policy of the State to
safeguard life, health, property, and public welfare,
consistent with the principles of sound environmental
management and control; and to this end, make it the
purpose of this Code to provide for all buildings and
structures, a framework of minimum standards and
requirements to regulate and control their location,
site, design, quality of materials, construction, use,
occupancy, and maintenance.
The requirement of free-of-charge parking, the OSG
argues, greatly contributes to the aim of safeguarding
"life, health, property, and public welfare, consistent
19
with the principles of sound environmental
management and control." Adequate parking spaces
would contribute greatly to alleviating traffic
congestion when complemented by quick and easy
access thereto because of free-charge parking.
Moreover, the power to regulate and control the use,
occupancy, and maintenance of buildings and
structures carries with it the power to impose fees and,
conversely, to control -- partially or, as in this case,
absolutely -- the imposition of such fees.
The Court finds no merit in the present Petition.
The explicit directive of the afore-quoted statutory and
regulatory provisions, garnered from a plain reading
thereof, is that respondents, as operators/lessors of
neighborhood shopping centers, should provide
parking and loading spaces, in accordance with the
minimum ratio of one slot per 100 square meters of
shopping floor area. There is nothing therein
pertaining to the collection (or non-collection) of
parking fees by respondents. In fact, the term "parking
fees" cannot even be found at all in the entire National
Building Code and its IRR.
Statutory construction has it that if a statute is clear
and unequivocal, it must be given its literal meaning
and applied without any attempt at interpretation.26
Since Section 803 of the National Building Code and
Rule XIX of its IRR do not mention parking fees, then
simply, said provisions do not regulate the collection of
the same. The RTC and the Court of Appeals correctly
applied Article 1158 of the New Civil Code, which
states:
Art. 1158. Obligations derived from law are not
presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall be
regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the
provisions of this Book. (Emphasis ours.)
Hence, in order to bring the matter of parking fees
within the ambit of the National Building Code and its
IRR, the OSG had to resort to specious and feeble
argumentation, in which the Court cannot concur.
The OSG cannot rely on Section 102 of the National
Building Code to expand the coverage of Section 803
of the same Code and Rule XIX of the IRR, so as to
include the regulation of parking fees. The OSG limits
its citation to the first part of Section 102 of the
National Building Code declaring the policy of the State
"to safeguard life, health, property, and public welfare,
consistent with the principles of sound environmental
management and control"; but totally ignores the
second part of said provision, which reads, "and to this
end, make it the purpose of this Code to provide for all
buildings and structures, a framework of minimum
standards and requirements to regulate and control
their location, site, design, quality of materials,
construction, use, occupancy, and maintenance."
While the first part of Section 102 of the National
Building Code lays down the State policy, it is the
second part thereof that explains how said policy shall
be carried out in the Code. Section 102 of the National
Building Code is not an all-encompassing grant of
regulatory power to the DPWH Secretary and local
building officials in the name of life, health, property,
and public welfare. On the contrary, it limits the
regulatory power of said officials to ensuring that the
minimum standards and requirements for all buildings
and structures, as set forth in the National Building
Code, are complied with.
Consequently, the OSG cannot claim that in addition to
fixing the minimum requirements for parking spaces
for buildings, Rule XIX of the IRR also mandates that
such parking spaces be provided by building owners
free of charge. If Rule XIX is not covered by the enabling
law, then it cannot be added to or included in the
implementing rules. The rule-making power of
administrative agencies must be confined to details for
regulating the mode or proceedings to carry into effect
the law as it has been enacted, and it cannot be
extended to amend or expand the statutory
requirements or to embrace matters not covered by
the statute. Administrative regulations must always be
in harmony with the provisions of the law because any
resulting discrepancy between the two will always be
resolved in favor of the basic law.27
From the RTC all the way to this Court, the OSG
repeatedly referred to Republic v. Gonzales28 and City
of Ozamis v. Lumapas29 to support its position that the
State has the power to regulate parking spaces to
promote the health, safety, and welfare of the public;
and it is by virtue of said power that respondents may
be required to provide free parking facilities. The OSG,
though, failed to consider the substantial differences in
the factual and legal backgrounds of these two cases
from those of the Petition at bar.
In Republic, the Municipality of Malabon sought to
eject the occupants of two parcels of land of the public
domain to give way to a road-widening project. It was
in this context that the Court pronounced:
Indiscriminate parking along F. Sevilla Boulevard and
other main thoroughfares was prevalent; this, of
course, caused the build up of traffic in the surrounding
area to the great discomfort and inconvenience of the
public who use the streets. Traffic congestion
constitutes a threat to the health, welfare, safety and
convenience of the people and it can only be
substantially relieved by widening streets and
providing adequate parking areas.
20
The Court, in City of Ozamis, declared that the City had other jurisdictions where traffic is at least as between private parties and the political society.31
been clothed with full power to control and regulate its voluminous as here, the provision by municipal True, if the regulatory agencies have the power to
streets for the purpose of promoting public health, governments of parking space is not limited to parking impose regulatory fees, then conversely, they also
safety and welfare. The City can regulate the time, along public streets or highways. There has been a have the power to remove the same. Even so, it is
place, and manner of parking in the streets and public marked trend to build off-street parking facilities with worthy to note that the present case does not involve
places; and charge minimal fees for the street parking the view to removing parked cars from the streets. the imposition by the DPWH Secretary and local
to cover the expenses for supervision, inspection and While the provision of off-street parking facilities or building officials of regulatory fees upon respondents;
control, to ensure the smooth flow of traffic in the carparks has been commonly undertaken by private but the collection by respondents of parking fees from
environs of the public market, and for the safety and enterprise, municipal governments have been persons who use the mall parking facilities. Secondly,
convenience of the public. constrained to put up carparks in response to public assuming arguendo that the DPWH Secretary and local
necessity where private enterprise had failed to keep building officials do have regulatory powers over the
Republic and City of Ozamis involved parking in the up with the growing public demand. American courts collection of parking fees for the use of privately
local streets; in contrast, the present case deals with have upheld the right of municipal governments to owned parking facilities, they cannot allow or prohibit
privately owned parking facilities available for use by construct off-street parking facilities as clearly such collection arbitrarily or whimsically. Whether
the general public. In Republic and City of Ozamis, the redounding to the public benefit.30 allowing or prohibiting the collection of such parking
concerned local governments regulated parking fees, the action of the DPWH Secretary and local
pursuant to their power to control and regulate their In City of Ozamis, the Court authorized the collection building officials must pass the test of classic
streets; in the instant case, the DPWH Secretary and by the City of minimal fees for the parking of vehicles reasonableness and propriety of the measures or
local building officials regulate parking pursuant to along the streets: so why then should the Court now means in the promotion of the ends sought to be
their authority to ensure compliance with the preclude respondents from collecting from the public accomplished.32
minimum standards and requirements under the a fee for the use of the mall parking facilities?
National Building Code and its IRR. With the difference Undoubtedly, respondents also incur expenses in the Keeping in mind the aforementioned test of
in subject matters and the bases for the regulatory maintenance and operation of the mall parking reasonableness and propriety of measures or means,
powers being invoked, Republic and City of Ozamis do facilities, such as electric consumption, compensation the Court notes that Section 803 of the National
not constitute precedents for this case. for parking attendants and security, and upkeep of the Building Code falls under Chapter 8 on Light and
physical structures. Ventilation. Evidently, the Code deems it necessary to
Indeed, Republic and City of Ozamis both contain regulate site occupancy to ensure that there is proper
pronouncements that weaken the position of the OSG It is not sufficient for the OSG to claim that "the power lighting and ventilation in every building. Pursuant
in the case at bar. In Republic, the Court, instead of to regulate and control the use, occupancy, and thereto, Rule XIX of the IRR requires that a building,
placing the burden on private persons to provide maintenance of buildings and structures carries with it depending on its specific use and/or floor area, should
parking facilities to the general public, mentioned the the power to impose fees and, conversely, to control, provide a minimum number of parking spaces. The
trend in other jurisdictions wherein the municipal partially or, as in this case, absolutely, the imposition Court, however, fails to see the connection between
governments themselves took the initiative to make of such fees." Firstly, the fees within the power of regulating site occupancy to ensure proper light and
more parking spaces available so as to alleviate the regulatory agencies to impose are regulatory fees. It ventilation in every building vis-à-vis regulating the
traffic problems, thus: has been settled law in this jurisdiction that this broad collection by building owners of fees for the use of
and all-compassing governmental competence to their parking spaces. Contrary to the averment of the
Under the Land Transportation and Traffic Code, restrict rights of liberty and property carries with it the OSG, the former does not necessarily include or imply
parking in designated areas along public streets or undeniable power to collect a regulatory fee. It looks the latter. It totally escapes this Court how lighting and
highways is allowed which clearly indicates that to the enactment of specific measures that govern the ventilation conditions at the malls could be affected by
provision for parking spaces serves a useful purpose. In relations not only as between individuals but also as

21
the fact that parking facilities thereat are free or paid even have the opposite effect from what the OSG powers, namely, eminent domain. Eminent domain
for. envisioned: more people may be encouraged by the enables the State to forcibly acquire private lands
free parking to bring their own vehicles, instead of intended for public use upon payment of just
The OSG attempts to provide the missing link by taking public transport, to the malls; as a result, the compensation to the owner.35
arguing that: parking facilities would become full sooner, leaving
more vehicles without parking spaces in the malls and Normally, of course, the power of eminent domain
Under Section 803 of the National Building Code, parked in the streets instead, causing even more traffic results in the taking or appropriation of title to, and
complimentary parking spaces are required to enhance congestion. possession of, the expropriated property; but no
light and ventilation, that is, to avoid traffic congestion cogent reason appears why the said power may not be
in areas surrounding the building, which certainly Without using the term outright, the OSG is actually availed of only to impose a burden upon the owner of
affects the ventilation within the building itself, which invoking police power to justify the regulation by the condemned property, without loss of title and
otherwise, the annexed parking spaces would have State, through the DPWH Secretary and local building possession.36 It is a settled rule that neither
served. Free-of-charge parking avoids traffic officials, of privately owned parking facilities, including acquisition of title nor total destruction of value is
congestion by ensuring quick and easy access of the collection by the owners/operators of such essential to taking. It is usually in cases where title
legitimate shoppers to off-street parking spaces facilities of parking fees from the public for the use remains with the private owner that inquiry should be
annexed to the malls, and thereby removing the thereof. The Court finds, however, that in totally made to determine whether the impairment of a
vehicles of these legitimate shoppers off the busy prohibiting respondents from collecting parking fees property is merely regulated or amounts to a
streets near the commercial establishments.33 from the public for the use of the mall parking facilities, compensable taking. A regulation that deprives any
the State would be acting beyond the bounds of police person of the profitable use of his property constitutes
The Court is unconvinced. The National Building Code power. a taking and entitles him to compensation, unless the
regulates buildings, by setting the minimum invasion of rights is so slight as to permit the regulation
specifications and requirements for the same. It does Police power is the power of promoting the public to be justified under the police power. Similarly, a
not concern itself with traffic congestion in areas welfare by restraining and regulating the use of liberty police regulation that unreasonably restricts the right
surrounding the building. It is already a stretch to say and property. It is usually exerted in order to merely to use business property for business purposes
that the National Building Code and its IRR also intend regulate the use and enjoyment of the property of the amounts to a taking of private property, and the owner
to solve the problem of traffic congestion around the owner. The power to regulate, however, does not may recover therefor.371avvphi1
buildings so as to ensure that the said buildings shall include the power to prohibit. A fortiori, the power to
have adequate lighting and ventilation. Moreover, the regulate does not include the power to confiscate. Although in the present case, title to and/or possession
Court cannot simply assume, as the OSG has Police power does not involve the taking or of the parking facilities remain/s with respondents, the
apparently done, that the traffic congestion in areas confiscation of property, with the exception of a few prohibition against their collection of parking fees from
around the malls is due to the fact that respondents cases where there is a necessity to confiscate private the public, for the use of said facilities, is already
charge for their parking facilities, thus, forcing vehicle property in order to destroy it for the purpose of tantamount to a taking or confiscation of their
owners to just park in the streets. The Court notes that protecting peace and order and of promoting the properties. The State is not only requiring that
despite the fees charged by respondents, vehicle general welfare; for instance, the confiscation of an respondents devote a portion of the latter’s properties
owners still use the mall parking facilities, which are illegally possessed article, such as opium and firearms. for use as parking spaces, but is also mandating that
even fully occupied on some days. Vehicle owners may 34 they give the public access to said parking spaces for
be parking in the streets only because there are not free. Such is already an excessive intrusion into the
enough parking spaces in the malls, and not because When there is a taking or confiscation of private property rights of respondents. Not only are they being
they are deterred by the parking fees charged by property for public use, the State is no longer deprived of the right to use a portion of their
respondents. Free parking spaces at the malls may exercising police power, but another of its inherent properties as they wish, they are further prohibited

22
from profiting from its use or even just recovering
therefrom the expenses for the maintenance and
operation of the required parking facilities.
The ruling of this Court in City Government of Quezon
City v. Judge Ericta38 is edifying. Therein, the City
Government of Quezon City passed an ordinance
obliging private cemeteries within its jurisdiction to set
aside at least six percent of their total area for charity,
that is, for burial grounds of deceased paupers.
According to the Court, the ordinance in question was
null and void, for it authorized the taking of private
property without just compensation:
There is no reasonable relation between the setting
aside of at least six (6) percent of the total area of all
private cemeteries for charity burial grounds of
deceased paupers and the promotion of' health,
morals, good order, safety, or the general welfare of
the people. The ordinance is actually a taking without
compensation of a certain area from a private
cemetery to benefit paupers who are charges of the
municipal corporation. Instead of' building or
maintaining a public cemetery for this purpose, the city
passes the burden to private cemeteries.
'The expropriation without compensation of a portion
of private cemeteries is not covered by Section 12(t) of
Republic Act 537, the Revised Charter of Quezon City
which empowers the city council to prohibit the burial
of the dead within the center of population of the city
and to provide for their burial in a proper place subject
to the provisions of general law regulating burial
grounds and cemeteries. When the Local Government
Code, Batas Pambansa Blg. 337 provides in Section
177(q) that a sangguniang panlungsod may "provide
for the burial of the dead in such place and in such
manner as prescribed by law or ordinance" it simply
authorizes the city to provide its own city owned land
or to buy or expropriate private properties to construct
public cemeteries. This has been the law, and practise the Court of Appeals in CA-G.R. CV No. 76298, affirming
in the past. It continues to the present. Expropriation, in toto the Joint Decision dated 29 May 2002 of the
however, requires payment of just compensation. The Regional Trial Court of Makati City, Branch 138, in Civil
questioned ordinance is different from laws and Cases No. 00-1208 and No. 00-1210 are hereby
regulations requiring owners of subdivisions to set AFFIRMED. No costs.
aside certain areas for streets, parks, playgrounds, and
other public facilities from the land they sell to buyers SO ORDERED.
of subdivision lots. The necessities of public safety,
health, and convenience are very clear from said MINITA V. CHICO-NAZARIO
requirements which are intended to insure the Associate Justice
development of communities with salubrious and
wholesome environments. The beneficiaries of the WE CONCUR:
regulation, in turn, are made to pay by the subdivision
developer when individual lots are sold to CONSUELO YNARES-SANTIAGO
homeowners. Associate Justice
Chairperson
In conclusion, the total prohibition against the PRESBITERIO J. VELASCO, JR.
collection by respondents of parking fees from persons Associate Justice ANTONIO EDUARDO B.
who use the mall parking facilities has no basis in the NACHURA
National Building Code or its IRR. The State also cannot Associate Justice
impose the same prohibition by generally invoking
police power, since said prohibition amounts to a DIOSDADO M. PERALTA
taking of respondents’ property without payment of Associate Justice
just compensation.
ATTESTATION
Given the foregoing, the Court finds no more need to
address the issue persistently raised by respondent SM I attest that the conclusions in the above Decision were
Prime concerning the unconstitutionality of Rule XIX of reached in consultation before the case was assigned
the IRR. In addition, the said issue was not among to the writer of the opinion of the Court’s Division.
those that the parties, during the pre-trial conference
for Civil Cases No. 12-08 and No. 00-1210, agreed to CONSUELO YNARES-SANTIAGO
submit for resolution of the RTC. It is likewise axiomatic Associate Justice
that the constitutionality of a law, a regulation, an Chairperson, Third Division
ordinance or an act will not be resolved by courts if the
controversy can be, as in this case it has been, settled CERTIFICATION
on other grounds.39
Pursuant to Section 13, Article VIII of the Constitution,
WHEREFORE, the instant Petition for Review on and the Division Chairperson’s Attestation, it is hereby
Certiorari is hereby DENIED. The Decision dated 25 certified that the conclusions in the above Decision
January 2007 and Resolution dated 14 March 2007 of were reached in consultation before the case was
23
assigned to the writer of the opinion of the Court’s duties requiring the services of a lawyer. It shall have
Division. the following specific powers and functions: 31 Republic v. Philippine Rabbit Bus Lines, 143 Phil.
158, 163 (1970).
REYNATO S. PUNO xxxx
Chief Justice 32 Acebedo Optical Company, Inc. v. Court of Appeals,
(3) Appear in any court in any action involving the 385 Phil. 956, 969 (2000).
Footnotes validity of any treaty, law, executive order or
proclamation, rule or regulation when in his judgment 33 Rollo, pp. 36-37.
1 Rollo, pp. 26-43. his intervention is necessary or when requested by the
Court. 34 See City Government of Quezon City v. Judge Ericta,
2 Penned by Associate Justice Myrna Dimaranan Vidal 207 Phil. 648, 654 (1983).
with Associate Justices Jose L. Sabio, Jr. and Jose C. xxxx
Reyes, concurring; rollo, pp. 45-58. 35 Acuña v. Arroyo, G.R. No. 79310, 14 July 1989, 175
(11) Act and represent the Republic and/or the people SCRA 343, 370.
3 Penned by Judge Sixto Marella, Jr.; rollo, pp. 250-260. before any court, tribunal, body or commission in any
matter, action or proceeding which, in his opinion, 36 Republic of the Philippines v. Philippine Long
affects the welfare of the people as the ends of justice Distance Telephone Company, 136 Phil. 20, 29 (1969).
12 Penned by Judge Sixto Marella, Jr., id., at 61-63. may require; x x x.
37 See J. Romero’s Dissenting Opinion in
13 Id. at 62-63. 23 Rollo, p. 57. Telecommunications and Broadcast Attorneys of the
Philippines v. Commission on Elections, 352 Phil. 153,
14 Section 1 of Presidential Decree No. 478 and Section 24 Id. at 33. 191 (1998). See also People v. Fajardo, 104 Phil. 443,
35, Chapter12, Title III of the Administrative Code of 447-448 (1958).
1987, enumerate the powers and functions of the OSG. 25 A Revised IRR took effect on 30 April 2005. Rule XIX
of the old IRR was reproduced in Table VII.4 (Minimum 38 Supra note 34 at 656-657.
22 Citing Section 35, Chapter XII, Title III, Book IV of Required Off-Street (Off-RROW)-cum-On-Site Parking
Executive Order No. 292, otherwise known as the Slot, Parking Area and Loading/Unloading Space 39 Ty v. Trampe, G.R. No. 117577, 1 December 1995,
Administrative Code of 1987, which provide: Requirements by Allowed Use or Occupancy) of the 250 SCRA 500, 520.
Revised IRR.
SECTION 35. Powers and Functions. – The Office of the
Solicitor General shall represent the Government of 26 Soria v. Desierto, 490 Phil. 749, 754 (2005). 5. PADCOM vs. ORTIGAS
the Philippines, its agencies and instrumentalities and G.R. No. 146807 May 9, 2002
its officials and agents in any litigation, proceeding, 27 Land Bank of the Philippines v. Court of Appeals, 327
investigation or matter requiring the services of a Phil. 1048, 1052 (1996). DAVIDE, JR., C.J.:
lawyer. When authorized by the President or head of
the office concerned, it shall also represent 28 G.R. No. 45338-39, 31 July 1991, 199 SCRA 788, 793. Challenged in this case is the 30 June 2000 decision1 of
government-owned or controlled corporations. The the Court of Appeals in CA-G.R. CV No. 60099,
Office of the Solicitor General shall constitute the law 29 160 Phil. 33 (1975). reversing and setting aside the 1 September 1997
office of the Government and, as such, shall discharge decision2 of the Regional Trial Court of Pasig City,
30 Republic v. Gonzales, supra note 28 at 793. Branch 264, in Civil Case No. 63801.3

24

Petitioner Padcom Condominium Corporation
(hereafter PADCOM) owns and manages the Padilla
Office Condominium Building (PADCOM Building)
located at Emerald Avenue, Ortigas Center, Pasig City.
The land on which the building stands was originally
acquired from the Ortigas & Company, Limited
Partnership (OCLP), by Tierra Development
Corporation (TDC) under a Deed of Sale dated 4
September 1974. Among the terms and conditions in
the deed of sale was the requirement that the
transferee and its successor-in-interest must become
members of an association for realty owners and long-
term lessees in the area later known as the Ortigas
Center. Subsequently, the said lot, together with
improvements thereon, was conveyed by TDC in favor
of PADCOM in a Deed of Transfer dated 25 February
1975.4
In 1982, respondent Ortigas Center Association, Inc.
(hereafter the Association) was organized to advance
the interests and promote the general welfare of the
real estate owners and long-term lessees of lots in the
Ortigas Center. It sought the collection of membership
dues in the amount of two thousand seven hundred
twenty-four pesos and forty centavos (P2,724.40) per
month from PADCOM. The corporate books showed
that PADCOM owed the Association P639,961.47,
representing membership dues, interests and penalty
charges from April 1983 to June 1993.5 The letters
exchanged between the parties through the years
showed repeated demands for payment, requests for
extensions of payment, and even a settlement scheme
proposed by PADCOM in September 1990.
In view of PADCOM’s failure and refusal to pay its latter failed to show that the collection of monthly
arrears in monthly dues, including interests and dues was a valid corporate act duly authorized by a
penalties thereon, the Association filed a complaint for proper resolution of the Association’s Board of
collection of sum of money before the trial court Directors.8
below, which was docketed as Civil Case No. 63801.
The Association averred that purchasers of lands
within the Ortigas Center complex from OCLP are
obligated under their contracts of sale to become
members of the Association. This obligation was
allegedly passed on to PADCOM when it bought the lot
from TDC, its predecessor-in-interest.6
In its answer, PADCOM contended that it is a non-
stock, non-profit association, and for it to become a
special member of the Association, it should first apply
for and be accepted for membership by the latter’s
Board of Directors. No automatic membership was
apparently contemplated in the Association’s By-laws.
PADCOM added that it could not be compelled to
become a member without violating its right to
freedom of association. And since it was not a member
of the Association, it was not liable for membership
dues, interests and penalties.7
During the trial, the Association presented its
accountant as lone witness to prove that PADCOM
was, indeed, one of its members and, as such, did not
pay its membership dues.1âwphi1.nêt
PADCOM, on the other hand, did not present its
evidence; instead it filed a motion to dismiss by way of
demurrer to evidence. It alleged that the facts
established by the Association showed no right to the
relief prayed for. It claimed that the provisions of the
Association’s By-laws and the Deed of Transfer did not
contemplate automatic membership. Rather, the
owner or long-term lessee becomes a member of the
Association only after applying with and being
accepted by its Board of Directors. Assuming further
that PADCOM was a member of the Association, the
After due consideration of the issues raised in the
motion to dismiss, the trial court rendered a decision
dismissing the complaint.9
The Association appealed the case to the Court of
Appeals, which docketed the appeal as CA-G.R. CV No.
60099. In its decision10 of 30 June 2000, the Court of
Appeals reversed and set aside the trial court’s
dismissal of Civil Case No. 63801, and decreed as
follows:
WHEREFORE, the appealed decision dated September
1, 1997 is REVERSED and SET ASIDE and, in lieu thereof,
a new one is entered ordering the appellee (PADCOM)
to pay the appellant (the Association) the following:
1) P639,961.47 as and for membership dues in arrears
inclusive of earned interests and penalties; and
2) P25,000.00 as and for attorney’s fees.
Costs against the appellees.
SO ORDERED.
The Court of Appeals justified its ruling by declaring
that PADCOM automatically became a member of the
Association when the land was sold to TDC. The intent
to pass the obligation to prospective transferees was
evident from the annotation of the same clause at the
back of the Transfer Certificate of Title covering the lot.
Despite disavowal of membership, PADCOM’s
membership in the Association was evident from these
facts: (1) PADCOM was included in the Association’s list
of bona fide members as of 30 March 1995; (2) Narciso
Padilla, PADCOM’s President, was one of the
Association’s incorporators; and (3) having received
the demands for payment, PADCOM not only
acknowledged them, but asked for and was granted
repeated extensions, and even proposed a scheme for
25
the settlement of its obligation. The Court of Appeals Ortigas Center, including their successors-in-interest. paragraph (G) of the covenants, conditions and
also ruled that PADCOM cannot evade payment of its The filing of applications and acceptance thereof by restrictions of the Deed of Sale, which reads as
obligation to the Association without violating the Board of Directors of the Association are, follows:13
equitable principles underlying quasi-contracts. Being therefore, mere formalities that can be dispensed with
covered by the Association’s avowed purpose to or waived. The provisions of the Association’s By-laws G. AUTOMATIC MEMBERSHIP WITH THE
promote the interests and welfare of its members, cannot in any manner alter or modify the automatic ASSOCIATION:
PADCOM cannot be allowed to expediently deny and membership clause imposed on a property owner by
avoid the obligation arising from such membership. virtue of an annotation of encumbrance on his title. The owner of this lot, its successor-in-interest hereby
binds himself to become a member of the
Dissatisfied with the adverse judgment of the Court of The Association likewise asserts that membership ASSOCIATION which will be formed by and among
Appeals, PADCOM filed the petition for review in this therein requires the payment of certain amounts for its purchasers, fully paid up Lot BUYERS, Building Owners
case. It raises the sole issue of whether it can be operations and activities, as may be authorized by its and the COMPANY in respect to COMPANY OWNED
compelled to join the association pursuant to the Board of Directors. The membership dues are for the LOTS.
provision on automatic membership appearing as a common expenses of the homeowners for necessary
condition in the Deed of Sale of 04 September 1974 services. The OWNER of this lot shall abide by such rules and
and the annotation thereof on Transfer Certificate of regulations that shall be laid down by the
Title No. 457308. After a careful examination of the records of this case, ASSOCIATION in the interest of security, maintenance,
the Court sees no reason to disturb the assailed beautification and general welfare of the OFFICE
PADCOM contends that it cannot be compelled to be a decision. The petition should be denied. BUILDING zone. The ASSOCIATION when organized
member of the Association solely by virtue of the shall also, among others, provide for and collect
"automatic membership" clause that appears on the Section 44 of Presidential Decree No. 152911 assessments which shall constitute a lien on the
title of the property and the Deed of Transfer. In 1975, mandates that: property, junior only to liens of the Government for
when it bought the land, the Association was still taxes.
inexistent. Therefore, the provision on automatic SEC. 44. Statutory liens affecting title. – Every
membership was anticipatory in nature, subject to the registered owner receiving a certificate of title in Evidently, it was agreed by the parties that dues shall
actual formation of the Association and the pursuance of a decree of registration, and every be collected from an automatic member and such fees
subsequent formulation of its implementing rules. subsequent purchaser of registered land taking a or assessments shall be a lien on the property.
certificate of title for value and in good faith, shall hold
PADCOM likewise maintains that the Association’s By- the same free from all encumbrances except those This stipulation was likewise annotated at the back of
laws requires an application for membership. Since it noted on said certificate and any of the following Transfer Certificate of Title No. 457308 issued to
never sought membership, the Court of Appeals erred encumbrances which may be subsisting, namely: xxx TDC.14 And when the latter sold the lot to PADCOM on
in concluding that it was a member of the Association 25 February 1975, the Deed of Transfer expressly
by implication. Aside from the lack of evidence proving Under the Torrens system of registration, claims and stated:15
such membership, the Association has no basis to liens of whatever character, except those mentioned
collect monthly dues since there is no board resolution by law, existing against the land binds the holder of the NOW, THEREFORE, for and in consideration of the
defining and prescribing how much should be paid. title and the whole world.12 foregoing premises, the DEVELOPER, by these
presents, cedes, transfers and conveys unto the
For its part, the Association claims that the Deed of It is undisputed that when the land in question was CORPORATION the above-described parcel of land
Sale between OCLP and TDC clearly stipulates bought by PADCOM’s predecessor-in-interest, TDC, evidenced by Transfer Certificate of Title No. 457308,
automatic membership for the owners of lots in the from OCLP, the sale bound TDC to comply with as well as the Common and Limited Common Areas of

26
the Condominium project mentioned and described in ceases upon the cessation of a member to be an owner We agree with the Court of Appeals’ conclusion from
the Master Deed with Declaration of Restrictions or long-term lessee of real estate in the area. the facts or circumstances it enumerated in its decision
(Annex "A" hereof), free from all liens and and enumerated above that PADCOM is, indeed, a
encumbrances, except those already annotated at the A lessee shall be considered a long-term lessee if his regular member of the Association. These facts and
back of said Transfer Certificate of Title No. 457308, xxx lease is in writing and for a period of two (2) years or circumstances are sufficient grounds to apply the
more. Membership of a long-term lessee in the doctrine of estoppel against PADCOM.
This is so because any lien annotated on previous Association shall be co-terminus with his legal
certificates of title should be incorporated in or carried possession (or his lease) of the lot/s in the area. Upon Having ruled that PADCOM is a member of the
over to the new transfer certificates of title. Such lien the lessee’s cessation of membership in the Association, it is obligated to pay its dues incidental
is inseparable from the property as it is a right in rem, Association, the owner shall automatically succeed the thereto. Article 1159 of the Civil Code mandates:
a burden on the property whoever its owner may be. lessee as member thereat.
It subsists notwithstanding a change in ownership; in Art. 1159. Obligations arising from contracts have the
short, the personality of the owner is disregarded.16 As lot owner, PADCOM is a regular member of the force of law between the contracting parties and
As emphasized earlier, the provision on automatic Association. No application for membership is should be complied with in good faith.
membership was annotated in the Certificate of Title necessary. If at all, acceptance by the Board of
and made a condition in the Deed of Transfer in favor Directors is a ministerial function considering that Assuming in gratis argumenti that PADCOM is not a
of PADCOM. Consequently, it is bound by and must PADCOM is deemed to be a regular member upon the member of the Association, it cannot evade payment
comply with the covenant.1âwphi1.nêt acquisition of the lot pursuant to the automatic without violating the equitable principles underlying
membership clause annotated in the Certificate of Title quasi-contracts. Article 2142 of the Civil Code provides:
Moreover, Article 1311 of the Civil Code provides that of the property and the Deed of Transfer.
contracts take effect between the parties, their assigns Art. 2142. Certain lawful, voluntary and unilateral acts
and heirs. Since PADCOM is the successor-in-interest Neither are we convinced by PADCOM’s contention give rise to the juridical relation of quasi-contract to
of TDC, it follows that the stipulation on automatic that the automatic membership clause is a violation of the end that no one shall be unjustly enriched or
membership with the Association is also binding on the its freedom of association. PADCOM was never forced benefited at the expense of another.
former. to join the association. It could have avoided such
membership by not buying the land from TDC. Nobody Generally, it may be said that a quasi-contract is based
We are not persuaded by PADCOM’s contention that forced it to buy the land when it bought the building on the presumed will or intent of the obligor dictated
the By-laws of the Association requires application for with the annotation of the condition or lien on the by equity and by the principles of absolute justice.
membership and acceptance thereof by the Board of Certificate of Title thereof and accepted the Deed. Examples of these principles are: (1) it is presumed that
Directors. Section 2 of the By-laws17 reads: PADCOM voluntarily agreed to be bound by and a person agrees to that which will benefit him; (2)
respect the condition, and thus to join the Association. nobody wants to enrich himself unjustly at the expense
Section 2. Regular Members. – Upon acceptance by the of another; or (3) one must do unto others what he
Board of Directors of Ortigas Center Association, Inc., In addition, under the principle of estoppel, PADCOM would want others to do unto him under the same
all real estate owners, or long-term lessees of lots is barred from disclaiming membership in the circumstances.19
within the boundaries of the Association as defined in Association. In estoppel, a person, who by his act or
the Articles of Incorporation become regular members, conduct has induced another to act in a particular As resident and lot owner in the Ortigas area, PADCOM
provided, however that the long-term lessees of a lot manner, is barred from adopting an inconsistent was definitely benefited by the Association’s acts and
or lots in said area shall be considered as the regular position, attitude or course of conduct that thereby activities to promote the interests and welfare of those
members in lieu of the owners of the same. Likewise, causes loss or injury to another.18 who acquire property therein or benefit from the acts
regular membership in the Association automatically or activities of the Association.1âwphi1.nêt

27

Finally, PADCOM’s argument that the collection of
monthly dues has no basis since there was no board
resolution defining how much fees are to be imposed
deserves scant consideration. Suffice it is to say that
PADCOM never protested upon receipt of the earlier
demands for payment of membership dues. In fact, by
proposing a scheme to pay its obligation, PADCOM
cannot belatedly question the Association’s authority
to assess and collect the fees in accordance with the
total land area owned or occupied by the members,
which finds support in a resolution dated 6 November
1982 of the Association’s incorporating directors20
and Section 2 of its By-laws.21
WHEREFORE, the petition is hereby DENIED for lack of
merit.
Costs against petitioner.
SO ORDERED.
Puno, Kapunan, Ynares-Santiago, and Austria-
Martinez, JJ., concur.
Footnote
1 Rollo, 29. Per Martin, Jr., F., J., ponente, with Valdez, 17, 2005 of the Court of Appeals (CA) in CA-G.R. SP No.
Jr., S. and Fernando, S., JJ., concurring.
2 Id., 95-106, Per Judge Leoncio M. Janolo, Jr.
3 Entitled Ortigas Center Association, Inc. v. Padcom against the Estate of Jose L. Chua for being a money
Condominium Corporation.
10 Supra note 1.
11 Amending and Codifying the Laws Relative to the same ground.
Registration of Property and for Other Purposes.
12 See Narciso Peña, Narciso Peña, Jr., and Nestor N.
Peña, Registration of Land Titles and Deeds, 1988 ed.,
162.
16 See Ligon v. Court of Appeals, 244 SCRA 693 [1995].
18 Cruz v. Court of Appeals, 293 SCRA 239, 255-256
[1998].
19 Tolentino, Civil Code of the Philippines, Vol. V, 1992
ed., 575 citing 5 Gutierrez 596.
6. Metrobank vs. Absolute Management
Corp.
G.R. No. 170498 January 9, 2013
DECISION
BRION, J.:
We resolve petitioner Metropolitan Bank & Trust
Company's (Metro bank's) petition for review on
certiorari1 seeking the reversal of the decision2 dated
August 25, 2005 and the resolution3 dated November
86336. The assailed decision affirmed the order4 dated
May 7, 2004 of the Regional Trial Court (RTC) of
Quezon City, Branch 80. The RTC had denied the
admission of Metrobank's Fourth-Party Complaint5
claim that falls under Section 5, Rule 86 of the Rules of
Court; the claim should have been filed in the pending
judicial settlement of Chua’s estate before the RTC of
Pasay City. The CA affirmed the RTC’s order based on
Factual Antecedents
On October 5, 2000, Sherwood Holdings
Corporation, Inc. (SHCI) filed a complaint for sum of
money against Absolute Management Corporation
(AMC). The complaint was docketed as Civil Case No.
Q-00-42105 and was assigned to the RTC of Quezon
City, Branch 80.6
SHCI alleged in its complaint that it made advance
payments to AMC for the purchase of 27,000 pieces of
plywood and 16,500 plyboards in the sum of
₱12,277,500.00, covered by Metrobank Check Nos.
1407668502, 140768507, 140768530, 140768531,
140768532, 140768533 and 140768534. These checks
were all crossed, and were all made payable to AMC.
They were given to Chua, AMC’s General Manager, in
1998.7
Chua died in 1999, 8 and a special proceeding for the
settlement of his estate was commenced before the
RTC of Pasay City. This proceeding was pending at the
time AMC filed its answer with counterclaims and
third-party complaint.9
SHCI made demands on AMC, after Chua’s death, for
allegedly undelivered items worth ₱8,331,700.00.
According to AMC, these transactions could not be
found in its records. Upon investigation, AMC
discovered that in 1998, Chua received from SHCI 18
Metrobank checks worth ₱31,807,500.00. These were
all payable to AMC and were crossed or "for payee’s
account only."10
In its answer with counterclaims and third-party
complaint,11 AMC averred that it had no knowledge of
Chua’s transactions with SHCI and it did not receive any
money from the latter. AMC also asked the RTC to hold
Metrobank liable for the subject checks in case it is
adjudged liable to SHCI.
28
 Metrobank filed a motion for bill of particulars,12
seeking to clarify certain ambiguous statements in
AMC’s answer. The RTC granted the motion but AMC
failed to submit the required bill of particulars. Hence,
Metrobank filed a motion to strike out the third-party
complaint.13
In the meantime, Metrobank filed a motion to
dismiss14 against AMC on the ground that the latter
engaged in prohibited forum shopping. According to
Metrobank, AMC’s claim against it is the same claim
that it raised against Chua’s estate in Special
Proceedings No. 99-0023 before the RTC of Pasay City,
Branch 112. The RTC subsequently denied this
motion.15
The RTC of Quezon City opted to defer
consideration16 of Metrobank’s motion to strike out
third-party complaint17 and it instead granted AMC’s
motion for leave to serve written interrogatories on
the third-party defendant.18 While Metrobank filed its
answer to the written interrogatories, AMC was again
directed by the RTC, in an order19 dated August 13,
2003, to submit its bill of particulars. Instead, AMC filed
a motion for reconsideration20 which was denied in an
order21 dated October 28, 2003. AMC still did not file
its bill of particulars. The RTC, on the other hand, did
not act on Metrobank’s motion to strike out AMC’s
third-party complaint.22
In its answer23 dated December 1, 2003, Metrobank
admitted that it deposited the checks in question to
the account of Ayala Lumber and Hardware, a sole
proprietorship Chua owned and managed. The deposit
was allegedly done with the knowledge and consent of
AMC. According to
Metrobank, Chua then gave the assurance that the
arrangement for the handling of the checks carried
AMC’s consent. Chua also submitted documents
showing his position and interest in AMC. These
documents, as well as AMC’s admission in its answer
that it allowed Chua to manage AMC with a relative
free hand, show that it knew of Chua’s arrangement
with Metrobank. Further, Chua’s records show that the
proceeds of the checks were remitted to AMC which
cannot therefore now claim that it did not receive
these proceeds.
Metrobank also raised the defense of estoppel.
According to Metrobank, AMC had knowledge of its
arrangements with Chua for several years. Despite this
arrangement, AMC did not object to nor did it call the
attention of Metrobank about Chua’s alleged lack of
authority to deposit the checks in Ayala Lumber and
Hardware’s account. At this point, AMC is already
estopped from questioning Chua’s authority to deposit
these checks in Ayala Lumber and Hardware’s account.
Lastly, Metrobank asserted that AMC gave Chua
unbridled control in managing AMC’s affairs. This
measure of control amounted to gross negligence that
was the proximate cause of the loss that AMC must
now bear.
Subsequently, Metrobank filed a motion for leave to
admit fourth-party complaint24 against Chua’s estate.
It alleged that Chua’s estate should reimburse
Metrobank in case it would be held liable in the third-
party complaint filed against it by AMC.
The RTC’s Ruling
In an order25 dated May 7, 2004, the RTC denied
Metrobank’s motion. It likewise denied Metrobank’s
motion for reconsideration in an order26 dated July 7,
2004.
The RTC categorized Metrobank’s allegation in the
fourth-party complaint as a "cobro de lo indebido"27 –
a kind of quasi-contract that mandates recovery of
what has been improperly paid. Quasi-contracts fall
within the concept of implied contracts that must be
included in the claims required to be filed with the
judicial settlement of the deceased’s estate under
Section 5, Rule 86 of the Rules of Court. As such claim,
it should have been filed in Special Proceedings No. 99-
0023, not before the RTC as a fourth-party complaint.
The RTC, acting in the exercise of its general
jurisdiction, does not have the authority to adjudicate
the fourth-party complaint. As a trial court hearing an
ordinary action, it cannot resolve matters pertaining to
special proceedings because the latter is subject to
specific rules.
Metrobank responded to the RTC ruling by filing a
petition for certiorari28 under Rule 65 before the CA.
The CA’s Ruling
The CA affirmed the RTC’s ruling that Metrobank’s
fourth-party complaint should have been filed in
Special Proceedings No. 99-0023.29 According to the
CA, the relief that Metrobank prayed for was based on
a quasi-contract and was a money claim categorized as
an implied contract that should be filed under Section
5, Rule 86 of the Rules of Court.
Based on the statutory construction principle of lex
specialis derogat generali, the CA held that Section 5,
Rule 86 of the Rules of Court is a special provision that
should prevail over the general provisions of Section
11, Rule 6 of the Rules of Court. The latter applies to
money claims in ordinary actions while a money claim
against a person already deceased falls under the
settlement of his estate that is governed by the rules
on special proceedings. If at all, rules for ordinary
actions only apply suppletorily to special proceedings.
The Present Petition
29

In its present petition for review on certiorari,30
Metrobank asserts that it should be allowed to file a
fourth-party complaint against Chua’s estate in the
proceedings before the RTC; its fourth-party complaint
was filed merely to enforce its right to be reimbursed
by Chua’s estate in case Metrobank is held liable to
AMC. Hence, Section 11, Rule 6 of the Rules of Court
should apply.
AMC, in its comment,31 maintains the line that the
CA and the RTC rulings should be followed, i.e., that
Metrobank’s claim is a quasi-contract that should be
filed as a claim under Section 5, Rule 86 of the Rules of
Court.
AMC also challenges the form of Metrobank’s
petition for failure to comply with Section 4, Rule 45 of
the Rules of Court. This provision requires petitions
filed before the Supreme Court to be accompanied by
"such material portions of the record as would support
the petition."
According to AMC, the petition’s annexes are mostly
Metrobank’s pleadings and court issuances. It did not
append all relevant AMC pleadings before the RTC and
the CA. For this reason, the petition should have been
dismissed outright.
Issues
The parties’ arguments, properly joined, present to
us the following issues:
1) Whether the petition for review on certiorari filed
by Metrobank before the Supreme Court complies
with Section 4, Rule 45 of the Rules of Court; and
2) Whether Metrobank’s fourth-party complaint
against Chua’s estate should be allowed.
The Court’s Ruling
The Present Petition Complies With Section 4, Rule
45 of the Rules of Court
AMC posits that Metrobank’s failure to append
relevant AMC pleadings submitted to the RTC and to
the CA violated Section 4, Rule 45 of the Rules of
Court,32 and is a sufficient ground to dismiss the
petition under Section 5, Rule 45 of the Rules of
Court.33
We disagree with AMC’s position.
In F.A.T. Kee Computer Systems, Inc. v. Online
Networks International, Inc.,34 Online Networks
International, Inc. similarly assailed F.A.T. Kee
Computer Systems, Inc.’s failure to attach the
transcript of stenographic notes (TSN) of the RTC
proceedings, and claimed this omission to be a
violation of Section 4, Rule 45 of the Rules of Court that
warranted the petition’s dismissal. The Court held that
the defect was not fatal, as the TSN of the proceedings
before the RTC forms part of the records of the case.
Thus, there was no incurable omission that warranted
the outright dismissal of the petition.
The Court significantly pointed out in F.A.T. Kee that
the requirement in Section 4, Rule 45 of the Rules of
Court is not meant to be an absolute rule whose
violation would automatically lead to the petition’s
dismissal.35 The Rules of Court has not been intended
to be totally rigid. In fact, the Rules of Court provides
that the Supreme Court "may require or allow the filing
of such pleadings, briefs, memoranda or documents as
it may deem necessary within such periods and under
such conditions as it may consider appropriate";36 and
"[i]f the petition is given due course, the Supreme
Court may require the elevation of the complete
record of the case or specified parts thereof within
fifteen (15) days from notice."37 These provisions are
in keeping with the overriding standard that
procedural rules should be liberally construed to
promote their objective and to assist the parties in
obtaining a just, speedy and inexpensive
determination of every action or proceeding.38
Under this guiding principle, we do not see
Metrobank’s omission to be a fatal one that should
warrant the petition’s outright dismissal. To be sure,
the omission to submit the adverse party’s pleadings in
a petition before the Court is not a commendable
practice as it may lead to an unduly biased narration of
facts and arguments that masks the real issues before
the Court. Such skewed presentation could lead to the
waste of the Court’s time in sifting through the maze
of the parties’ narrations of facts and arguments and is
a danger the Rules of Court seeks to avoid.
Our examination of Metrobank’s petition shows that
it contains AMC’s opposition to its motion to admit
fourth-party complaint among its annexes. The rest of
the pleadings have been subsequently submitted as
attachments in Metrobank’s Reply. A reading of these
pleadings shows that their arguments are the same as
those stated in the orders of the trial court and the
Court of Appeals. Thus, even if Metrobank’s petition
did not contain some of AMC’s pleadings, the Court still
had the benefit of a clear narration of facts and
arguments according to both parties’ perspectives. In
this broader view, the mischief that the Rules of Court
seeks to avoid has not really been present. If at all, the
omission is not a grievous one that the spirit of
liberality cannot address.
The Merits of the Main Issue
The main issue poses to us two essential points that
must be addressed. First, are quasi-contracts included
30
in claims that should be filed pursuant to Rule 86,
Section 5 of the Rules of Court? Second, if so, is
Metrobank’s claim against the Estate of Jose Chua
based on a quasi-contract?
Quasi-contracts are included in
claims that should be filed under Rule
86, Section 5 of the Rules of Court
In Maclan v. Garcia,39 Gabriel Maclan filed a civil
case to recover from Ruben Garcia the necessary
expenses he spent as possessor of a piece of land.
Garcia acquired the land as an heir of its previous
owner. He set up the defense that this claim should
have been filed in the special proceedings to settle the
estate of his predecessor. Maclan, on the other hand,
contended that his claim arises from law and not from
contract, express or implied. Thus, it need not be filed
in the settlement of the estate of Garcia’s predecessor,
as mandated by Section 5, Rule 87 of the Rules of Court
(now Section 5, Rule 86).
The Court held under these facts that a claim for
necessary expenses spent as previous possessor of the
land is a kind of quasi-contract. Citing Leung Ben v.
O’Brien,40 it explained that the term "implied
contracts," as used in our remedial law, originated
from the common law where obligations derived from
quasi-contracts and from law are both considered as
implied contracts. Thus, the term quasi-contract is
included in the concept "implied contracts" as used in
the Rules of Court. Accordingly, liabilities of the
deceased arising from quasi-contracts should be filed
as claims in the settlement of his estate, as provided in
Section 5, Rule 86 of the Rules of Court.41
Metrobank’s fourth-party complaint is
based on quasi-contract
Both the RTC and the CA described Metrobank’s
claim against Chua’s estate as one based on quasi-
contract. A quasi-contract involves a juridical relation
that the law creates on the basis of certain voluntary,
unilateral and lawful acts of a person, to avoid unjust
enrichment.42 The Civil Code provides an enumeration
of quasi-contracts,43 but the list is not exhaustive and
merely provides examples.44
According to the CA, Metrobank’s fourth-party
complaint falls under the quasi-contracts enunciated in
Article 2154 of the Civil Code.45 Article 2154 embodies
the concept "solutio indebiti" which arises when
something is delivered through mistake to a person
who has no right to demand it. It obligates the latter to
return what has been received through mistake.46
Solutio indebiti, as defined in Article 2154 of the Civil
Code, has two indispensable requisites: first, that
something has been unduly delivered through mistake;
and second, that something was received when there
was no right to demand it.47
In its fourth-party complaint, Metrobank claims that
Chua’s estate should reimburse it if it becomes liable
on the checks that it deposited to Ayala Lumber and
Hardware’s account upon Chua’s instructions.
This fulfills the requisites of solutio indebiti. First,
Metrobank acted in a manner akin to a mistake when
it deposited the AMC checks to Ayala Lumber and
Hardware’s account; because of Chua’s control over
AMC’s operations, Metrobank assumed that the
checks payable to AMC could be deposited to Ayala
Lumber and Hardware’s account. Second, Ayala
Lumber and Hardware had no right to demand and
receive the checks that were deposited to its account;
despite Chua’s control over AMC and Ayala Lumber
and Hardware, the two entities are distinct, and checks
exclusively and expressly payable to one cannot be
deposited in the account of the other. This disjunct
created an obligation on the part of Ayala Lumber and
Hardware, through its sole proprietor, Chua, to return
the amount of these checks to Metrobank.
The Court notes, however, that its description of
Metrobank’s fourth-party complaint as a claimclosely
analogous to solutio indebiti is only to determine the
validity of the lower courts’ orders denying it. It is not
an adjudication determining the liability of Chua’s
estate against Metrobank. The appropriate trial court
should still determine whether Metrobank has a lawful
claim against Chua’s estate based on quasi-
contract.1âwphi1
Metrobank’s fourth-party complaint,
as a contingent claim, falls within the
claims that should be filed under
Section 5, Rule 86 of the Rules of
Court
A distinctive character of Metrobank’s fourth-party
complaint is its contingent nature – the claim depends
on the possibility that Metrobank would be adjudged
liable to AMC, a future event that may or may not
happen. This characteristic unmistakably marks the
complaint as a contingent one that must be included in
the claims falling under the terms of Section 5, Rule 86
of the Rules of Court:
Sec. 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. [italics ours]
Specific provisions of Section 5, Rule
31
 86 of the Rules of Court prevail over
general provisions of Section 11, Rule
6 of the Rules of Court
Metrobank argues that Section 11, Rule 6 of the
Rules of Court should apply because it impleaded
Chua’s estate for reimbursement in the same
transaction upon which it has been sued by AMC. On
this point, the Court supports the conclusion of the CA,
to wit:
the Rules of Comi and, as such, should have been so
filed in Special Proceedings No. 99-0023.
WHEREFORE, premises considered, we hereby DENY
the petition for lack of merit. The decision of the Court
of Appeals dated August 25, 2005, holding that the
Regional Trial Court of Quezon City, Branch 80, did not
commit grave abuse of discretion in denying
Metropolitan Bank & Trust Company's motion for
leave to admit fourth-party complaint Is
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the
Constitution, and the Division Chairperson's
Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the
Court's Division.

Notably, a comparison of the respective provisions
of Section 11, Rule 6 and Section 5, Rule 86 of the Rules
of Court readily shows that Section 11, Rule 6 applies
to ordinary civil actions while Section 5, Rule 86
specifically applies to money claims against the estate.
The specific provisions of Section 5, Rule 86 x x x must
therefore prevail over the general provisions of Section
11, Rule 6.48
We read with approval the CA’s use of the statutory
construction principle of lex specialis derogat generali,
leading to the conclusion that the specific provisions of
Section 5, Rule 86 of the Rules of Court should prevail
over the general provisions of Section 11, Rule 6 of the
Rules of Court; the settlement of the estate of
deceased persons (where claims against the deceased
should be filed) is primarily governed by the rules on
special proceedings, while the rules provided for
ordinary claims, including Section 11, Rule 6 ofthe
Rules of Court, merely apply suppletorily.49
In sum, on all counts in the considerations material
to the issues posed, the resolution points to the
affirmation of the assailed CA decision and resolution.
Metrobank's claim in its fourth-party complaint against
Chua's estate is based on quasi-contract. It is also a
contingent claim that depends on another event. Both
belong to the category of claims against a deceased
person that should be filed under Section 5, Rule 86 of
AFFIRMED. Costs against Metropolitan Bank & Trust MARIA LOURDES P. A. SERENO
Company. Chief Justice
SO ORDERED. Footnotes
ARTURO D. BRION 1 Rollo, pp. 9-18.
Associate Justice
2 Id. at 24-32. Penned by Associate Justice Fernanda
WE CONCUR: Lampas Peralta, and concurred in by Associate Justices
Ruben T. Reyes (now a retired member of this Court)
ANTONIO T. CARPIO and Josefina Guevara-Salonga.
Associate Justice
Chairperson 32 Sec. 4. Contents of petition. – The petition shall
MARIANO C. DEL CASTILLO be filed in eighteen (18) copies, with the original copy
Associate Justice JOSE PORTUGAL PEREZ intended for the court being indicated as such by the
Associate Justice petitioner, and shall (a) state the full name of the
appealing party as the petitioner and the adverse party
ESTELA M. PERLAS-BERNABE as respondent, without impleading the lower courts or
Associate Justice judges thereof either as petitioners or respondents; (b)
indicate the material dates showing when notice of the
ATTESTATION judgment or final order or resolution subject thereof
was received, when a motion for new trial or
I attest that the conclusions in the above Decision reconsideration, if any, was filed and when notice of
had been reached in consultation before the case was the denial thereof was received; (c) set forth concisely
assigned to the writer of the opinion of the Court's a statement of the matters involved, and the reasons
Division. or arguments relied on for the allowance of the
petition; (d) be accompanied by a clearly legible
ANTONIO T. CARPIO duplicate original, or a certified true copy of the
Associate Justice judgment or final order or resolution certified by the

32
clerk of court of the court a quo and the requisite
number of plain copies thereof, and such material
portions of the record as would support the petition;
and (e) contain a sworn certification against forum
shopping as provided in the last paragraph of section
2, Rule 42. [italics ours]
33 Sec. 5. Dismissal or denial of petition. – The failure
of the petitioner to comply with any of the foregoing
requirements regarding the payment of the docket and
other lawful fees, deposit for costs, proof of service of
the petition, and the contents of and the documents
which should accompany the petition shall be
sufficient ground for the dismissal thereof. [italics
ours]
34 G.R. No. 171238, February 2, 2011, 641 SCRA 390.
35 Id. at 401.
36 Section 7, Rule 45 of the Rules of Court provides:
"Pleadings and documents that may be required;
sanctions. — For purposes of determining whether the
petition should be dismissed or denied pursuant to
section 5 of this Rule, or where the petition is given due
course under section 8 hereof, the Supreme Court may
require or allow the filing of such pleadings, briefs,
memoranda or documents as it may deem necessary
within such periods and under such conditions as it
may consider appropriate, and impose the
corresponding sanctions in case of non-filing or
unauthorized filing of such pleadings and documents
or noncompliance with the conditions thereof." (italics
ours)
37 Section 8, Rule 45 of the Rules of Court provides:
"Due course; elevation of records. — If the petition
is given due course, the Supreme Court may require
the elevation of the complete record of the case or
specified parts thereof within fifteen (15) days from
notice."
38 F.A.T. Kee Computer Systems, Inc. v. Online
Networks International, Inc., supra note 34, at 401-
402.
39 97 Phil. 119 (1955).
40 38 Phil. 182, 189-194 (1918).
41 Maclan v. Garcia, supra note 39, at 123-124.
42 Cruz v. J.M. Tuason Company, Inc., 167 Phil. 261,
276-277 (1977).
43 See CIVIL CODE, Articles 2144, 2154, 2164-2175.
44 Article 2143 of the Civil Code provides:
"The provisions for quasi-contracts in this Chapter
do not exclude other quasi-contracts which may come
within the purview of the preceding article."
The number of the quasi-contracts may be indefinite
as may be the number of lawful facts, the generations
of the said obligations; but the Code, just as we shall
see further on, in the impracticableness of
enumerating or including them all in a methodical and
orderly classification, has concerned itself with two
only — namely, the management of the affairs of other
persons and the recovery of things improperly paid —
without attempting by this to exclude the others.
(Manresa, 2d ed., vol. 12, p. 549, as cited in Leung Ben
v. O’Brien, supra note 40, at 195.)
45 Rollo, p. 30.
46 Andres v. Manufacturers Hanover & Trust
Corporation, G.R. No. 82670, September 15, 1989, 177
SCRA 618, 622, citing Velez v. Balzarza, 73 Phil. 630
(1942); and City of Cebu v. Piccio, 110 Phil. 558, 563
(1960).
47 Philippine National Bank v. Court of Appeals, G.R.
No. 97995, January 21, 1993, 217 SCRA 347, 355.
7. Deiparine vs. CA
G.R. No. 96643. April 23, 1993.
SYLLABUS
1. CIVIL LAW; CONTRACTS; RESCISSION IS USED IN
TWO DIFFERENT CONTEXTS IN THE CIVIL CODE. —
Deiparine seems to be confused over the right of
rescission, which is used in two different contexts in
the Civil Code. Under the law on contracts, there are
what are called "rescissible contracts" which are
enumerated in Article 1381 . . . There is also a right of
rescission under the law on obligations as granted in
Article 1191.
2. ID.; ID.; ARTICLES 19, 1159, 1191, 1714, 1715 AND
1727, CIVIL CODE ARE APPLICABLE, WHILE ARTICLES
1381, 1385 AND 1725, SAME CODE ARE NOT, IN CASE
OF BREACH OF CONSTRUCTION CONTRACT. — The
petitioner challenges the application by the lower
court of Article 1191 of the Civil Code in rescinding the
construction agreement. His position is that the
applicable rules are Articles 1385 and 1725 of the Civil
Code . . . Article 1385, upon which Deiparine relies,
deals with the rescission of the contracts enumerated
above, which do not include the construction
agreement in question . . . The construction contract
falls squarely under the coverage of Article 1191
because it imposes upon Deiparine the obligation to
build the structure and upon the Carungays the
obligation to pay for the project upon its completion.
Article 1191, unlike Article 1385, is not predicated on
33
economic prejudice to one of the parties but on breach
of faith by one of them that violates the reciprocity
between them. The violation of reciprocity between
Deiparine and the Carungay spouses, to wit, the breach
caused by Deiparine's failure to follow the stipulated
plans and specifications, has given the Carungay
spouses the right to rescind or cancel the contract.
Article 1725 cannot support the petitioner's position
either, for this contemplates a voluntary withdrawal by
the owner without fault on the part of the contractor,
who is therefore entitled to indemnity, and even
damages, for the work he has already commenced.
There is no such voluntary withdrawal in the case at
bar. On the contrary, the Carungays have been
constrained to ask for judicial rescission because of the
petitioner's failure to comply with the terms and
conditions of their contract. The other applicable
provisions are: Article 1714 . . . Article 1715 . . . Article
1727 . . . It is a basic principle in human relations,
acknowledged in Article 19 of the Civil Code, that
"every person must, in the performance of his duties,
act with justice, give everyone his due, and observe
honesty and good faith." This admonition is reiterated
in Article 1159, which states that "obligations arising
from contracts have the force of law between the
contracting parties and should be complied with in
good faith." The petitioner has ignored these
exhortations and is therefore not entitled to the relief
he seeks.
3. ADMINISTRATIVE LAW; THE PHILIPPINE DOMESTIC
CONSTRUCTION BOARD HAS NO POWER TO
ADJUDICATE A CASE FOR RESCISSION OF
CONSTRUCTION CONTRACT. — The wording of P.D.
1746 is clear. The adjudicatory powers of the Philippine
Domestic Construction Board are meant to apply only
to public construction contracts. Its power over private
construction contracts is limited to the formulation
and recommendation of rules and procedures for the
adjudication and settlement of disputes involving such
(private) contracts. It therefore has no jurisdiction over
cases like the one at bar which remain cognizable by
the regular courts of justice.
4. LEGAL AND JUDICIAL ETHICS; COUNSEL WHO TRIES
TO MISLEAD THE COURT BY DELIBERATELY
MISQUOTING THE LAW IS SUBJECT TO DISCIPLINE. —
Counsel is obviously trying to mislead the Court. First,
he purposely misquotes Section 6(b), paragraph 3,
substituting the word "the" for "public," . . . Second, he
makes the wrong emphasis in paragraph 5, . . . For
deliberately changing the language of the above-
quoted paragraph 3, Atty. Gregorio B. Escasinas has
committed contempt of this Court and shall be
disciplined. As for paragraph 5, the correct stress
should be on the words "formulate and recommend,"
which is all the body can do, rather than on
adjudication and settlement."
DECISION
CRUZ, J p:
This case involves not only the factual issue of breach
of contract and the legal questions of jurisdiction and
rescission. The basic inquiry is whether the building
subject of this litigation is safe enough for its future
occupants. The petitioner says it is, but the private
respondents demur. They have been sustained by the
trial court and the appellate court. The petitioner says
they have all erred.
The spouses Cesario and Teresita Carungay entered
into an agreement with Ernesto Deiparine, Jr. on
August 13, 19B2, for the construction of a three-story
dormitory in Cebu City. 1 The Carungays agreed to pay
P970,000.00, inclusive of contractor's fee, and
Deiparine bound himself to erect the building "in strict
accordance to (sic) plans and specifications." Nicanor
Trinidad, Jr., a civil engineer, was designated as the
representative of the Carungay spouses, with powers
of inspection and coordination with the contractor.
Deiparine started the construction on September 1,
1982. 2 On November 6, 1982, Trinidad sent him a
document entitled General Conditions and
Specifications which inter alia prescribed 3,000 psi
(pounds per square inch) as the minimum acceptable
compressive strength of the building. 3
In the course of the construction, Trinidad reported to
Cesario Carungay that Deiparine had been deviating
from the plans and specifications, thus impairing the
strength and safety of the building. On September 25,
1982, Carungay ordered Deiparine to first secure
approval from him before pouring cement. 4 This order
was not heeded, prompting Carungay to send
Deiparine another memorandum complaining that the
"construction works are faulty and done haphazardly .
. . mainly due to lax supervision coupled with . . .
inexperienced and unqualified staff." 5 This
memorandum was also ignored.
After several conferences, the parties agreed to
conduct cylinder tests to ascertain if the structure thus
far built complied with safety standards. Carungay
suggested core testing. Deiparine was reluctant at first
but in the end agreed. He even promised that if the
tests should show total failure, or if the failure should
exceed 10%, he would shoulder all expenses;
otherwise, the tests should be for the account of
Carungay.
The core testing was conducted by Geo-Testing
International, a Manila-based firm, on twenty-four
core samples. On the basis of 3,000 psi, all the samples
failed; on the basis of 2,500 psi, only three samples
passed; and on the basis of 2,000 psi, nineteen samples
failed. 6 This meant that the building was structurally
defective.
34

In view of this finding, the spouses Carungay filed
complaint with the Regional Trial Court of Cebu for the
rescission of the construction contract and for
damages. Deiparine moved to dismiss, alleging that the
court had no jurisdiction over construction contracts,
which were now cognizable by the Philippine
Construction Development Board pursuant to
Presidential Decree No. 1746. The motion was denied
in an order dated April 12, 1984.
After trial on the merits, Judge Juanito A. Bernad
rendered judgment: a) declaring the construction
agreement rescinded; b) condemning Deiparine to
have forfeited his expenses in the construction in the
same of P244,253.70; c) ordering Deiparine to
reimburse to the spouses Carungay the sum of
P15,104.33 for the core testing; d) ordering Deiparine
to demolish and remove all the existing structures and
restore the premises to their former condition before
the construction began, being allowed at the same
time to take back with him all the construction
materials belonging to him; and e) ordering Deiparine
to pay the Carungay spouses attorney's fees in the
amount of P10,000.00 as well as the costs of the suit. 7
On appeal, the decision was affirmed in toto by the
respondent court on August 14, 1990. 8 His motion for
reconsideration having been denied, petitioner
Ernesto Deiparine, Jr. has come to this Court to
question once more the jurisdiction of the regular
courts over the case and the power of the trial court to
grant rescission. He will lose again.
The challenge to the jurisdiction of the trial court is
untenable.
P.D. 1746 created the Construction Industry Authority
of the Philippines (CIAP) as the umbrella organization
which shall exercise jurisdiction and supervision over
certain administrative bodies acting as its
implementing branches. The implementing body in this
case is the Philippine Domestic Construction Board
(PDCB) and not the inexistent Philippine Construction
Development Board as maintained by Deiparine.
Among the functions of the PDCB under Section 6 of
the decree are to:
xxx xxx xxx
3. Adjudicate and settle claims and implementation of
public construction contracts and for this purpose,
formulate and adopt the necessary rules and
regulations subject to the approval of the President:
xxx xxx xxx
5. Formulate and recommend rules and procedures for
the adjudication and settlement of claims and disputes
in the implementation of contracts in private
construction; (Emphasis supplied)
Deiparine argues that the Philippine Construction
Development Board (that is, the Philippine Domestic
Construction Board) has exclusive jurisdiction to hear
and try disputes arising from domestic constructions.
He invokes the above-mentioned functions to prove
his point.
His counsel is obviously trying to mislead the Court.
First, he purposely misquotes Section 6(b), paragraph
3, substituting the word "the" for "public," thus:
3. Adjudicate and settle claims and disputes in the
implementation of the construction contracts and for
this purpose, formulate and adopt the necessary rules
and regulations subject to the approval of the
President; (Emphasis ours).
Second, he makes the wrong emphasis in paragraph 5,
thus:
5. Formulate and recommend rules and procedures for
the ADJUDICATION and SETTLEMENT of CLAIMS and
DISPUTES in the implementation of CONTRACTS in
PRIVATE CONSTRUCTIONS.
For deliberately changing the language of the
abovequoted paragraph 3, Atty. Gregorio P. Escasinas
has committed contempt of this Court and shall be
disciplined. As for paragraph 5, the correct stress
should be on the words "formulate and recommend,"
which is all the body can do, rather than on
"adjudication and settlement."
The wording of P.D. 1746 is clear. The adjudicatory
powers of the Philippine Domestic Construction Board
are meant to apply only to public construction
contracts. Its power over private construction
contracts is limited to the formulation and
recommendation of rules and procedures for the
adjudication and settlement of disputes involving such
(private) contracts. It therefore has no jurisdiction over
cases like the one at bar which remain cognizable by
the regular courts of justice.
On the issue of rescission, Deiparine insists that the
construction agreement does not specify any
compressive strength for the structure nor does it
require that the same be subjected to any kind of stress
test. Therefore, since he did not breach any of his
covenants under the agreement, the court erred in
rescinding the contract.
The record shows that Deiparine commenced the
construction soon after the signing of the contract,
even before Trinidad had submitted the contract
documents, including the General Conditions and
Specifications.
35

According to Eduardo Logarta, the petitioner's own
project engineer, Deiparine actually instructed him and
some of the other workers to ignore the specific orders
or instructions of Carungay or Trinidad relative to the
construction. 9 Most of these orders involved safety
measures such as: (1) the use of two concrete vibrators
in the pouring of all columns, beams and slabs; (2)
making PVC pipes well-capped to prevent concrete
from setting inside them; (3) the use of 12-mm
reinforcement bars instead of 10-mm bars; (4) the use
of mixed concrete reinforcements instead of hollow
block reinforcements; and (5) securing the approval of
the owner or his representative before any concrete-
pouring so that it could be determined whether the
cement mixture complied with safety standards.
Deiparine obviously wanted to avoid additional
expenses which would reduce his profit.
Parenthetically, it is not disputed that Deiparine is not
a civil engineer or an architect but a master mariner
and former ship captain; 10 that Pio Bonilla, a retainer
of Deiparine Construction, was not the supervising
architect of the protect; 11 that the real supervisor of
the construction was Eduardo-Logarta, who was only a
third year civil engineering student at the time; 12 that
his understudy was Eduardo Martinez, who had then
not yet passed the board examinations; 13 and that the
supposed project engineer, Nilo Paglinawan, was
teaching full-time at the University of San Jose-
Recoletos, and had in fact entered the construction site
only after November 4, 1982, although the
construction had already begun two months earlier. 14
It was after discovering that the specifications and the
field memorandums were not being followed by
Deiparine that Carungay insisted on the stress tests.
There were actually two sets of specifications. The first
"Specifications" are labeled as such and are but a
general summary of the materials to be used in the
construction. These were prepared by Trinidad prior to
the execution of the contract for the purpose only of
complying with the document requirements of the
loan application of Cesario Carungay with the
Development Bank of the Philippines. The other
specifications, which were also prepared by Trinidad,
are entitled "General Conditions and Specifications"
and laid down in detail the requirements of the private
respondent in the construction of his building.
In his testimony, Deiparine declared that when the
contract was signed on August 13, 1982, it was
understood that the plans and specifications would be
given to him by Trinidad later. 15 Deiparine thus
admitted that the plans and specifications referred to
in the construction agreement were not the first
Specifications but the General Conditions and
Specifications submitted by Trinidad in November
1982. This second set of specifications required a
structural compressive strength of 3,000 psi. 16 It
completely belies Deiparine's contention that no
compressive strength of the dormitory was required.
Deiparine further argues that by following the concrete
mixture indicated in the first specifications, that is,
1:2:4, the structure would still attain a compressive
strength of 2,500 psi, which was acceptable for
dormitories. According to him, the 3,000 psi prescribed
in the General Conditions and Specifications was
recommended for roads, not for buildings. In so
arguing, he is interpreting the two specifications
together but applying only the first and rejecting the
second.
Deiparine also avers that the contract does not also
require any kind of test to be done on the structure and
that, test or no test, he has not violated the agreement.
Nevertheless, he subjected the building to a cylinder
test just to convince Carungay that the unfinished
dormitory was structurally sound.
A cylinder test is done by taking samples from fresh
concrete, placing them in a cylinder mold and allowing
them to harden for a maximum of 28 days, following
which they are subjected to compression to determine
if the cement mixture to be poured conforms to
accepted standards in construction. 17 Carungay was
not satisfied with the results of the cylinder test
because they were inconsistent and could easily be
falsified by the simple expedient of replacing the
samples with a good mixture although a different
mixture had been used in the actual pouring.
Consequently, Carungay requested core testing, a
more reliable procedure because the specimens
obtained by extracting concrete from the hardened
existing structure would determine its actual strength.
The core test is less prone to manipulation than the
cylinder test because the samples in the former are
taken from the building which is already standing. 18
Deiparine vehemently refused to go along with the
core test, insisting that the results of the cylinder test
earlier made were conclusive enough to prove that the
building was structurally sound. What was the real
reason for this refusal? After all, Carungay would
shoulder the expenses if the specimens passed the
core test, unlike the cylinder test, which was for the
petitioner's account. The only logical explanation
would be that Deiparine was not sure that the core test
would prove favorable to him.
We see no reason to disturb the factual finding of the
courts below that Deiparine did not deal with the
Carungays in good faith. His breach of this duty
constituted a substantial violation of the contract
correctible by judicial rescission.
36
The petitioner challenges the application by the lower
court of Article 1191 of the Civil Code in rescinding the
construction agreement. His position is that the
applicable rules are Articles 1385 and 1725 of the Civil
Code.
Article 1385 states:
Rescission creates the obligation to return the things
which were the object of the contract, together with
their fruits, and the price with its interest;
consequently, it can be carried out only when he who
demands rescission can return whatever he may be
obliged to restore.
Article 1725 provides that in a contract for a piece of
work:
The owner may withdraw at will from the construction
of the work, although it may have been commenced,
indemnifying the contractor for all the latter's
expenses, work, and the usefulness which the owner
may obtain therefrom, and damages.
Deiparine seems to be confused over the right of
rescission, which is used in two different contexts in
the Civil Code.
Under the law on contracts, there are what are called
"rescissible contracts" which are enumerated in Article
1381 thus:
(1) Those which are entered into by guardians
whenever the wards who they represent suffer lesion
by more than one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in representation of absentees,
if the latter suffer the lesion stated in the preceding
number:
(3) Those undertaken in fraud of creditors when the
later cannot in any other manner collect the claims due
them:
(4) Those which refer to things under litigation if they
have been entered into by the defendants without the
knowledge and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared by law to be
subject to rescission.
Article 1385, upon which Deiparine relies, deals with
the rescission of the contracts enumerated above,
which do not include the construction agreement in
question.
There is also a right of rescission under the law on
obligations as granted in Article 1191, providing as
follows:
"Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the
Mortgage Law.
This was the provision the trial court and the
respondent court correctly applied because it relates
to contracts involving reciprocal obligations like the
subject construction contract. The construction
contract fails squarely under the coverage of Article
1191 because it imposes upon Deiparine the obligation
to build the structure and upon the Carungays the
obligation to pay for the project upon its completion.
Article 1191, unlike Article 1385, is not predicated on
economic prejudice to one of the, parties but on
breach of faith by one of them that violates the
reciprocity between them. 19 The violation of
reciprocity between Deiparine and the Carungay
spouses, to wit, the breach caused by Deiparine's
failure to follow the stipulated plans and specifications,
has given the Carungay spouses the right to rescind or
cancel the contract.
Article 1725 cannot support the petitioner's position
either, for this contemplates a voluntary withdrawal by
the owner without fault on the part of the contractor,
who is therefore entitled to indemnity, and even
damages, for the work he has already commenced.
there is no such voluntary withdrawal in the case at
bar. On the contrary, the Carungays have been
constrained to ask for judicial rescission because of the
petitioner's failure to comply with the terms and
conditions of their contract.
The other applicable provisions are:
Article 1714. If the contractor agrees to produce the
work from material furnished by him, he shall deliver
the thing produced to the employer and transfer
dominion over the thing. This contract shall be
governed by the following articles as well as by the
pertinent provisions on warranty of title and against
hidden defects and the payment of price in a contract
of sale.
37

Article 1715. The contractor shall execute the work in
such a manner that it has the qualities agreed upon
and has no defects which destroy or lessen its value or
fitness for its ordinary or stipulated use. Should the
work be not of such quality, the employer may require
that the contractor remove the defect or execute
another work. If the contractor fails or refuses to
comply with this obligation, the employer may have
the defect removed or another work executed, at the
contractor's cost.
Article 1727. The contractor is responsible for the work
done by persons employed by him.
While it is true that the stress test was not required in
any of the contract documents, conducting the test
was the only manner by which the owner could
determine if the contractor had been faithfully
complying with his presentations under their
agreement. Furthermore, both parties later agreed in
writing that the core test should be conducted. When
the structure failed under this test the Carungay
spouses were left with no other recourse than to
rescind their contract.
It is a basic principle in human relations, acknowledged
in Article 19 of the Civil Code, that "every person must,
in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good
faith." This admonition is reiterated in Article 1159,
which states that "obligations arising from contracts
have the force of law between the contracting parties
and should be complied with in good faith." The
petitioner has ignored these exhortations and is
therefore not entitled to the relief he seeks.
WHEREFORE, the challenged decision is hereby
AFFIRMED and the instant petition for review is
DENIED, with costs against the petitioner. For
deliberately changing the language of Section 6(b), BOCOBO, J.:
paragraph 3, of P.D. No. 1746, Atty. Gregorio B.
Escasinas is hereby fined P1,000.00, with the warning This case comes up from the Court of Appeals which
that repetition of a similar offense will be dealt with held the petitioner herein, Fausto Barredo, liable in
more severely. It is so ordered. Concur. damages for the death of Faustino Garcia caused by
the negligence of Pedro Fontanilla, a taxi driver
Griño-Aquino, Bellosillo and Quiason, JJ ., concur. employed by said Fausto Barredo.
Footnotes At about half past one in the morning of May 3, 1936,
on the road between Malabon and Navotas, Province
of Rizal, there was a head-on collision between a taxi
8. Ibid., pp. 30-37A. Decision penned by Justice of the Malate Taxicab driven by Pedro Fontanilla and a
Antonio M. Martinez, with Melo and Lapeña, JJ., carretela guided by Pedro Dimapalis. The carretela was
concurring. overturned, and one of its passengers, 16-year-old boy
Faustino Garcia, suffered injuries from which he died
16. Exhibits "B" and "19," Records, Bundle of Exhibits, two days later. A criminal action was filed against
p. 31. Fontanilla in the Court of First Instance of Rizal, and he
was convicted and sentenced to an indeterminate
17. TSN, January 3, 1984, p. 21. The definitions are sentence of one year and one day to two years of
derived from the 1980 Annual Book of ASTM prision correccional. The court in the criminal case
Standards, Part 14. granted the petition that the right to bring a separate
civil action be reserved. The Court of Appeals affirmed
18. Ibid., pp. 21, 28, 48. the sentence of the lower court in the criminal case.
Severino Garcia and Timotea Almario, parents of the
19. Universal Food Corporation v. Court of Appeals, L- deceased on March 7, 1939, brought an action in the
29155, May 13, 1970. Court of First Instance of Manila against Fausto
Barredo as the sole proprietor of the Malate Taxicab
8. Barredo v. Garcia and employer of Pedro Fontanilla. On July 8, 1939, the
G.R. No. L-48006 July 8, 1942 Court of First Instance of Manila awarded damages in
favor of the plaintiffs for P2,000 plus legal interest from
G.R. No. L-48006 July 8, 1942 the date of the complaint. This decision was modified
by the Court of Appeals by reducing the damages to
FAUSTO BARREDO, petitioner, P1,000 with legal interest from the time the action was
vs. instituted. It is undisputed that Fontanilla 's negligence
SEVERINO GARCIA and TIMOTEA ALMARIO, was the cause of the mishap, as he was driving on the
respondents. wrong side of the road, and at high speed. As to
Barredo's responsibility, the Court of Appeals found:
Celedonio P. Gloria and Antonio Barredo for petitioner.
Jose G. Advincula for respondents. ... It is admitted that defendant is Fontanilla's
employer. There is proof that he exercised the
38
diligence of a good father of a family to prevent
damage. (See p. 22, appellant's brief.) In fact it is shown
he was careless in employing Fontanilla who had been
caught several times for violation of the Automobile
Law and speeding (Exhibit A) — violation which
appeared in the records of the Bureau of Public Works
available to be public and to himself. Therefore, he
must indemnify plaintiffs under the provisions of
article 1903 of the Civil Code.
The main theory of the defense is that the liability of
Fausto Barredo is governed by the Revised Penal Code;
hence, his liability is only subsidiary, and as there has
been no civil action against Pedro Fontanilla, the
person criminally liable, Barredo cannot be held
responsible in the case. The petitioner's brief states on
page 10:
... The Court of Appeals holds that the petitioner is
being sued for his failure to exercise all the diligence of
a good father of a family in the selection and
supervision of Pedro Fontanilla to prevent damages
suffered by the respondents. In other words, The Court
of Appeals insists on applying in the case article 1903
of the Civil Code. Article 1903 of the Civil Code is found
in Chapter II, Title 16, Book IV of the Civil Code. This
fact makes said article to a civil liability arising from a
crime as in the case at bar simply because Chapter II of
Title 16 of Book IV of the Civil Code, in the precise
words of article 1903 of the Civil Code itself, is
applicable only to "those (obligations) arising from
wrongful or negligent acts or commission not
punishable by law.
The gist of the decision of the Court of Appeals is
expressed thus:
... We cannot agree to the defendant's contention. The
liability sought to be imposed upon him in this action is
not a civil obligation arising from a felony or a
misdemeanor (the crime of Pedro Fontanilla,), but an
obligation imposed in article 1903 of the Civil Code by
reason of his negligence in the selection or supervision
of his servant or employee.
The pivotal question in this case is whether the
plaintiffs may bring this separate civil action against
Fausto Barredo, thus making him primarily and
directly, responsible under article 1903 of the Civil
Code as an employer of Pedro Fontanilla. The
defendant maintains that Fontanilla's negligence being
punishable by the Penal Code, his (defendant's) liability
as an employer is only subsidiary, according to said
Penal code, but Fontanilla has not been sued in a civil
action and his property has not been exhausted. To
decide the main issue, we must cut through the tangle
that has, in the minds of many confused and jumbled
together delitos and cuasi delitos, or crimes under the
Penal Code and fault or negligence under articles 1902-
1910 of the Civil Code. This should be done, because
justice may be lost in a labyrinth, unless principles and
remedies are distinctly envisaged. Fortunately, we are
aided in our inquiry by the luminous presentation of
the perplexing subject by renown jurists and we are
likewise guided by the decisions of this Court in
previous cases as well as by the solemn clarity of the
consideration in several sentences of the Supreme
Tribunal of Spain.
Authorities support the proposition that a quasi-delict
or "culpa aquiliana " is a separate legal institution
under the Civil Code with a substantivity all its own,
and individuality that is entirely apart and independent
from delict or crime. Upon this principle and on the
wording and spirit article 1903 of the Civil Code, the
primary and direct responsibility of employers may be
safely anchored.
The pertinent provisions of the Civil Code and Revised
Penal Code are as follows:
CIVIL CODE
ART. 1089 Obligations arise from law, from contracts
and quasi-contracts, and from acts and omissions
which are unlawful or in which any kind of fault or
negligence intervenes.
xxx xxx xxx
ART. 1092. Civil obligations arising from felonies or
misdemeanors shall be governed by the provisions of
the Penal Code.
ART. 1093. Those which are derived from acts or
omissions in which fault or negligence, not punishable
by law, intervenes shall be subject to the provisions of
Chapter II, Title XVI of this book.
xxx xxx xxx
ART 1902. Any person who by an act or omission
causes damage to another by his fault or negligence
shall be liable for the damage so done.
ART. 1903. The obligation imposed by the next
preceding article is enforcible, not only for personal
acts and omissions, but also for those of persons for
whom another is responsible.
The father and in, case of his death or incapacity, the
mother, are liable for any damages caused by the
minor children who live with them.
Guardians are liable for damages done by minors or
incapacitated persons subject to their authority and
living with them.
Owners or directors of an establishment or business
are equally liable for any damages caused by their
39
employees while engaged in the branch of the service age, or by one over nine but under fifteen years of age, of persons criminally liable, innkeepers, tavern
in which employed, or on occasion of the performance who has acted without discernment shall devolve upon keepers, and any other persons or corporation shall be
of their duties. those having such person under their legal authority or civilly liable for crimes committed in their
control, unless it appears that there was no fault or establishments, in all cases where a violation of
The State is subject to the same liability when it acts negligence on their part. municipal ordinances or some general or special police
through a special agent, but not if the damage shall regulation shall have been committed by them or their
have been caused by the official upon whom properly Should there be no person having such insane, employees.
devolved the duty of doing the act performed, in which imbecile or minor under his authority, legal
case the provisions of the next preceding article shall guardianship, or control, or if such person be insolvent, Innkeepers are also subsidiarily liable for the
be applicable. said insane, imbecile, or minor shall respond with their restitution of goods taken by robbery or theft within
own property, excepting property exempt from their houses lodging therein, or the person, or for the
Finally, teachers or directors of arts trades are liable for execution, in accordance with the civil law. payment of the value thereof, provided that such
any damages caused by their pupils or apprentices guests shall have notified in advance the innkeeper
while they are under their custody. Second. In cases falling within subdivision 4 of article himself, or the person representing him, of the deposit
11, the person for whose benefit the harm has been of such goods within the inn; and shall furthermore
The liability imposed by this article shall cease in case prevented shall be civilly liable in proportion to the have followed the directions which such innkeeper or
the persons mentioned therein prove that they are benefit which they may have received. his representative may have given them with respect
exercised all the diligence of a good father of a family to the care of and vigilance over such goods. No liability
to prevent the damage. The courts shall determine, in their sound discretion, shall attach in case of robbery with violence against or
the proportionate amount for which each one shall be intimidation against or intimidation of persons unless
ART. 1904. Any person who pays for damage caused by liable. committed by the innkeeper's employees.
his employees may recover from the latter what he
may have paid. When the respective shares can not be equitably ART. 103. Subsidiary civil liability of other persons. —
determined, even approximately, or when the liability The subsidiary liability established in the next
REVISED PENAL CODE also attaches to the Government, or to the majority of preceding article shall also apply to employers,
the inhabitants of the town, and, in all events, teachers, persons, and corporations engaged in any
ART. 100. Civil liability of a person guilty of felony. — whenever the damage has been caused with the kind of industry for felonies committed by their
Every person criminally liable for a felony is also civilly consent of the authorities or their agents, servants, pupils, workmen, apprentices, or employees
liable. indemnification shall be made in the manner in the discharge of their duties.
prescribed by special laws or regulations.
ART. 101. Rules regarding civil liability in certain cases. xxx xxx xxx
— The exemption from criminal liability established in Third. In cases falling within subdivisions 5 and 6 of
subdivisions 1, 2, 3, 5, and 6 of article 12 and in article 12, the persons using violence or causing the ART. 365. Imprudence and negligence. — Any person
subdivision 4 of article 11 of this Code does not include fear shall be primarily liable and secondarily, or, if who, by reckless imprudence, shall commit any act
exemption from civil liability, which shall be enforced there be no such persons, those doing the act shall be which, had it been intentional, would constitute a
to the following rules: liable, saving always to the latter that part of their grave felony, shall suffer the penalty of arresto mayor
property exempt from execution. in its maximum period to prision correccional in its
First. In cases of subdivision, 1, 2 and 3 of article 12 the minimum period; if it would have constituted a less
civil liability for acts committed by any imbecile or ART. 102. Subsidiary civil liability of innkeepers, tavern grave felony, the penalty of arresto mayor in its
insane person, and by a person under nine years of keepers and proprietors of establishment. — In default minimum and medium periods shall be imposed.

40
 The distinctive nature of cuasi-delitos survives in the Dorado Montero in his essay on "Responsibilidad" in
Any person who, by simple imprudence or negligence, Civil Code. According to article 1089, one of the five the "Enciclopedia Juridica Española" (Vol. XXVII, p. 414)
shall commit an act which would otherwise constitute sources of obligations is this legal institution of cuasi- says:
a grave felony, shall suffer the penalty of arresto mayor delito or culpa extra-contractual: "los actos . . . en que
in its medium and maximum periods; if it would have intervenga cualquier genero de culpa o negligencia." El concepto juridico de la responsabilidad civil abarca
constituted a less serious felony, the penalty of arresto Then article 1093 provides that this kind of obligation diversos aspectos y comprende a diferentes personas.
mayor in its minimum period shall be imposed." shall be governed by Chapter II of Title XVI of Book IV, Asi, existe una responsabilidad civil propiamente
meaning articles 1902-0910. This portion of the Civil dicha, que en ningun casl lleva aparejada
It will thus be seen that while the terms of articles 1902 Code is exclusively devoted to the legal institution of responsabilidad criminal alguna, y otra que es
of the Civil Code seem to be broad enough to cover the culpa aquiliana. consecuencia indeclinable de la penal que nace de
driver's negligence in the instant case, nevertheless todo delito o falta."
article 1093 limits cuasi-delitos to acts or omissions Some of the differences between crimes under the
"not punishable by law." But inasmuch as article 365 of Penal Code and the culpa aquiliana or cuasi-delito The juridical concept of civil responsibility has various
the Revised Penal Code punishes not only reckless but under the Civil Code are: aspects and comprises different persons. Thus, there is
even simple imprudence or negligence, the fault or a civil responsibility, properly speaking, which in no
negligence under article 1902 of the Civil Code has 1. That crimes affect the public interest, while cuasi- case carries with it any criminal responsibility, and
apparently been crowded out. It is this overlapping delitos are only of private concern. another which is a necessary consequence of the penal
that makes the "confusion worse confounded." liability as a result of every felony or misdemeanor."
However, a closer study shows that such a concurrence 2. That, consequently, the Penal Code punishes or
of scope in regard to negligent acts does not destroy corrects the criminal act, while the Civil Code, by Maura, an outstanding authority, was consulted on the
the distinction between the civil liability arising from a means of indemnification, merely repairs the damage. following case: There had been a collision between two
crime and the responsibility for cuasi-delitos or culpa trains belonging respectively to the Ferrocarril
extra-contractual. The same negligent act causing 3. That delicts are not as broad as quasi-delicts, Cantabrico and the Ferrocarril del Norte. An employee
damages may produce civil liability arising from a crime because the former are punished only if there is a of the latter had been prosecuted in a criminal case, in
under article 100 of the Revised Penal Code, or create penal law clearly covering them, while the latter, cuasi- which the company had been made a party as
an action for cuasi-delito or culpa extra-contractual delitos, include all acts in which "any king of fault or subsidiarily responsible in civil damages. The employee
under articles 1902-1910 of the Civil Code. negligence intervenes." However, it should be noted had been acquitted in the criminal case, and the
that not all violations of the penal law produce civil employer, the Ferrocarril del Norte, had also been
The individuality of cuasi-delito or culpa extra- responsibility, such as begging in contravention of exonerated. The question asked was whether the
contractual looms clear and unmistakable. This legal ordinances, violation of the game laws, infraction of Ferrocarril Cantabrico could still bring a civil action for
institution is of ancient lineage, one of its early the rules of traffic when nobody is hurt. (See Colin and damages against the Ferrocarril del Norte. Maura's
ancestors being the Lex Aquilia in the Roman Law. In Capitant, "Curso Elemental de Derecho Civil," Vol. 3, p. opinion was in the affirmative, stating in part (Maura,
fact, in Spanish legal terminology, this responsibility is 728.) Dictamenes, Vol. 6, pp. 511-513):
often referred to as culpa aquiliana. The Partidas also
contributed to the genealogy of the present fault or Let us now ascertain what some jurists say on the Quedando las cosas asi, a proposito de la realidad pura
negligence under the Civil Code; for instance, Law 6, separate existence of quasi-delicts and the employer's y neta de los hechos, todavia menos parece sostenible
Title 15, of Partida 7, says: "Tenudo es de fazer primary and direct liability under article 1903 of the que exista cosa juzgada acerca de la obligacion civil de
emienda, porque, como quier que el non fizo a Civil Code. indemnizar los quebrantos y menoscabos inferidos por
sabiendas en daño al otro, pero acaescio por su culpa." el choque de los trenes. El titulo en que se funda la
accion para demandar el resarcimiento, no puede

41
confundirse con las responsabilidades civiles nacidas
de delito, siquiera exista en este, sea el cual sea, una
culpa rodeada de notas agravatorias que motivan
sanciones penales, mas o menos severas. La lesion
causada por delito o falta en los derechos civiles,
requiere restituciones, reparaciones o impone el articulo anterior es exigible, no solo por los
indemnizaciones, que cual la pena misma atañen al
orden publico; por tal motivo vienen encomendadas,
de ordinario, al Ministerio Fiscal; y claro es que si por
esta via se enmiendan los quebrantos y menoscabos,
el agraviado excusa procurar el ya conseguido
desagravio; pero esta eventual coincidencia de los
efectos, no borra la diversidad originaria de las
acciones civiles para pedir indemnizacion.
Estas, para el caso actual (prescindiendo de culpas
contractuales, que no vendrian a cuento y que tiene
otro regimen), dimanan, segun el articulo 1902 del
Codigo Civil, de toda accion u omision, causante de
daños o perjuicios, en que intervenga culpa o
negligencia. Es trivial que acciones semejantes son
ejercitadas ante los Tribunales de lo civil
cotidianamente, sin que la Justicia punitiva tenga que
mezclarse en los asuntos. Los articulos 18 al 21 y 121 al
128 del Codigo Penal, atentos al espiritu y a los fines
sociales y politicos del mismo, desenvuelven y ordenan
la materia de responsabilidades civiles nacidas de
delito, en terminos separados del regimen por ley
comun de la culpa que se denomina aquiliana, por
alusion a precedentes legislativos del Corpus Juris.
Seria intempestivo un paralelo entre aquellas
ordenaciones, y la de la obligacion de indemnizar a
titulo de culpa civil; pero viene al caso y es necesaria
una de las diferenciaciones que en el tal paralelo se
notarian.
Los articulos 20 y 21 del Codigo Penal, despues de
distribuir a su modo las responsabilidades civiles, entre
los que sean por diversos conceptos culpables del
delito o falta, las hacen extensivas a las empresas y los
establecimientos al servicio de los cuales estan los
delincuentes; pero con caracter subsidiario, o sea,
segun el texto literal, en defecto de los que sean
responsables criminalmente. No coincide en ello el
Codigo Civil, cuyo articulo 1903, dice; La obligacion que
actos y omisiones propios, sino por los de aquellas
personas de quienes se debe responder; personas en
la enumeracion de las cuales figuran los dependientes
y empleados de los establecimientos o empresas, sea
por actos del servicio, sea con ocasion de sus
funciones. Por esto acontece, y se observa en la
jurisprudencia, que las empresas, despues de
intervenir en las causas criminales con el caracter
subsidiario de su responsabilidad civil por razon del
delito, son demandadas y condenadas directa y
aisladamente, cuando se trata de la obligacion, ante los
tribunales civiles.
Siendo como se ve, diverso el titulo de esta obligacion,
y formando verdadero postulado de nuestro regimen
judicial la separacion entre justicia punitiva y
tribunales de lo civil, de suerte que tienen unos y otros
normas de fondo en distintos cuerpos legales, y
diferentes modos de proceder, habiendose, por
añadidura, abstenido de asistir al juicio criminal la
Compañia del Ferrocarril Cantabrico, que se reservo
ejercitar sus acciones, parece innegable que la de
indemnizacion por los daños y perjuicios que le irrogo
el choque, no estuvo sub judice ante el Tribunal del
Jurado, ni fue sentenciada, sino que permanecio
intacta, al pronunciarse el fallo de 21 de marzo. Aun
cuando el veredicto no hubiese sido de inculpabilidad,
mostrose mas arriba, que tal accion quedaba
legitimamente reservada para despues del proceso;
pero al declararse que no existio delito, ni
responsabilidad dimanada de delito, materia unica
sobre que tenian jurisdiccion aquellos juzgadores, se
redobla el motivo para la obligacion civil ex lege, y se
patentiza mas y mas que la accion para pedir su
cumplimiento permanece incolume, extraña a la cosa
juzgada.
As things are, apropos of the reality pure and simple of
the facts, it seems less tenable that there should be res
judicata with regard to the civil obligation for damages
on account of the losses caused by the collision of the
trains. The title upon which the action for reparation is
based cannot be confused with the civil responsibilities
born of a crime, because there exists in the latter,
whatever each nature, a culpa surrounded with
aggravating aspects which give rise to penal measures
that are more or less severe. The injury caused by a
felony or misdemeanor upon civil rights requires
restitutions, reparations, or indemnifications which,
like the penalty itself, affect public order; for this
reason, they are ordinarily entrusted to the office of
the prosecuting attorney; and it is clear that if by this
means the losses and damages are repaired, the
injured party no longer desires to seek another relief;
but this coincidence of effects does not eliminate the
peculiar nature of civil actions to ask for indemnity.
Such civil actions in the present case (without referring
to contractual faults which are not pertinent and
belong to another scope) are derived, according to
article 1902 of the Civil Code, from every act or
omission causing losses and damages in which culpa or
negligence intervenes. It is unimportant that such
actions are every day filed before the civil courts
without the criminal courts interfering therewith.
Articles 18 to 21 and 121 to 128 of the Penal Code,
bearing in mind the spirit and the social and political
purposes of that Code, develop and regulate the
matter of civil responsibilities arising from a crime,
separately from the regime under common law, of
culpa which is known as aquiliana, in accordance with
legislative precedent of the Corpus Juris. It would be
unwarranted to make a detailed comparison between
the former provisions and that regarding the obligation
42
to indemnify on account of civil culpa; but it is
pertinent and necessary to point out to one of such
differences.
Articles 20 and 21 of the Penal Code, after distriburing
in their own way the civil responsibilities among those
who, for different reasons, are guilty of felony or
misdemeanor, make such civil responsibilities
applicable to enterprises and establishments for which
the guilty parties render service, but with subsidiary
character, that is to say, according to the wording of
the Penal Code, in default of those who are criminally
responsible. In this regard, the Civil Code does not
coincide because article 1903 says: "The obligation
imposed by the next preceding article is demandable,
not only for personal acts and omissions, but also for
those of persons for whom another is responsible."
Among the persons enumerated are the subordinates
and employees of establishments or enterprises,
either for acts during their service or on the occasion
of their functions. It is for this reason that it happens,
and it is so observed in judicial decisions, that the
companies or enterprises, after taking part in the
criminal cases because of their subsidiary civil
responsibility by reason of the crime, are sued and
sentenced directly and separately with regard to the
obligation, before the civil courts.
Seeing that the title of this obligation is different, and
the separation between punitive justice and the civil
courts being a true postulate of our judicial system, so
that they have different fundamental norms in
different codes, as well as different modes of
procedure, and inasmuch as the Compaña del
Ferrocarril Cantabrico has abstained from taking part
in the criminal case and has reserved the right to
exercise its actions, it seems undeniable that the action
for indemnification for the losses and damages caused
to it by the collision was not sub judice before the
Tribunal del Jurado, nor was it the subject of a
sentence, but it remained intact when the decision of por las que se debe responder, es subsidiaria? es
March 21 was rendered. Even if the verdict had not principal? Para contestar a esta pregunta es necesario
been that of acquittal, it has already been shown that saber, en primer lugar, en que se funda el precepto
such action had been legitimately reserved till after the legal. Es que realmente se impone una responsabilidad
criminal prosecution; but because of the declaration of por una falta ajena? Asi parece a primera vista; pero
the non-existence of the felony and the non-existence semejante afirmacion seria contraria a la justicia y a la
of the responsibility arising from the crime, which was maxima universal, segun la que las faltas son
the sole subject matter upon which the Tribunal del personales, y cada uno responde de aquellas que le son
Jurado had jurisdiction, there is greater reason for the imputables. La responsabilidad de que tratamos se
civil obligation ex lege, and it becomes clearer that the impone con ocasion de un delito o culpa, pero no por
action for its enforcement remain intact and is not res causa de ellos, sino por causa del causi delito, esto es,
judicata. de la imprudencia o de la negligencia del padre, del
tutor, del dueño o director del establecimiento, del
Laurent, a jurist who has written a monumental work maestro, etc. Cuando cualquiera de las personas que
on the French Civil Code, on which the Spanish Civil enumera el articulo citado (menores de edad,
Code is largely based and whose provisions on cuasi- incapacitados, dependientes, aprendices) causan un
delito or culpa extra-contractual are similar to those of daño, la ley presume que el padre, el tutor, el maestro,
the Spanish Civil Code, says, referring to article 1384 of etc., han cometido una falta de negligencia para
the French Civil Code which corresponds to article prevenir o evitar el daño. Esta falta es la que la ley
1903, Spanish Civil Code: castiga. No hay, pues, responsabilidad por un hecho
ajeno, sino en la apariencia; en realidad la
The action can be brought directly against the person responsabilidad se exige por un hecho propio. La idea
responsible (for another), without including the author de que esa responsabilidad sea subsidiaria es, por lo
of the act. The action against the principal is accessory tanto, completamente inadmisible.
in the sense that it implies the existence of a prejudicial
act committed by the employee, but it is not subsidiary Question No. 1. Is the responsibility declared in article
in the sense that it can not be instituted till after the 1903 for the acts or omissions of those persons for who
judgment against the author of the act or at least, that one is responsible, subsidiary or principal? In order to
it is subsidiary to the principal action; the action for answer this question it is necessary to know, in the first
responsibility (of the employer) is in itself a principal place, on what the legal provision is based. Is it true
action. (Laurent, Principles of French Civil Law, Spanish that there is a responsibility for the fault of another
translation, Vol. 20, pp. 734-735.) person? It seems so at first sight; but such assertion
would be contrary to justice and to the universal
Amandi, in his "Cuestionario del Codigo Civil maxim that all faults are personal, and that everyone is
Reformado" (Vol. 4, pp. 429, 430), declares that the liable for those faults that can be imputed to him. The
responsibility of the employer is principal and not responsibility in question is imposed on the occasion of
subsidiary. He writes: a crime or fault, but not because of the same, but
because of the cuasi-delito, that is to say, the
Cuestion 1. La responsabilidad declarada en el articulo imprudence or negligence of the father, guardian,
1903 por las acciones u omisiones de aquellas personas proprietor or manager of the establishment, of the
43
teacher, etc. Whenever anyone of the persons
enumerated in the article referred to (minors,
incapacitated persons, employees, apprentices) causes
any damage, the law presumes that the father,
guardian, teacher, etc. have committed an act of
negligence in not preventing or avoiding the damage.
It is this fault that is condemned by the law. It is,
therefore, only apparent that there is a responsibility
for the act of another; in reality the responsibility
exacted is for one's own act. The idea that such
responsibility is subsidiary is, therefore, completely
inadmissible.
Oyuelos, in his "Digesto: Principios, Doctrina y
Jurisprudencia, Referentes al Codigo Civil Español,"
says in Vol. VII, p. 743:
Es decir, no responde de hechos ajenos, porque se
responde solo de su propia culpa, doctrina del articulo
1902; mas por excepcion, se responde de la ajena
respecto de aquellas personas con las que media algun
nexo o vinculo, que motiva o razona la responsabilidad.
Esta responsabilidad, es directa o es subsidiaria? En el
orden penal, el Codigo de esta clase distingue entre
menores e incapacitados y los demas, declarando
directa la primera (articulo 19) y subsidiaria la segunda
(articulos 20 y 21); pero en el orden civil, en el caso del
articulo 1903, ha de entenderse directa, por el tenor
del articulo que impone la responsabilidad
precisamente "por los actos de aquellas personas de
quienes se deba responder."
That is to say, one is not responsible for the acts of
others, because one is liable only for his own faults,
this being the doctrine of article 1902; but, by
exception, one is liable for the acts of those persons
with whom there is a bond or tie which gives rise to the
responsibility. Is this responsibility direct or subsidiary?
In the order of the penal law, the Penal Code
distinguishes between minors and incapacitated
persons on the one hand, and other persons on the
other, declaring that the responsibility for the former
is direct (article 19), and for the latter, subsidiary
(articles 20 and 21); but in the scheme of the civil law,
in the case of article 1903, the responsibility should be
understood as direct, according to the tenor of that
articles, for precisely it imposes responsibility "for the
acts of those persons for whom one should be
responsible."
Coming now to the sentences of the Supreme Tribunal
of Spain, that court has upheld the principles above set
forth: that a quasi-delict or culpa extra-contractual is a
separate and distinct legal institution, independent
from the civil responsibility arising from criminal
liability, and that an employer is, under article 1903 of
the Civil Code, primarily and directly responsible for
the negligent acts of his employee.
One of the most important of those Spanish decisions
is that of October 21, 1910. In that case, Ramon
Lafuente died as the result of having been run over by
a street car owned by the "compañia Electric
Madrileña de Traccion." The conductor was
prosecuted in a criminal case but he was acquitted.
Thereupon, the widow filed a civil action against the
street car company, paying for damages in the amount
of 15,000 pesetas. The lower court awarded damages;
so the company appealed to the Supreme Tribunal,
alleging violation of articles 1902 and 1903 of the Civil
Code because by final judgment the non-existence of
fault or negligence had been declared. The Supreme
Court of Spain dismissed the appeal, saying:
Considerando que el primer motivo del recurso se
funda en el equivocado supuesto de que el Tribunal a
quo, al condonar a la compañia Electrica Madrileña al
pago del daño causado con la muerte de Ramon La
fuente Izquierdo, desconoce el valor y efectos juridicos
de la sentencia absolutoria deictada en la causa
criminal que se siguio por el mismo hecho, cuando es
lo cierto que de este han conocido las dos
jurisdicciones bajo diferentes as pectos, y como la de
lo criminal declrao dentro de los limites de su
competencia que el hecho de que se trata no era
constitutivo de delito por no haber mediado descuido
o negligencia graves, lo que no excluye, siendo este el
unico fundamento del fallo absolutorio, el concurso de
la culpa o negligencia no califacadas, fuente de
obligaciones civiles segun el articulo 1902 del Codigo,
y que alcanzan, segun el 1903, netre otras perosnas, a
los Directores de establecimientos o empresas por los
daños causados por sus dependientes en
determinadas condiciones, es manifesto que la de lo
civil, al conocer del mismo hehco baho este ultimo
aspecto y al condenar a la compañia recurrente a la
indemnizacion del daño causado por uno de sus
empleados, lejos de infringer los mencionados textos,
en relacion con el articulo 116 de la Ley de
Enjuciamiento Criminal, se ha atenido estrictamente a
ellos, sin invadir atribuciones ajenas a su jurisdiccion
propia, ni contrariar en lo mas minimo el fallo recaido
en la causa.
Considering that the first ground of the appeal is based
on the mistaken supposition that the trial court, in
sentencing the Compañia Madrileña to the payment of
the damage caused by the death of Ramon Lafuente
Izquierdo, disregards the value and juridical effects of
the sentence of acquittal rendered in the criminal case
instituted on account of the same act, when it is a fact
that the two jurisdictions had taken cognizance of the
same act in its different aspects, and as the criminal
jurisdiction declared within the limits of its authority
that the act in question did not constitute a felony
because there was no grave carelessness or
negligence, and this being the only basis of acquittal, it
does no exclude the co-existence of fault or negligence
which is not qualified, and is a source of civil
obligations according to article 1902 of the Civil Code,
44
affecting, in accordance with article 1903, among other
persons, the managers of establishments or
enterprises by reason of the damages caused by
employees under certain conditions, it is manifest that
the civil jurisdiccion in taking cognizance of the same
act in this latter aspect and in ordering the company,
appellant herein, to pay an indemnity for the damage
caused by one of its employees, far from violating said
legal provisions, in relation with article 116 of the Law
of Criminal Procedure, strictly followed the same,
without invading attributes which are beyond its own
jurisdiction, and without in any way contradicting the
decision in that cause. (Emphasis supplied.)
It will be noted, as to the case just cited:
First. That the conductor was not sued in a civil case,
either separately or with the street car company. This
is precisely what happens in the present case: the
driver, Fontanilla, has not been sued in a civil action,
either alone or with his employer.
Second. That the conductor had been acquitted of
grave criminal negligence, but the Supreme Tribunal of
Spain said that this did not exclude the co-existence of
fault or negligence, which is not qualified, on the part
of the conductor, under article 1902 of the Civil Code.
In the present case, the taxi driver was found guilty of
criminal negligence, so that if he had even sued for his
civil responsibility arising from the crime, he would
have been held primarily liable for civil damages, and
Barredo would have been held subsidiarily liable for
the same. But the plaintiffs are directly suing Barredo,
on his primary responsibility because of his own
presumed negligence — which he did not overcome —
under article 1903. Thus, there were two liabilities of
Barredo: first, the subsidiary one because of the civil
liability of the taxi driver arising from the latter's
criminal negligence; and, second, Barredo's primary
liability as an employer under article 1903. The
plaintiffs were free to choose which course to take, and
they preferred the second remedy. In so doing, they
were acting within their rights. It might be observed in
passing, that the plaintiff choose the more expeditious
and effective method of relief, because Fontanilla was
either in prison, or had just been released, and besides,
he was probably without property which might be
seized in enforcing any judgment against him for
damages.
Third. That inasmuch as in the above sentence of
October 21, 1910, the employer was held liable civilly,
notwithstanding the acquittal of the employee (the
conductor) in a previous criminal case, with greater
reason should Barredo, the employer in the case at
bar, be held liable for damages in a civil suit filed
against him because his taxi driver had been convicted.
The degree of negligence of the conductor in the
Spanish case cited was less than that of the taxi driver,
Fontanilla, because the former was acquitted in the
previous criminal case while the latter was found guilty
of criminal negligence and was sentenced to an
indeterminate sentence of one year and one day to
two years of prision correccional.
(See also Sentence of February 19, 1902, which is
similar to the one above quoted.)
In the Sentence of the Supreme Court of Spain, dated
February 14, 1919, an action was brought against a
railroad company for damages because the station
agent, employed by the company, had unjustly and
fraudulently, refused to deliver certain articles
consigned to the plaintiff. The Supreme Court of Spain
held that this action was properly under article 1902 of
the Civil Code, the court saying:
Considerando que la sentencia discutida reconoce, en
virtud de los hechos que consigna con relacion a las
pruebas del pleito: 1.º, que las expediciones facturadas
por la compañia ferroviaria a la consignacion del actor
de las vasijas vacias que en su demanda relacionan
tenian como fin el que este las devolviera a sus
remitentes con vinos y alcoholes; 2.º, que llegadas a su
destino tales mercanias no se quisieron entregar a
dicho consignatario por el jefe de la estacion sin motivo
justificado y con intencion dolosa, y 3.º, que la falta de
entrega de estas expediciones al tiempo de
reclamarlas el demandante le originaron daños y
perjuicios en cantidad de bastante importancia como
expendedor al por mayor que era de vinos y alcoholes
por las ganancias que dejo de obtener al verse privado
de servir los pedidos que se le habian hecho por los
remitentes en los envases:
Considerando que sobre esta base hay necesidad de
estimar los cuatro motivos que integran este recurso,
porque la demanda inicial del pleito a que se contrae
no contiene accion que nazca del incumplimiento del
contrato de transporte, toda vez que no se funda en el
retraso de la llegada de las mercancias ni de ningun
otro vinculo contractual entre las partes
contendientes, careciendo, por tanto, de aplicacion el
articulo 371 del Codigo de Comercio, en que
principalmente descansa el fallo recurrido, sino que se
limita a pedir la reparaction de los daños y perjuicios
producidos en el patrimonio del actor por la
injustificada y dolosa negativa del porteador a la
entrega de las mercancias a su nombre consignadas,
segun lo reconoce la sentencia, y cuya responsabilidad
esta claramente sancionada en el articulo 1902 del
Codigo Civil, que obliga por el siguiente a la Compañia
demandada como ligada con el causante de aquellos
por relaciones de caracter economico y de jurarquia
administrativa.
Considering that the sentence, in question recognizes,
in virtue of the facts which it declares, in relation to the
evidence in the case: (1) that the invoice issued by the
railroad company in favor of the plaintiff contemplated
45
that the empty receptacles referred to in the complaint
should be returned to the consignors with wines and
liquors; (2) that when the said merchandise reached
their destination, their delivery to the consignee was
refused by the station agent without justification and
with fraudulent intent, and (3) that the lack of delivery
of these goods when they were demanded by the
plaintiff caused him losses and damages of
considerable importance, as he was a wholesale
vendor of wines and liquors and he failed to realize the
profits when he was unable to fill the orders sent to
him by the consignors of the receptacles:
Considering that upon this basis there is need of
upholding the four assignments of error, as the original
complaint did not contain any cause of action arising
from non-fulfillment of a contract of transportation,
because the action was not based on the delay of the
goods nor on any contractual relation between the
parties litigant and, therefore, article 371 of the Code
of Commerce, on which the decision appealed from is
based, is not applicable; but it limits to asking for
reparation for losses and damages produced on the
patrimony of the plaintiff on account of the unjustified
and fraudulent refusal of the carrier to deliver the
goods consigned to the plaintiff as stated by the
sentence, and the carrier's responsibility is clearly laid
down in article 1902 of the Civil Code which binds, in
virtue of the next article, the defendant company,
because the latter is connected with the person who
caused the damage by relations of economic character
and by administrative hierarchy. (Emphasis supplied.)
The above case is pertinent because it shows that the
same act may come under both the Penal Code and the
Civil Code. In that case, the action of the agent was
unjustified and fraudulent and therefore could have
been the subject of a criminal action. And yet, it was
held to be also a proper subject of a civil action under
article 1902 of the Civil Code. It is also to be noted that
it was the employer and not the employee who was
being sued.
Let us now examine the cases previously decided by
this Court.
In the leading case of Rakes vs. Atlantic Gulf and Pacific
Co. (7 Phil., 359, 362-365 [year 1907]), the trial court
awarded damages to the plaintiff, a laborer of the
defendant, because the latter had negligently failed to
repair a tramway in consequence of which the rails slid
off while iron was being transported, and caught the
plaintiff whose leg was broken. This Court held:
It is contended by the defendant, as its first defense to
the action that the necessary conclusion from these
collated laws is that the remedy for injuries through
negligence lies only in a criminal action in which the
official criminally responsible must be made primarily
liable and his employer held only subsidiarily to him.
According to this theory the plaintiff should have
procured the arrest of the representative of the
company accountable for not repairing the track, and
on his prosecution a suitable fine should have been
imposed, payable primarily by him and secondarily by
his employer.
This reasoning misconceived the plan of the Spanish
codes upon this subject. Article 1093 of the Civil Code
makes obligations arising from faults or negligence not
punished by the law, subject to the provisions of
Chapter II of Title XVI. Section 1902 of that chapter
reads:
"A person who by an act or omission causes damage to
another when there is fault or negligence shall be
obliged to repair the damage so done.
"SEC. 1903. The obligation imposed by the preceeding
article is demandable, not only for personal acts and
omissions, but also for those of the persons for whom
they should be responsible.
"The father, and on his death or incapacity, the
mother, is liable for the damages caused by the minors
who live with them.
xxx xxx xxx
"Owners or directors of an establishment or enterprise
are equally liable for the damages caused by their
employees in the service of the branches in which the
latter may be employed or in the performance of their
duties.
xxx xxx xxx
"The liability referred to in this article shall cease when
the persons mentioned therein prove that they
employed all the diligence of a good father of a family
to avoid the damage."
As an answer to the argument urged in this particular
action it may be sufficient to point out that nowhere in
our general statutes is the employer penalized for
failure to provide or maintain safe appliances for his
workmen. His obligation therefore is one 'not punished
by the laws' and falls under civil rather than criminal
jurisprudence. But the answer may be a broader one.
We should be reluctant, under any conditions, to adopt
a forced construction of these scientific codes, such as
is proposed by the defendant, that would rob some of
these articles of effect, would shut out litigants against
their will from the civil courts, would make the
assertion of their rights dependent upon the selection
for prosecution of the proper criminal offender, and
render recovery doubtful by reason of the strict rules
of proof prevailing in criminal actions. Even if these
articles had always stood alone, such a construction
would be unnecessary, but clear light is thrown upon
46
their meaning by the provisions of the Law of Criminal This construction renders it unnecessary to finally by the defendant. The trial court rendered judgment
Procedure of Spain (Ley de Enjuiciamiento Criminal), determine here whether this subsidiary civil liability in requiring the defendant to pay the plaintiff the sum of
which, though never in actual force in these Islands, penal actions has survived the laws that fully regulated P1,000 as indemnity: This Court in affirming the
was formerly given a suppletory or explanatory effect. it or has been abrogated by the American civil and judgment, said in part:
Under article 111 of this law, both classes of action, criminal procedure now in force in the Philippines.
civil and criminal, might be prosecuted jointly or If it were true that the defendant, in coming from the
separately, but while the penal action was pending the The difficulty in construing the articles of the code southern part of Solana Street, had to stop his auto
civil was suspended. According to article 112, the penal above cited in this case appears from the briefs before before crossing Real Street, because he had met
action once started, the civil remedy should be sought us to have arisen from the interpretation of the words vehicles which were going along the latter street or
therewith, unless it had been waived by the party of article 1093, "fault or negligence not punished by were coming from the opposite direction along Solana
injured or been expressly reserved by him for civil law," as applied to the comprehensive definition of Street, it is to be believed that, when he again started
proceedings for the future. If the civil action alone was offenses in articles 568 and 590 of the Penal Code. It to run his auto across said Real Street and to continue
prosecuted, arising out of a crime that could be has been shown that the liability of an employer arising its way along Solana Street northward, he should have
enforced only on private complaint, the penal action out of his relation to his employee who is the offender adjusted the speed of the auto which he was operating
thereunder should be extinguished. These provisions is not to be regarded as derived from negligence until he had fully crossed Real Street and had
are in harmony with those of articles 23 and 133 of our punished by the law, within the meaning of articles completely reached a clear way on Solana Street. But,
Penal Code on the same subject. 1902 and 1093. More than this, however, it cannot be as the child was run over by the auto precisely at the
said to fall within the class of acts unpunished by the entrance of Solana Street, this accident could not have
An examination of this topic might be carried much law, the consequence of which are regulated by occurred if the auto had been running at a slow speed,
further, but the citation of these articles suffices to articles 1902 and 1903 of the Civil Code. The acts to aside from the fact that the defendant, at the moment
show that the civil liability was not intended to be which these articles are applicable are understood to of crossing Real Street and entering Solana Street, in a
merged in the criminal nor even to be suspended be those not growing out of pre-existing duties of the northward direction, could have seen the child in the
thereby, except as expressly provided in the law. parties to one another. But where relations already act of crossing the latter street from the sidewalk on
Where an individual is civilly liable for a negligent act formed give rise to duties, whether springing from the right to that on the left, and if the accident had
or omission, it is not required that the injured party contract or quasi contract, then breaches of those occurred in such a way that after the automobile had
should seek out a third person criminally liable whose duties are subject to articles 1101, 1103, and 1104 of run over the body of the child, and the child's body had
prosecution must be a condition precedent to the the same code. A typical application of this distinction already been stretched out on the ground, the
enforcement of the civil right. may be found in the consequences of a railway automobile still moved along a distance of about 2
accident due to defective machinery supplied by the meters, this circumstance shows the fact that the
Under article 20 of the Penal Code the responsibility of employer. His liability to his employee would arise out automobile entered Solana Street from Real Street, at
an employer may be regarded as subsidiary in respect of the contract of employment, that to the passengers a high speed without the defendant having blown the
of criminal actions against his employees only while out of the contract for passage, while that to the horn. If these precautions had been taken by the
they are in process of prosecution, or in so far as they injured bystander would originate in the negligent act defendant, the deplorable accident which caused the
determine the existence of the criminal act from which itself. death of the child would not have occurred.
liability arises, and his obligation under the civil law
and its enforcement in the civil courts is not barred In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), It will be noticed that the defendant in the above case
thereby unless by the election of the injured person. the mother of the 8 of 9-year-old child Salvador Bona could have been prosecuted in a criminal case because
Inasmuch as no criminal proceeding had been brought a civil action against Moreta to recover his negligence causing the death of the child was
instituted, growing our of the accident in question, the damages resulting from the death of the child, who had punishable by the Penal Code. Here is therefore a clear
provisions of the Penal Code can not affect this action. been run over by an automobile driven and managed instance of the same act of negligence being a proper

47
subject-matter either of a criminal action with its
consequent civil liability arising from a crime or of an
entirely separate and independent civil action for fault
or negligence under article 1902 of the Civil Code.
Thus, in this jurisdiction, the separate individually of a
cuasi-delito or culpa aquiliana under the Civil Code has
been fully and clearly recognized, even with regard to
a negligent act for which the wrongdoer could have
been prosecuted and convicted in a criminal case and
for which, after such a conviction, he could have been
sued for this civil liability arising from his crime.
Years later (in 1930) this Court had another occasion to
apply the same doctrine. In Bernal and Enverso vs.
House and Tacloban Electric & Ice Plant, Ltd., 54 Phil.,
327, the parents of the five-year-old child, Purificacion
Bernal, brought a civil action to recover damages for
the child's death as a result of burns caused by the fault
and negligence of the defendants. On the evening of
April 10, 1925, the Good Friday procession was held in
Tacloban, Leyte. Fortunata Enverso with her daughter
Purificacion Bernal had come from another
municipality to attend the same. After the procession
the mother and the daughter with two others were
passing along Gran Capitan Street in front of the offices
of the Tacloban Electric & Ice Plant, Ltd., owned by
defendants J. V. House, when an automobile appeared
from the opposite direction. The little girl, who was
slightly ahead of the rest, was so frightened by the
automobile that she turned to run, but unfortunately
she fell into the street gutter where hot water from the
electric plant was flowing. The child died that same
night from the burns. The trial courts dismissed the
action because of the contributory negligence of the
plaintiffs. But this Court held, on appeal, that there was
no contributory negligence, and allowed the parents
P1,000 in damages from J. V. House who at the time of
the tragic occurrence was the holder of the franchise
for the electric plant. This Court said in part:
Although the trial judge made the findings of fact
hereinbefore outlined, he nevertheless was led to
order the dismissal of the action because of the
contributory negligence of the plaintiffs. It is from this
point that a majority of the court depart from the stand
taken by the trial judge. The mother and her child had
a perfect right to be on the principal street of Tacloban,
Leyte, on the evening when the religious procession
was held. There was nothing abnormal in allowing the
child to run along a few paces in advance of the
mother. No one could foresee the coincidence of an
automobile appearing and of a frightened child
running and falling into a ditch filled with hot water.
The doctrine announced in the much debated case of
Rakes vs. Atlantic Gulf and Pacific Co. ([1907]), 7 Phil.,
359), still rule. Article 1902 of the Civil Code must again
be enforced. The contributory negligence of the child
and her mother, if any, does not operate as a bar to
recovery, but in its strictest sense could only result in
reduction of the damages.
It is most significant that in the case just cited, this
Court specifically applied article 1902 of the Civil Code.
It is thus that although J. V. House could have been
criminally prosecuted for reckless or simple negligence
and not only punished but also made civilly liable
because of his criminal negligence, nevertheless this
Court awarded damages in an independent civil action
for fault or negligence under article 1902 of the Civil
Code.
In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year
1915), the action was for damages for the death of the
plaintiff's daughter alleged to have been caused by the
negligence of the servant in driving an automobile over
the child. It appeared that the cause of the mishap was
a defect in the steering gear. The defendant Leynes had
rented the automobile from the International Garage
of Manila, to be used by him in carrying passengers
during the fiesta of Tuy, Batangas. Leynes was ordered
by the lower court to pay P1,000 as damages to the
plaintiff. On appeal this Court reversed the judgment
as to Leynes on the ground that he had shown that the
exercised the care of a good father of a family, thus
overcoming the presumption of negligence under
article 1903. This Court said:
As to selection, the defendant has clearly shown that
he exercised the care and diligence of a good father of
a family. He obtained the machine from a reputable
garage and it was, so far as appeared, in good
condition. The workmen were likewise selected from a
standard garage, were duly licensed by the
Government in their particular calling, and apparently
thoroughly competent. The machine had been used
but a few hours when the accident occurred and it is
clear from the evidence that the defendant had no
notice, either actual or constructive, of the defective
condition of the steering gear.
The legal aspect of the case was discussed by this Court
thus:
Article 1903 of the Civil Code not only establishes
liability in cases of negligence, but also provides when
the liability shall cease. It says:
"The liability referred to in this article shall cease when
the persons mentioned therein prove that they
employed all the diligence of a good father of a family
to avoid the damage."
From this article two things are apparent: (1) That
when an injury is caused by the negligence of a servant
or employee there instantly arises a presumption of
law that there was negligence on the part of the matter
or employer either in the selection of the servant or
employee, or in supervision over him after the
selection, or both; and (2) that presumption is juris
tantum and not juris et de jure, and consequently, may
48
be rebutted. It follows necessarily that if the employer Sixto Eustaquio, the motorman, was prosecuted for
shows to the satisfaction of the court that in selection The basis of civil law liability is not respondent superior the crime of damage to property and slight injuries
and supervision he has exercised the care and diligence but the relationship of pater familias. This theory bases through reckless imprudence. He was found guilty and
of a good father of a family, the presumption is the liability of the master ultimately on his own sentenced to pay a fine of P900, to indemnify the City
overcome and he is relieve from liability. negligence and not on that of his servant. (Bahia vs. of Manila for P1,788.27, with subsidiary imprisonment
Litonjua and Leynes [1915], 30 Phil., 624; Cangco vs. in case of insolvency. Unable to collect the indemnity
This theory bases the responsibility of the master Manila Railroad Co. [1918], 38 Phil., 768.) from Eustaquio, the City of Manila filed an action
ultimately on his own negligence and not on that of his against the Manila Electric Company to obtain
servant. In Walter A. Smith & Co. vs. Cadwallader Gibson payment, claiming that the defendant was subsidiarily
Lumber Co., 55 Phil., 517 (year 1930) the plaintiff liable. The main defense was that the defendant had
The doctrine of the case just cited was followed by this brought an action for damages for the demolition of its exercised the diligence of a good father of a family to
Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In the wharf, which had been struck by the steamer Helen C prevent the damage. The lower court rendered
latter case, the complaint alleged that the defendant's belonging to the defendant. This Court held (p. 526): judgment in favor of the plaintiff. This Court held, in
servant had so negligently driven an automobile, which part, that this case was governed by the Penal Code,
was operated by defendant as a public vehicle, that The evidence shows that Captain Lasa at the time the saying:
said automobile struck and damaged the plaintiff's plaintiff's wharf collapsed was a duly licensed captain,
motorcycle. This Court, applying article 1903 and authorized to navigate and direct a vessel of any With this preliminary point out of the way, there is no
following the rule in Bahia vs. Litonjua and Leynes, said tonnage, and that the appellee contracted his services escaping the conclusion that the provisions of the
in part (p. 41) that: because of his reputation as a captain, according to F. Penal Code govern. The Penal Code in easily
C. Cadwallader. This being so, we are of the opinion understandable language authorizes the
The master is liable for the negligent acts of his servant that the presumption of liability against the defendant determination of subsidiary liability. The Civil Code
where he is the owner or director of a business or has been overcome by the exercise of the care and negatives its application by providing that civil
enterprise and the negligent acts are committed while diligence of a good father of a family in selecting obligations arising from crimes or misdemeanors shall
the servant is engaged in his master's employment as Captain Lasa, in accordance with the doctrines laid be governed by the provisions of the Penal Code. The
such owner. down by this court in the cases cited above, and the conviction of the motorman was a misdemeanor falling
defendant is therefore absolved from all liability. under article 604 of the Penal Code. The act of the
Another case which followed the decision in Bahia vs. motorman was not a wrongful or negligent act or
Litonjua and Leynes was Cuison vs. Norton & Harrison It is, therefore, seen that the defendant's theory about omission not punishable by law. Accordingly, the civil
Co., 55 Phil., 18 (year 1930). The latter case was an his secondary liability is negatived by the six cases obligation connected up with the Penal Code and not
action for damages brought by Cuison for the death of above set forth. He is, on the authority of these cases, with article 1903 of the Civil Code. In other words, the
his seven-year-old son Moises. The little boy was on his primarily and directly responsible in damages under Penal Code affirms its jurisdiction while the Civil Code
way to school with his sister Marciana. Some large article 1903, in relation to article 1902, of the Civil negatives its jurisdiction. This is a case of criminal
pieces of lumber fell from a truck and pinned the boy Code. negligence out of which civil liability arises and not a
underneath, instantly killing him. Two youths, case of civil negligence.
Telesforo Binoya and Francisco Bautista, who were Let us now take up the Philippine decisions relied upon
working for Ora, an employee of defendant Norton & by the defendant. We study first, City of Manila vs. xxx xxx xxx
Harrison Co., pleaded guilty to the crime of homicide Manila Electric Co., 52 Phil., 586 (year 1928). A collision
through reckless negligence and were sentenced between a truck of the City of Manila and a street car Our deduction, therefore, is that the case relates to the
accordingly. This Court, applying articles 1902 and of the Manila Electric Co. took place on June 8, 1925. Penal Code and not to the Civil Code. Indeed, as
1903, held: The truck was damaged in the amount of P1,788.27. pointed out by the trial judge, any different ruling

49
would permit the master to escape scot-free by simply
alleging and proving that the master had exercised all
diligence in the selection and training of its servants to
prevent the damage. That would be a good defense to
a strictly civil action, but might or might not be to a civil
action either as a part of or predicated on conviction
for a crime or misdemeanor. (By way of parenthesis, it
may be said further that the statements here made are
offered to meet the argument advanced during our
deliberations to the effect that article 0902 of the Civil
Code should be disregarded and codal articles 1093
and 1903 applied.)
It is not clear how the above case could support the
defendant's proposition, because the Court of Appeals
based its decision in the present case on the
defendant's primary responsibility under article 1903
of the Civil Code and not on his subsidiary liability
arising from Fontanilla's criminal negligence. In other
words, the case of City of Manila vs. Manila Electric Co.,
supra, is predicated on an entirely different theory,
which is the subsidiary liability of an employer arising
from a criminal act of his employee, whereas the
foundation of the decision of the Court of Appeals in
the present case is the employer's primary liability
under article 1903 of the Civil Code. We have already
seen that this is a proper and independent remedy.
Arambulo vs. Manila Electric Co. (55 Phil., 75), is
another case invoked by the defendant. A motorman
in the employ of the Manila Electric Company had been
convicted o homicide by simple negligence and
sentenced, among other things, to pay the heirs of the
deceased the sum of P1,000. An action was then
brought to enforce the subsidiary liability of the
defendant as employer under the Penal Code. The
defendant attempted to show that it had exercised the
diligence of a good father of a family in selecting the
motorman, and therefore claimed exemption from
civil liability. But this Court held:
In view of the foregoing considerations, we are of
opinion and so hold, (1) that the exemption from civil
liability established in article 1903 of the Civil Code for
all who have acted with the diligence of a good father
of a family, is not applicable to the subsidiary civil
liability provided in article 20 of the Penal Code.
The above case is also extraneous to the theory of the
defendant in the instant case, because the action there
had for its purpose the enforcement of the defendant's
subsidiary liability under the Penal Code, while in the
case at bar, the plaintiff's cause of action is based on
the defendant's primary and direct responsibility
under article 1903 of the Civil Code. In fact, the above
case destroys the defendant's contention because that
decision illustrates the principle that the employer's
primary responsibility under article 1903 of the Civil
Code is different in character from his subsidiary
liability under the Penal Code.
In trying to apply the two cases just referred to,
counsel for the defendant has failed to recognize the
distinction between civil liability arising from a crime,
which is governed by the Penal Code, and the
responsibility for cuasi-delito or culpa aquiliana under
the Civil Code, and has likewise failed to give the
importance to the latter type of civil action.
The defendant-petitioner also cites Francisco vs.
Onrubia (46 Phil., 327). That case need not be set forth.
Suffice it to say that the question involved was also civil
liability arising from a crime. Hence, it is as inapplicable
as the two cases above discussed.
The foregoing authorities clearly demonstrate the
separate individuality of cuasi-delitos or culpa
aquiliana under the Civil Code. Specifically they show
that there is a distinction between civil liability arising
from criminal negligence (governed by the Penal Code)
and responsibility for fault or negligence under articles
1902 to 1910 of the Civil Code, and that the same
negligent act may produce either a civil liability arising
from a crime under the Penal Code, or a separate
responsibility for fault or negligence under articles
1902 to 1910 of the Civil Code. Still more concretely,
the authorities above cited render it inescapable to
conclude that the employer — in this case the
defendant-petitioner — is primarily and directly liable
under article 1903 of the Civil Code.
The legal provisions, authors, and cases already
invoked should ordinarily be sufficient to dispose of
this case. But inasmuch as we are announcing
doctrines that have been little understood in the past,
it might not be inappropriate to indicate their
foundations.
Firstly, the Revised Penal Code in article 365 punishes
not only reckless but also simple negligence. If we were
to hold that articles 1902 to 1910 of the Civil Code refer
only to fault or negligence not punished by law,
according to the literal import of article 1093 of the
Civil Code, the legal institution of culpa aquiliana would
have very little scope and application in actual life.
Death or injury to persons and damage to property
through any degree of negligence — even the slightest
— would have to be indemnified only through the
principle of civil liability arising from a crime. In such a
state of affairs, what sphere would remain for cuasi-
delito or culpa aquiliana? We are loath to impute to the
lawmaker any intention to bring about a situation so
absurd and anomalous. Nor are we, in the
interpretation of the laws, disposed to uphold the
letter that killeth rather than the spirit that giveth life.
We will not use the literal meaning of the law to
smother and render almost lifeless a principle of such
ancient origin and such full-grown development as
culpa aquiliana or cuasi-delito, which is conserved and
50
made enduring in articles 1902 to 1910 of the Spanish
Civil Code.
Secondly, to find the accused guilty in a criminal case,
proof of guilt beyond reasonable doubt is required,
while in a civil case, preponderance of evidence is
sufficient to make the defendant pay in damages.
There are numerous cases of criminal negligence which
can not be shown beyond reasonable doubt, but can
be proved by a preponderance of evidence. In such
cases, the defendant can and should be made
responsible in a civil action under articles 1902 to 1910
of the Civil Code. Otherwise, there would be many
instances of unvindicated civil wrongs. Ubi jus ibi
remedium.
Thirdly, to hold that there is only one way to make
defendant's liability effective, and that is, to sue the
driver and exhaust his (the latter's) property first,
would be tantamount to compelling the plaintiff to
follow a devious and cumbersome method of
obtaining relief. True, there is such a remedy under our
laws, but there is also a more expeditious way, which
is based on the primary and direct responsibility of the
defendant under article 1903 of the Civil Code. Our
view of the law is more likely to facilitate remedy for
civil wrongs, because the procedure indicated by the
defendant is wasteful and productive of delay, it being
a matter of common knowledge that professional
drivers of taxis and similar public conveyance usually
do not have sufficient means with which to pay
damages. Why, then, should the plaintiff be required
in all cases to go through this roundabout,
unnecessary, and probably useless procedure? In
construing the laws, courts have endeavored to
shorten and facilitate the pathways of right and justice.
At this juncture, it should be said that the primary and
direct responsibility of employers and their presumed
negligence are principles calculated to protect society.
Workmen and employees should be carefully chosen
and supervised in order to avoid injury to the public. It
is the masters or employers who principally reap the
profits resulting from the services of these servants
and employees. It is but right that they should
guarantee the latter's careful conduct for the
personnel and patrimonial safety of others. As
Theilhard has said, "they should reproach themselves,
at least, some for their weakness, others for their poor
selection and all for their negligence." And according
to Manresa, "It is much more equitable and just that
such responsibility should fall upon the principal or
director who could have chosen a careful and prudent
employee, and not upon the injured person who could
not exercise such selection and who used such
employee because of his confidence in the principal or
director." (Vol. 12, p. 622, 2nd Ed.) Many jurists also
base this primary responsibility of the employer on the
principle of representation of the principal by the
agent. Thus, Oyuelos says in the work already cited
(Vol. 7, p. 747) that before third persons the employer
and employee "vienen a ser como una sola
personalidad, por refundicion de la del dependiente en
la de quien le emplea y utiliza." ("become as one
personality by the merging of the person of the
employee in that of him who employs and utilizes
him.") All these observations acquire a peculiar force
and significance when it comes to motor accidents, and
there is need of stressing and accentuating the
responsibility of owners of motor vehicles.
Fourthly, because of the broad sweep of the provisions
of both the Penal Code and the Civil Code on this
subject, which has given rise to the overlapping or
concurrence of spheres already discussed, and for lack
of understanding of the character and efficacy of the
action for culpa aquiliana, there has grown up a
common practice to seek damages only by virtue of the
civil responsibility arising from a crime, forgetting that
there is another remedy, which is by invoking articles
1902-1910 of the Civil Code. Although this habitual
method is allowed by our laws, it has nevertheless
rendered practically useless and nugatory the more
expeditious and effective remedy based on culpa
aquiliana or culpa extra-contractual. In the present
case, we are asked to help perpetuate this usual
course. But we believe it is high time we pointed out to
the harm done by such practice and to restore the
principle of responsibility for fault or negligence under
articles 1902 et seq. of the Civil Code to its full rigor. It
is high time we caused the stream of quasi-delict or
culpa aquiliana to flow on its own natural channel, so
that its waters may no longer be diverted into that of a
crime under the Penal Code. This will, it is believed,
make for the better safeguarding of private rights
because it re-establishes an ancient and additional
remedy, and for the further reason that an
independent civil action, not depending on the issues,
limitations and results of a criminal prosecution, and
entirely directed by the party wronged or his counsel,
is more likely to secure adequate and efficacious
redress.
In view of the foregoing, the judgment of the Court of
Appeals should be and is hereby affirmed, with costs
against the defendant-petitioner.
Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.
51
 9. Mendoza vs. Arrieta
G.R. No. L-32599 June 29, 1979
MELENCIO-HERRERA, J:
Petitioner, Edgardo Mendoza, seeks a review on
certiorari of the Orders of respondent Judge in Civil
Case No. 80803 dismissing his Complaint for Damages
based on quasi-delict against respondents Felino
Timbol and Rodolfo Salazar.
The facts which spawned the present controversy may
be summarized as follows:
On October 22, 1969, at about 4:00 o'clock in the
afternoon, a three- way vehicular accident occurred
along Mac-Arthur Highway, Marilao, Bulacan, involving
a Mercedes Benz owned and driven by petitioner; a
private jeep owned and driven by respondent Rodolfo
Salazar; and a gravel and sand truck owned by
respondent Felipino Timbol and driven by Freddie
Montoya. As a consequence of said mishap, two
separate Informations for Reckless Imprudence
Causing Damage to Property were filed against Rodolfo
Salazar and Freddie Montoya with the Court of First
Instance of Bulacan. The race against truck-driver
Montoya, docketed as Criminal Case No. SM-227, was
for causing damage to the jeep owned by Salazar, in
the amount of Pl,604.00, by hitting it at the right rear
portion thereby causing said jeep to hit and bump an
oncoming car, which happened to be petitioner's
Mercedes Benz. The case against jeep-owner-driver
Salazar, docketed as Criminal Case No. SM 228, was for
causing damage to the Mercedes Benz of petitioner in
the amount of P8,890.00
At the joint trial of the above cases, petitioner testified
that jeep-owner- driver Salazar overtook the truck
driven by Montoya, swerved to the left going towards
the poblacion of Marilao, and hit his car which was
bound for Manila. Petitioner further testified that
before the impact, Salazar had jumped from the jeep
and that he was not aware that Salazar's jeep was
bumped from behind by the truck driven by Montoya.
Petitioner's version of the accident was adopted by
truck driver Montoya. Jeep-owner-driver Salazar, on
the other hand, tried to show that, after overtaking the
truck driven by Montoya, he flashed a signal indicating
his intention to turn left towards the poblacion of
Marilao but was stopped at the intersection by a
policeman who was directing traffic; that while he was
at a stop position, his jeep was bumped at the rear by
the truck driven by Montova causing him to be thrown
out of the jeep, which then swerved to the left and hit
petitioner's car, which was coming from the opposite
direction.
On July 31, 1970, the Court of First Instance of Bulacan,
Branch V, Sta. Maria, rendered judgment, stating in its
decretal portion:
IN VIEW OF THE FOREGOING, this Court finds the
accused Freddie Montoya GUILTY beyond reasonable
doubt of the crime of damage to property thru reckless
imprudence in Crime. Case No. SM-227, and hereby
sentences him to pay a fine of P972.50 and to
indemnify Rodolfo Salazar in the same amount of
P972.50 as actual damages, with subsidiary
imprisonment in case of insolvency, both as to fine and
indemnity, with costs.
Accused Rodolfo Salazar is hereby ACQUITTED from
the offense charged in Crime. Case No. SM-228, with
costs de oficio, and his bond is ordered canceled
SO ORDERED. 1
Thus, the trial Court absolved jeep-owner-driver
Salazar of any liability, civil and criminal, in view of its
findings that the collision between Salazar's jeep and
petitioner's car was the result of the former having
been bumped from behind by the truck driven by
Montoya. Neither was petitioner awarded damages as
he was not a complainant against truck-driver
Montoya but only against jeep-owner-driver Salazar.
On August 22, 1970, or after the termination of the
criminal cases, petitioner filed Civil Case No. 80803
with the Court of First Instance of Manila against
respondents jeep-owner-driver Salazar and Felino
Timbol, the latter being the owner of the gravel and
sand truck driven by Montoya, for indentification for
the damages sustained by his car as a result of the
collision involving their vehicles. Jeep-owner-driver
Salazar and truck-owner Timbol were joined as
defendants, either in the alternative or in solidum
allegedly for the reason that petitioner was uncertain
as to whether he was entitled to relief against both on
only one of them.
On September 9, 1970, truck-owner Timbol filed a
Motion to Dismiss Civil Case No. 80803 on the grounds
that the Complaint is barred by a prior judgment in the
criminal cases and that it fails to state a cause of action.
An Opposition thereto was filed by petitioner.
In an Order dated September 12, 1970, respondent
Judge dismissed the Complaint against truck-owner
Timbol for reasons stated in the afore- mentioned
Motion to Dismiss On September 30, 1970, petitioner
sought before this Court the review of that dismissal,
to which petition we gave due course.
On January 30, 1971, upon motion of jeep-owner-
driver Salazar, respondent Judge also dismissed the
case as against the former. Respondent Judge
reasoned out that "while it is true that an independent
civil action for liability under Article 2177 of the Civil
Code could be prosecuted independently of the
criminal action for the offense from which it arose, the
52
New Rules of Court, which took effect on January 1, jurisdiction over the subject matter and over the petitioner is primarily and directly liable under article
1964, requires an express reservation of the civil action parties; (3) it must be a judgment on the merits; and 1903 of the Civil Code.
to be made in the criminal action; otherwise, the same (4) there must be, between the first and second
would be barred pursuant to Section 2, Rule 111 ... 2 actions, Identity of parties, Identity of subject matter That petitioner's cause of action against Timbol in the
Petitioner's Motion for Reconsideration thereof was and Identity of cause of action. civil case is based on quasi-delict is evident from the
denied in the order dated February 23, 1971, with recitals in the complaint to wit: that while petitioner
respondent Judge suggesting that the issue be raised It is conceded that the first three requisites of res was driving his car along MacArthur Highway at
to a higher Court "for a more decisive interpretation of judicata are present. However, we agree with Marilao, Bulacan, a jeep owned and driven by Salazar
the rule. 3 petitioner that there is no Identity of cause of action suddenly swerved to his (petitioner's) lane and collided
between Criminal Case No. SM-227 and Civil Case No. with his car That the sudden swerving of Salazar's jeep
On March 25, 1971, petitioner then filed a 80803. Obvious is the fact that in said criminal case was caused either by the negligence and lack of skill of
Supplemental Petition before us, also to review the last truck-driver Montoya was not prosecuted for damage Freddie Montoya, Timbol's employee, who was then
two mentioned Orders, to which we required jeep- to petitioner's car but for damage to the jeep. Neither driving a gravel and sand truck iii the same direction as
owner-driver Salazar to file an Answer. was truck-owner Timbol a party in said case. In fact as Salazar's jeep; and that as a consequence of the
the trial Court had put it "the owner of the Mercedes collision, petitioner's car suffered extensive damage
The Complaint against Benz cannot recover any damages from the accused amounting to P12,248.20 and that he likewise incurred
Freddie Montoya, he (Mendoza) being a complainant actual and moral damages, litigation expenses and
truck-owner Timbol only against Rodolfo Salazar in Criminal Case No. SM- attorney's fees. Clearly, therefore, the two factors that
228. 4 And more importantly, in the criminal cases, the a cause of action must consist of, namely: (1) plaintiff's
We shall first discuss the validity of the Order, dated cause of action was the enforcement of the civil primary right, i.e., that he is the owner of a Mercedes
September 12, 1970, dismissing petitioner's Complaint liability arising from criminal negligence under Article l Benz, and (2) defendant's delict or wrongful act or
against truck-owner Timbol. of the Revised Penal Code, whereas Civil Case No. omission which violated plaintiff's primary right, i.e.,
80803 is based on quasi-delict under Article 2180, in the negligence or lack of skill either of jeep-owner
In dismissing the Complaint against the truck-owner, relation to Article 2176 of the Civil Code As held in Salazar or of Timbol's employee, Montoya, in driving
respondent Judge sustained Timbol's allegations that Barredo vs. Garcia, et al. 5 the truck, causing Salazar's jeep to swerve and collide
the civil suit is barred by the prior joint judgment in with petitioner's car, were alleged in the Complaint. 6
Criminal Cases Nos. SM-227 and SM-228, wherein no The foregoing authorities clearly demonstrate the
reservation to file a separate civil case was made by separate in. individuality of cuasi-delitos or culpa Consequently, petitioner's cause of action being based
petitioner and where the latter actively participated in aquiliana under the Civil Code. Specifically they show on quasi-delict, respondent Judge committed
the trial and tried to prove damages against jeep- that there is a distinction between civil liability arising reversible error when he dismissed the civil suit against
driver-Salazar only; and that the Complaint does not from criminal negligence (governed by the Penal Code) the truck-owner, as said case may proceed
state a cause of action against truck-owner Timbol and responsibility for fault or negligence under articles independently of the criminal proceedings and
inasmuch as petitioner prosecuted jeep-owner-driver 1902 to 1910 of the Civil Code, and that the same regardless of the result of the latter.
Salazar as the one solely responsible for the damage negligent act may produce either a civil liability arising
suffered by his car. from a crime under the Penal Code, or a separate Art. 31. When the civil action is based on an obligation
responsibility for fault or negligence under articles not arising from the act or omission complained of as a
Well-settled is the rule that for a prior judgment to 1902 to 1910 of the Civil Code. Still more concretely, felony, such civil action may proceed independently of
constitute a bar to a subsequent case, the following the authorities above cited render it inescapable to the criminal proceedings and regardless of the result of
requisites must concur: (1) it must be a final judgment; conclude that the employer in this case the defendant- the latter.
(2) it must have been rendered by a Court having

53
But it is truck-owner Timbol's submission (as well as of the Civil Code, which do not provide for the 111 of the Rules of Court is deemed simultaneously
that of jeep-owner-driver Salazar) that petitioner's reservation required in the proviso ... . instituted with the criminal action, unless expressly
failure to make a reservation in the criminal action of waived or reserved for separate application by the
his right to file an independent civil action bars the In his concurring opinion in the above case, Mr. Justice offended party. 8
institution of such separate civil action, invoking Antonio Barredo further observed that inasmuch as
section 2, Rule 111, Rules of Court, which says: Articles 2176 and 2177 of the Civil Code create a civil The circumstances attendant to the criminal case
liability distinct and different from the civil action yields the conclusion that petitioner had opted to base
Section 2. — Independent civil action. — In the cases arising from the offense of negligence under the his cause of action against jeep-owner-driver Salazar
provided for in Articles 31, 32, 33, 34 and 2177 of the Revised Penal Code, no reservation, therefore, need be on culpa criminal and not on culpa aquiliana as
Civil Code of the Philippines, an independent civil made in the criminal case; that Section 2 of Rule 111 is evidenced by his active participation and intervention
action entirely separate and distinct from the criminal inoperative, "it being substantive in character and is in the prosecution of the criminal suit against said
action may be brought by the injured party during the not within the power of the Supreme Court to Salazar. The latter's civil liability continued to be
pendency of the criminal case, provided the right is promulgate; and even if it were not substantive but involved in the criminal action until its termination.
reserved as required in the preceding section. Such adjective, it cannot stand because of its inconsistency Such being the case, there was no need for petitioner
civil action shau proceed independently of the criminal with Article 2177, an enactment of the legislature to have reserved his right to file a separate civil action
prosecution, and shall require only a preponderance of superseding the Rules of 1940." as his action for civil liability was deemed impliedly
evidence. instituted in Criminal Case No. SM-228.
We declare, therefore, that in so far as truck-owner
Interpreting the above provision, this Court, in Garcia Timbol is concerned, Civil Case No. 80803 is not barred Neither would an independent civil action he.
vs. Florida 7 said: by the fact that petitioner failed to reserve, in the Noteworthy is the basis of the acquittal of jeep-owner-
criminal action, his right to file an independent civil driver Salazar in the criminal case, expounded by the
As we have stated at the outset, the same negligent act action based on quasi-delict. trial Court in this wise:
causing damages may produce a civil liability arising
from crime or create an action for quasi-delict or culpa The suit against In view of what has been proven and established
extra-contractual. The former is a violation of the during the trial, accused Freddie Montoya would be
criminal law, while the latter is a distinct and jeep-owner-driver Salazar held able for having bumped and hit the rear portion
independent negligence, having always had its own of the jeep driven by the accused Rodolfo Salazar,
foundation and individuality. Some legal writers are of The case as against jeep-owner-driver Salazar, who
the view that in accordance with Article 31, the civil was acquitted in Criminal Case No. SM-228, presents a Considering that the collision between the jeep driven
action based upon quasi-delict may proceed different picture altogether. by Rodolfo Salazar and the car owned and driven by
independently of the criminal proceeding for criminal Edgardo Mendoza was the result of the hitting on the
negligence and regardless of the result of the latter. At the outset it should be clarified that inasmuch as rear of the jeep by the truck driven by Freddie
Hence, 'the proviso in Section 2 of Rule 111 with civil liability co-exists with criminal responsibility in Montoya, this Court behaves that accused Rodolfo
reference to ... Articles 32, 33 and 34 of the Civil Code negligence cases, the offended party has the option Salazar cannot be held able for the damages sustained
is contrary to the letter and spirit of the said articles, between an action for enforcement of civil liability by Edgardo Mendoza's car. 9
for these articles were drafted ... and are intended to based on culpa criminal under Article 100 of the
constitute as exceptions to the general rule stated in Revised Penal Code, and an action for recovery of Crystal clear is the trial Court's pronouncement that
what is now Section 1 of Rule 111. The proviso, which damages based on culpa aquiliana under Article 2177 under the facts of the case, jeep-owner-driver Salazar
is procedural, may also be regarded as an unauthorized of the Civil Code. The action for enforcement of civil cannot be held liable for the damages sustained by
amendment of substantive law, Articles 32, 33 and 34 liability based on culpa criminal under section 1 of Rule petitioner's car. In other words, "the fact from which

54
the civil might arise did not exist. " Accordingly,
inasmuch as petitioner's cause of action as against In so far as the suit against jeep-owner-driver Salazar is Specifically, the suit impleaded the PSBA and the
jeep-owner-driver Salazar is ex- delictu, founded on concerned, therefore, we sustain respondent Judge's following school authorities: Juan D. Lim (President),
Article 100 of the Revised Penal Code, the civil action Order dated January 30, 1971 dismissing the Benjamin P. Paulino (Vice-President), Antonio M.
must be held to have been extinguished in consonance complaint, albeit on different grounds. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief
with Section 3(c), Rule 111 of the Rules of Court 10 of Security) and a Lt. M. Soriano (Assistant Chief of
which provides: WHEREFORE, 1) the Order dated September 12, 1970 Security). Substantially, the plaintiffs (now private
dismissing Civil Case No. 80803 against private respondents) sought to adjudge them liable for the
Sec. 3. Other civil actions arising from offenses. — In all respondent Felino Timbol is set aside, and respondent victim's untimely demise due to their alleged
cases not included in the preceding section the Judge, or his successor, hereby ordered to proceed negligence, recklessness and lack of security
following rules shall be observed: with the hearing on the merits; 2) but the Orders dated precautions, means and methods before, during and
January 30, 1971 and February 23, 1971 dismissing the after the attack on the victim. During the proceedings
xxx xxx xxx Complaint in Civil Case No. 80803 against respondent a quo, Lt. M. Soriano terminated his relationship with
Rodolfo Salazar are hereby upheld. the other petitioners by resigning from his position in
c) Extinction of the penal action does not carry with it the school.
extinction of the civil, unless the extinction proceeds No costs.
from a declaration in a final judgment that the fact Defendants a quo (now petitioners) sought to have the
from which the civil night arise did not exist. ... SO ORDERED. suit dismissed, alleging that since they are presumably
sued under Article 2180 of the Civil Code, the
And even if petitioner's cause of action as against jeep- Teehankee, (Chairman), Makasiar, Fernandez, complaint states no cause of action against them, as
owner-driver Salazar were not ex-delictu, the end Guerrero and De Castro, JJ., concur. jurisprudence on the subject is to the effect that
result would be the same, it being clear from the academic institutions, such as the PSBA, are beyond
judgment in the criminal case that Salazar's acquittal 10. PSBA v. CA the ambit of the rule in the afore-stated article.
was not based upon reasonable doubt, consequently, G.R. No. 84698 February 4, 1992
a civil action for damages can no longer be instituted. The respondent trial court, however, overruled
This is explicitly provided for in Article 29 of the Civil PADILLA, J.: petitioners' contention and thru an order dated 8
Code quoted here under: December 1987, denied their motion to dismiss. A
A stabbing incident on 30 August 1985 which caused subsequent motion for reconsideration was similarly
Art. 29. When the accused in a criminal prosecution is the death of Carlitos Bautista while on the second-floor dealt with by an order dated 25 January 1988.
acquitted on the ground that his guilt has not been premises of the Philippine School of Business Petitioners then assailed the trial court's disposition
proved beyond reasonable doubt, a civil action for Administration (PSBA) prompted the parents of the before the respondent appellate court which, in a
damages for the same act or omission may be deceased to file suit in the Regional Trial Court of decision * promulgated on 10 June 1988, affirmed the
instituted. Such action requires only a preponderance Manila (Branch 47) presided over by Judge (now Court trial court's orders. On 22 August 1988, the respondent
of evidence ... of Appeals justice) Regina Ordoñez-Benitez, for appellate court resolved to deny the petitioners'
damages against the said PSBA and its corporate motion for reconsideration. Hence, this petition.
If in a criminal case the judgment of acquittal is based officers. At the time of his death, Carlitos was enrolled
upon reasonable doubt, the court shall so declare. In in the third year commerce course at the PSBA. It was At the outset, it is to be observed that the respondent
the absence of any declaration to that effect, it may be established that his assailants were not members of appellate court primarily anchored its decision on the
inferred from the text of the decision whether or not the school's academic community but were elements law of quasi-delicts, as enunciated in Articles 2176 and
the acquittal is due to that ground. from outside the school.

55
2180 of the Civil Code. 1 Pertinent portions of the inflicted by pupils or students of he educational Bautista, the rules on quasi-delict do not really govern.
appellate court's now assailed ruling state: institution sought to be held liable for the acts of its 8 A perusal of Article 2176 shows that obligations
pupils or students while in its custody. However, this arising from quasi-delicts or tort, also known as extra-
Article 2180 (formerly Article 1903) of the Civil Code is material situation does not exist in the present case contractual obligations, arise only between parties not
an adoption from the old Spanish Civil Code. The for, as earlier indicated, the assailants of Carlitos were otherwise bound by contract, whether express or
comments of Manresa and learned authorities on its not students of the PSBA, for whose acts the school implied. However, this impression has not prevented
meaning should give way to present day changes. The could be made liable. this Court from determining the existence of a tort
law is not fixed and flexible (sic); it must be dynamic. In even when there obtains a contract. In Air France vs.
fact, the greatest value and significance of law as a rule However, does the appellate court's failure to consider Carrascoso (124 Phil. 722), the private respondent was
of conduct in (sic) its flexibility to adopt to changing such material facts mean the exculpation of the awarded damages for his unwarranted expulsion from
social conditions and its capacity to meet the new petitioners from liability? It does not necessarily a first-class seat aboard the petitioner airline. It is
challenges of progress. follow. noted, however, that the Court referred to the
petitioner-airline's liability as one arising from tort, not
Construed in the light of modern day educational When an academic institution accepts students for one arising from a contract of carriage. In effect, Air
system, Article 2180 cannot be construed in its narrow enrollment, there is established a contract between France is authority for the view that liability from tort
concept as held in the old case of Exconde vs. Capuno them, resulting in bilateral obligations which both may exist even if there is a contract, for the act that
2 and Mercado vs. Court of Appeals; 3 hence, the ruling parties are bound to comply with. 7 For its part, the breaks the contract may be also a tort. (Austro-
in the Palisoc 4 case that it should apply to all kinds of school undertakes to provide the student with an America S.S. Co. vs. Thomas, 248 Fed. 231).
educational institutions, academic or vocational. education that would presumably suffice to equip him
with the necessary tools and skills to pursue higher This view was not all that revolutionary, for even as
At any rate, the law holds the teachers and heads of education or a profession. On the other hand, the early as 1918, this Court was already of a similar mind.
the school staff liable unless they relieve themselves of student covenants to abide by the school's academic In Cangco vs. Manila Railroad (38 Phil. 780), Mr. Justice
such liability pursuant to the last paragraph of Article requirements and observe its rules and regulations. Fisher elucidated thus:
2180 by "proving that they observed all the diligence
to prevent damage." This can only be done at a trial on Institutions of learning must also meet the implicit or The field of non-contractual obligation is much broader
the merits of the case. 5 "built-in" obligation of providing their students with an than that of contractual obligation, comprising, as it
atmosphere that promotes or assists in attaining its does, the whole extent of juridical human relations.
While we agree with the respondent appellate court primary undertaking of imparting knowledge. These two fields, figuratively speaking, concentric; that
that the motion to dismiss the complaint was correctly Certainly, no student can absorb the intricacies of is to say, the mere fact that a person is bound to
denied and the complaint should be tried on the physics or higher mathematics or explore the realm of another by contract does not relieve him from extra-
merits, we do not however agree with the premises of the arts and other sciences when bullets are flying or contractual liability to such person. When such a
the appellate court's ruling. grenades exploding in the air or where there looms contractual relation exists the obligor may break the
around the school premises a constant threat to life contract under such conditions that the same act
Article 2180, in conjunction with Article 2176 of the and limb. Necessarily, the school must ensure that which constitutes a breach of the contract would have
Civil Code, establishes the rule of in loco parentis. This adequate steps are taken to maintain peace and order constituted the source of an extra-contractual
Court discussed this doctrine in the afore-cited cases of within the campus premises and to prevent the obligation had no contract existed between the
Exconde, Mendoza, Palisoc and, more recently, in breakdown thereof. parties.
Amadora vs. Court of Appeals. 6 In all such cases, it had
been stressed that the law (Article 2180) plainly Because the circumstances of the present case evince
provides that the damage should have been caused or a contractual relation between the PSBA and Carlitos

56
Immediately what comes to mind is the chapter of the This Court is not unmindful of the attendant difficulties
Civil Code on Human Relations, particularly Article 21, posed by the obligation of schools, above-mentioned, Footnotes
which provides: for conceptually a school, like a common carrier,
cannot be an insurer of its students against all risks. * Penned by Justice Jose C. Campos, Jr. and concurred
Any person who wilfully causes loss or injury to This is specially true in the populous student in by Justices Ricardo J. Francisco and Alfredo L.
another in a manner that is contrary to morals, good communities of the so-called "university belt" in Benipayo.
custom or public policy shall compensate the latter for Manila where there have been reported several
the damage. (emphasis supplied). incidents ranging from gang wars to other forms of 1 Article 2176 provides:
hooliganism. It would not be equitable to expect of
Air France penalized the racist policy of the airline schools to anticipate all types of violent trespass upon Whoever by act or omission causes damage to
which emboldened the petitioner's employee to their premises, for notwithstanding the security another, there being fault or negligence, is obliged to
forcibly oust the private respondent to cater to the measures installed, the same may still fail against an pay for the damage done. Such fault or negligence, if
comfort of a white man who allegedly "had a better individual or group determined to carry out a nefarious there is no pre-existing contractual relation between
right to the seat." In Austro-American, supra, the deed inside school premises and environs. Should this the parties, is called a quasi-delict and is governed by
public embarrassment caused to the passenger was be the case, the school may still avoid liability by the provisions of this Chapter.
the justification for the Circuit Court of Appeals, proving that the breach of its contractual obligation to
(Second Circuit), to award damages to the latter. From the students was not due to its negligence, here Article 2180 provides:
the foregoing, it can be concluded that should the act statutorily defined to be the omission of that degree of
which breaches a contract be done in bad faith and be diligence which is required by the nature of the The obligation imposed by article 2176 is demandable
violative of Article 21, then there is a cause to view the obligation and corresponding to the circumstances of not only for one's own acts or omissions, but also for
act as constituting a quasi-delict. persons, time and place. 9 those of persons for whom one is responsible.

In the circumstances obtaining in the case at bar,
however, there is, as yet, no finding that the contract
between the school and Bautista had been breached
thru the former's negligence in providing proper
security measures. This would be for the trial court to
determine. And, even if there be a finding of
negligence, the same could give rise generally to a
breach of contractual obligation only. Using the test of
Cangco, supra, the negligence of the school would not
be relevant absent a contract. In fact, that negligence
becomes material only because of the contractual
relation between PSBA and Bautista. In other words, a
contractual relation is a condition sine qua non to the
school's liability. The negligence of the school cannot
exist independently of the contract, unless the
negligence occurs under the circumstances set out in
Article 21 of the Civil Code.
As the proceedings a quo have yet to commence on the
substance of the private respondents' complaint, the
record is bereft of all the material facts. Obviously, at
this stage, only the trial court can make such a
determination from the evidence still to unfold.
WHEREFORE, the foregoing premises considered, the
petition is DENIED. The court of origin (RTC, Manila, Br.
47) is hereby ordered to continue proceedings
consistent with this ruling of the Court. Costs against
the petitioners.
SO ORDERED.
Melencio-Herrera, Paras, Regalado and Nocon, JJ.,
concur.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and
trades shall be liable for damages caused by their
pupils and students or apprentices, so long as they
remain in their custody.
The responsibility treated of in this article shall cease
when the person herein mentioned prove that they
observed all the diligence of a good father of a family
to prevent damage."
2 101 Phil. 843
3 108 Phil. 414
4 G.R. No. L-29025, 4 October 1971, 41 SCRA 548.

57
5 Rollo, p. 75.
6 G.R. No. L-47745, 15 April 1988, 160 SCRA 315.
7 In Non vs. Dames II, G.R. No. 89317, 20 May 1990,
185 SCRA 535, it was held that the contract between
school and student is one "imbued with public
interest" but a contract nonetheless.
8 Article 2176, Civil Code is re-quoted for stress:
Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed by
the provisions of this Chapter. (emphasis supplied)
9 Article 1173, Civil Code provides:
The fault or negligence of the obligor consists in the
omission of that diligence which is required by the
nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the
place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall
apply.
11. Amadora vs. CA
G.R. No. L-47745 April 15, 1988
G.R. No. L-47745 April 15, 1988
JOSE S. AMADORA, LORETA A. AMADORA, JOSE A.
AMADORA JR., NORMA A. YLAYA PANTALEON A.
AMADORA, JOSE A. AMADORA III, LUCY A. AMADORA,
ROSALINDA A. AMADORA, PERFECTO A. AMADORA,
SERREC A. AMADORA, VICENTE A. AMADORA and
MARIA TISCALINA A. AMADORA, petitioners
vs.
HONORABLE COURT OF APPEALS, COLEGIO DE SAN
JOSE-RECOLETOS, VICTOR LLUCH SERGIO P. DLMASO
JR., CELESTINO DICON, ANIANO ABELLANA, PABLITO
DAFFON thru his parents and natural guardians, MR.
and MRS. NICANOR GUMBAN, and ROLANDO
VALENCIA, thru his guardian, A. FRANCISCO ALONSO,
respondents.
Jose S. Amadora & Associates for petitioners.
Padilla Law Office for respondents.
CRUZ, J.:
Like any prospective graduate, Alfredo Amadora was
looking forward to the commencement exercises
where he would ascend the stage and in the presence
of his relatives and friends receive his high school
diploma. These ceremonies were scheduled on April
16, 1972. As it turned out, though, fate would
intervene and deny him that awaited experience. On
April 13, 1972, while they were in the auditorium of
their school, the Colegio de San Jose-Recoletos, a
classmate, Pablito Damon, fired a gun that mortally hit
Alfredo, ending all his expectations and his life as well.
The victim was only seventeen years old. 1
Daffon was convicted of homicide thru reckless
imprudence . 2 Additionally, the herein petitioners, as
the victim's parents, filed a civil action for damages
under Article 2180 of the Civil Code against the Colegio
de San Jose-Recoletos, its rector the high school
principal, the dean of boys, and the physics teacher,
together with Daffon and two other students, through
their respective parents. The complaint against the
students was later dropped. After trial, the Court of
First Instance of Cebu held the remaining defendants
liable to the plaintiffs in the sum of P294,984.00,
representing death compensation, loss of earning
capacity, costs of litigation, funeral expenses, moral
damages, exemplary damages, and attorney's fees .3
On appeal to the respondent court, however, the
decision was reversed and all the defendants were
completely absolved .4
In its decision, which is now the subject of this petition
for certiorari under Rule 45 of the Rules of Court, the
respondent court found that Article 2180 was not
applicable as the Colegio de San Jose-Recoletos was
not a school of arts and trades but an academic
institution of learning. It also held that the students
were not in the custody of the school at the time of the
incident as the semester had already ended, that there
was no clear identification of the fatal gun and that in
any event the defendant, had exercised the necessary
diligence in preventing the injury. 5
The basic undisputed facts are that Alfredo Amadora
went to the San Jose-Recoletos on April 13, 1972, and
while in its auditorium was shot to death by Pablito
Daffon, a classmate. On the implications and
consequences of these facts, the parties sharply
disagree.
The petitioners contend that their son was in the
school to show his physics experiment as a prerequisite
to his graduation; hence, he was then under the
custody of the private respondents. The private
respondents submit that Alfredo Amadora had gone to
the school only for the purpose of submitting his
physics report and that he was no longer in their
custody because the semester had already ended.
There is also the question of the identity of the gun
used which the petitioners consider important because
58
of an earlier incident which they claim underscores the
negligence of the school and at least one of the private
respondents. It is not denied by the respondents that
on April 7, 1972, Sergio Damaso, Jr., the dean of boys,
confiscated from Jose Gumban an unlicensed pistol but
later returned it to him without making a report to the
principal or taking any further action .6 As Gumban was
one of the companions of Daffon when the latter fired
the gun that killed Alfredo, the petitioners contend
that this was the same pistol that had been confiscated
from Gumban and that their son would not have been
killed if it had not been returned by Damaso. The
respondents say, however, that there is no proof that
the gun was the same firearm that killed Alfredo.
Resolution of all these disagreements will depend on
the interpretation of Article 2180 which, as it happens,
is invoked by both parties in support of their conflicting
positions. The pertinent part of this article reads as
follows:
Lastly, teachers or heads of establishments of arts and
trades shall be liable for damages caused by their
pupils and students or apprentices so long as they
remain in their custody.
Three cases have so far been decided by the Court in
connection with the above-quoted provision, to wit:
Exconde v. Capuno 7 Mercado v. Court of Appeals, 8
and Palisoc v. Brillantes. 9 These will be briefly
reviewed in this opinion for a better resolution of the
case at bar.
In the Exconde Case, Dante Capuno, a student of the
Balintawak Elementary School and a Boy Scout,
attended a Rizal Day parade on instructions of the city
school supervisor. After the parade, the boy boarded a
jeep, took over its wheel and drove it so recklessly that
it turned turtle, resulting in the death of two of its
passengers. Dante was found guilty of double homicide
with reckless imprudence. In the separate civil action
flied against them, his father was held solidarily liable
with him in damages under Article 1903 (now Article
2180) of the Civil Code for the tort committed by the
15-year old boy.
This decision, which was penned by Justice Bautista
Angelo on June 29,1957, exculpated the school in an
obiter dictum (as it was not a party to the case) on the
ground that it was riot a school of arts and trades.
Justice J.B.L. Reyes, with whom Justices Sabino Padilla
and Alex Reyes concurred, dissented, arguing that it
was the school authorities who should be held liable
Liability under this rule, he said, was imposed on (1)
teachers in general; and (2) heads of schools of arts and
trades in particular. The modifying clause "of
establishments of arts and trades" should apply only to
"heads" and not "teachers."
Exconde was reiterated in the Mercado Case, and with
an elaboration. A student cut a classmate with a razor
blade during recess time at the Lourdes Catholic School
in Quezon City, and the parents of the victim sued the
culprits parents for damages. Through Justice
Labrador, the Court declared in another obiter (as the
school itself had also not been sued that the school was
not liable because it was not an establishment of arts
and trades. Moreover, the custody requirement had
not been proved as this "contemplates a situation
where the student lives and boards with the teacher,
such that the control, direction and influences on the
pupil supersede those of the parents." Justice J.B.L.
Reyes did not take part but the other members of the
court concurred in this decision promulgated on May
30, 1960.
In Palisoc vs. Brillantes, decided on October 4, 1971, a
16-year old student was killed by a classmate with fist
blows in the laboratory of the Manila Technical
Institute. Although the wrongdoer — who was already
of age — was not boarding in the school, the head
thereof and the teacher in charge were held solidarily
liable with him. The Court declared through Justice
Teehankee:
The phrase used in the cited article — "so long as (the
students) remain in their custody" — means the
protective and supervisory custody that the school and
its heads and teachers exercise over the pupils and
students for as long as they are at attendance in the
school, including recess time. There is nothing in the
law that requires that for such liability to attach, the
pupil or student who commits the tortious act must
live and board in the school, as erroneously held by the
lower court, and the dicta in Mercado (as well as in
Exconde) on which it relied, must now be deemed to
have been set aside by the present decision.
This decision was concurred in by five other members,
10 including Justice J.B.L. Reyes, who stressed, in
answer to the dissenting opinion, that even students
already of age were covered by the provision since
they were equally in the custody of the school and
subject to its discipline. Dissenting with three
others,11 Justice Makalintal was for retaining the
custody interpretation in Mercado and submitted that
the rule should apply only to torts committed by
students not yet of age as the school would be acting
only in loco parentis.
In a footnote, Justice Teehankee said he agreed with
Justice Reyes' dissent in the Exconde Case but added
that "since the school involved at bar is a non-
academic school, the question as to the applicability of
the cited codal provision to academic institutions will
have to await another case wherein it may properly be
raised."
This is the case.
59
Unlike in Exconde and Mercado, the Colegio de San
Jose-Recoletos has been directly impleaded and is
sought to be held liable under Article 2180; and unlike
in Palisoc, it is not a school of arts and trades but an
academic institution of learning. The parties herein
have also directly raised the question of whether or not
Article 2180 covers even establishments which are
technically not schools of arts and trades, and, if so,
when the offending student is supposed to be "in its
custody."
After an exhaustive examination of the problem, the
Court has come to the conclusion that the provision in
question should apply to all schools, academic as well
as non-academic. Where the school is academic rather
than technical or vocational in nature, responsibility
for the tort committed by the student will attach to the
teacher in charge of such student, following the first
part of the provision. This is the general rule. In the
case of establishments of arts and trades, it is the head
thereof, and only he, who shall be held liable as an
exception to the general rule. In other words, teachers
in general shall be liable for the acts of their students
except where the school is technical in nature, in which
case it is the head thereof who shall be answerable.
Following the canon of reddendo singula singulis
"teachers" should apply to the words "pupils and
students" and "heads of establishments of arts and
trades" to the word "apprentices."
The Court thus conforms to the dissenting opinion
expressed by Justice J.B.L. Reyes in Exconde where he
said in part:
I can see no sound reason for limiting Art. 1903 of the
Old Civil Code to teachers of arts and trades and not to
academic ones. What substantial difference is there
between them insofar as concerns the proper
supervision and vice over their pupils? It cannot be
seriously contended that an academic teacher is
exempt from the duty of watching that his pupils do
not commit a tort to the detriment of third Persons, so
long as they are in a position to exercise authority and
Supervision over the pupil. In my opinion, in the phrase
"teachers or heads of establishments of arts and
trades" used in Art. 1903 of the old Civil Code, the
words "arts and trades" does not qualify "teachers" but
only "heads of establishments." The phrase is only an
updated version of the equivalent terms "preceptores
y artesanos" used in the Italian and French Civil Codes.
If, as conceded by all commentators, the basis of the
presumption of negligence of Art. 1903 in some culpa
in vigilando that the parents, teachers, etc. are
supposed to have incurred in the exercise of their
authority, it would seem clear that where the parent
places the child under the effective authority of the
teacher, the latter, and not the parent, should be the
one answerable for the torts committed while under
his custody, for the very reason/that the parent is not
supposed to interfere with the discipline of the school
nor with the authority and supervision of the teacher
while the child is under instruction. And if there is no
authority, there can be no responsibility.
There is really no substantial distinction between the
academic and the non-academic schools insofar as
torts committed by their students are concerned. The
same vigilance is expected from the teacher over the
students under his control and supervision, whatever
the nature of the school where he is teaching. The
suggestion in the Exconde and Mercado Cases is that
the provision would make the teacher or even the head
of the school of arts and trades liable for an injury
caused by any student in its custody but if that same
tort were committed in an academic school, no liability
would attach to the teacher or the school head. All
other circumstances being the same, the teacher or
the head of the academic school would be absolved
whereas the teacher and the head of the non-
academic school would be held liable, and simply
because the latter is a school of arts and trades.
The Court cannot see why different degrees of
vigilance should be exercised by the school authorities
on the basis only of the nature of their respective
schools. There does not seem to be any plausible
reason for relaxing that vigilance simply because the
school is academic in nature and for increasing such
vigilance where the school is non-academic. Notably,
the injury subject of liability is caused by the student
and not by the school itself nor is it a result of the
operations of the school or its equipment. The injury
contemplated may be caused by any student
regardless of the school where he is registered. The
teacher certainly should not be able to excuse himself
by simply showing that he is teaching in an academic
school where, on the other hand, the head would be
held liable if the school were non-academic.
These questions, though, may be asked: If the teacher
of the academic school is to be held answerable for the
torts committed by his students, why is it the head of
the school only who is held liable where the injury is
caused in a school of arts and trades? And in the case
of the academic or non- technical school, why not
apply the rule also to the head thereof instead of
imposing the liability only on the teacher?
The reason for the disparity can be traced to the fact
that historically the head of the school of arts and
trades exercised a closer tutelage over his pupils than
the head of the academic school. The old schools of
arts and trades were engaged in the training of artisans
apprenticed to their master who personally and
directly instructed them on the technique and secrets
of their craft. The head of the school of arts and trades
was such a master and so was personally involved in
the task of teaching his students, who usually even
boarded with him and so came under his constant
60
control, supervision and influence. By contrast, the and ending upon the close thereof, and excluding the practically the same way that the parents are
head of the academic school was not as involved with time before or after such period, such as the period of responsible for the child when he is in their custody.
his students and exercised only administrative duties registration, and in the case of graduating students, The teacher-in-charge is the one designated by the
over the teachers who were the persons directly the period before the commencement exercises. In the dean, principal, or other administrative superior to
dealing with the students. The head of the academic view of the Court, the student is in the custody of the exercise supervision over the pupils in the specific
school had then (as now) only a vicarious relationship school authorities as long as he is under the control classes or sections to which they are assigned. It is not
with the students. Consequently, while he could not be and influence of the school and within its premises, necessary that at the time of the injury, the teacher be
directly faulted for the acts of the students, the head whether the semester has not yet begun or has already physically present and in a position to prevent it.
of the school of arts and trades, because of his closer ended. Custody does not connote immediate and actual
ties with them, could be so blamed. physical control but refers more to the influence
It is too tenuous to argue that the student comes under exerted on the child and the discipline instilled in him
It is conceded that the distinction no longer obtains at the discipline of the school only upon the start of as a result of such influence. Thus, for the injuries
present in view of the expansion of the schools of arts classes notwithstanding that before that day he has caused by the student, the teacher and not the parent
and trades, the consequent increase in their already registered and thus placed himself under its shag be held responsible if the tort was committed
enrollment, and the corresponding diminution of the rules. Neither should such discipline be deemed ended within the premises of the school at any time when its
direct and personal contract of their heads with the upon the last day of classes notwithstanding that there authority could be validly exercised over him.
students. Article 2180, however, remains unchanged. may still be certain requisites to be satisfied for
In its present state, the provision must be interpreted completion of the course, such as submission of In any event, it should be noted that the liability
by the Court according to its clear and original mandate reports, term papers, clearances and the like. During imposed by this article is supposed to fall directly on
until the legislature, taking into account the charges in such periods, the student is still subject to the the teacher or the head of the school of arts and trades
the situation subject to be regulated, sees fit to enact disciplinary authority of the school and cannot and not on the school itself. If at all, the school,
the necessary amendment. consider himself released altogether from observance whatever its nature, may be held to answer for the acts
of its rules. of its teachers or even of the head thereof under the
The other matter to be resolved is the duration of the general principle of respondeat superior, but then it
responsibility of the teacher or the head of the school As long as it can be shown that the student is in the may exculpate itself from liability by proof that it had
of arts and trades over the students. Is such school premises in pursuance of a legitimate student exercised the diligence of a bonus paterfamilias.
responsibility co-extensive with the period when the objective, in the exercise of a legitimate student right,
student is actually undergoing studies during the and even in the enjoyment of a legitimate student Such defense is, of course, also available to the teacher
school term, as contended by the respondents and right, and even in the enjoyment of a legitimate or the head of the school of arts and trades directly
impliedly admitted by the petitioners themselves? student privilege, the responsibility of the school held to answer for the tort committed by the student.
authorities over the student continues. Indeed, even if As long as the defendant can show that he had taken
From a reading of the provision under examination, it the student should be doing nothing more than the necessary precautions to prevent the injury
is clear that while the custody requirement, to repeat relaxing in the campus in the company of his complained of, he can exonerate himself from the
Palisoc v. Brillantes, does not mean that the student classmates and friends and enjoying the ambience and liability imposed by Article 2180, which also states
must be boarding with the school authorities, it does atmosphere of the school, he is still within the custody that:
signify that the student should be within the control and subject to the discipline of the school authorities
and under the influence of the school authorities at the under the provisions of Article 2180. The responsibility treated of in this article shall cease
time of the occurrence of the injury. This does not when the Persons herein mentioned prove that they
necessarily mean that such, custody be co-terminous During all these occasions, it is obviously the teacher- observed all the diligence of a good father of a family
with the semester, beginning with the start of classes in-charge who must answer for his students' torts, in to prevent damages.

61

In this connection, it should be observed that the
teacher will be held liable not only when he is acting in
loco parentis for the law does not require that the
offending student be of minority age. Unlike the
parent, who wig be liable only if his child is still a minor,
the teacher is held answerable by the law for the act of
the student under him regardless of the student's age.
Thus, in the Palisoc Case, liability attached to the
teacher and the head of the technical school although
the wrongdoer was already of age. In this sense, Article
2180 treats the parent more favorably than the
teacher.
The Court is not unmindful of the apprehensions
expressed by Justice Makalintal in his dissenting
opinion in Palisoc that the school may be unduly
exposed to liability under this article in view of the
increasing activism among the students that is likely to
cause violence and resulting injuries in the school
premises. That is a valid fear, to be sure. Nevertheless,
it should be repeated that, under the present ruling, it
is not the school that will be held directly liable.
Moreover, the defense of due diligence is available to
it in case it is sought to be held answerable as principal
for the acts or omission of its head or the teacher in its
employ.
The school can show that it exercised proper measures
in selecting the head or its teachers and the
appropriate supervision over them in the custody and
instruction of the pupils pursuant to its rules and
regulations for the maintenance of discipline among
them. In almost all cases now, in fact, these measures
are effected through the assistance of an adequate
security force to help the teacher physically enforce
those rules upon the students. Ms should bolster the Applying the foregoing considerations, the Court has
claim of the school that it has taken adequate steps to arrived at the following conclusions:
prevent any injury that may be committed by its
students.
A fortiori, the teacher himself may invoke this defense
as it would otherwise be unfair to hold him directly
answerable for the damage caused by his students as
long as they are in the school premises and presumably
under his influence. In this respect, the Court is
disposed not to expect from the teacher the same
measure of responsibility imposed on the parent for
their influence over the child is not equal in degree.
Obviously, the parent can expect more obedience from
the child because the latter's dependence on him is
greater than on the teacher. It need not be stressed
that such dependence includes the child's support and
sustenance whereas submission to the teacher's
influence, besides being coterminous with the period
of custody is usually enforced only because of the
students' desire to pass the course. The parent can
instill more las discipline on the child than the teacher
and so should be held to a greater accountability than
the teacher for the tort committed by the child.
And if it is also considered that under the article in
question, the teacher or the head of the school of arts
and trades is responsible for the damage caused by the
student or apprentice even if he is already of age —
and therefore less tractable than the minor — then
there should all the more be justification to require
from the school authorities less accountability as long
as they can prove reasonable diligence in preventing
the injury. After all, if the parent himself is no longer
liable for the student's acts because he has reached
majority age and so is no longer under the former's
control, there is then all the more reason for leniency
in assessing the teacher's responsibility for the acts of
the student.
1. At the time Alfredo Amadora was fatally shot, he was
still in the custody of the authorities of Colegio de San
Jose-Recoletos notwithstanding that the fourth year
classes had formally ended. It was immaterial if he was
in the school auditorium to finish his physics
experiment or merely to submit his physics report for
what is important is that he was there for a legitimate
purpose. As previously observed, even the mere
savoring of the company of his friends in the premises
of the school is a legitimate purpose that would have
also brought him in the custody of the school
authorities.
2. The rector, the high school principal and the dean of
boys cannot be held liable because none of them was
the teacher-in-charge as previously defined. Each of
them was exercising only a general authority over the
student body and not the direct control and influence
exerted by the teacher placed in charge of particular
classes or sections and thus immediately involved in its
discipline. The evidence of the parties does not
disclose who the teacher-in-charge of the offending
student was. The mere fact that Alfredo Amadora had
gone to school that day in connection with his physics
report did not necessarily make the physics teacher,
respondent Celestino Dicon, the teacher-in-charge of
Alfredo's killer.
3. At any rate, assuming that he was the teacher-in-
charge, there is no showing that Dicon was negligent in
enforcing discipline upon Daffon or that he had waived
observance of the rules and regulations of the school
or condoned their non-observance. His absence when
the tragedy happened cannot be considered against
him because he was not supposed or required to
report to school on that day. And while it is true that
the offending student was still in the custody of the
teacher-in-charge even if the latter was physically
absent when the tort was committed, it has not been
established that it was caused by his laxness in
62
enforcing discipline upon the student. On the contrary,
the private respondents have proved that they had
exercised due diligence, through the enforcement of
the school regulations, in maintaining that discipline.
4. In the absence of a teacher-in-charge, it is probably
the dean of boys who should be held liable especially
in view of the unrefuted evidence that he had earlier
confiscated an unlicensed gun from one of the
students and returned the same later to him without
taking disciplinary action or reporting the matter to
higher authorities. While this was clearly negligence on
his part, for which he deserves sanctions from the
school, it does not necessarily link him to the shooting
of Amador as it has not been shown that he
confiscated and returned pistol was the gun that killed
the petitioners' son.
5. Finally, as previously observed, the Colegio de San
Jose-Recoletos cannot be held directly liable under the
article because only the teacher or the head of the
school of arts and trades is made responsible for the
damage caused by the student or apprentice. Neither
can it be held to answer for the tort committed by any
of the other private respondents for none of them has
been found to have been charged with the custody of
the offending student or has been remiss in the
discharge of his duties in connection with such
custody.
In sum, the Court finds under the facts as disclosed by
the record and in the light of the principles herein
announced that none of the respondents is liable for
the injury inflicted by Pablito Damon on Alfredo
Amadora that resulted in the latter's death at the
auditorium of the Colegio de San Jose-Recoletos on
April 13, 1972. While we deeply sympathize with the
petitioners over the loss of their son under the tragic
circumstances here related, we nevertheless are
unable to extend them the material relief they seek, as
a balm to their grief, under the law they have invoked.
WHEREFORE, the petition is DENIED, without any
pronouncement as to costs. It is so ordered.
Yap, Narvasa, Paras, Feliciano, Gancayco, Bidin,
Sarmiento, Cortes and Griño-Aquino, JJ., concur.
Fernan, Padilla and Teehankee, C.J., JJ, took no part.
Separate Opinions
MELENCIO-HERRERA, J., concurring and dissenting:
I concur, except with respect to the restricted meaning
given the term "teacher" in Article 2180 of the Civil
Code as "teacher-in-charge." This would limit liability
to occasions where there are classes under the
immediate charge of a teacher, which does not seem
to be the intendment of the law.
As I understand it, the philosophy of the law is that
whoever stands in loco parentis will have the same
duties and obligations as parents whenever in such a
standing. Those persons are mandatorily held liable for
the tortious acts of pupils and students so long as the
latter remain in their custody, meaning their protective
and supervisory custody.
Thus Article 349 of the Civil Code enumerates the
persons who stand in loco parentis and thereby
exercise substitute parental authority:
Art. 349 The following persons shall exercise substitute
parental authority:
xxx xxx xxx
2) Teachers and professors
xxx xxx xxx
4) Directors of trade establishments, with regard to
apprentices;'
Article 352 of the Civil Code further provides:
Art. 362. The relations between teacher and pupil,
professor and student, are fixed by government
regulations and those of each school or institution....
But even such rules and regulations as may be fixed can
not contravene the concept of substitute parental
authority.
The rationale of liability of school heads and teachers
for the tortious acts of their pupils was explained in
Palisoc vs. Brillantes (41 SCRA 548), thus:
The protective custody of the school heads and
teachers is mandatorily substituted for that of the
parents, and hence, it becomes their obligation as well
as that of the school itself to provide proper
supervision of the students' activities during the whole
time that they are at attendance in the school,
including recess time, as well as to take the necessary
precautions to protect the students in their custody
from dangers and hazards that would reasonably be
anticipated, including injuries that some students
63
themselves may inflict wilfully or through negligence
on their fellow students. (Emphasis supplied)
Of course, as provided for in the same Article 2180, the
responsibility treated of shall cease when the persons
mentioned prove that they observed all the diligence
of a good father of a family to prevent damage.
And while a school is, admittedly, not directly liable
since Article 2180 speaks only of teachers and schools
heads, yet, by virtue of the same provision, the school,
as their employer, may be held liable for the failure of
its teachers or school heads to perform their
mandatory legal duties as substitute parents (Sangco,
Philippine Law on Torts & Damages, 1978 ed., p. 201).
Again, the school may exculpate itself from liability by
proving that it had exercised the diligence of a good
father of the family.
Art. 2180. x x x
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
xxx xxx xxx
Parenthetically, from the enumeration in Article 349 of
the Civil Code, supra, it is apparent that the Code
Commission had already segregated the classification
of "teachers and professors" vis-a-vis their pupils, from
"directors of trade establishments, with regard to their
apprentices."
GUTIERREZ, JR., J., concurring:
I concur in the Court's opinion so carefully analyzed
and crafted by Justice Isagani A. Cruz. However, I would
like to stress the need for a major amendment to, if not
a complete scrapping of, Article 2180 of the Civil Code
insofar as it refers to teachers or heads of
establishments of arts and trades in relation to pupils
and students or apprentices. The seventh paragraph of
Art. 2180 is a relic of the past and contemplates a
situation long gone and out of date. In a Palisoc v.
Brillantes (41 SCRA 548) situation, it is bound to result
in mischief and injustice.
First, we no longer have masters and apprentices
toiling in schools of arts and trades. Students in
"technological" colleges and universities are no
different from students in liberal arts or professional
schools. Apprentices now work in regular shops and
factories and their relationship to the employer is
covered by laws governing the employment
relationship and not by laws governing the teacher—
student relationship.
Second, except for kindergarten, elementary, and
perhaps early high school students, teachers are often
no longer objects of veneration who are given the
respect due to substitute parents. Many students in
their late teens or early adult years view some teachers
as part of a bourgeois or reactionary group whose
advice on behaviour, deportment, and other non-
academic matters is not only resented but actively
rejected. It ,seems most unfair to hold teachers liable
on a presumption juris tantum of negligence for acts of
students even under circumstances where strictly
speaking there could be no in loco parentis
relationship. Why do teachers have to prove the
contrary of negligence to be freed from solidary
liability for the acts f bomb-throwing or pistol packing
students who would just as soon hurt them as they
would other members of the so-called-establishment.
The ordinary rules on quasi-delicta should apply to
teachers and schools of whatever nature insofar as
grown up students are concerned. The provision of Art.
2180 of the Civil Code involved in this case has outlived
its purpose. The Court cannot make law. It can only
apply the law with its imperfections. However, the
Court can suggest that such a law should be amended
or repealed.
Separate Opinions
MELENCIO-HERRERA, J., concurring and dissenting:
I concur, except with respect to the restricted meaning
given the term "teacher" in Article 2180 of the Civil
Code as "teacher-in-charge." This would limit liability
to occasions where there are classes under the
immediate charge of a teacher, which does not seem
to be the intendment of the law.
As I understand it, the philosophy of the law is that
whoever stands in loco parentis will have the same
duties and obligations as parents whenever in such a
standing. Those persons are mandatorily held liable for
the tortious acts of pupils and students so long as the
latter remain in their custody, meaning their protective
and supervisory custody.
Thus Article 349 of the Civil Code enumerates the
persons who stand in loco parentis and thereby
exercise substitute parental authority:
Art. 349 The following persons shall exercise substitute
parental authority:
xxx xxx xxx
2) Teachers and professors
64
xxx xxx xxx as their employer, may be held liable for the failure of "technological" colleges and universities are no
its teachers or school heads to perform their different from students in liberal arts or professional
4) Directors of trade establishments, with regard to mandatory legal duties as substitute parents (Sangco, schools. Apprentices now work in regular shops and
apprentices;' Philippine Law on Torts & Damages, 1978 ed., p. 201). factories and their relationship to the employer is
Again, the school may exculpate itself from liability by covered by laws governing the employment
Article 352 of the Civil Code further provides: proving that it had exercised the diligence of a good relationship and not by laws governing the teacher—
father of the family. student relationship.
Art. 362. The relations between teacher and pupil,
professor and student, are fixed by government Art. 2180. x x x Second, except for kindergarten, elementary, and
regulations and those of each school or institution.... perhaps early high school students, teachers are often
Employers shall be liable for the damages caused by no longer objects of veneration who are given the
But even such rules and regulations as may be fixed can their employees and household helpers acting within respect due to substitute parents. Many students in
not contravene the concept of substitute parental the scope of their assigned tasks, even though the their late teens or early adult years view some teachers
authority. former are not engaged in any business or industry. as part of a bourgeois or reactionary group whose
advice on behaviour, deportment, and other non-
The rationale of liability of school heads and teachers xxx xxx xxx academic matters is not only resented but actively
for the tortious acts of their pupils was explained in rejected. It ,seems most unfair to hold teachers liable
Palisoc vs. Brillantes (41 SCRA 548), thus: Parenthetically, from the enumeration in Article 349 of on a presumption juris tantum of negligence for acts of
the Civil Code, supra, it is apparent that the Code students even under circumstances where strictly
The protective custody of the school heads and Commission had already segregated the classification speaking there could be no in loco parentis
teachers is mandatorily substituted for that of the of "teachers and professors" vis-a-vis their pupils, from relationship. Why do teachers have to prove the
parents, and hence, it becomes their obligation as well "directors of trade establishments, with regard to their contrary of negligence to be freed from solidary
as that of the school itself to provide proper apprentices." liability for the acts f bomb-throwing or pistol packing
supervision of the students' activities during the whole students who would just as soon hurt them as they
time that they are at attendance in the school, GUTIERREZ, JR., J., concurring: would other members of the so-called-establishment.
including recess time, as well as to take the necessary
precautions to protect the students in their custody I concur in the Court's opinion so carefully analyzed The ordinary rules on quasi-delicta should apply to
from dangers and hazards that would reasonably be and crafted by Justice Isagani A. Cruz. However, I would teachers and schools of whatever nature insofar as
anticipated, including injuries that some students like to stress the need for a major amendment to, if not grown up students are concerned. The provision of Art.
themselves may inflict wilfully or through negligence a complete scrapping of, Article 2180 of the Civil Code 2180 of the Civil Code involved in this case has outlived
on their fellow students. (Emphasis supplied) insofar as it refers to teachers or heads of its purpose. The Court cannot make law. It can only
establishments of arts and trades in relation to pupils apply the law with its imperfections. However, the
Of course, as provided for in the same Article 2180, the and students or apprentices. The seventh paragraph of Court can suggest that such a law should be amended
responsibility treated of shall cease when the persons Art. 2180 is a relic of the past and contemplates a or repealed.
mentioned prove that they observed all the diligence situation long gone and out of date. In a Palisoc v.
of a good father of a family to prevent damage. Brillantes (41 SCRA 548) situation, it is bound to result
in mischief and injustice.
And while a school is, admittedly, not directly liable
since Article 2180 speaks only of teachers and schools First, we no longer have masters and apprentices
heads, yet, by virtue of the same provision, the school, toiling in schools of arts and trades. Students in

65

Chapter 2 - Nature and Effects
of Obligations
(Arts. 1163-1178)
Some Key Concepts
 Kinds of prestation/obligation (to give, to do,
not to do)
 Breach of obligation
12. Song Fo & Company vs. Hawaiian Philippine Co.,
G.R. No. 23769 September 16, 1925
MALCOLM, J.:
In the court of First Instance of Iloilo, Song Fo &
Company, plaintiff, presented a complaint with two
causes of action for breach of contract against the
Hawaiian-Philippine Co., defendant, in which judgment
was asked for P70,369.50, with legal interest, and
costs. In an amended answer and cross-complaint, the
defendant set up the special defense that since the
plaintiff had defaulted in the payment for the molasses
delivered to it by the defendant under the contract
between the parties, the latter was compelled to
cancel and rescind the said contract. The case was
submitted for decision on a stipulation of facts and the
exhibits therein mentioned. The judgment of the trial
court condemned the defendant to pay to the plaintiff
a total of P35,317.93, with legal interest from the date
of the presentation of the complaint, and with costs.
From the judgment of the Court of First Instance the
defendant only has appealed. In this court it has made
the following assignment of errors: "I. The lower court
erred in finding that appellant had agreed to sell to the
appellee 400,000, and not only 300,000, gallons of
molasses. II. The lower court erred in finding that the
appellant rescinded without sufficient cause the
contract for the sale of molasses executed by it and the
appellee. III. The lower court erred in rendering
judgment in favor of the appellee and not in favor of
the appellant in accordance with the prayer of its
answer and cross-complaint. IV. The lower court erred
in denying appellant's motion for a new trial." The
specified errors raise three questions which we will
consider in the order suggested by the appellant.
1. Did the defendant agree to sell to the plaintiff
400,000 gallons of molasses or 300,000 gallons of
molasses? The trial court found the former amount to
be correct. The appellant contends that the smaller
amount was the basis of the agreement.
The contract of the parties is in writing. It is found
principally in the documents, Exhibits F and G. The First
mentioned exhibit is a letter addressed by the
administrator of the Hawaiian-Philippine Co. to Song
Fo & Company on December 13, 1922. It reads:
SILAY, OCC. NEGROS, P.I.
December 13, 1922
Messrs. SONG FO AND CO.
Iloilo, Iloilo.
DEAR SIRS: Confirming our conversation we had today
with your Mr. Song Fo, who visited this Central, we
wish to state as follows:
He agreed to the delivery of 300,000 gallons of
molasses at the same price as last year under the same
condition, and the same to start after the completion
of our grinding season. He requested if possible to let
you have molasses during January, February and
March or in other words, while we are grinding, and we
agreed with him that we would to the best of our
ability, altho we are somewhat handicapped. But we
believe we can let you have 25,000 gallons during each
of the milling months, altho it interfere with the
shipping of our own and planters sugars to Iloilo. Mr.
Song Fo also asked if we could supply him with another
100,000 gallons of molasses, and we stated we believe
that this is possible and will do our best to let you have
these extra 100,000 gallons during the next year the
same to be taken by you before November 1st, 1923,
along with the 300,000, making 400,000 gallons in all.
Regarding the payment for our molasses, Mr. Song Fo
gave us to understand that you would pay us at the end
of each month for molasses delivered to you.
Hoping that this is satisfactory and awaiting your
answer regarding this matter, we remain.
Yours very truly,
HAWAIIAN-PHILIPPINE COMPANY
BY R. C. PITCAIRN
Administrator.
Exhibit G is the answer of the manager of Song Fo &
Company to the Hawaiian-Philippine Co. on December
16, 1922. This letter reads:
December 16th, 1922.
Messrs. HAWAIIAN-PHILIPPINE CO.,
Silay, Neg. Occ., P.I.
DEAR SIRS: We are in receipt of your favours dated the
9th and the 13th inst. and understood all their
contents.
In connection to yours of the 13th inst. we regret to
hear that you mentioned Mr. Song Fo the one who
visited your Central, but it was not for he was Mr. Song
Heng, the representative and the manager of Messrs.
Song Fo & Co.
66

With reference to the contents of your letter dated the
13th inst. we confirm all the arrangements you have
stated and in order to make the contract clear, we
hereby quote below our old contract as amended, as
per our new arrangements.
(a) Price, at 2 cents per gallon delivered at the central.
(b) All handling charges and expenses at the central
and at the dock at Mambaguid for our account.
(c) For services of one locomotive and flat cars
necessary for our six tanks at the rate of P48 for the
round trip dock to central and central to dock. This
service to be restricted to one trip for the six tanks.
Yours very truly,
SONG FO & COMPANY
By __________________________
Manager.
We agree with appellant that the above quoted
correspondence is susceptible of but one
interpretation. The Hawaiian-Philippine Co. agreed to
deliver to Song Fo & Company 300,000 gallons of
molasses. The Hawaiian-Philippine Co. also believed it
possible to accommodate Song Fo & Company by
supplying the latter company with an extra 100,000
gallons. But the language used with reference to the
additional 100,000 gallons was not a definite promise.
Still less did it constitute an obligation.
If Exhibit T relied upon by the trial court shows
anything, it is simply that the defendant did not
consider itself obliged to deliver to the plaintiff
molasses in any amount. On the other hand, Exhibit A,
a letter written by the manager of Song Fo & Company
on October 17, 1922, expressly mentions an
understanding between the parties of a contract for
P300,000 gallons of molasses.
We sustain appellant's point of view on the first
question and rule that the contract between the
parties provided for the delivery by the Hawaiian-
Philippine Co. to song Fo & Company of 300,000
gallons of molasses.
2. Had the Hawaiian-Philippine Co. the right to rescind
the contract of sale made with Song Fo & Company?
The trial judge answers No, the appellant Yes.
Turning to Exhibit F, we note this sentence: "Regarding
the payment for our molasses, Mr. Song Fo (Mr. Song
Heng) gave us to understand that you would pay us at
the end of each month for molasses delivered to you."
In Exhibit G, we find Song Fo & Company stating that
they understand the contents of Exhibit F, and that
they confirm all the arrangements you have stated,
and in order to make the contract clear, we hereby
Some doubt has risen as to when Song Fo & Company
quote below our old contract as amended, as per our
was expected to make payments for the molasses
new arrangements. (a) Price, at 2 cents per gallon
delivered. Exhibit F speaks of payments "at the end of
delivered at the central." In connection with the
each month." Exhibit G is silent on the point. Exhibit M,
portion of the contract having reference to the
a letter of March 28, 1923, from Warner, Barnes & Co.,
payment for the molasses, the parties have agree on a
Ltd., the agent of the Hawaiian-Philippine Co. to Song
table showing the date of delivery of the molasses, the
Fo & Company, mentions "payment on presentation of
amount and date thereof, the date of receipt of
bills for each delivery." Exhibit O, another letter from
account by plaintiff, and date of payment. The table
Warner, Barnes & Co., Ltd. to Song Fo & Company
mentioned is as follows:
dated April 2, 1923, is of a similar tenor. Exhibit P, a
communication sent direct by the Hawaiian-Philippine
Co. to Song Fo & Company on April 2, 1923, by which
the Hawaiian-Philippine Co. gave notice of the
termination of the contract, gave as the reason for the
rescission, the breach by Song Fo & Company of this
condition: "You will recall that under the arrangements
made for taking our molasses, you were to meet our
accounts upon presentation and at each delivery." Not
far removed from this statement, is the allegation of
67
plaintiff in its complaint that "plaintiff agreed to pay reality no excuse for writing its letter of April 2, 1923, Co. Translated into pesos and centavos, this meant a
defendant, at the end of each month upon cancelling the contract. (Warner, Barnes & Co. vs. Inza loss to the plaintiff of approximately P2,174.91. As the
presentation accounts." [1922], 43 Phil., 505.) conditions existing at the central of the Hawaiian-
Philippine Co. may have been different than those
Resolving such ambiguity as exists and having in mind We rule that the appellant had no legal right to rescind found at the Central North Negros Sugar Co., Inc., and
ordinary business practice, a reasonable deduction is the contract of sale because of the failure of Song Fo & the Central Victorias Milling Company, and as not
that Song Fo & Company was to pay the Hawaiian- Company to pay for the molasses within the time alone through the delay but through expenses of
Philippine Co. upon presentation of accounts at the agreed upon by the parties. We sustain the finding of transportation and incidental expenses, the plaintiff
end of each month. Under this hypothesis, Song Fo & the trial judge in this respect. may have been put to greater cost in making the
Company should have paid for the molasses delivered purchase of the molasses in the open market, we
in December, 1922, and for which accounts were 3. On the basis first, of a contract for 300,000 gallons would concede under the first cause of action in round
received by it on January 5, 1923, not later than of molasses, and second, of a contract imprudently figures P3,000.
January 31 of that year. Instead, payment was not breached by the Hawaiian-Philippine Co., what is the
made until February 20, 1923. All the rest of the measure of damages? We again turn to the facts as The second cause of action relates to lost profits on
molasses was paid for either on time or ahead of time. agreed upon by the parties. account of the breach of the contract. The only
evidence in the record on this question is the
The terms of payment fixed by the parties are The first cause of action of the plaintiff is based on the stipulation of counsel to the effect that had Mr. Song
controlling. The time of payment stipulated for in the greater expense to which it was put in being compelled Heng, the manager of Song Fo & Company, been called
contract should be treated as of the essence of the to secure molasses from other sources. Three hundred as a witness, he would have testified that the plaintiff
contract. Theoretically, agreeable to certain conditions thousand gallons of molasses was the total of the would have realized a profit of P14,948.43, if the
which could easily be imagined, the Hawaiian- agreement, as we have seen. As conceded by the contract of December 13, 1922, had been fulfilled by
Philippine Co. would have had the right to rescind the plaintiff, 55,006 gallons of molasses were delivered by the defendant. Indisputably, this statement falls far
contract because of the breach of Song Fo & Company. the defendant to the plaintiff before the breach. This short of presenting proof on which to make a finding
But actually, there is here present no outstanding fact leaves 244,994 gallons of molasses undelivered which as to damages.
which would legally sanction the rescission of the the plaintiff had to purchase in the open market. As
contract by the Hawaiian-Philippine Co. expressly conceded by the plaintiff at page 25 of its In the first place, the testimony which Mr. Song Heng
brief, 100,000 gallons of molasses were secured from would have given undoubtedly would follow the same
The general rule is that rescission will not be permitted the Central North Negros Sugar Co., Inc., at two line of thought as found in the decision of the trial
for a slight or casual breach of the contract, but only centavos a gallon. As this is the same price specified in court, which we have found to be unsustainable. In the
for such breaches as are so substantial and the contract between the plaintiff and the defendant, second place, had Mr. Song Heng taken the witness-
fundamental as to defeat the object of the parties in the plaintiff accordingly suffered no material loss in stand and made the statement attributed to him, it
making the agreement. A delay in payment for a small having to make this purchase. So 244,994 gallons would have been insufficient proof of the allegations
quantity of molasses for some twenty days is not such minus the 100,000 gallons just mentioned leaves as a of the complaint, and the fact that it is a part of the
a violation of an essential condition of the contract was result 144,994 gallons. As to this amount, the plaintiff stipulation by counsel does not change this result. And
warrants rescission for non-performance. Not only admits that it could have secured it and more from the lastly, the testimony of the witness Song Heng, it we
this, but the Hawaiian-Philippine Co. waived this Central Victorias Milling Company, at three and one- may dignify it as such, is a mere conclusion, not a
condition when it arose by accepting payment of the half centavos per gallon. In other words, the plaintiff proven fact. As to what items up the more than
overdue accounts and continuing with the contract. had to pay the Central Victorias Milling company one P14,000 of alleged lost profits, whether loss of sales or
Thereafter, Song Fo & Company was not in default in and one-half centavos a gallon more for the molasses loss of customers, or what not, we have no means of
payment so that the Hawaiian-Philippine co. had in than it would have had to pay the Hawaiian-Philippine knowing.

68

We rule that the plaintiff is entitled to recover
damages from the defendant for breach of contract on
the first cause of action in the amount of P3,000 and
on the second cause of action in no amount.
Appellant's assignments of error are accordingly found
to be well taken in part and not well taken in part.
Agreeable to the foregoing, the judgment appealed
from shall be modified and the plaintiff shall have and
recover from the defendant the sum of P3,000, with
legal interest form October 2, 1923, until payment.
Without special finding as to costs in either instance, it
is so ordered.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand,
Johns, Romualdez and Villa-Real, JJ., concur.
13. Spouses Velarde v. CA
G.R. No. 108346 July 11, 2001
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like
failure to pay the price in the manner prescribed by the
contract, entitled the injured party to rescind the
obligation. Rescission abrogates the contract from its
inception and requires a mutual restitution of benefits
received.
The Case
Before us is a Petition for Review on Certiorari1
questioning the Decision2 of the Court of Appeals (CA)
in CA-GR CV No. 32991 dated October 9, 1992, as well
as its Resolution3 dated December 29, 1992 denying
petitioner's motion for reconsideration.4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby
ANNULLED and SET ASIDE and the Decision dated
November 14, 1990 dismissing the [C]omplaint is
RESINSTATED. The bonds posted by plaintiffs-
appellees and defendants-appellants are hereby
RELEASED."5
The Facts
The factual antecedents of the case, as found by the
CA, are as follows:
"x x x. David Raymundo [herein private respondent] is
the absolute and registered owner of a parcel of land,
together with the house and other improvements
thereon, located at 1918 Kamias St., Dasmariñas
Village, Makati and covered by TCT No. 142177.
Defendant George Raymundo [herein private
petitioners] is David's father who negotiated with
plaintiffs Avelina and Mariano Velarde [herein
petitioners] for the sale of said property, which was,
however, under lease (Exh. '6', p. 232, Record of Civil
Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of
Mortgage (Exh. 'A'; Exh. '1', pp. 11-12, Record) was
executed by defendant David Raymundo, as vendor, in
favor of plaintiff Avelina Velarde, as vendee, with the
following terms and conditions:
'x x x xxx xxx
'That for and in consideration of the amount of EIGHT
HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, to his
entire and complete satisfaction, by these presents the
VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS
AND DELIVERS, freely and voluntarily, with full
warranty of a legal and valid title as provided by law,
unto the VENDEE, her heirs, successors and assigns,
the parcel of land mentioned and described above,
together with the house and other improvements
thereon.
'That the aforesaid parcel of land, together with the
house and other improvements thereon, were
mortgaged by the VENDOR to the BANK OF THE
PHILIPPINE ISLANDS, Makati, Metro Manila to secure
the payment of a loan of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate
Mortgage signed and executed by the VENDOR in favor
of the said Bank of the Philippine Islands, on _____ and
which Real Estate Mortgage was ratified before Notary
Public for Makati, _____, as Doc. No. ______, Page No.
_____, Book No. ___, Series of 1986 of his Notarial
Register.
'That as part of the consideration of this sale, the
VENDEE hereby assumes to pay the mortgage
obligations on the property herein sold in the amount
of ONE MILLION EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, in favor of Bank
of Philippine Islands, in the name of the VENDOR, and
further agrees to strictly and faithfully comply with all
the terms and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in favor
of BPI, including interests and other charges for late
payment levied by the Bank, as if the same were
originally signed and executed by the VENDEE.
'It is further agreed and understood by the parties
herein that the capital gains tax and documentary
stamps on the sale shall be for the account of the
VENDOR; whereas, the registration fees and transfer
tax thereon shall be the account of the VENDEE.' (Exh.
'A', pp. 11-12, Record).'
69
"On the same date, and as part of the above-
document, plaintiff Avelina Velarde, with the consent
of her husband, Mariano, executed an Undertaking
(Exh. 'C', pp. 13-14, Record).'
'x x x xxx xxx
'Whereas, as per deed of Sale with Assumption of
Mortgage, I paid Mr. David A. Raymundo the sum of
EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage
obligations on the property with the Bank of the
Philippine Islands in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, in accordance with the terms and
conditions of the Deed of Real Estate Mortgage dated
_____, signed and executed by Mr. David A. Raymundo
with the said Bank, acknowledged before Notary Public
for Makati, _____, as Doc. No. _____, Page No. _____,
Book No. _____, Series of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of
the mortgage obligations on the property is not yet
approved by the mortgagee Bank, I have agreed to pay
the mortgage obligations on the property with the
Bank in the name of Mr. David A. Raymundo, in
accordance with the terms and conditions of the said
Deed of Real Estate Mortgage, including all interests
and other charges for late payment.
'WHEREAS, this undertaking is being executed in favor
of Mr. David A. Raymundo, for purposes of attesting
and confirming our private understanding concerning
the said mortgage obligations to be assumed.
'NOW, THEREFORE, for and in consideration of the
foregoing premises, and the assumption of the
mortgage obligations of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the bank of the Philippine
Islands, I, Mrs, Avelina D, Velarde with the consent of
my husband, Mariano Z. Velardo, do hereby bind and
obligate myself, my heirs, successors and assigns, to
strictly and faithfully comply with the following terms
and conditions:
'1. That until such time as my assumption of the
mortgage obligations on the property purchased is
approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan
in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Mr. David
A. Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and
conditions of the said Deed of Real Estate Mortgage, I
hereby agree that my downpayment of P800,000.00,
plus all payments made with the Bank of the Philippine
Islands on the mortgage loan, shall be forfeited in favor
of Mr. David A. Raymundo, as and by way of liquidated
damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A. Raymundo
shall resume total and complete ownership and
possession of the property sold by way of Deed of Sale
with Assumption of Mortgage, and the same shall be
deemed automatically cancelled and be of no further
force or effect, in the same manner as it (the) same had
never been executed or entered into.
'3. That I am executing the Undertaking for purposes of
binding myself, my heirs, successors and assigns, to
strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank
of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property
mentioned and identified above, [does] hereby
confirm and agree to the undertakings of the Vendee
pertinent to the assumption of the mortgage
obligations by the Vendee with the Bank of the
Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano
Velarde and David Raymundo.
"It appears that the negotiated terms for the payment
of the balance of P1.8 million was from the proceeds
of a loan that plaintiffs were to secure from a bank with
defendant's help. Defendants had a standing approved
credit line with the Bank of the Philippine Islands (BPI).
The parties agreed to avail of this, subject to BPI's
approval of an application for assumption of mortgage
by plaintiffs. Pending BPI's approval o[f] the
application, plaintiffs were to continue paying the
monthly interests of the loan secured by a real estate
mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the
monthly interest on the loan secured by the
aforementioned mortgage for three (3) months as
follows: September 19, 1986 at P27,225.00; October
20, 1986 at P23,000.00; and November 19, 1986 at
P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).
"On December 15, 1986, plaintiffs were advised that
the Application for Assumption of Mortgage with BPI,
was not approved (Exh. 'J', p. 133, Record). This
prompted plaintiffs not to make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote
plaintiffs informing the latter that their non-payment
to the mortgage bank constitute[d] non-performance
of their obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru
counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing
to pay the balance in cash not later than January 21,
70
1987 provided: (a) you deliver actual possession of the
property to her not later than January 15, 1987 for her
immediate occupancy; (b) you cause the re- lease of
title and mortgage from the Bank of P.I. and make the
title available and free from any liens and
encumbrances; and (c) you execute an absolute deed
of sale in her favor free from any liens or
encumbrances not later than January 21, 1987.' (Exhs.
'k', '4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a
notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to
the latter's failure to comply with the terms and
conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking (Exh. '5', pp. 225-226,
Record)."6
Consequently, petitioners filed on February 9, 1987 a
Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession
and damages. This was docketed as Civil Case No.
15952 at the Regional Trial Court of Makati, Branch
149. The case was tried and heard by then Judge
Consuelo Ynares-Santiago (now an associate justice of
this Court), who dismissed the Complaint in a Decision
dated November 14, 1990.7 Thereafter, petitioners
filed a Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted
to the Court of Appeals and Judge Salvador S. A. Abad
Santos was assigned to the sala she vacated. In an
Order dated May 15, 1991,9 Judge Abad Santos
granted petitioner's Motion for Reconsideration and
directed the parties to proceed with the sale. He
instructed petitioners to pay the balance of P1.8
million to private respondents who, in turn, were
ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to
petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and
reinstated then Judge Ynares-Santiago's earlier
Decision dismissing petitioners' Complaint. Upholding
the validity of the rescission made by private
respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it
was stipulated that 'as part of the consideration of this
sale, the VENDEE (Velarde)' would assume to pay the
mortgage obligation on the subject property in the
amount of P 1.8 million in favor of BPI in the name of
the Vendor (Raymundo). Since the price to be paid by
the Vendee Velarde includes the downpayment of
P800,000.00 and the balance of Pl.8 million, and the
balance of Pl.8 million cannot be paid in cash, Vendee
Velarde, as part of the consideration of the sale, had to
assume the mortgage obligation on the subject
property. In other words, the assumption of the
mortgage obligation is part of the obligation of
Velarde, as vendee, under the contract. Velarde
further agreed 'to strictly and faithfully comply with all
the terms and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in favor
of BPI x x x as if the same were originally signed and
executed by the Vendee. (p. 2, thereof, p. 12, Record).
This was reiterated by Velarde in the document
entitled 'Undertaking' wherein the latter agreed to
continue paying said loan in accordance with the terms
and conditions of the Deed of Real Estate Mortgage in
the name of Raymundo. Moreover, it was stipulated
that in the event of violation by Velarde of any terms
and conditions of said deed of real estate mortgage,
the downpayment of P800,000.00 plus all payments
made with BPI or the mortgage loan would be forfeited
and the [D]eed of [S]ale with [A]ssumption of
[M]ortgage would thereby be Cancelled automatically
and of no force and effect (pars. 2 & 3, thereof, pp 13-
14, Record).
"From these 2 documents, it is therefore clear that part
of the consideration of the sale was the assumption by
Velarde of the mortgage obligation of Raymundo in the
amount of Pl.8 million. This would mean that Velarde
had to make payments to BPI under the [D]eed of
[R]eal [E]state [M]ortgage the name of Raymundo. The
application with BPI for the approval of the assumption
of mortgage would mean that, in case of approval,
payment of the mortgage obligation will now be in the
name of Velarde. And in the event said application is
disapproved, Velarde had to pay in full. This is alleged
and admitted in Paragraph 5 of the Complaint.
Mariano Velarde likewise admitted this fact during the
hearing on September 15, 1997 (p. 47, t.s.n.,
September 15, 1987; see also pp. 16-26, t.s.n., October
8, 1989). This being the case, the non-payment of the
mortgage obligation would result in a violation of the
contract. And, upon Velarde's failure to pay the agreed
price, the[n] Raymundo may choose either of two (2)
actions - (1) demand fulfillment of the contract, or (2)
demand its rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for
assumption of mortgage cannot be used as an excuse
for Velarde's non-payment of the balance of the
purchase price. As borne out by the evidence, Velarde
had to pay in full in case of BPI's disapproval of the
application for assumption of mortgage. What Velarde
should have done was to pay the balance of P1.8
million. Instead, Velarde sent Raymundo a letter dated
January 7, 1987 (Exh. 'K', '4') which was strongly given
weight by the lower court in reversing the decision
rendered by then Judge Ynares-Santiago. In said letter,
Velarde registered their willingness to pay the balance
in cash but enumerated 3 new conditions which, to the
mind of this Court, would constitute a new undertaking
71
or new agreement which is subject to the consent or
approval of Raymundo. These 3 conditions were not
among those previously agreed upon by Velarde and
Raymundo. These are mere offers or, at most, an
attempt to novate. But then again, there can be no
novation because there was no agreement of all the
parties to the new contract (Garcia, Jr. vs. Court of
Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the
mortgage obligation, the Deed of Sale with Assumption
of Mortgage would be deemed 'automatically
cancelled and of no further force and effect, as if the
same had never been executed or entered into.' While
it is true that even if the contract expressly provided
for automatic rescission upon failure to pay the price,
the vendee may still pay, he may do so only for as long
as no demand for rescission of the contract has been
made upon him either judicially or by a notarial act
(Article 1592, Civil Code). In the case at bar, Raymundo
sent Velarde notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the
latter's failure to comply with their obligation. The
rescission was justified in view of Velarde's failure to
pay the price (balance) which is substantial and
fundamental as to defeat the object of the parties in
making the agreement. As adverted to above, the
agreement of the parties involved a reciprocal
obligation wherein the obligation of one is a resolutory
condition of the obligation of the other, the non-
fulfillment of which entitles the other party to rescind
the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the
non-payment of the mortgage obligation by appellees
Velarde would create a right to demand payment or to
rescind the contract, or to criminal prosecution (Edca
Publishing & Distribution Corporation vs. Santos, 184
SCRA 614). Upon appellee's failure, therefore, to pay
the balance, the contract was properly rescinded (Ruiz
vs. IAC, 184 SCRA 720). Consequently, appellees
Velarde having violated the contract, they have lost
their right to its enforcement and hence, cannot avail
of the action for specific performance (Voysaw vs.
Interphil Promotions, Inc., 148 SCRA 635)."10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum,12 interpose the
following assignment of errors:
"I.
The Court of Appeals erred in holding that the non-
payment of the mortgage obligation resulted in a
breach of the contract.
"II
The Court of Appeals erred in holding that the
rescission (resolution) of the contract by private
respondents was justified.
"III
The Court of Appeals erred in holding that petitioners'
January 7, 1987 letter gave three 'new conditions'
constituting mere offers or an attempt to novate
necessitating a new agreement between the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private
respondents' mortgage obligation did not constitute a
breach of contract, considering that their request to
assume the obligation had been disapproved by the
mortgagee bank. Accordingly, payment of the monthly
amortizations ceased to be their obligation and,
instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the
mortgage obligations; they also failed to pay the
balance of the purchase price. As admitted by both
parties, their agreement mandated that petitioners
should pay the purchase price balance of P1.8 million
to private respondents in case the request to assume
the mortgage would be disapproved. Thus, on
December 15, 1986, when petitioners received notice
of the bank's disapproval of their application to assume
respondents' mortgage, they should have paid the
balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private
respondents offering to make such payment only upon
the fulfillment of certain conditions not originally
agreed upon in the contract of sale. Such conditional
offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a
contract of sale.
In a contract of sale, the seller obligates itself to
transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in
money or its equivalent.13
Private respondents had already performed their
obligation through the execution of the Deed of Sale,
which effectively transferred ownership of the
property to petitioner through constructive delivery.
Prior physical delivery or possession is not legally
required, and the execution of the Deed of Sale is
deemed equivalent to delivery.14
72
Petitioners, on the other hand, did not perform their
correlative obligation of paying the contract price in
the manner agreed upon. Worse, they wanted private
respondents to perform obligations beyond those
stipulated in the contract before fulfilling their own
obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the
contract by private respondents was not justified,
inasmuch as the former had signified their willingness
to pay the balance of the purchase price only a little
over a month from the time they were notified of the
disapproval of their application for assumption of
mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a
rescission. They cite several cases15 in which this Court
declared that rescission of a contract would not be
permitted for a slight or casual breach. Finally, they
argue that they have substantially performed their
obligation in good faith, considering that they have
already made the initial payment of P800,000 and
three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by
petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of
their reciprocal obligation to pay the purchase price
under the contract of sale. Private respondents' right
to rescind the contract finds basis in Article 1191 of the
Civil Code, which explicitly provides as follows:
"Art. 1191. -- The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission
even after he has chosen fulfillment, if the latter should
become impossible."
The right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach
of faith by the other party who violates the reciprocity
between them.16 The breach contemplated in the said
provision is the obligor's failure to comply with an
existing obligation.17 When the obligor cannot comply
with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the
court to determine the period of compliance, the court
shall decree the rescission.18
In the present case, private respondents validly
exercised their right to rescind the contract, because of
the failure of petitioners to comply with their
obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that
consequently gave rise to private respondent's right to
rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the
balance of the purchase price one month after it
became due; however, this was not equivalent to
actual payment as would constitute a faithful
compliance of their reciprocal obligation. Moreover,
the offer to pay was conditioned on the performance
by private respondents of additional burdens that had
not been agreed upon in the original contract. Thus, it
cannot be said that the breach committed by
petitioners was merely slight or casual as would
preclude the exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases19 they
cited, because the factual circumstances in those cases
are not analogous to those in the present one. In Song
Fo there was, on the part of the buyer, only a delay of
twenty (20) days to pay for the goods delivered.
Moreover, the buyer's offer to pay was unconditional
and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay
in paying the balance of 1,000 which was actually paid.
In Tan, the alleged breach was private respondent's
delay of only a few days, which was for the purpose of
clearing the title to the property; there was no
reference whatsoever to the nonpayment of the
contract price.
In the instant case, the breach committed did not
merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat
the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million
balance, but they also imposed upon private
respondents new obligations as preconditions to the
performance of their own obligation. In effect, the
qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable
under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to
protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by
petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions
of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated
in the contract does not apply. Instead, Civil Code
73
provisions shall govern and regulate the resolution of
this controversy.
Considering that the rescission of the contract is based
on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original
situation prior to the inception of the contract.
Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of
P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private
respondents, lest the latter unjustly enrich themselves
at the expense of the former.
Rescission creates the obligation to return the object
of the contract. It can be carried out only when the one
who demands rescission can return whatever he may
be obliged to restore.20 To rescind is to declare a
contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and
release the parties from further obligations to each
other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no
contract has been made.21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it
no longer necessary to discuss the third issue raised by
petitioners. Suffice it to say that the three conditions
appearing on the January 7, 1987 letter of petitioners
to private respondents were not part of the original
contract. By that time, it was already incumbent upon
the former to pay the balance of the sale price. They
had no right to demand preconditions to the
fulfillment of their obligation, which had become due.
WHEREFORE, the assailed Decision is hereby
AFFIRMED with the MODIFICATION that private
respondents are ordered to return to petitioners the
amount of P874,150, which the latter paid as a
consequence of the rescinded contract, with legal
interest thereon from January 8, 1987, the date of
rescission. No pronouncement as to costs.
SO ORDERED.1âwphi1.nêt
Melo, Vitug, and Sandoval-Gutierrez, JJ., concur.
21 0campo v. Court of Appeals, 233 SCRA 551, June 30,
1994.
 Modes of breach : fraud (dolo), negligence
(statutory definition – Art. 1173), delay or mora
(mora solvendi or delay by the debtor; mora
accipiendi or delay by the creditor; compensation
morae), contravention of the tenor
14. Woodhouse v. Halili
G.R. No. L-4811 July 31, 1953
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a
written agreement, Exhibit A, with the defendant, the
most important provisions of which are (1) that they
shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2)
that the defendant was to decide matters of general
policy regarding the business, while the plaintiff was to
attend to the operation and development of the
bottling plant; (3) that the plaintiff was to secure the
Mission Soft Drinks franchise for and in behalf of the
proposed partnership; and (4) that the plaintiff was to
receive 30 per cent of the net profits of the business.
The above agreement was arrived at after various
conferences and consultations by and between them,
with the assistance of their respective attorneys. Prior
to entering into this agreement, plaintiff had informed
the Mission Dry Corporation of Los Angeles, California,
U.S.A., manufacturers of the bases and ingridients of
the beverages bearing its name, that he had interested
a prominent financier (defendant herein) in the
business, who was willing to invest half a million dollars
in the bottling and distribution of the said beverages,
and requested, in order that he may close the deal with
him, that the right to bottle and distribute be granted
him for a limited time under the condition that it will
finally be transferred to the corporation (Exhibit H).
Pursuant for this request, plaintiff was given "a thirty-
days" option on exclusive bottling and distribution
rights for the Philippines" (Exhibit J). Formal
negotiations between plaintiff and defendant began at
a meeting on November 27, 1947, at the Manila Hotel,
with their lawyers attending. Before this meeting
plaintiff's lawyer had prepared the draft of the
agreement, Exhibit II or OO, but this was not
satisfactory because a partnership, instead of a
corporation, was desired. Defendant's lawyer
prepared after the meeting his own draft, Exhibit HH.
This last draft appears to be the main basis of the
agreement, Exhibit A.
The contract was finally signed by plaintiff on
December 3, 1947. Plaintiff did not like to go to the
United States without the agreement being not first
signed. On that day plaintiff and defendant went to the
United States, and on December 10, 1947, a franchise
agreement (Exhibit V) was entered into the Mission
Dry Corporation and Fortunato F. Halili and/or Charles
F. Woodhouse, granted defendant the exclusive right,
license, and authority to produce, bottle, distribute,
and sell Mision beverages in the Philippines. The
plaintiff and the defendant thereafter returned to the
Philippines. Plaintiff reported for duty in January, 1948,
but operations were not begun until the first week of
74
February, 1948. In January plaintiff was given as
advance, on account of profits, the sum of P2,000,
besides the use of a car; in February, 1948, also P2,000,
and in March only P1,000. The car was withdrawn from
plaintiff on March 9, 1948.
When the bottling plant was already on operation,
plaintiff demanded of defendant that the partnership
papers be executed. At first defendant executed
himself, saying there was no hurry. Then he promised
to do so after the sales of the product had been
increased to P50,000. As nothing definite was
forthcoming, after this condition was attained, and as
defendant refused to give further allowances to
plaintiff, the latter caused his attorneys to take up the
matter with the defendant with a view to a possible
settlement. as none could be arrived at, the present
action was instituted.
In his complaint plaintiff asks for the execution of the
contract of partnership, an accounting of the profits,
and a share thereof of 30 per cent, as well as damages
in the amount of P200,000. In his answer defendant
alleges by way of defense (1) that defendant's consent
to the agreement, Exhibit A, was secured by the
representation of plaintiff that he was the owner, or
was about to become owner of an exclusive bottling
franchise, which representation was false, and plaintiff
did not secure the franchise, but was given to
defendant himself; (2) that defendant did not fail to
carry out his undertakings, but that it was plaintiff who
failed; (3) that plaintiff agreed to contribute the
exclusive franchise to the partnership, but plaintiff
failed to do so. He also presented a counter-claim for
P200,000 as damages. On these issues the parties went
to trial, and thereafter the Court of First Instance
rendered judgment ordering defendant to render an
accounting of the profits of the bottling and
distribution business, subject of the action, and to pay
plaintiff 15 percent thereof. it held that the execution
of the contract of partnership could not be enforced
upon the parties, but it also held that the defense of
fraud was not proved. Against this judgment both
parties have appealed.
The most important question of fact to be determined
is whether defendant had falsely represented that he
had an exclusive franchise to bottle Mission beverages,
and whether this false representation or fraud, if it
existed, annuls the agreement to form the partnership.
The trial court found that it is improbable that
defendant was never shown the letter, Exhibit J,
granting plaintiff had; that the drafts of the contract
prior to the final one can not be considered for the
purpose of determining the issue, as they are
presumed to have been already integrated into the
final agreement; that fraud is never presumed and
must be proved; that the parties were represented by
attorneys, and that if any party thereto got the worse
part of the bargain, this fact alone would not invalidate
the agreement. On this appeal the defendant, as
appellant, insists that plaintiff did represent to the
defendant that he had an exclusive franchise, when as
a matter of fact, at the time of its execution, he no
longer had it as the same had expired, and that,
therefore, the consent of the defendant to the
contract was vitiated by fraud and it is, consequently,
null and void.
Our study of the record and a consideration of all the
surrounding circumstances lead us to believe that
defendant's contention is not without merit. Plaintiff's
attorney, Mr. Laurea, testified that Woodhouse
presented himself as being the exclusive grantee of a
franchise, thus:
A. I don't recall any discussion about that matter. I took
along with me the file of the office with regards to this
matter. I notice from the first draft of the document
which I prepared which calls for the organization of a
corporation, that the manager, that is, Mr.
Woodhouse, is represented as being the exclusive
grantee of a franchise from the Mission Dry
Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea
prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that
plaintiff had the exclusive franchise. Thus, the first
paragraph states:
Whereas, the manager is the exclusive grantee of a
franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission
products and their sale to the public throughout the
Philippines; . . . .
3. The manager, upon the organization of the said
corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines. .
...
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the
principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of
considering the prior draft is not to vary, alter, or
modify the agreement, but to discover the intent of the
parties thereto and the circumstances surrounding the
execution of the contract. The issue of fact is: Did
plaintiff represent to defendant that he had an
exclusive franchise? Certainly, his acts or statements
prior to the agreement are essential and relevant to
the determination of said issue. The act or statement
of the plaintiff was not sought to be introduced to
change or alter the terms of the agreement, but to
prove how he induced the defendant to enter into it —
to prove the representations or inducements, or fraud,
75
with which or by which he secured the other party's
consent thereto. These are expressly excluded from
the parol evidence rule. (Bough and Bough vs.
Cantiveros and Hanopol, 40 Phil., 209; port Banga
Lumber Co. vs. Export & Import Lumber Co., 26 Phil.,
602; III Moran 221,1952 rev. ed.) Fraud and false
representation are an incident to the creation of a jural
act, not to its integration, and are not governed by the
rules on integration. Were parties prohibited from
proving said representations or inducements, on the
ground that the agreement had already been entered
into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol
evidence rule expressly allows the evidence to be
introduced when the validity of an instrument is put in
issue by the pleadings (section 22, par. (a), Rule 123,
Rules of Court),as in this case.
That plaintiff did make the representation can also be
easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation,
Exhibit H, he said:.
. . . He told me to come back to him when I was able to
speak with authority so that we could come to terms
as far as he and I were concerned. That is the reason
why the cable was sent. Without this authority, I am in
a poor bargaining position. . .
I would propose that you grant me the exclusive
bottling and distributing rights for a limited period of
time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling
was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to
bargain with defendant and close the deal with him, he
must have used his said option for the above-indicated
purpose, especially as it appears that he was able to
secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation
he had with defendant is to the effect that when
plaintiff called on the latter, the latter answered,
"Well, come back to me when you have the authority
to operate. I am definitely interested in the bottling
business." (t. s. n., pp. 60-61.) When after the elections
of 1949 plaintiff went to see the defendant (and at that
time he had already the option), he must have
exultantly told defendant that he had the authority
already. It is improbable and incredible for him to have
disclosed the fact that he had only an option to the
exclusive franchise, which was to last thirty days only,
and still more improbable for him to have disclosed
that, at the time of the signing of the formal
agreement, his option had already expired. Had he
done so, he would have destroyed all his bargaining
power and authority, and in all probability lost the deal
itself.
The trial court reasoned, and the plaintiff on this
appeal argues, that plaintiff only undertook in the
agreement "to secure the Mission Dry franchise for
and in behalf of the proposed partnership." The
existence of this provision in the final agreement does
not militate against plaintiff having represented that
he had the exclusive franchise; it rather strengthens
belief that he did actually make the representation.
How could plaintiff assure defendant that he would get
the franchise for the latter if he had not actually
obtained it for himself? Defendant would not have
gone into the business unless the franchise was raised
in his name, or at least in the name of the partnership.
Plaintiff assured defendant he could get the franchise.
Thus, in the draft prepared by defendant's attorney,
Exhibit HH, the above provision is inserted, with the
difference that instead of securing the franchise for the
defendant, plaintiff was to secure it for the
partnership. To show that the insertion of the above
provision does not eliminate the probability of plaintiff
representing himself as the exclusive grantee of the
franchise, the final agreement contains in its third
paragraph the following:
. . . and the manager is ready and willing to allow the
capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the
partnership, . . . the franchise from Mission Dry
Corporation shall be reassigned to the manager.
These statements confirm the conclusion that
defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise. Thus
it is that it was also agreed upon that the franchise was
to be transferred to the name of the partnership, and
that, upon its dissolution or termination, the same
shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in
California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself
testified, plaintiff's participation in the net profits to
one half of that agreed upon. He could not have had
such a feeling had not plaintiff actually made him
believe that he (plaintiff) was the exclusive grantee of
the franchise.
The learned trial judge reasons in his decision that the
assistance of counsel in the making of the contract
made fraud improbable. Not necessarily, because the
alleged representation took place before the
conferences were had, in other words, plaintiff had
already represented to defendant, and the latter had
already believed in, the existence of plaintiff's
exclusive franchise before the formal negotiations, and
76
they were assisted by their lawyers only when said
formal negotiations actually took place. Furthermore,
plaintiff's attorney testified that plaintiff had said that
he had the exclusive franchise; and defendant's lawyer
testified that plaintiff explained to him, upon being
asked for the franchise, that he had left the papers
evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did
actually represent to defendant that he was the holder
of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the
exclusive franchise. Defendant would not perhaps
have gone to California and incurred expenses for the
trip, unless he believed that plaintiff did have that
exclusive privilege, and that the latter would be able to
get the same from the Mission Dry Corporation itself.
Plaintiff knew what defendant believed about his
(plaintiff's) exclusive franchise, as he induced him to
that belief, and he may not be allowed to deny that
defendant was induced by that belief. (IX Wigmore,
sec. 2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false
representation. Does it amount to a fraud that would
vitiate the contract? It must be noted that fraud is
manifested in illimitable number of degrees or
gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious
machinations and representations that the law
punishes as a crime. In consequence, article 1270 of
the Spanish Civil Code distinguishes two kinds of (civil)
fraud, the causal fraud, which may be a ground for the
annulment of a contract, and the incidental deceit,
which only renders the party who employs it liable for
damages. This Court had held that in order that fraud
may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante),
inducement to the making of the contract. (Article
1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.)
The record abounds with circumstances indicative that
the fact that the principal consideration, the main
cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of
plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership. The
original draft prepared by defendant's counsel was to
the effect that plaintiff obligated himself to secure a
franchise for the defendant. Correction appears in this
same original draft, but the change is made not as to
the said obligation but as to the grantee. In the
corrected draft the word "capitalist"(grantee) is
changed to "partnership." The contract in its final form
retains the substituted term "partnership." The
defendant was, therefore, led to the belief that
plaintiff had the exclusive franchise, but that the same
was to be secured for or transferred to the partnership.
The plaintiff no longer had the exclusive franchise, or
the option thereto, at the time the contract was
perfected. But while he had already lost his option
thereto (when the contract was entered into), the
principal obligation that he assumed or undertook was
to secure said franchise for the partnership, as the
bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was
guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or
price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the
partnership business. Defendant agreed to give
plaintiff 30 per cent share in the net profits because he
was transferring his exclusive franchise to the
partnership. Thus, in the draft prepared by plaintiff's
lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the
said corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines.
As a consideration for such transfer, the CAPITALIST
shall transfer to the Manager fully paid non assessable
shares of the said corporation . . . twenty-five per
centum of the capital stock of the said corporation.
(Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he
never had experience in the production or distribution
of beverages. As a matter of fact, when the bottling
plant being built, all that he suggested was about the
toilet facilities for the laborers.
We conclude from the above that while the
representation that plaintiff had the exclusive
franchise did not vitiate defendant's consent to the
contract, it was used by plaintiff to get from defendant
a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the
consent of the latter to give him (plaintiff) a big slice in
the net profits. This is the dolo incidente defined in
article 1270 of the Spanish Civil Code, because it was
used to get the other party's consent to a big share in
the profits, an incidental matter in the agreement.
El dolo incidental no es el que puede producirse en el
cumplimiento del contrato sino que significa aqui, el
que concurriendoen el consentimiento, o
precediendolo, no influyo para arrancar porsi solo el
consentimiento ni en la totalidad de la obligacion,
sinoen algun extremo o accidente de esta, dando lugar
tan solo a una accion para reclamar indemnizacion de
perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement
may not be declared null and void, the question that
77
next comes before us is, May the agreement be carried
out or executed? We find no merit in the claim of
plaintiff that the partnership was already a fait
accompli from the time of the operation of the plant,
as it is evident from the very language of the
agreement that the parties intended that the
execution of the agreement to form a partnership was
to be carried out at a later date. They expressly agreed
that they shall form a partnership. (Par. No. 1, Exhibit
A.) As a matter of fact, from the time that the franchise
from the Mission Dry Corporation was obtained in
California, plaintiff himself had been demanding that
defendant comply with the agreement. And plaintiff's
present action seeks the enforcement of this
agreement. Plaintiff's claim, therefore, is both
inconsistent with their intention and incompatible with
his own conduct and suit.
As the trial court correctly concluded, the defendant
may not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under
the Spanish Civil Code, the defendant has an obligation
to do, not to give. The law recognizes the individual's
freedom or liberty to do an act he has promised to do,
or not to do it, as he pleases. It falls within what
Spanish commentators call a very personal act (acto
personalismo), of which courts may not compel
compliance, as it is considered an act of violence to do
so.
Efectos de las obligaciones consistentes en hechos
personalismo.—Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su
incumplimiento por parte del deudor, ya sean los
hechos personalisimos, ya se hallen en la facultad de
un tercero; porque el complimiento espontaneo de las
mismas esta regido por los preceptos relativos al pago,
y en nada les afectan las disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste
en resolver si el deudor puede ser precisado a realizar
el hecho y porque medios.
Se tiene por corriente entre los autores, y se traslada
generalmente sin observacion el principio romano
nemo potest precise cogi ad factum. Nadie puede ser
obligado violentamente a haceruna cosa. Los que
perciben la posibilidad de la destruccion deeste
principio, añaden que, aun cuando se pudiera obligar
al deudor, no deberia hacerse, porque esto constituiria
una violencia, y noes la violenciamodo propio de
cumplir las obligaciones (Bigot, Rolland, etc.). El
maestro Antonio Gomez opinaba lo mismo
cuandodecia que obligar por la violencia seria infrigir la
libertad eimponer una especie de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se
acomodan biencon el empleo de la fuerza fisica, no ya
precisamente porque seconstituya de este modo una
especie de esclavitud, segun el dichode Antonio
Gomez, sino porque se supone que el acreedor tuvo
encuenta el caracter personalisimo del hecho ofrecido,
y calculo sobre laposibilidad de que por alguna razon
no se realizase. Repugna,ademas, a la conciencia social
el empleo de la fuerza publica, mediante coaccion
sobre las personas, en las relaciones puramente
particulares; porque la evolucion de las ideas ha ido
poniendo masde relieve cada dia el respeto a la
personalidad humana, y nose admite bien la violencia
sobre el individuo la cual tiene caracter visiblemente
penal, sino por motivos que interesen a la colectividad
de ciudadanos. Es, pues, posible y licita esta violencia
cuando setrata de las obligaciones que hemos llamado
ex lege, que afectanal orden social y a la entidad de
Estado, y aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por estemotivo
puedan tampoco ser modificadas; pero no debe serlo
cuandola obligacion reviste un interes puramente
particular, como sucedeen las contractuales, y cuando,
por consecuencia, paraceria salirseel Estado de su
esfera propia, entrado a dirimir, con apoyo dela fuerza
colectiva, las diferencias producidas entre los
ciudadanos. (19 Scaevola 428, 431-432.)
The last question for us to decide is that of
damages,damages that plaintiff is entitled to receive
because of defendant's refusal to form the
partnership, and damages that defendant is also
entitled to collect because of the falsity of plaintiff's
representation. (Article 1101, Spanish Civil Code.)
Under article 1106 of the Spanish Civil Code the
measure of damages is the actual loss suffered and the
profits reasonably expected to be received, embraced
in the terms daño emergente and lucro cesante.
Plaintiff is entitled under the terms of the agreement
to 30 per cent of the net profits of the business. Against
this amount of damages, we must set off the damage
defendant suffered by plaintiff's misrepresentation
that he had obtained a very high percentage of share
in the profits. We can do no better than follow the
appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff
did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer
to the partnership, his spontaneous reaction was to
reduce plaintiff's share form 30 per cent to 15 per cent
only, to which reduction defendant appears to have
readily given his assent. It was under this
understanding, which amounts to a virtual
modification of the contract, that the bottling plant
was established and plaintiff worked as Manager for
the first three months. If the contract may not be
considered modified as to plaintiff's share in the
profits, by the decision of defendant to reduce the
same to one-half and the assent thereto of plaintiff,
then we may consider the said amount as a fair
78
estimate of the damages plaintiff is entitled to under
the principle enunciated in the case of Varadero de
Manila vs. Insular Lumber Co., 46 Phil. 176.
Defendant's decision to reduce plaintiff's share and
plaintiff's consent thereto amount to an admission on
the part of each of the reasonableness of this amount
as plaintiff's share. This same amount was fixed by the
trial court. The agreement contains the stipulation that
upon the termination of the partnership, defendant
was to convey the franchise back to plaintiff (Par. 11,
Exhibit A). The judgment of the trial court does not fix
the period within which these damages shall be paid to
plaintiff. In view of paragraph 11 of Exhibit A, we
declare that plaintiff's share of 15 per cent of the net
profits shall continue to be paid while defendant uses
the franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment
appealed from is hereby affirmed. Without costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor,
Reyes, Jugo and Bautista Angelo, JJ., concur.
15. Geraldez v. CA
G.R. No. 108253 February 23, 1994
REGALADO, J.:
Our tourism industry is not only big business; it is a
revenue support of the nation's economy. It has
become a matter of public interest as to call for its
promotion and regulation on a cabinet level. We have
special laws and policies for visiting tourists, but such
protective concern has not been equally extended to
Filipino tourists going abroad. Thus, with the limited
judicial relief available within the ambit of present
laws, our tourists often prefer who fail to deliver on
their undertakings. This case illustrates the recourse of
one such tourist who refused to forget.
An action for damages by reason of contractual breach
was filed by petitioner Lydia L. Geraldez against private
respondent Kenstar Travel Corporation, docketed as
Civil Case No. Q-90-4649 of the Regional Trial Court of
Quezon City, Branch 80.1 After the parties failed to
arrive at an amicable settlement, trial on the merits
ensued.
Culling from the records thereof, we find that
sometime in October, 1989, Petitioner came to know
about private respondent from numerous
advertisements in newspapers of general circulation
regarding tours in Europe. She then contacted private
respondent by phone and the latter sent its
representative, Alberto Vito Cruz, who gave her the
brochure for the tour and later discussed its highlights.
The European tours offered were classified into four,
and petitioner chose the classification denominated as
"VOLARE 3" covering a 22-day tour of Europe for
$2,990.00. She paid the total equivalent amount of
P190,000.00 charged by private respondent for her
and her sister, Dolores.
Petitioner claimed that, during the tour, she was very
uneasy and disappointed when it turned out that,
contrary to what was stated in the brochure, there was
no European tour manager for their group of tourists,
the hotels in which she and the group were bullited
were not first-class, the UGC Leather Factory which
was specifically added as a highlight of the tour was not
visited, and the Filipino lady tour guide by private
respondent was a first timer, that is, she was
performing her duties and responsibilities as such for
the first time.2
In said action before the Regional Trial Court of Quezon
City, petitioner likewise moved for the issuance of a
writ of preliminary attachment against private
respondent on the ground that it committed fraud in
contracting an obligation, as contemplated in Section
1(d), Rule 57 of the Rules of Court, to which no
opposition by the latter appears on the record. This
was granted by the court a quo3 but the preliminary
attachment was subsequently lifted upon the filing by
private respondent of a counterbond amounting to
P990,000.00.4
During the pendency of said civil case for damages,
petitioner also filed other complaints before the
Department of Tourism in DOT Case No. 90-121 and
the Securities and Exchange Commission in PED Case
No. 90-3738,5 wherein, according to petitioner, herein
private respondent was meted out a fine of P10,000.00
by the Commission and P5,000.00 by the
Department,6 which facts are not disputed by private
respondent in its comment on the present petition.
On July 9, 1991, the court a quo rendered its decision7
ordering private respondent to pay petitioner
P500.000.00 as moral damages, P200,000.00 as
nominal damages, P300,000.00 as exemplary
damages, P50,000.00 as and for attorney's fees, and
the costs of the suit.8 On appeal, respondent court9
deleted the award for moral and exemplary damages,
and reduced the awards for nominal damages and
attorney's fees to P30,000.00 and P10,000.00,
respectively. 10
Hence, the instant petition from which, after sifting
through the blades of contentions alternately thrust
and parried in the exchanges of the parties, the pivotal
issue that emerges is whether or not private
respondent acted in bad faith or with gross negligence
in discharging its obligations under the contract.
Both the respondent court and the court a quo agree
that private respondent failed to comply faithfully with
its commitments under the Volare 3 tour program,
more particularly in not providing the members of the
tour group with a European tour manger whose duty,
79
inter alia, was to explain the points of interest of and
familiarize the tour group with the places they would
visit in Europe, and in assigning instead a first timer
Filipino tour guide, in the person of Rowena Zapanta,
11 to perform that role which definitely requires
experience and knowledge of such places. It is likewise
undisputed that while the group was able to pay a visit
to the site of the UGC Leather Factory, they were
brought there at a very late hour such that the factory
was already closed and they were unable to make
purchases at supposedly discounted prices. 12 As to
the first-class hotels, however, while the court a quo
found that the hotels were not fist-class, respondent
court believed otherwise, or that, at least, there was
substantial compliance with such a representation.
While clearly there was therefore a violation of the
rights of petitioner under the aforementioned
circumstances, respondent court, contrary to the
findings of the trial court, ruled that no malice or bad
faith could be imputed to private respondent, hence
there is no justification for the award of moral and
exemplary damages. Furthermore, it held that while
petitioner is entitled to nominal damages, the amount
awarded by the trial court was unconscionable since
petitioner did not suffer actual or substantial damage
from the breach of contract, 13 hence its reduction of
such award as hereinbefore stated.
After thorough and painstaking scrutiny of the case
records of both the trial and appellate courts, we are
satisfactorily convinced, and so hold, that private
respondent did commit fraudulent misrepresentations
amounting to bad faith, to the prejudice of petitioner
and the members of the tour group.
By providing the Volare 3 tourist group, of which
petitioner was a member, with an inexperienced and a
first timer tour escort, private respondent manifested
its indifference to the convenience, satisfaction and
peace of mind of its clients during the trip, despite its
express commitment to provide such facilities under
the Volare 3 Tour Program which had the grandiose
slogan "Let your heart sing. 14
Evidently, an inexperienced tour escort, who
admittedly had not even theretofore been to Europe,
15 cannot effectively acquaint the tourists with the
interesting areas in the cities and places included in the
program, or to promptly render necessary assistance,
especially where the latter are complete strangers
thereto, like witnesses Luz Sui Haw and her husband
who went to Europe for their honeymoon. 16
We agree with petitioner that the selection of Zapanta
as the group's tour guide was deliberate and conscious
choice on the part of private respondent in order to
afford her an on-the-job training and equip her with
the proper opportunities so as to later qualify her as an
"experienced" tour guide and eventually be an asset of
respondent corporation. 17 Unfortunately, this
resulted in a virtual project experimentation with
petitioner and the members of the tour as the
unwitting participants.
We are, therefore, one with respondent court in
faulting private respondent's choice of Zapanta as a
qualified tour guide for the Volare 3 tour package. It
brooks no argument that to be true to its undertakings,
private respondent should have selected an
experienced European tour guide, or it could have
allowed Zapanta to go merely as an understudy under
the guidance, control and supervision of an
experienced and competent European or Filipino tour
guide, 18 who could give her the desired training.
Moreover, a tour guide is supposed to attend to the
routinary needs of the tourists, not only when the
latter ask for assistance but at the moment such need
becomes apparent. In other words, the tour guide,
especially by reason of her experience in previous
tours, must be able to anticipate the possible needs
and problems of the tourists instead of waiting for
them to bring it to her attention. While this is stating
the obvious, it is her duty to see to it that basic
personal necessities such as soap, towels and other
daily amenities are provided by the hotels. It is also
expected of her to see to it that the tourists are
provided with sanitary surroundings and to actively
arrange for medical attention in case of accidents, as
what befell petitioner's sister and wherein the siblings
had to practically fend for themselves since, after
merely calling for an ambulance, Zapanta left with the
other tour participants. 19
Zapanta fell far short of the performance expected by
the tour group, her testimony in open court being
revelatory of her inexperience even on the basic
function of a tour guide, to wit:
Q Now, are you aware that there were times that the
tourists under the "Volare 3" were not provided with
soap and towels?
A They did not tell me that but I was able to ask them
later on but then nobody is complaining. 20 . . . .
The inability of the group to visit the leather factory is
likewise reflective of the neglect and ineptness of
Zapanta in attentively following the itinerary of the
day. This incompetence must necessarily be traced to
the lack of due diligence on the part of private
respondent in the selection of its employees. It is true
that among the thirty-two destinations, which
included twenty-three cities and special visits to nine
tourist spots, this was the only place that was not
visited. 21 It must be noted, however, that the visit to
the UGC Leather Factory was one of the highlights 22
of the Volare 3 program which even had to be
specifically inserted in the itinerary, hence it was
80
incumbent upon the organizers of the tour to take
special efforts to ensure the same. Besides, petitioner
did expect much from the visit to that factory since it
was represented by private respondent that quality
leather goods could be bought there at lower prices.
23
Private respondent represents Zapanta's act of making
daily overseas calls to Manila as an exercise of
prudence and diligence on the latter's part as a tour
guide. 24 It further claims that these calls were needed
so that it could monitor the progress of the tour and
respond to any problem immediately. 25 We are not
persuaded. The truth of the matter is that Zapanta, as
an inexperienced trainee-on-the-job, was required to
make these calls to private respondent for the latter to
gauge her ability in coping with her first assignment
and to provide instructions to her. 26
Clearly, therefore, private respondent's choice of
Zapanta as the tour guide is a manifest disregard of its
specific assurances to the tour group, resulting in
agitation and anxiety on their part, and which
deliberate omission is contrary to the elementary rules
of good faith and fair play. It is extremely doubtful if
any group of Filipino tourists would knowingly agree to
be used in effect as guinea pigs in an employees'
training program of a travel agency, to be conducted in
unfamiliar European countries with their diverse
cultures, lifestyles and languages.
On the matter of the European tour manager, private
respondent's advertisement in its tour contract
declares and represents as follows:
FILIPINO TOUR ESCORT!
He will accompany you throughout Europe. He speaks
your language, shares your culture and feels your
excitement.
He won't be alone because you will also be
accompanied by a . . .
EUROPEAN TOUR MANAGER!
You get the best of both worlds. Having done so may
tours in the past with people like you, he knows your
sentiments, too. So knowledgeable about Europe,
there is hardly a question he can't answer. 27
Private respondent contends that the term "European
Tour Manager" does not refer to an individual but to
an organization, allegedly the Kuoni Travel of
Switzerland which supposedly prepared the itinerary
for its "Volare Europe Tour," negotiated with all the
hotels in Europe, selected tourist spots and historical
places to visit, and appointed experienced local tour
guides for the tour group. 28
We regret this unseemly quibbling which perforce
cannot be allowed to pass judicial muster.
A cursory reading of said advertisement will readily
reveal the express representation that the
contemplated European tour manager is a natural
person, and not a juridical one as private respondent
asserts. A corporate entity could not possibly
accompany the members of the tour group to places in
Europe; neither can it answer questions from the
tourists during the tour. Of course, it is absurd that if a
tourist would want to know how he could possibly go
to the nearest store or supermarket, he would still
have to call Kuoni Travel of Switzerland.
Furthermore, both lower courts observed, and we
uphold their observations, that indeed private
respondent had the obligation to provide the tour
group not only with a European tour manger, but also
with local European tour guides. The latter,
parenthetically, were likewise never made available.
29 Zapanta claims that she was accompanied by a
European local tour guide in most of the major cities in
Europe. We entertain serious doubts on, and
accordingly reject, this pretension for she could not
even remember the name of said European tour guide.
30 If such a guide really existed, it is incredible why she
could not even identify the former when she testified
a year later, despite the length of their sojourn and the
duration of their association.
As to why the word "he" was used in the aforequoted
advertisement, private respondent maintains that the
pronoun "he" also includes the word "it," as where it is
used as a "nominative case form in general statements
(as in statutes) to include females, fictitious persons (as
corporations)." 31 We are constrained to reject this
submission as patently strained and untenable. As
already demonstrated, it is incredible that the word
"he" was used by private respondent to denote an
artificial or corporate being. From its advertisement, it
is beyond cavil that the import of the word "he" is a
natural and not a juridical person. There is no need for
further interpretation when the wordings are clear.
The meaning that will determine the legal effect of a
contract is that which is arrived at by objective
standards; one is bound, not by what he subjectively
intends, but by what he leads others reasonably to
think he intends. 32
In an obvious but hopeless attempt to arrive at a
possible justification, private respondent further
contends that it explained the concept of a European
tour manager to its clients at the pre-departure
briefing, which petitioner did not attend. 33
Significantly, however, private respondent failed to
present even one member of the tour group to
substantiate its claim. It is a basic rule of evidence that
a party must prove his own affirmative allegations. 34
Besides, if it was really its intention to provide a
81
juridical European tour manager, it could not have kept
on promising its tourists during the tour that a
European tour manager would come, 35 supposedly to
join and assist them.
Veering to another line of defense, private respondent
seeks sanctuary in the delimitation of its responsibility
as printed on the face of its brochure on the Volare 3
program, to wit:
RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION,
YOUR TRAVEL AGENT, THEIR EMPLOYEES OR SUB-
AGENTS SHALL BE RESPONSIBLE ONLY FOR BOOKING
AND MAKING ARRANGEMENTS AS YOUR AGENTS.
Kenstar Travel Corporation, your travel Agent, their
employees or sub-agents assume no responsibility or
liability arising out of or in connection with the services
or lack of services, of any train, vessel, other
conveyance or station whatsoever in the performance
of their duty to the passengers or guests, neither will
they be responsible for any act, error or omission, or of
any damages, injury, loss, accident, delay or
irregularity which may be occasioned by reason (of) or
any defect in . . . lodging place or any facilities . . . .
(Emphasis by private respondent.) 36
While, generally, the terms of a contract result from
the mutual formulation thereof by the parties thereto,
it is of common knowledge that there are certain
contracts almost all the provisions of which have been
drafted by only one party, usually a corporation. Such
contracts are called contracts of adhesion, because the
only participation of the party is the affixing of his
signature or his "adhesion" thereto. 37 In situations
like these, when a party imposes upon another a
ready-made form of contract, 38 and the other is
reduced to the alternative of taking it or leaving it,
giving no room for negotiation and depriving the latter
of the opportunity to bargain on equal footing, a
contract of adhesion results. While it is true that an
adhesion contract is not necessarily void, it must
nevertheless be construed strictly against the one who
drafted the same. 39 This is especially true where the
stipulations are printed in fine letters and are hardly
legible as is the case of the tour contract 40 involved in
the present controversy.
Yet, even assuming arguendo that the contractual
limitation aforequoted is enforceable, private
respondent still cannot be exculpated for the reason
that responsibility arising from fraudulent acts, as in
the instant case, cannot be stipulated against by
reason of public policy. Consequently, for the
foregoing reasons, private respondent cannot rely on
its defense of "substantial compliance" with the
contract.
Private respondent submits likewise that the tour was
satisfactory, considering that only petitioner, out of
eighteen participants in the Volare 3 Tour Program,
actually complained. 41 We cannot accept this
argument. Section 28, Rule 130 of the Rules of Court
declares that the rights of a party cannot be prejudiced
by an act, declaration, or omission of another, a
statutory adaptation of the first branch of the
hornbook rule of res inter alios acta 42 which we do
not have to belabor here.
Besides, it is a commonly known fact that there are
tourists who, although the tour was far from what the
tour operator undertook under the contract, choose to
remain silent and forego recourse to a suit just to avoid
the expenses, hassle and rancor of litigation, and not
because the tour was in accord with was promised.
One does not relish adding to the bitter memory of a
misadventure the unpleasantness of another extended
confrontation. Furthermore, contrary to private
respondent's assertion, not only petitioner but two
other members of the tour group, Luz Sui Haw and
Ercilla Ampil, confirmed petitioner's complaints when
they testified as witnesses for her as plaintiff in the
court below. 43
Private respondent likewise committed a grave
misrepresentation when it assured in its Volare 3 tour
package that the hotels it had chosen would provide
the tourists complete amenities and were conveniently
located along the way for the daily itineraries. 44 It
turned out that some of the hotels were not
sufficiently equipped with even the basic facilities and
were at a distance from the cities covered by the
projected tour. Petitioner testified on her disgust with
the conditions and locations of the hotels, thus:
Q And that these bathrooms ha(ve) bath tub(s) and hot
and cold shower(s)?
A Not all, sir.
Q Did they also provide soap and towels?
A Not all, sir, some (had) no toilet paper. 45
Q Which one?
A The 2 stars, the 3 stars and some 4 stars (sic) hotels.
Q What I am saying . . .
A You are asking a question? I am answering you. 2
stars, 3 stars and some 4 stars (sic) hotels, no soap,
toilet paper and (the) bowl
stinks. . . .
xxx xxx xxx
Q And that except for the fact that some of these four
star hotels were outside the city they provided you
with the comfort?
82
A Not all, sir.
Q Can you mention some which did not provide you
that comfort?
A For example, if Ramada Hotel Venezia is in Quezon
City, our hotel is in Meycauayan. And if Florence or
Ferenze is in manila, our hotel is in Muntinlupa. 46
xxx xxx xxx
A One more hotel, sir, in Barcelona, Hotel Saint Jacques
is also outside the city. Suppose Barcelona is in Quezon
City, our hotel is in Marilao. We looked for this hotel
inside the city of Barcelona for three (3) hours. We
wasted our time looking for almost all the hotels and
places where to eat. That is the kind of tour that you
have. 47
Luz Sui Haw, who availed of the Volare 3 tour package
with her husband for their honeymoon, shared the
sentiments of petitioner and testified as follows:
Q . . . Will you kindly tell us why the hotels where you
stayed are not considered first class hotels?
A Because the hotels where we went, sir, (are) far from
the City and the materials used are not first class and
at times there were no towels and soap. And the two
(2) hotels in Nevers and Florence the conditions (are)
very worse (sic). 48
Q Considering that you are honeymooners together
with your husband, what (were) your feelings when
you found out that the condition were not fulfilled by
the defendant?
A I would like to be very honest. I got sick when I
reached Florence and half of my body got itch (sic). I
think for a honeymooner I would like to emphasize that
we should enjoy that day of our life and it seems my
feet kept on itching because of the condition of the
hotel. And I was so dissatisfied because the European
Tour Manager was not around there (were) beautiful
promises. They kept on telling us that a European Tour
Manager will come over; until our Paris tour was ended
there was no European tour manager. 49
xxx xxx xxx
Q You will file an action against the defendant because
there was a disruption of your happiness, in your
honeymoon, is that correct?
A That is one of my causes of (sic) coming up here.
Secondly, i was very dissatisfied (with) the condition.
Thirdly, that Volare 89 it says it will let your heart sing.
That is not true. There was no European tour
(manager) and the highlights of the tour (were) very
poor. The hotels were worse (sic) hotels. 50
Q All the conditions of the hotels as you . . .
A Not all but as stated in the brochure that it is first
class hotel. The first class hotels state that all things are
beautiful and it is neat and clean with complete
amenities and I encountered the Luxembourg hotel
which is quite very dilapidated because of the flooring
when you step on the side "kumikiring" and the
cabinets (are) antiques and as honeymooners we don't
want to be disturbed or seen. 51
xxx xxx xxx
Q None of these are first class hotels?
A Yes, sir.
Q So, for example Ramada Hotel Venezia which
according to Miss Geraldez is first class hotel is not first
class hotel?
A Yes, sir.
Q You share the opinion of Miss Geraldez?
A Yes, sir.
Q The same is true with Grand Hotel Palatino which is
not a first class hotel?
A Yes, sir.
Q And Hotel Delta Florence is not first class hotel?
A That is how I got my itch, sir. Seven (7) days of itch.
Q How about Hotel Saint-Jacquez, Paris?
A It is far from the city. It is not first class hotel.
Q So with Hotel Le Prieure Du Coeur de Jesus neither a
first class hotel?
A Yes, sir.
Q Hotel De Nevers is not a first class hotel?
A Yes, sir.
Q Hotel Roc Blanc Andorra is not a first class hotel?
A Yes, sir.
Q Saint Just Hotel, Barcelona is not a first class hotel?
A Yes, sir.
83
Q Hotel Pullman Nice neither is not a first class hotel?
A Yes, sir.
Q Hotel Prinz Eugen and Austrotel are not first class
hotels?
A Yes, sir. 52
Private respondent cannot escape responsibility by
seeking refuge under the listing of first-class hotels in
publications like the "Official Hotel and Resort Guide"
and Worldwide Hotel Guide." 53 Kuoni Travel, its tour
operator, 54 which prepared the hotel listings, is a
European-based travel agency 55 and, as such, could
have easily verified the matter of first-class
accommodations. Nor can it logically claim that the
first-class hotels in Europe may not necessarily be the
first-class hotels here in the Philippines. 56 It is
reasonable for petitioner to assume that the promised
first-class hotels are equivalent to what are considered
first-class hotels in Manila. Even assuming arguendo
that there is indeed a difference in classifications, it
cannot be gainsaid that a first-class hotel could at the
very least provide basic necessities and sanitary
accommodations. We are accordingly not at all
impressed by private respondent's attempts to
trivialize the complaints thereon by petitioner and her
companions.
In a last ditch effort to justify its choice of the hotels,
private respondent contends that it merely provided
such "first class" hotels which are commensurate to
the tourists budget, or which were, under the given
circumstances, the "best for their money." It
postulated that it could not have offered better
hostelry when the consideration paid for hotel
accommodations by the tour participants was only so
much,57 and the tour price of $2,990.00 covers a
European tour for 22 days inclusive of lower room
rates and meals. 58 this is implausible, self-serving and
borders on sophistry.
The fact that the tourists were to pay a supposedly
lower amount, such that private respondent allegedly
retained hardly enough as reasonable profit, 59 does
not justify a substandard form of service in return. It
was private respondent, in the first place, which fixed
the charges for the package tour and determined the
services that could be availed of corresponding to such
price. Hence, it cannot now be heard to complain that
it only made a putative marginal profit out of the
transaction. if it could not provide the tour participants
with first-class lodgings on the basis of the amount that
they paid, it could and should have instead increased
the price to enable it to arrange for the promised first-
class accommodations.
On the foregoing considerations, respondent court
erred in deleting the award for moral and exemplary
damages. Moral damages may be awarded in breaches
of contract where the obligor acted fraudulently or in
bad faith. 60 From the facts earlier narrated, private
respondent can be faulted with fraud in the
inducement, which is employed by a party to a contract
in securing the consent of the other.
This fraud or dolo which is present or employed at the
time of birth or perfection of a contract may either be
dolo causante or dolo incidente. The first, or causal
fraud referred to in Article 1338, are those deceptions
or misrepresentations of a serious character employed
by one party and without which the other party would
not have entered into the contract. Dolo incidente, or
incidental fraud which is referred to in Article 1344, are
those which are not serious in character and without
which the other party would still have entered into the
contract. 61 Dolo causante determines or is the
essential cause of the consent, while dolo incidente
refers only to some particular or accident of the
obligations. 62 The effects of dolo causante are the
nullity of the contract and the indemnification of
damages, 63 and dolo incidente also obliges the person
employing it to pay damages. 64
In either case, whether private respondent has
committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and
other members of the tour group, which deceptions
became patent in the light of after-events when,
contrary to its representations, it employed an
inexperienced tour guide, housed the tourist group in
substandard hotels, and reneged on its promise of a
European tour manager and the visit to the leather
factory, it is indubitably liable for damages to
petitioner.
In the belief that an experienced tour escort and a
European tour manager would accompany them, with
the concomitant reassuring and comforting thought of
having security and assistance readily at hand,
petitioner was induced to join the Volare 3 tourists,
instead of travelling alone 65 She likewise suffered
serious anxiety and distress when the group was
unable to visit the leather factory and when she did not
receive first-class accommodations in their lodgings
which were misrepresented as first-class hotels. These,
to our mind, justify the award for moral damages,
which are in the category of an award designed to
compensate the claimant for that injury which she had
suffered, and not as a penalty on the wrongdoer, 66 we
believe that an award of P100,000.00 is sufficient and
reasonable.
When moral damages are awarded, especially for
fraudulent conduct, exemplary damages may also be
decreed. Exemplary damages are imposed by way of
example or correction for the public good, in addition
to moral, temperate, liquidated or compensatory
damages. According to the code Commission,
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exemplary damages are required by public policy, for
wanton acts must be suppressed. 67 An award,
therefore, of P50,000.00 is called for to deter travel
agencies from resorting to advertisements and
enticements with the intention of realizing
considerable profit at the expense of the public,
without ensuring compliance with their express
commitments. While, under the present state of the
law, extraordinary diligence is not required in travel or
tour contracts, such as that in the case at bar, the travel
agency acting as tour operator must nevertheless be
held to strict accounting for contracted services,
considering the public interest in tourism, whether in
the local or in the international scene. Consequently,
we have to likewise reject the theory of private
respondent that the promise it made in the tour
brochure may be regarded only as "commendatory
trade talk." 68
With regard to the honorarium for counsel as an item
of damages, since we are awarding moral and
exemplary damages, 69 and considering the legal
importance of the instant litigation and the efforts of
counsel evident from the records of three levels of the
judicial hierarchy, we favorably consider the amount of
P20,000.00 therefor.
WHEREFORE, premises considered, the decision of
respondent Court of Appeals is hereby SET ASIDE, and
another one rendered, ordering private respondent
Kenstar Travel Corporation to pay petitioner Lydia L.
Geraldez the sums of P100,000.00 by way of moral
damages, P50,000.00 as exemplary damages, and
P20,000.00 as and for attorney's fees, with costs
against private respondent. The award for nominal
damages is hereby deleted.
Padilla, Nocon and Puno, JJ., concur.
Narvasa, C.J., took no part.
#Footnote
69 Article 2208(1), Civil Code.
16. Gutierrez v. Gutierrez
G.R. No. 34840 September 23, 1931
MALCOLM, J.:
This is an action brought by the plaintiff in the Court of
First Instance of Manila against the five defendants, to
recover damages in the amount of P10,000, for
physical injuries suffered as a result of an automobile
accident. On judgment being rendered as prayed for by
the plaintiff, both sets of defendants appealed.
On February 2, 1930, a passenger truck and an
automobile of private ownership collided while
attempting to pass each other on the Talon bridge on
the Manila South Road in the municipality of Las Piñas,
Province of Rizal. The truck was driven by the chauffeur
Abelardo Velasco, and was owned by Saturnino Cortez.
The automobile was being operated by Bonifacio
Gutierrez, a lad 18 years of age, and was owned by
Bonifacio's father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was
not in the car, but the mother, together will several
other members of the Gutierrez family, seven in all,
were accommodated therein. A passenger in the
autobus, by the name of Narciso Gutierrez, was en
route from San Pablo, Laguna, to Manila. The collision
between the bus and the automobile resulted in
Narciso Gutierrez suffering a fracture right leg which
required medical attendance for a considerable period
of time, and which even at the date of the trial appears
not to have healed properly.
It is conceded that the collision was caused by
negligence pure and simple. The difference between
the parties is that, while the plaintiff blames both sets
of defendants, the owner of the passenger truck
blames the automobile, and the owner of the
automobile, in turn, blames the truck. We have given
close attention to these highly debatable points, and
having done so, a majority of the court are of the
opinion that the findings of the trial judge on all
controversial questions of fact find sufficient support
in the record, and so should be maintained. With this
general statement set down, we turn to consider the
respective legal obligations of the defendants.
In amplification of so much of the above
pronouncement as concerns the Gutierrez family, it
may be explained that the youth Bonifacio was in
incompetent chauffeur, that he was driving at an
excessive rate of speed, and that, on approaching the
bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The
guaranty given by the father at the time the son was
granted a license to operate motor vehicles made the
father responsible for the acts of his son. Based on
these facts, pursuant to the provisions of article 1903
of the Civil Code, the father alone and not the minor or
the mother, would be liable for the damages caused by
the minor.
We are dealing with the civil law liability of parties for
obligations which arise from fault or negligence. At the
same time, we believe that, as has been done in other
cases, we can take cognizance of the common law rule
on the same subject. In the United States, it is
uniformly held that the head of a house, the owner of
an automobile, who maintains it for the general use of
his family is liable for its negligent operation by one of
his children, whom he designates or permits to run it,
where the car is occupied and being used at the time
of the injury for the pleasure of other members of the
owner's family than the child driving it. The theory of
the law is that the running of the machine by a child to
carry other members of the family is within the scope
85
of the owner's business, so that he is liable for the
negligence of the child because of the relationship of
master and servant. (Huddy On Automobiles, 6th ed.,
sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The
liability of Saturnino Cortez, the owner of the truck,
and of his chauffeur Abelardo Velasco rests on a
different basis, namely, that of contract which, we
think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the
evidence. The reason for this conclusion reaches to the
findings of the trial court concerning the position of the
truck on the bridge, the speed in operating the
machine, and the lack of care employed by the
chauffeur. While these facts are not as clearly
evidenced as are those which convict the other
defendant, we nevertheless hesitate to disregard the
points emphasized by the trial judge. In its broader
aspects, the case is one of two drivers approaching a
narrow bridge from opposite directions, with neither
being willing to slow up and give the right of way to the
other, with the inevitable result of a collision and an
accident.
The defendants Velasco and Cortez further contend
that there existed contributory negligence on the part
of the plaintiff, consisting principally of his keeping his
foot outside the truck, which occasioned his injury. In
this connection, it is sufficient to state that, aside from
the fact that the defense of contributory negligence
was not pleaded, the evidence bearing out this theory
of the case is contradictory in the extreme and leads us
far afield into speculative matters.
damages for the injury to the leg of the plaintiff, which
may cause him permanent lameness, in connection
with other adjudications of this court, lead us to
conclude that a total sum for the plaintiff of P5,000
would be fair and reasonable. The difficulty in
approximating the damages by monetary
compensation is well elucidated by the divergence of
opinion among the members of the court, three of
whom have inclined to the view that P3,000 would be
amply sufficient, while a fourth member has argued
that P7,500 would be none too much.
In consonance with the foregoing rulings, the
judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the
defendants Manuel Gutierrez, Abelardo Velasco, and
Saturnino Cortez, jointly and severally, for the sum of
P5,000, and the costs of both instances.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand,
Romualdez, and Imperial, JJ., concur.
VILLA-REAL, J.:
I vote for an indemnity of P7,500.

The last subject for consideration relates to the

amount of the award. The appellee suggests that the
amount could justly be raised to P16,517, but naturally
is not serious in asking for this sum, since no appeal
was taken by him from the judgment. The other parties
unite in challenging the award of P10,000, as excessive.
All facts considered, including actual expenditures and

86