Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 202791 June 10, 2013

PHILIPPINE TRANSMARINE CARRIERS, INC., Petitioner,

vs.
LEANDRO LEGASPI, Respondent.

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the January 5, 2012
Resolution1 and July 20, 2012 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 116686, which
denied the petitioner’s motion to amend the dispositive portion of the June 29, 2011 CA Decision.

The Factual and Procedural Antecedents

Respondent Leandro Legaspi (respondent) was employed as Utility Pastry on board the vessel "Azamara
Journey" under the employment of petitioner Philippine Transmarine Carriers, Inc. (petitioner). Respondent’s
employment was covered by a Collective Bargaining Agreement (CBA) wherein it was agreed that the
company shall pay a maximum disability compensation of up to US$60,000.00 only.

While on board the vessel, respondent suffered "Cardiac Arrest S/P ICD Insertation." He was checked by the
ship’s doctor and was prescribed medications. On November 14, 2008, respondent was repatriated to receive
further medical treatment and examination. On May 23, 2009, the company designated physician assessed his
condition to be Disability Grade 2.

Not satisfied, respondent filed a complaint for full and permanent disability compensation against petitioner
before the Labor Arbiter (LA).

The Labor Arbiter’s Ruling

In its January 25, 2010 Decision,3 the LA ruled in favor of respondent, the dispositive portion of which reads:

WHEREFORE, respondents (now petitioner) are hereby ordered to pay complainant jointly and severally, the
following:

1. US$80,000.00 or its peso equivalent at the time of payment as permanent disability compensation;

2. US$1,320.00 or its peso equivalent as sick wages;

3. Attorney’s fees equivalent to 10% of the total award.

SO ORDERED.

Notably, the LA awarded US$80,000.00 based on the ITF Cruise Ship Model Agreement for Catering
Personnel, not on the CBA.

Not satisfied, petitioner appealed the LA decision before the National Labor Relations Commission (NLRC).
The NLRC’s Ruling

In its May 28, 2010 Decision, the NLRC affirmed the decision of the LA. Petitioner timely filed its motion for
reconsideration but it was denied by the NLRC in its July 30, 2010 Resolution. On September 5, 2010, the
NLRC issued the Entry of Judgment stating that its resolution affirming the LA decision had become final and
executory.

On October 22, 2010, during the hearing on the motion for execution before the NLRC, petitioner agreed to
pay respondent US$81,320.00. The terms and conditions of said payment were embodied in the Receipt of
Judgment Award with Undertaking,4 wherein respondent acknowledged receipt of the said amount and
undertook to return it to petitioner in the event the latter’s petition for certiorari would be granted, without
prejudice to respondent’s right to appeal. It was also agreed upon that the remaining balance would be given
on the next scheduled conference. Pertinent portions of the said undertaking provide:

xxxx

3. That counsel (of the petitioner) manifested their willingness to tender the judgment award without
prejudice to the respondent’s (now petitioner) right to file a Petition for Certiorari and provided,
complainant (now respondent) undertakes to return the full amount without need of demand or a
separate action in the event that the Petition for Certiorari is granted;

4. That complainant’s counsel was amenable to the arrangement and accepted the offer. NOW
THEREFORE complainant and his counsel hereby acknowledge RECEIPT of the sum of EIGHTY-ONE
THOUSAND THREE HUNDRED TWENTY AND 0/100 (US$81,320.00) covered by CITIBANK CHECK
with No. 1000001161 dated October 21, 2010 payable to the order of LEANDRO V. LEGASPI and
UNDERTAKES to RETURN the entire amount to respondent PHILIPPINE TRANSMARINE
CARRIERS, INC. in the event that the Petition for Certiorari is granted without prejudice to
complainant’s right to appeal. Such undertaking shall be ENFORCEABLE by mere motion before this
Honorable office without need of separate action.5 [Emphasis and underscoring supplied]

On November 8, 2010, petitioner timely filed a petition for certiorari with the CA.6

In the meantime, on March 2, 2011, the LA issued a writ of execution which noted petitioner’s payment of the
amount of US$81,320.00. On March 16, 2011, in compliance with the said writ, petitioner tendered to the
NLRC Cashier the additional amounts of US$8,132.00 as attorney’s fees and ₱3,042.95 as execution fee. In
its Order, dated March 31, 2011, the LA ordered the release of the aforementioned amounts to respondent.

The CA’s Ruling

Unaware of a) the September 5, 2010 entry of judgment of the NLRC, b) the October 22, 2010 payment of
US$81,320.00, and c) the writ of execution issued by the LA, the CA rendered its Decision, dated June 29,
2011. The CA partially granted the petition for certiorari and modified the assailed resolutions of the NLRC,
awarding only US$60,000.00 pursuant to the CBA between Celebrity Cruise Lines and Federazione Italianaa
Transporti CISL.

Petitioner then filed its Manifestation with Motion to Amend the Dispositive Portion, submitting to the CA the
writ of execution issued by the LA in support of its motion. Petitioner contended that since it had already paid
the total amount of US$89,452.00, it was entitled to the return of the excess payment in the amount of
US$29,452.00.

In its assailed January 5, 2012 Resolution, the CA denied the motion and ruled that the petition should have
been dismissed for being moot and academic not only because the assailed decision of the NLRC had become
final and executory on September 5, 2010, but also because the said judgment had been satisfied on October
22, 2010, even before the filing of the petition for certiorari on November 8, 2010. In so ruling, the CA cited the
pronouncement in Career Philippines Ship Management v. Geronimo Madjus7 where it was stated that the
satisfaction of the monetary award rendered the petition for certiorari moot.

Petitioner filed a motion for reconsideration but it was denied by the CA in its assailed July 20, 2012
Resolution.

Hence, this petition.

ISSUES

I. WHETHER THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR OF LAW IN

RULING THAT PETITIONER IS ESTOPPED IN COLLECTING THE EXCESS PAYMENT IT MADE TO
THE RESPONDENT NOTWITHSTANDING THE RECEIPT OF JUDGMENT AWARD SIGNED BY THE
RESPONDENT

II. WHETHER THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN

INVOKING THE RULING OF CAREER V. MADJUS

Petitioner argues that it clearly filed its petition for certiorari within the 60-day reglementary period and, thus,
the NLRC resolutions could not have attained finality. Citing Delima v. Gois,8 petitioner avers that the NLRC
cannot declare that a decision has become final and executory because the period to file the petition has not
yet expired. Petitioner, thus, contends that the finality of the NLRC judgment did not render the petition moot
and academic because such is null and void ab initio.

Petitioner also argues that the Receipt of the Judgment Award with Undertaking, which was never refuted by
respondent, clearly stated that the payment of the judgment award was without prejudice to its right to file a
petition for certiorari with the CA. Petitioner asserts that the case relied upon by the CA, Career Philippines, is
not applicable as it is not on all fours with this case. Instead, it asserts that the applicable case should be
Leonis Navigation Co., Inc. v. Villamater,9 where it was held that the satisfaction of the monetary award by the
employer does not render the petition for certiorari moot before the CA.

On the other hand, respondent reiterates the CA ruling, asserting that the voluntary satisfaction by petitioner of
the full judgment award rendered the case moot, and insists that it was a clear indication that it had already
been persuaded by the judiciousness and merits of the award for disability compensation. He also avers that
this petition is merely pro-forma as it is a reiteration of petitioner’s previous issues and arguments already
resolved by the CA.

The Court’s Ruling

Petition for Certiorari, Not Moot

Section 14, Rule VII of the 2011 NLRC Rules of Procedure provides that decisions, resolutions or orders of the
NLRC shall become final and executory after ten (10) calendar days from receipt thereof by the parties, and
entry of judgment shall be made upon the expiration of the said period.10 In St. Martin Funeral Home v.
NLRC,11 however, it was ruled that judicial review of decisions of the NLRC may be sought via a petition for
certiorari before the CA under Rule 65 of the Rules of Court; and under Section 4 thereof, petitioners are
allowed sixty (60) days from notice of the assailed order or resolution within which to file the petition. Hence, in
cases where a petition for certiorari is filed after the expiration of the 10-day period under the 2011 NLRC
Rules of Procedure but within the 60-day period under Rule 65 of the Rules of Court, the CA can grant the
petition and modify, nullify and reverse a decision or resolution of the NLRC.

Accordingly, in this case, although the petition for certiorari was not filed within the 10-day period, petitioner
timely filed it before the CA within the 60-day reglementary period under Rule 65. It has, thus, been held that
the CA’s review of the decisions or resolutions of the NLRC under Rule 65, particularly those which have
already been executed, does not affect their statutory finality, considering that Section 4, 12 Rule XI of the 2011
NLRC Rules of Procedure, provides that a petition for certiorari filed with the CA shall not stay the execution of
the assailed decision unless a restraining order is issued. In Leonis Navigation, it was further written:

The CA, therefore, could grant the petition for certiorari if it finds that the NLRC, in its assailed decision or
resolution, committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding
evidence that is material to or decisive of the controversy; and it cannot make this determination without
looking into the evidence of the parties. Necessarily, the appellate court can only evaluate the materiality or
significance of the evidence, which is alleged to have been capriciously, whimsically, or arbitrarily disregarded
by the NLRC, in relation to all other evidence on record.13 Notably, if the CA grants the petition and nullifies the
decision or resolution of the NLRC on the ground of grave abuse of discretion amounting to excess or lack of
jurisdiction, the decision or resolution of the NLRC is, in contemplation of law, null and void ab initio; hence, the
decision or resolution never became final and executory.14

Career Philippines not applicable

In Career Philippines, believing that the execution of the LA Decision was imminent after its petition for
injunctive relief was denied, the employer filed before the LA a pleading embodying a conditional satisfaction of
judgment before the CA and, accordingly, paid the employee the monetary award in the LA decision. In the
said pleading, the employer stated that the conditional satisfaction of the judgment award was without
prejudice to its pending appeal before the CA and that it was being made only to prevent the imminent
execution.15

The CA later dismissed the employer’s petition for being moot and academic, noting that the decision of the LA
had attained finality with the satisfaction of the judgment award. This Court affirmed the ruling of the CA,
interpreting the "conditional settlement" to be tantamount to an amicable settlement of the case resulting in the
mootness of the petition for certiorari, considering (i) that the employee could no longer pursue other
claims,16 and (ii) that the employer could not have been compelled to immediately pay because it had filed an
appeal bond to ensure payment to the employee.

Stated differently, the Court ruled against the employer because the conditional satisfaction of judgment signed
by the parties was highly prejudicial to the employee. The agreement stated that the payment of the monetary
award was without prejudice to the right of the employer to file a petition for certiorari and appeal, while the
employee agreed that she would no longer file any complaint or prosecute any suit of action against the
employer after receiving the payment.

In contrast, in Leonis Navigation, after the NLRC resolution awarding disability benefits became final and
executory, the employer paid the monetary award to the employee. The CA dismissed the employer’s petition
for certiorari, ruling that the final and executory decisions or resolutions of the NLRC rendered appeals to
superior courts moot and academic. This Court disagreed with the CA and held that final and executed
decisions of the NLRC did not prevent the CA from reviewing the same under Rule 65 of the Rules of Court. It
was further ruled that the employee was estopped from claiming that the case was closed and terminated,
considering that the employee’s Acknowledgment Receipt stated that such was without prejudice to the final
outcome of the petition for certiorari pending before the CA.

In the present case, the Receipt of the Judgment Award with Undertaking was fair to both the employer and
the employee. As in Leonis Navigation, the said agreement stipulated that respondent should return the
amount to petitioner if the petition for certiorari would be granted but without prejudice to respondent’s right to
appeal. The agreement, thus, provided available remedies to both parties.

It is clear that petitioner paid respondent subject to the terms and conditions stated in the Receipt of the
Judgment Award with Undertaking.17 Both parties signed the agreement. Respondent neither refuted the
agreement nor claimed that he was forced to sign it against his will.

Therefore, the petition for certiorari was not rendered moot despite petitioner’s satisfaction of the judgment
award, as the respondent had obliged himself to return the payment if the petition would be granted.
Return of Excess Payment

As the agreement was voluntarily entered into and represented a reasonable settlement, it is binding on the
parties and may not later be disowned simply because of a change of mind.18 Respondent agreed to the
stipulation that he would return the amount paid to him in the event that the petition for certiorari would be
granted. Since the petition was indeed granted by the CA, albeit partially, respondent must comply with the
condition to return the excess amount.

The Court finds that the Receipt of the Judgment Award with Undertaking was a fair and binding agreement. It
was executed by the parties subject to outcome of the petition. To allow now respondent to retain the excess
money judgment would amount to his unjust enrichment to the prejudice of petitioner.

Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or
benefits received under circumstances that give rise to legal or equitable obligation to account for them. To be
entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request. Unjust enrichment is
not itself a theory of reconveyance. Rather, it is a prerequisite for the enforcement of the doctrine of
restitution.19 There is unjust enrichment when:

1. A person is unjustly benefited; and

2. Such benefit is derived at the expense of or with damages to another.20

In the case at bench, petitioner paid respondent US$81,320.00 in the pre-execution conference plus attorney’s
fees of US$8,132.00 pursuant to the writ of execution. The June 29, 2011 CA Decision, however, modified the
final resolution of the NLRC and awarded only US$60,000.00 to respondent.1âwphi1 If allowed to return the
excess, the respondent would have been unjustly benefited to the prejudice and expense of petitioner.

Petitioner's claim of excess payment is further buttressed by, and in line with, Section 14, Rule XI of the 20 II
NLRC Rules of Procedure which provides:

EFFECT OF REVERSAL OF EXECUTED JUDGMENT. – Where the executed judgment is totally or partially
reversed or annulled by the Court of Appeals or the Supreme Court, the Labor Arbiter shall, on motion, issue
such orders of restitution of the executed award, except wages paid during reinstatement pending appeal.
[Emphases supplied]

Although the Court has, more often than not, been inclined towards the plight of the workers and has upheld
their cause in their conflicts with the employers, such inclination has not blinded it to the rule that justice is in
every case for the deserving, to be dispensed in the light of the established facts and applicable law and
doctrine.21

WHEREFORE, the petition is GRANTED. The Court of Appeals Resolutions, dated January 5, 2012 and July
20, 2012, are hereby REVERSED and SET ASIDE. Respondent Leandro Legaspi is ORDERED to return the
excess amount of payment in the sum of

US$29,452.00 to petitioner Philippine Transmarine Carriers, Inc. The amount shall earn interest at the rate of
12o/o per annum from the finality of this judgment.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of e opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third 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.

MARIA LOURDES P. A. SERENO

Chief Justice
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 200895 July 31, 2013

ROLANDO M. MENDIOLA, Petitioner,

vs.
COMMERZ TRADING INT'L., INC., Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review1 assails the 30 January 2012 Decision2 of the Court of Appeals in CA-G.R. SP No.
110491. The Court of Appeals reversed the 27 May 2009 Decision3 of the Regional Trial Court, Branch 255,
Las Pifias City, which affirmed the 6 October 2008 Decision4 of the Metropolitan Trial Court, Branch 79, Las
Pifias City, in a collection suit filed by petitioner Rolando M. I'vfendiola against respondent Commerz Trading
Int'l., Inc.

The Facts

Genicon, Inc. (Genicon) is a foreign corporation based in Florida, United States of America, which designs,
produces, and distributes "patented surgical instrumentation focused exclusively on laparoscopic
surgery."5Petitioner, a physician by profession, entered into a contract with Genicon to be its exclusive
distributor of Genicon laparoscopic instruments in the Philippines, as evidenced by a Distribution Agreement
dated 18 July 2007.6Petitioner, in turn, entered into a Memorandum of Agreement (MOA)7 with respondent to
facilitate the marketing and sale of Genicon laparoscopic instruments in the Philippines. Under the MOA,
respondent would be compensated for ₱100,000.00 "for the use of respondent’s name, office, secretary,
invoices, official receipts and facilities x x x for every sale of a complete set of Genicon laparoscopic
instruments x x x."8

Respondent sent a price quotation to Pampanga Medical Specialist Hospital, Inc. (PMSHI), which thereafter
agreed to purchase a Genicon laparoscopic instrument for Two Million Six Hundred Thousand Pesos
(₱2,600,000.00). Then, petitioner ordered the laparoscopic instrument from Genicon, which in turn shipped the
medical equipment to the Philippines. Respondent undertook the release of the laparoscopic instrument from
the Bureau of Customs and subsequently delivered the same to PMSHI.

PMSHI made the following payments to respondent: (1) ₱520,000.00 per PMSHI Check Voucher No. 2448
dated 1 February 2007, and to which respondent issued Official Receipt No. 11148; and (2) ₱2,080,000.00 per
PMSHI Check Voucher No. 2419 dated 6 February 2007. From the total amount of ₱2,600,000.00 paid by
PMSHI to respondent, the latter’s president Joaquin Ortega deducted ₱100,000.00 as respondent’s
compensation for its services pursuant to the MOA. Respondent remitted to petitioner ₱2,430,000.00 only,
instead of ₱2,500,000.00.

Despite petitioner’s repeated demands, respondent failed to remit the remaining balance of ₱70,000.00 from
the proceeds of the sale of the laparoscopic instrument. Consequently, petitioner filed a collection suit against
respondent with the Metropolitan Trial Court, Branch 79, Las Piñas City (MeTC).

In its Answer, respondent countered that petitioner had no cause of action because it did not owe petitioner
any amount. Respondent alleged that the case was a pre-emptive measure taken by petitioner in anticipation
of the collection suit respondent would file for over payment of the purchase price of the laparoscopic
instrument. Respondent claimed that the unremitted amount of ₱70,000.00 represented a portion of the
₱267,857.14 Expanded Value Added Tax (EVAT) which was erroneously and inadvertently credited or
remitted by respondent to petitioner’s account.

The MeTC rendered its Decision of 6 October 2008 in favor of petitioner. The MeTC held that "respondent has
no right to retain the ₱70,000.00 x x x. Respondent had been duly compensated for its work done. It is not its
duty to pay any government taxes in whatever form because it is clearly a responsibility of the buyer."9

The dispositive portion of the MeTC decision reads:

WHEREFORE, the Court hereby renders judgment in favor of the plaintiff ordering the defendant to pay
plaintiff the sum of ₱70,000.00 as actual damages plus 12% per annum beginning June, 2007 until the amount
is fully paid. The defendant is also ordered to pay plaintiff reasonable attorney’s fees of ₱20,000.00 and costs
of suit.

SO ORDERED.10

Respondent appealed to the Regional Trial Court, Branch 255, Las Piñas City (RTC). In its 27 May 2009
Decision, the RTC sustained the MeTC, holding that the MOA is the law between the parties. Under the MOA,
"there was no right or authority given to respondent to retain a portion of the proceeds of any sale coursed
through or obtained by it for taxation purposes."11

The dispositive portion of the RTC decision reads:

WHEREFORE, the foregoing considered, the herein appeal of the defendant-appellant Commerz Trading
International, Inc. is DENIED for lack of merit. Accordingly, the DECISION dated 06 October 2008 rendered by
the Metropolitan Trial Court of Las Piñas City, Branch 79 in Civil Case No. 7645 is affirmed in toto.

SO ORDERED.12

Respondent appealed to the Court of Appeals, which reversed the RTC in its Decision of 30 January 2012.

Hence, this petition.

The Ruling of the Court of Appeals

The Court of Appeals reversed the RTC and ruled in favor of respondent. The Court of Appeals found
respondent, a VAT-registered entity, as the seller/importer of the laparoscopic instrument and thus, is the
person liable for the payment of the VAT. The Court of Appeals held that respondent "made the sale to PMSHI,
x x x and thus is liable for the payment of EVAT albeit respondent is, per the Memorandum of Agreement, only
the marketer of the medical product."13 Assuming that the importation of the laparoscopic instrument was the
taxable transaction, "it was not disputed x x x that it was respondent which arranged the importation of the
medical equipment from Genicon in the U.S.A. and undertook the processing and release of the same before
the Bureau of Customs."14

The Court of Appeals likewise reversed the RTC’s award of interest and attorney’s fees.1âwphi1 The
dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the instant Petition is GRANTED. The Decision dated 27 May 2009 of the Regional Trial Court
is REVERSED and SET ASIDE.

Respondent Rolando M. Mendiola is hereby ORDERED to reimburse the Petitioner the sum of ₱197,857.14
within five (5) days from receipt of finality of this decision. Petitioner is thereafter ORDERED to reflect the
reimbursement in its EVAT Return for the current quarter to be submitted to the Bureau of Internal Revenue
and pay the same to the latter’s authorized collecting agency immediately within the next monthly pay period
as provided under the NIRC.

Petitioner and Respondent are ORDERED to submit their compliance thereto within fifteen (15) days from
receipt of finality of this decision.

SO ORDERED.15

The Issues

Petitioner raises the following issues:

1. Whether respondent has the right to retain the balance of the proceeds of the sale in the amount of
₱70,000.00; and

2. Whether petitioner is entitled to the award of interest and attorney’s fees.

The Ruling of the Court

We deny the petition.

There is no dispute that the ₱70,000.00 respondent withheld from petitioner formed part of the proceeds of the
sale of the Genicon laparoscopic instrument.

Respondent, however, claims that the ₱70,000.00 represents a portion of the total VAT due16 from the Genicon
transaction which is allegedly petitioner’s obligation under paragraph V of the MOA which states: "All
taxes/expenses and expenses related to Genicon transactions shall be the responsibility of petitioner."17

Basic is the principle that a contract is the law between the parties,18 and its stipulations are binding on them,
unless the contract is contrary to law, morals, good customs, public order or public policy. 19 Indeed, paragraph
V of the MOA obligates petitioner to pay the taxes due from the sale of the Genicon laparoscopic instrument.
Petitioner admits that he is the one "responsible in the payment of the EVAT and not the respondent, who
merely acted as the marketer"20 of the Genicon laparoscopic instrument. Hence, as between petitioner and
respondent, petitioner bears the burden for the payment of VAT.

The question now is whether respondent is authorized under the MOA to withhold a specific amount from the
proceeds of the sale of the Genicon laparoscopic instrument as tax due from petitioner.

The MOA is silent on this matter. The MOA does not expressly allow respondent to collect or withhold from
petitioner any amount from the sale of the Genicon laparoscopic instrument for taxation purposes.

However, the same agreement (1) allows respondent to issue official receipts on which VAT should have been
computed and included in the purchase price, and (2) obligates petitioner to pay any tax due on the sale.

Under the MOA, petitioner requested respondent "to use the latter’s name, office, secretary, invoice, official
receipts and its facilities for the distribution and sale of Genicon products in the Philippines."21 Petitioner, who
is a physician, made such request "solely for ethical and personal reasons."22 Accommodating and agreeing to
petitioner’s request, respondent, a VAT-registered entity, issued Official Receipt No. 11148 to evidence the
sale of the Genicon laparoscopic instrument to PMSHI, and the payment by the latter of the purchase price.
PMSHI, in turn, issued two checks in favor of respondent totaling ₱2,600,000.00.23

Clearly, based on respondent's records, it would appear that (1) it received ₱2,600,000.00 from PMSHI, which
amount is subject to VAT as found by its external auditor and (2) it is the seller of the Genicon laparoscopic
instrument. Therefore, petitioner should pay the VAT due on the sale, which would be computed based on the
official receipt issued by respondent. To hold otherwise clearly operates to defraud the. government of the
correct amount of taxes due on the sale, and contravenes the Civil Code provision mandating "every person x
x x to act with justice, give everyone his due, and observe honesty and good faith."24 While by agreement of
the parties petitioner bears the economic burden for paying the VAT, the legal liability to pay the same to the
BIR falls on respondent.

Thus, since respondent, as the seller on record, will be liable for the payment of the VAT based on the official
receipt it issued, we shall allow respondent to retain the ₱70,000.00 only for the purpose of paying forthwith, if
it has not done so yet, this amount to the BIR as the estimated tax due on the subject sale. There remains a
dispute on the computation of the correct amount of VAT because respondent allegedly issued an official
receipt25 only in the amount of ₱520,000.00, instead of the ₱2,600,000.00 purchase price. Considering this,
and the foregoing findings, the BIR must be informed of this Decision for its appropriate action.

We find the resolution of the other issue unnecessary.

WHEREFORE, we DENY the petition.

Let a copy of this Decision be forwarded to the Bureau of Internal Revenue for its appropriate action.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest 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.

ANTONIO T. CARPIO
Associate Justice
Chairperson

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.

MARIA LOURDES P. A. SERENO

Chief Justice
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-41795 August 29, 1980

PHILIPPINE BANK OF COMMUNICATIONS, petitioner,

vs.
HON. JUAN F. ECHIVERRI, in his capacity as Presiding Judge of Branch XIV of the Court of First
Instance of Manila, ENRIQUE LORENZO y JIONGCO, CONRADO GALVEZ y CERVANTES, FAUSTINO
CARLOS y RAMOS, ARSENIO LORENZO y VILLALUZ, ILDEFONSO CARIÑO y MARASIGAN,
FELIZARDO ALBAIRA and RICARDO CARLOS. respondents.

TEEHANKEE, J.:

The Court sets aside the decision of respondent court insofar as it modifies and alters the compromise
agreement freely entered into between petitioner bank and private respondents by deleting the concessions
made by respondents. The validity of the compromise agreement in toto is upheld, since its provisions are not
prohibited by law nor condemned by judicial decision nor contrary to morals, good customs and public policy.
By virtue of the fundamental precept that a compromise agreement is a contract between the parties and has
upon them the effect and authority of res judicata, the courts cannot impose upon them a judgment different
from their real agreement or against the very terms and conditions thereof.

On May 29, 1974, the Philippine Bank of Communications (PBCOM for short), a banking corporation duly
organized and existing under the laws of the Philippines that has been engaged in normal commercial banking
transactions since 1939, filed a complaint for the recovery, jointly and severally from therein defendants, of
over P25 million allegedly embezzled from it over a period of 16 years by its said employees defendants, Yu
Chiao Chin, alias Nelson Yu, assistant manager, in-charge of the Auditing Department; Paulino How, manager
of the Business Development Department; Faustino Carlos, Ildefonso Carino, Conrado Galvez, Arsenic
Lorenzo, Enrique Lorenzo, Ricardo Carlos, Victoriano Salvador and Felizardo Albaira, bookkeepers. 1

PBCOM prayed for full restitution of the amount embezzled, and payment of attorney's fees and exemplary
damages. Upon its application, the trial court issued writs of attachment and, through the City Sheriff of Manila,
attached various real and personal properties of the. defendants.

Separately, each of the defendants, except Victoriano Salvador who died in the meantime, filed responsive
pleadings, either an answer or a motion to dismiss, the last of which was filed on August 15, 1974.

Months later, or on March 10, 1975, the parties executed a compromise agreement, the substantial provisions
of which read:

WHEREAS, in said civil action, plaintiff BANK has asserted a claim against the PARTIES OF
THE SECOND PART in the total

posting "phony" or non-existing deposits on accounts opened with PBCOM under various names and later
withdrawing the amounts represented b), such phony deposits, thereby creating unauthorized and unapproved
overdrafts which were, through the concerted action of the defendants, concealed from the management of
PBCOM; and b) making withdrawals on uncollected deposits. Defendants' schemes are more particularly
described by them in their sworn statements attached as annexes to this complaint.
5. It was only on April 7, 1974 that this embezzlement was discovered by PBCOM when
defendant Yu Chiao Chin confessed the fraud to the officials of the bank and at the same Lime
made an offer to restore the amount embezzled provided that he and the other herein
defendants would not be prosecuted by the bank.

6. On various dates also, all the herein defendants gave sworn statements to the Philippine
Constabulary ...

7. PBCOM's own investigation disclosed the loss of P25,278,780.93 and the evidence on hand
established the accountability of the herein defendants for the said amount.

8. PBCOM demanded from the herein defendants full restitution of the amount of
P25,278,780.93 but defendants failed and continue to fail to comply with such demands of
PBCOM, to the damage and prejudice of PBCOM.

xxx xxx xxx

(Record, pp. 60-61; Emphasis supplied) amount of P25,278,780.93, exclusive of interests,

attorney's fees and costs of suit;

WHEREAS, the parties hereto are most desirous and interested that the aforesaid litigations be
terminated and by this Agreement it is their intention that all claims therein and au disputes and
differences between the parties thereto be settled and compromised to their mutual satisfaction;

WHEREAS, in consideration of the agreement on the part of the BANK to dismiss with prejudice
the above-mentioned civil action and to waive all its rights and causes of action against all the
defendants therein, the PARTIES OF THE SECOND PART are willing to acknowledge and
assume certain obligations, make certain concessions and undertake to perform certain acts for
the benefit of the BANK under such terms and conditions as hereafter specified.

NOW, THEREFORE. for and in consideration of the foregoing premises and the mutual
covenants and agreements to be performed, one for the other, as hereinafter set forth, the
parties hereto do hereby stipulate and agree as follows:

1. Yu Chiao Chin, one of the PARTIES OF THE SECOND PART, hereby acknowledges that he
is indebted and liable to the BANK in the total sum of P6,610,000.00.

2. Paulino L. How, also one of the PARTIES OF THE SECOND PART, likewise hereby
acknowledges that he is indebted and liable to the BANK in the total amount of P600,000.00.

3. Yu Chiao Chin hereby binds himself to pay to the BANK, without need of further demand, the
aforesaid sum of P6,610,000.00 under the following terms and conditions:

xxx xxx xxx

4. Paulino L. How hereby binds himself to pay to the BANK, without reed of further demand, the
aforesaid sum of P600,000.00 under the following terms and conditions:

xxx xxx xxx

5. Yu Chiao Chin and Paulino L. How agree to nominate and submit to the satisfaction of the
Bank such persons of reputable name and character who shall, together with them and upon
the execution of this Agreement, jointly and severally, execute and sign, such promissory notes,
deeds, documents or instruments as may be necessary to insure and/or secure the payment of
 the remaining balance of their obligation to the BANK as hereinabove set forth and thus give
effect to and fully implement the terms and conditions of this Agreement.

6. The parties hereto agree that all such promissory notes, deeds, documents or instruments
which shall be executed under and by virtue of the preceding paragraph shall form part of this
Compromise Agreement and that whatever Judgment which may be rendered by the CFI of
Manila on the basis of the Compromise Agreement shall be deemed to extend to and include
any and all undertakings and commitments made by the signatories thereto as part of the
judgment, it being expressly understood and agreed by the parties hereto, that the undertaking
to be done and the promises to be made by the third persons referred to above constitute an
essential consideration for the promises, covenants and undertaking by the BANK under and by
virtue of this Agreement.

7. THE PARTIES OF THE SECOND PART, namely, Yu Chiao Chin alias Nelson Yu, Enrique
Lorenzo y Jiongco, Conrado Galvez y Cervantes, Faustino Carlos y Ramos, Arsenio Lorenzo y
Villaluz, Ildefonso Carino y Marasigan, Felizardo Albaira, Ricardo Carlos, Paulino L. How,
hereby agree to voluntarily resign from the BANK and to execute the
corresponding quitclaims waiving whatever rights they may have against the BANK arising from
their employment and/or in connection with the case and criminal charge hereinabove
mentioned Said quitclaims shall include a waiver of all the benefits, interests, participation,
contributions and any other rights that they may have under both the Staff Provident Fund and
the Retirement Plan of the PARTY OF THE FIRST PART.

8. In consideration of the foregoing undertaking assumed by the PARTIES OF THE SECOND

PART, the BANK hereby discharges forever the defendants from any and all obligations and
liabilities arising from the aforementioned civil case.

9. The parties shall file the appropriate motions in Court praying for the rendition of a
judgment in the aforementioned civil case based on the terms and conditions of this Agreement.

10. The PARTIES OF THE SECOND PART hereby represent and warrant that they have not
participated, singly or collectively, in any transaction or dealings which may be prejudicial to the
BANK other than those related to or included in the afore-mentioned civil case and criminal
charge and which have already been disclosed or are already known to the BANK. It is
expressly agreed that this 'Compromise Agreement' shall not in any manner bar or preclude the
BANK from asserting its rights against the PARTIES OF THE SECOND PART in the event that
the BANK subsequently discoverssuch other transactions or dealings in which any or all the
PARTIES OF THE SECOND PART are directly or indirectly involved and which are prejudicial
to the BANK's interest." 2

The Agreement was signed by the PBCOM represented by its president, Edward S. Go, as PARTY OF THE
FIRST PART and each of the defendants in his own behalf as PARTIES OF THE SECOND PART.

On March 17, 1975, the counsel for the PBCOM on one hand, and the counsels for each of the defendants on
the other, jointly filed a "Motion for Judgment on the Basis of Attached Compromise Agreement."

On April 17, 1975, respondent judge issued an order resetting the hearing or the motion for judgment on the
basis of the compromise agreement and at the same time making the observation motu proprio that "there are
certain objectionable features concerning the compromise agreement, as submitted, such as matters
pertaining to a proposed compromise involving the criminal aspect of the case, 'Which is contrary to law.
Therefore, the parties who have already signed the said compromise agreement are hereby instructed to go
over the same and see how it could be properly approved by the Court, taking into consideration the provisions
of law as well as public morals and policy."
On April 26, 1975, tile parties — the PBCOM, thru its president, and the defendants in their own behalf and
each assisted by counsel 3 submitted a manifestation and motion in order to have the phrase "and criminal
charge hereinabove mentioned" (contained in paragraph 7 of the Compromise Agreement) and "and criminal
charge" (contained in paragraph 10 of the Compromise Agreement), supra, deleted and — praying that
judgment be rendered on the basis of the Compromise Agreement as thus modified.

On May 12, 1975, the defendant Conrado Galvez thru his counsel filed a Manifestation pointing out two alleged
objectionable features in the compromise agreement signed by him, which he claimed to be "contrary to law,
public policy and decency," namely, the provision thereof to the effect that said agreement even after its
approval by the court shall be without prejudice to charging anew the same defendants on the basis of other
anomalies which might be discovered in the bank thereafter, contrary to his expectation that the dismissal of
the present criminal and civil cases would terminate with finality any and all litigations between the parties; and
the provision regarding quitclaim where said defendant would be considered as having voluntarily resigned,
waiving his right to reinstatement in the service, his right to retirement with the corresponding gratuity or
compensation and his right to receive the benefits under the Staff Provident Fund. But said defendant made no
claim that he did not voluntarily sign the compromise or that Ws consent had been obtained through mistake,
violence or fraud. 4 In fact, he based his objection on his claim that "it was the plaintiff, from the outset, who
persuaded Galvez to turn state witness and promised him reciprocal benefits should he agree to become such,
and to which Galvez agreed and had done his part, but plaintiff had reneged on its promise and commitment.
... 5

Countering the manifestation of Conrado Galvez, PBCOM thru counsel maintained the legality and validity of'
the quitclaim duly signed by said Galvez. As to the terms of the, Agreement, viz. that it "shall not in any manner
bar or preclude the Bank from asserting the rights against the PARTIES OF THE SECOND PART in the event
that the Bank subsequently discovers such other transactions on, dealings ill which any or all the PARTIES OF
THE SECOND PART are directly or indirectly involved and which are prejudicial to the Bank's interest," said
counsel explained that the agreement was intended by the bank to cover only such matters of transactions
which were known or disclosed to it by the defendants and not those of which it had no knowledge at the time
of execution thereof.

On July 3, 1975, respondent judge issued an order setting the case for hearing "at which all the parties will be
afforded the opportunity to individually show whether or not there is sufficient basis for the quitclaims in
question viewed from the standpoint of law, public policy and morals vis-a-vis employer-employee relations ...",
citing as grounds therefor the following.

We note the laudable objectives of the parties herein in entering into the Compromise
Agreement under consideration: i.e., to terminate the above- captioned case and by this
agreement to settle and compromise to their mutual satisfaction, all claims therein, and all
disputes and differences between the parties. (Par. 3, page 2, Compromise Agreement)

We observe, however, that aside from the foregoing latent infirmities of the Compromise
Agreement, there obviously was an imbalance of the treatment of the defendants, Faustino
Carlos, Ildefonso Carino, Conrado Galvez, Ricardo Carlos and Arsenio Lorenzo, in contrast to
principal defendants Yu Chiao Chin alias Nelson Yu, who had reiterated his admission made in
his sworn statement taken at Camp Crame, Quezon City that he was responsible and liable to
the plaintiff-bank for the loss/defraudation of at least P5,610,000.00, or a portion only of the P14
million he admitted in his Sworn Statement at Camp Crame, Quezon City. In the same manner,
defendant Paulino How, admitted responsibility for P600,000.00.

xxx xxx xxx

While Compromises are encouraged and normally courts approve compromise agreements as
a matter of course, nonetheless, courts are not rubber stamps mechanically approving whatever
litigants submit to them labelled as a' compromise agreement'. They must examine if it is not
contrary to law, public order, public policy, morals and good customs.
Respondent judge further advanced his own appraisal that the compromise agreement was "unfair" and "one-
sided", and directed the parties once more to "reconsider ... and reform" the waiver and quitclaim provisions of
paragraph 7 thereof, as follows:

It will be noted that of the several defendants, Yu Chiao Chin and Paulino L. How both
acknowledged their liability to plaintiff, the former in the sum of P5,610,000.00 and the latter in
the sum of P600,000.00. (Paragraphs I to 6 of the compromise agreement) As to them, there
would appear to be sufficient basis for the waiver.

There is no such acknowledgment on the part of the other defendants. On the other hand,
defendants Yu Chiao Chin and Paulino L. How admitted sole and exclusive liability for the
misdeeds, and absolved the other defendants (all minor employees then under them) of any
responsibility thereon. There is no reason on the basis of the record why the benefits owing to
such other defendants-employees should be waived under paragraph 7 of the Compromise
Agreement.

The Court cannot close its eyes either to the fact that there is no concession at all appearing to
move to the defendants. An examination of the record, including the numerous statements
attached to the complaint, shows how unfair the one-sided compromise agreement is to the
defendants specially to those who appear to have a very tenuous to the irregularities in
question.

xxx xxx xxx

Dropping the complaint is not enough, at least in this case, for all compromises are supposed to
terminate litigation; it is only when the parties make reciprocal concessions that a litigation
already commenced can be put to an end by means of a compromise. Here there is no premise
satisfactorily articulated to justify the compromise from the standpoint of the defendants-
employees save possibly Yu Chiao Chin alias Nelson Yu and Paulino How.

The Court shall endeavor to persuade the litigants in a civil case to agree upon
some fair compromise.' Article 2029, Civil Code. (emphasis supplied.) It is hard to see how the
subject compromise can be considered fair. The Court has given the parties time to re-examine
the agreement but is not persuaded that the agreement is indeed fair insofar as paragraph 7
thereof is concerned, said clause not having been affected in said reexamination. Unfortunately,
only the objectionable feature on compounding a criminal offense was addressed by the parties
in response to the court's directives of April 17, 1975 and May 8, 1975. The portion on waiver of
the employees' benefits remains in its unsatisfactory and troubling condition.

The parties must be directed once more to reconsider said paragraph 7 of the compromise
agreement and reform or supplement it, for, as it is written, it is hard to see how the court can
approve it. A compromise agreement 'will not be set aside where the rights of the parties may
be protected by a reformation,' 15 C.J.S. 243.

Thereafter, PBCOM filed its written comments on July 24, 1975, reiterating its stand on the validity of the
compromise agreement. Only two of the defendants, Ricardo Carlos and Conrado Galvez, filed their replies.
Ricardo Carlos manifested that he signed the compromise "so as to show pakikisama to his co-defendants and
to get the matter over and done with. He is by no means repudiating his signature ..." and while admitting that
he received certain small amounts from Mr. How and Mr. Yu. that he was leaving the matter to the discretion of
the court, as summarized by respondent judge himself in his appealed decision. 6 The position of Conrado
Galvez who had agreed to be a state witness has already been stated hereinabove.

On July 25, 1975, respondent court handed down its "partial decision" approving in toto (without modification
and alteration) the compromise agreement as to defendant Paulino L. How and finding therein "nothing
contrary to law, morals and public policy, as follows:
 In the light of all the foregoing, the Court finds nothing in the above-quoted provisions of the
Compromise Agreement pertaining to defendant Paulino L. How, to be contrary to law, morals,
and public policy, hence, same is hereby granted and approved.

Judgment is hereby rendered approving the above-quoted Compromise Agreement between

the plaintiff and defendant Paulino L. How and ordering the parties to comply strictly with the
terms and conditions thereof without pronouncement as to costs.

7
The attachment on the properties of defendant Paulino L. How is hereby lifted.

On September 30, 1975, respondent judge rendered a 68 page decision as to au the other defendants,
repeating the observations he made in his earlier order dated July 3, 1975, although along a more lengthy and
ramified vein. 7-a

Although the issues had not been completely joined, and without any trial or reception of evidence, respondent
judge made in his decision extensive "findings" and conclusions of fact on the basis of the controverted
allegations in the parties' pleadings. Nevertheless, respondent judge could not avoid stating in his decision that
"(T)he findings of the independent auditors, SYCIP, GORRES, VELAYO & CO. indicated the defrauded
loss was about P25 million The admissions of the several defendants-bookkeepers approximated this finding,
i.e. P21 million alone by Nelson Yu," 8 after recounting the defraudation schemes of those who he called the
"principal defendants" who connivedwith herein respondents-defendants who as bookkeepers covered up in
their respective books the amounts defrauded.

Invoking his earlier Order of July 3, 1975 wherein he had prejudged the compromise agreement to be "unfair"
and "one-sided", despite which the parties had not heeded his directive therein "to reconsider and reform" the
waiver and quitclaim provisions in paragraph 7 thereof, respondent judge ordered the deleting and striking out
of said provisions insofar as herein respondents-defendants were concerned declaring them to be "contrary to
law, morals, good customs, public policy and public order" and "considered inexistent and void from the
beginning," yet approving the very same compromise agreement in toto without any deletion or modification as
to the defendant Yu Chiao Chin alias Nelson Yu (in the same manner that he had approved in toto the same
compromise agreement as to the defendant Paulino How in his earlier "partial decision" of July 25, 1975, as
follows:

After a careful study of the records, as well as the oral and written manifestations made by the
parties, thru their respective counsel, the Court is of the opinion that paragraph 7 of the
Compromise Agreement, insofar as it refers and includes the names of defendants-
bookkeepers, Enrique Lorenzo y Jiongco, Conrado Galvez y Cervantes, Faustino Carlos y
Ramos, Arsenio Lorenzo Villaluz, Ildefonso Carino y Marasigan, Felizardo Albaira, and Ricardo
Carlos, transgresses the law, its cause, object and purpose is contrary to law, morals good
customs public policy and public order and, therefore, is considered inexistent and void from the
beginning.

Except, therefore, with this modification, which even if included in said Compromise Agreement,
but being considered inexistent and void from the beginning, the Compromise Agreement could
be approved and made the basis of judgment of the above-entitled case. being, as thus
modified, not contrary to law, morals, good customs, public policy and public order.

WHEREFORE, judgment is hereby, rendered approving the above- quoted Compromise

Agreement, as modified thusly, to wit:

(a) delete the phrase 'and criminal charge herein abovementioned' found in paragraph 7, page 5
and the phrase land criminal charge' found in paragraph 10, page 6, and

(b) delete the names of all the defendants-bookkeepers appearing in paragraph 7, page 5 of the
Compromise Agreement, namely, Enrique Lorenzo y Jiongco, Conrado Galvez y Cervantes,
 Faustino Carlos y Ramos, Arsenio Lorenzo y Villaluz, Ildefonso Carino y Marasigan, Felizardo
Albairra, and Ricardo Carlos,

as entered into between the plaintiff-bank and the defendants hereto. (with the exception of principal defendant
Paulino L. How, whose case had been disposed of in a separate partial decision previously) and ordering the
parties to comply strictly with the terms and conditions thereof without pronouncement as to costs.

The attachments on the properties of all the defendants are hereby dissolved, discharged and lifted. 9

Hence, the present petition which we find to be meritorious.

1. Contrary to the bare conclusion of respondent judge ordering the deletion of the names of herein
respondents-defendants from the above-quoted Paragraph 7 of the compromise agreement, whereby he would
free them from their agreement of voluntarily resigning from petitioner bank and waiving whatever rights they
may have against petitioner arising from their employment or the case, including all benefits and rights under
petitioner's Staff Provident Fund and retirement plan in consideration of petitioner's agreement to dismiss the
P25 million case against them and discharging them from all obligations and liabilities thereunder, there is
nothing in said resignation and waiver undertakings of respondents that "transgresses the law" or is "contrary
to law, morals, good customs, public policy and public order and, therefore is considered inexistent and void
from the beginning" — and no such law or authority was cited by respondent judge or respondents to justify or
support his erroneous assertion.

Respondent judge's "finding" that herein respondents-bookkeepers "all occupied an inferior position in the
negotiations on the Compromise Agreement in question, with respect to the plaintiff-bank and/or together with
principal defendants Yu Chiao Chin alias Nelson Yu and Paulino L. How. Be it remembered that these principal
defendants as early- as the year 1970, long before the Complaint herein was filed, had admitted in writing and
'assumed full responsibility for whatever consequences may arise and that we declare the bookkeepers free
from all responsibility, 10 or even his pre-judged subjective perception in his earlier Order of July 3, 1975
hereinabove quoted that "there was obviously an imbalance in [their] treatment" in the "unfair" and "one-sided
compromise agreement" do not at all warrant his rash deletion of the respondents' reciprocal undertaking in
exchange of petitioner's dismissal of the case and waiver of its claims as "contrary to law, morals, good
customs, public policy and public order." This is so, particularly considering that respondent judge approved
the very same compromise agreement in toto without any deletion of the provisions in question as to
defendants How and Yu, who were charged in the complaint below together with herein respondents-
defendants as having connived and acted in concert with each other to defraud petitioner of some P25 million
and respondent judge in his above-quoted "findings" found that "the admissions of the several defendants-
bookkeepers I herein respondents] approximated this finding [of P25 million defrauded loss found by Sycip,
Gorres, Velayo & Co., the independent auditors]; i.e. P21 million alone by Nelson Yu." All of them being
similarly situated and having been charged with connivance and conspiracy .n carrying out through the years
the huge defraudation of petitioner, respondent judge could not arbitrarily declare the provisions in
question void as to the herein seven respondents-conspirators and valid as t6 the two others above named.

2. Far from being "one-sided" and "unfair", it thus appears that in exchange of herein respondents' voluntary
resignation (which employment they could not have clung to anyway considering the huge defraudation of over
P25 million carried out with their connivance and covered by their admissions, as per respondent judge's own
"findings" in his decision, supra, 11 which certainly would warrant their dismissal even on the mere ground of
total loss of trust and confidence) and waiver of any dubious rights arising from their employment and the case
below, including all benefits and rights under petitioner's Staff Provident Fund and retirement plan (which they
would nevertheless have lost and forfeited upon separation from the service 12 all of which involved petty
amounts compared to the over P25 million sought to be recovered by petitioner, herein respondents got a
pretty good deal. Petitioner in consideration thereof and probably realizing the futility of collecting any amount
from them, agreed to dismiss the case against them and discharge them from all liability and required no
assumption of monetary liability from them contenting itself with the much lesser amounts of P600,000.00 and
P6,610,000.00 undertaken to be paid it by the defendants Paulino How and Yu Chiao Chin alias Nelson Yu,
respectively. This is the whole essence of a compromise as provided in Article 2028 of the Civil Code whereby
the parties, by making reciprocal concessions, whether of greater benefit or not to one or the other party, avoid
a litigation or put an end to one already commenced. 13

3. The parties therefore have every freedom to enter into a compromise agreement, as in any other contract,
the only exceptions being certain prohibited subjects of compromise such as the civil status of persons as
provided in Article 2035 of the Civil Code (none of which is applicable here) 14 and the general restriction in
Article 1306 of the Civil Code that 'The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy.

The law and the precepts of morals or good customs need no definition. They need only to be cited and none
has or can be cited as being transgressed by the cited provisions in question. As to the remaining fields of
public order and public policy, the Court has since the early case of Ferrazzini vs. Gsell 15 pointed out that the
two terms are practically equivalent, citing Manresa that "Public policy (order publico) — which does not here
signify the material keeping of public order — represents in the law of persons the public, social and legal
interest, that which is permanent and essential of the institutions, that which. even in favoring an individual in
whom the right lies, cannot be left to his own will." The Code Commission however in drafting our present
Code included the two terms, stating ill its report that "Public order, which is found in the Spanish Civil Code, is
not as broad as public policy, as the latter may refer not only to public safety but also, to considerations which
are moved by the common good. 16

In Gabriel vs. Monte de Piedad 17, the Court enjoined that "courts should not rashly extend the rule which holds
that a contract is void as against public policy" and laid down the following criteria: "The term 'public policy' is
vague and uncertain in meaning, floating and changeable in connotation. It may be said, however, that, in
general, a contract which is neither prohibited by law nor condemned by judicial decision, nor contrary to public
morals, contravenes no public policy. In the absence of express legislation or constitutional prohibition, a court,
in order to declare a contract void as against public policy, must find that the contract as to the consideration or
thing to be done, has a tendency to injure the public, is against the public good, or contravenes some
established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to
undermine the security of individual rights, whether of personal liability or of private property. Examining the
contract at bar, we are of the opinion that it does not in any way militate against the public good. Neither does it
contravene the policy of the law nor the established interests of society.

Thus, the provisions in question which are neither prohibited by law nor condemned by judicial decision nor
contrary to morals and good customs cannot be said to contravene any public policy or to militate against the
public good.

4. The Civil Code in fact contains salutary provisions that encourage and favor compromises and does not
even require judicial approval. As the Court held in Cochingyan vs. Cloribel 18 "Pursuant to Article 2037 of the
Civil Code, 'A compromise has upon the parties the effect and authority of res judicata ...' and this is true even
if the compromise is not judicially approved." Article 2032 of the Civil Code provides only that "the court's
approval is necessary in compromises entered into by guardians, parents, absentee's representatives, and
administrators or executors of decedents' estates," and in no other case. Thus, parties-litigants who have
arrived at a compromise have many times simply asked for and obtained the courts' dismissal of their suit
without submitting their compromise agreement for judicial approval. Procedurally, it is preferable that such
approval be obtained, since as was held in Piano vs. Cayanong, 19 "The agreement ha(s) upon the parties the
effect and authority of res judicata (Art. 2037, New Civil Code; Yboleon v. Sison, 59 Phil. 281, 290; Hernandez
vs. Barcelon, 23 Phil. 599, 607; De Jesus v. Go Quiolay, 65 Phil. 476, 482; Meneses v. De la Rosa, 77 Phil.
34, 38; Salazar v. Jarabe, 48 O.G. 2708, 2712; Morales v. Fontanos, 64 Phil. 19, 21), and the judgment
rendered thereon ha(s) the authority of res judicatafrom the moment it (is) rendered ... and such judgment is
more than a mere contract binding the parties because having the sanction of the court, and entered as its
determination of the controversy, it has all the force and effect of any other judgment, it being conclusive upon
the parties and their privies (Marquez vs. Marquez, 73 Phil. 74)" and as provided by Article 2037, execution
lies to exact compliance only with a judicial compromise. Article 2029 of the Civil Code provides further that
"The court shall endeavor to persuade the litigants in a civil case to agree upon some fair compromise," and
Articles 2039 and 2031 thereof provide for the suspension of pending actions and mitigation of damages to the
losing party who has shown a sincere desire for a Compromise, in line with the Code's policy of encouraging
amicable settlements.

5. It is settled jurisprudence that neither the courts nor quasi-judicial bodies can impose upon the parties a
judgment different from their compromise agreement (which as a valid contract is the law between the parties
themselves) or against the very terms and conditions of their agreement.

We thus held in Municipal Board of Cabanatuan City vs. Samahang Magsasaka, Inc. 20 that "a judicial or quasi-
judicial body cannot impose upon the parties a judgment different from their real agreement or against the very
terms and conditions of the amicable settlement entered into by them, without running the risk of contravening
the universally established principle that a contract is the law between the parties."

We stressed therein that "(T)his Court, time and again, has ruled that a compromise agreement entered into by
party-litigants, when not contrary to law, public order, public policy, morals, or good custom is a valid
contract which is the law between the parties themselves. (Juan-Marcelo, et al. vs. Go Kim Pah, et al., 22
SCRA 309). It follows, therefore, that a compromise agreement, not tainted with infirmity, irregularity, fraud or
illegality, is the law between the parties who are duty bound to abide by it and observe strictly its terms and
conditions. It is incumbent upon the courts of justice to help develop and inculcate in the minds of the parties-
litigants proper respect for, and obedience to, the terms and conditions of this kind of mutual agreement
whenever it does not exhibit any feature or taint of illegality or fraud. Thus we would be enhancing the salutary
provisions of Section 1, Rule 20, of the

Revised Rules of Court and Article 2029, New Civil Code, which entrust to the courts the function of enabling
party-litigants in a civil suit to reach an amicable settlement of their disputes," and cited our previous ruling in
Castro vs Castro 21 that

... Es principio universalmente establecido que el convenio es ley entre las partes. No debe
imponerse un criterio por mas acertado que fuese sobre el verdadero contrato de las Partes.
Que utilidad puede proporcionar la disposicion del articulo 2029 del nuevo codigo civil que
encomienda al Juzgado la funcion de persuader a los litigantes en un asunto civil a que
procuren illegar a un arreglo si, despues de todo, el criterio del tribunal se ha de imponer sobre
su convenio?

The only case where the court may validly intervene is "ff the parties and their counsel are to do it ... to assist
them in attaining precision and accuracy of language that would more or less make it certain that any dispute
as to the matters being settled would not recur, much less give rise to a new controversy. 22

6. As held in the case of Gonzales vs Gonzales, 23 the court cannot deny their approval to a compromise
agreement, voluntarily entered into by the parties, where there is no valid serious objection, since "(T)he
agreement, therefore, partaking of the nature of a contract, is subject to the same legal provision providing for
the validity, enforcement, rescission or annulment of ordinary contracts. In entering in said compromise, the
parties were free to make any stipulation not contrary to law, public interest, or principles of morality, as much
as in any other contract."

As stated above, supra, 24 only two of herein respondent's, namely, Conrado Galvez and Ricardo Carlos, had
presented manifestations as to the "objectionable features" of the compromise agreement signed by them both
following respondent judge's telegraphed but baseless observations in his Orders of April 17, 1975 and July 3,
1975 as to the waiver and quitclaim provisions being "contrary to law, morals and public policy," with Galvez
complaining about petitioner having reneged on its alleged promise to give him reciprocal benefits in exchange
of his agreement to turn state witness.

Aside from the totally untenable position in which respondent judge placed himself by declaring the provisions
of paragraph 7 of the compromise agreement void as to herein respondents but valid in toto as to the
defendants Paulino How and Yu Chiao Chin alias Nelson Yu, his decision would arbitrarily substitute his own
terms for that agreed upon by the parties to the compromise agreement and baselessly free herein
respondents from their undertaking thereunder. With their names ordered deleted from paragraph 7 of the
compromise, they would be bound to no concession nor obligation (notwithstanding that pursuant thereto they
had in fact executed the corresponding waiver and quitclaim therein provided), while petitioner had complied
with its part and discharged them from all obligations and liabilities, despite their admission of complicity,
pursuant to paragraph 8 of the same agreement (subject only to the express exception that petitioner was not
waiving its rights as to any other anomalies which might subsequently be discovered, notwithstanding
respondents' warranty that they had not participated in any such prejudicial transactions other than those
related to or included in the civil case and criminal charge).

7. There can be no question that the parties voluntarily executed and entered into the compromise agreement.
The record shows that all of the parties personally signed the agreement. 25 Respondents' voluntary consent to
said agreement and its due execution with assistance of counsel was confirmed when a week thereafter, their
respective-counsels all signed the "Motion for Judgment on the Basis of the Attached Compromise
Agreement. 26 The signatures of the parties, petitioner and respondents, and those of their respective
counsels, were again affixed on the Manifestation and Motion dated April 26, 1975, reiterating their prayer for
approval of the compromise agreement as modified pursuant to respondent judge's Order of April 17,
1978. 27 Thus, not one of herein respondents had ever assailed the compromise agreement as not having
been freely or voluntarily entered into.

When respondent judge issued his Order for hearing of April 26, 1975 advancing his own observation as to
"certain objectionable features" and mentioning that the compromise referred to compounding a felony, which
is contrary to law and directing the parties to go over the same again so that he could approve the same
"taking into consideration the provisions of law, as well as public morals and policy," supra, 28 the parties
deferred thereto by filing their said Manifestation and Motion of April 26, 1975, wherein they prayed that "The
phrase 'and criminal charge herein above mentioned' found in paragraph 7, page 5 and the phrase land
criminal charge' found in paragraph 10, page 6 of the Compromise Agreement be deleted from the said
Compromise Agreement dated March 10, 1975," and reiterated the prayer for judgment on the basis of the
compromise agreement, as thus modified. They made of record, though, that respondent judge's view was in
error, thus:

5. The parties wish to state that the reference to a criminal charge in the said paragraphs is pure oversight on
inadvertence inasmuch as there is no criminal charge mentioned in the paragraphs preceding paragraphs 7
and 10 of the Compromise Agreement and consequently the phrase 'criminal charge hereinabove mentioned'
is meaningless. Besides, it has not been the intention of the parties to compromise 'the criminal aspect of the
case', not only because it would be contrary to law to do so but principally because the defendants are fully
aware that such a compromise may be taken as an admission of guilt and the defendants entered into the
'Compromise Agreement' dated March 10, 1975 with the clear understanding that by so entering into such
agreement, they are not admitting nor are they deemed to admit the commission of any criminal act.

Notwithstanding respondent judge's said Order and subsequent Order of July 3, 1975 setting the case anew
for hearing and directing the parties once more "to reconsider ... and reform" the waiver and quitclaim
provisions of paragraph 7 of the compromise agreement and flatly announcing that the modification deleting all
reference to the criminal charge was "unsatisfactory" and that "dropping the complaint is not enough"
concession for herein respondents, the stark fact remains that not one of respondents ever repudiated the
compromise agreement nor moved to set aside or annul the same because of alleged fraud, violence or
vitiated consent - which is the remedy available in such cases under Article 2038 of the Civil Code. 29

All that respondents ever asserted, following respondent judge's line, was that the waiver and quitclaim
provisions constituting their reciprocal concession was "contrary to law, morals, good customs, public policy
and public order" — which we have held to be totally untenable.

ACCORDINGLY, the modification of and deletions from the compromise agreement ordered in respondent
judge's decision are hereby set aside as null and void, and in lieu thereof, judgment is hereby rendered
approving the compromise agreement in toto. Without pronouncement as to costs.

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-1299 November 16, 1903

VICENTE PEREZ, plaintiff-appellee,

vs.
EUGENIO POMAR, Agent of the Compañia General de Tabacos, defendant-appellant.

Francisco Dominguez for appellant.

Ledesma, Sumulong and Quintos for appellee.

TORRES, J.:

In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a case brought by the
plaintiff against the defendant for the recovery of wages due and unpaid, gave judgment against the latter for
the sum of $600 and the costs of suit, less the sum of $50, Mexican.

On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a complaint, which was
amended on the 17th of January of this year, asking that the court determine the amount due the plaintiff, at
the customary rate of compensation for interpreting in these Islands, for services rendered in the Tabacalera
Company, and that, in view of the circumstances of the case, judgment be rendered in his favor for such sum.
The complaint also asked that the defendant be condemned to the payment of damages in the sum of $3,200,
gold, together with the costs of suit. In this complaint it was alleged that Don Eugenio Pomar, as general agent
of the Compañia General de Tabacos in the said province, verbally requested the plaintiff on the 8th of
December, 1901, to act as interpreter between himself and the military authorities; that after the date
mentioned the plaintiff continued to render such services up to and including May 31, 1902; that he had
accompanied the defendant, Pomar, during that time at conferences between the latter and the colonel
commanding the local garrison, and with various officers and doctors residing in the capital, and at
conferences with Captain Lemen in the town of Pilar, and with the major in command at the town of Pagsanjan,
concerning the shipment of goods from Manila, and with respect to Pagsanjan to this city; that the plaintiff
during this period held himself in readiness to render services whenever required; that on this account his
private business, and especially a soap factory established in the capital, was entirely abandoned; that to the
end that such services might be punctually rendered, the agent, Pomar, assured him that the Tabacalera
Company always generously repaid services rendered it, and that he therefore did not trouble himself about his
inability to devote the necessary amount of time to his business, the defendant going so far as to make him
flattering promises of employment with the company, which he did not accept; that these statements were
made in the absence of witnesses and that therefore his only proof as to the same was Mr. Pomar's word as a
gentleman; that the employees of the company did not understand English, and by reason of the plaintiff's
mediation between the agent, and the military authorities large profits were obtained, as would appear from the
account and letterpress books of the agency corresponding to those dates. In the amended complaint it was
added that the defendant, on behalf of the company, offered to renumerate the plaintiff for the services
rendered in the most advantageous manner in which such services are compensated, in view of the
circumstances under which they were requested; and that the plaintiff, by rendering the company such
services, was obliged to abandon his own business, the manufacture of soap, and thereby suffered damages
in the sum of $3,200, United States currency.

The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of the complaint, with
costs to the plaintiff. In his answer the defendant denied the allegation in the first paragraph of the complaint,
stating that it was wholly untrue that the company, and the defendant as its agent, had solicited the services of
the plaintiff as interpreter before the military authorities for the period stated, or for any other period, or that the
plaintiff had accompanied Pomar at the conferences mentioned, concerning shipments from Manila and
exports from some of the towns of the province to this capital. He stated that he especially denied paragraphs
2 of the complaint, as it was absolutely untrue that the plaintiff had been at the disposal of the defendant for the
purpose of rendering such services; that he therefore had not been obliged to abandon his occupation or his
soap factory, and that the statement that an offer of employment with the company had been made to him was
false. The defendant also denied that through the mediation of the plaintiff the company and himself had
obtained large profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint were also denied. The
defendant stated that, on account of the friendly relations which sprang up between the plaintiff and himself,
the former borrowed from him from time to time money amounting to $175 for the purposes of his business,
and that he had also delivered to the plaintiff 36 arrobas of oil worth $106, and three packages of resin for use
in coloring his soap; that the plaintiff accompanied the defendant to Pagsanjan, Pilar, and other towns when
the latter made business trips to them for the purpose of extending his business and mercantile relations
therein; that on these excursions, as well as on private and official visits which he had to make, the plaintiff
occasionally accompanied him through motives of friendship, and especially because of the free transportation
given him, and not on behalf of the company of which he was never interpreter and for which he rendered no
services; that the plaintiff in these conferences acted as interpreter of his own free will, without being requested
to do so by the defendant and without any offer of payment or compensation; that therefore there existed no
legal relation whatever between the company and the plaintiff, and that the defendant, when accepting the
spontaneous, voluntary and officious services of the plaintiff, did so in his private capacity and not as agent of
the company, and that it was for this reason that he refused to enter into negotiations with the plaintiff, he being
in no way indebted to the latter. The defendant concluded by saying that he answered in his individual
capacity.

A complaint having been filed against the Compañia General de Tabacos and Don Eugenio Pomar, its agent in
the Province of Laguna, the latter, having been duly summoned, replied to the complaint, which was
subsequently amended, and stated that he made such reply in his individual capacity and not as agent of the
company, with which the plaintiff had had no legal relations. The suit was instituted between the plaintiff and
Pomar, who, as such, accepted the issue and entered into the controversy without objection, opposed the
claim of the plaintiff, and concluded by asking that the complaint be dismissed, with the costs to the plaintiff.
Under these circumstances and construing the statutes liberally, we think it proper to decide the case pending
between both parties in accordance with law and the strict principles of justice.

From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on various occasions
render Don Eugenio Pomar services as interpreter of English; and that he obtained passes and accompanied
the defendant upon his journeys to some of the towns in the Province of Laguna. It does not appear from the
evidence, however, that the plaintiff was constantly at the disposal of the defendant during the period of six
months, or that he rendered services as such interpreter continuously and daily during that period of time.

It does not appear that any written contract was entered into between the parties for the employment of the
plaintiff as interpreter, or that any other innominate contract was entered into; but whether the plaintiff's
services were solicited or whether they were offered to the defendant for his assistance, inasmuch as these
services were accepted and made use of by the latter, we must consider that there was a tacit and mutual
consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the
services to make compensation therefor, since the bilateral obligation to render services as interpreter, on the
one hand, and on the other to pay for the services rendered, is thereby incurred. (Arts. 1088, 1089, and 1262
of the Civil Code). The supreme court of Spain in its decision of February 12, 1889, holds, among other things,
"that not only is there an express and tacit consent which produces real contract but there is also a
presumptive consent which is the basis of quasi contracts, this giving rise to the multiple juridical relations
which result in obligations for the delivery of a thing or the rendition of a service."

Notwithstanding the denial of that defendant, it is unquestionable that it was with his consent that the plaintiff
rendered him services as interpreter, thus aiding him at a time when, owing to the existence of an insurrection
in the province, the most disturbed conditions prevailed. It follows, hence, that there was consent on the part of
both in the rendition of such services as interpreter. Such service not being contrary to law or to good custom,
it was a perfectly licit object of contract, and such a contract must necessarily have existed between the
parties, as alleged by the plaintiff. (Art. 1271, Civil Code.)

The consideration for the contract is also evident, it being clear that a mutual benefit was derived in
consequence of the service rendered. It is to be supposed that the defendant accepted these services and that
the plaintiff in turn rendered them with the expectation that the benefit would be reciprocal. This shows the
concurrence of the three elements necessary under article 1261 of the Civil Code to constitute a contract of
lease of service, or other innominate contract, from which an obligation has arisen and whose fulfillment is now
demanded.

Article 1254 of the Civil Code provides that a contract exists the moment that one or more persons consent to
be bound, with respect to another or others, to deliver some thing or to render some service. Article 1255
provides that the contracting parties may establish such covenants, terms, and conditions as they deem
convenient, provided they are not contrary to law, morals or public policy. Whether the service was solicited or
offered, the fact remains that Perez rendered to Pomar services as interpreter. As it does not appear that he
did this gratuitously, the duty is imposed upon the defendant, having accepted the benefit of the service, to pay
a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly established.

The obligations arising from this contract are reciprocal, and, apart from the general provisions with respect to
contracts and obligations, the special provisions concerning contracts for lease of services are applicable by
analogy.

In this special contract, as determined by article 1544 of the Civil Code, one of the parties undertakes to render
the other a service for a price certain. The tacit agreement and consent of both parties with respect to the
service rendered by the plaintiff, and the reciprocal benefits accruing to each, are the best evidence of the fact
that there was an implied contract sufficient to create a legal bond, from which arose enforceable rights and
obligations of a bilateral character.lawphi1.net

In contracts the will of the contracting parties is law, this being a legal doctrine based upon the provisions of
articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it is a fact sufficiently proven that
the defendant, Pomar, on various occasions consented to accept an interpreter's services, rendered in his
behalf and not gratuitously, it is but just that he should pay a reasonable remuneration therefor, because it is a
well-known principle of law that no one should be permitted to enrich himself to the damage of another.

With respect to the value of the services rendered on different occasions, the most important of which was the
first, as it does not appear that any salary was fixed upon by the parties at the time the services were
accepted, it devolves upon the court to determine, upon the evidence presented, the value of such services,
taking into consideration the few occasions on which they were rendered. The fact that no fixed or determined
consideration for the rendition of the services was agreed upon does not necessarily involve a violation of the
provisions of article 1544 of the Civil Code, because at the time of the agreement this consideration was
capable of being made certain. The discretionary power of the court, conferred upon it by the law, is also
supported by the decisions of the supreme court of Spain, among which may be cited that of October 18, 1899,
which holds as follows: "That as stated in the article of the Code cited, which follows the provisions of law 1,
title 8, of the fifth partida, the contract for lease of services is one in which one of the parties undertakes to
make some thing or to render some service to the other for a certain price, the existence of such a price being
understood, as this court has held not only when the price has been expressly agreed upon but also when it
may be determined by the custom and frequent use of the place in which such services were rendered."

No exception was taken to the judgment below by the plaintiff on account of the rejection of his claim for
damages. The decision upon this point is, furthermore, correct.

Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos, owing to the
inconsiderable number of times he acted as interpreter, it is evident that the contract thus implicitly entered into
was not required to be in writing and that therefore it does not fall within article 1280 of the Civil Code; nor is it
included within the provisions of section 335 of the Code of Civil Procedure, as this innominate contract is not
covered by that section. The contract of lease of services is not included in any of the cases expressly
designated by that section of the procedural law, as affirmed by the appellant. The interpretation of the other
articles of the Code alleged to have been infringed has also been stated fully in this opinion.

For the reasons stated, we are of the opinion that judgment should be rendered against Don Eugenio Pomar
for the payment to the plaintiff of the sum of 200 Mexican pesos, from which will be deducted the sum of 50
pesos is made as to the costs of this instance. The judgment below is accordingly affirmed in so far as it
agrees with this opinion, and reversed in so far as it may be in conflict therewith. Judgment will be entered
accordingly twenty days after this decision is filed.

Arellano, C.J., Willard, and Mapa, JJ., concur.

Case Digest

Perez vs. Pomar

G. R. No. L-1299, Nov. 16, 1903
FACTS: The defendant, Don Eugenio Pomar, verbally requested the petitioner, Don Vicente Perez, to act as
interpreter between himself and the military authorities. That on this account Pomar’s private business, a soap
factory, was entirely abandoned as Perez assured him that he would be generously repaid in his services
rendered. However, he was never repaid and thereby suffered damages in the sum of $3,200, United States
currency, the loss he has incurred in abandoning his own business.

ISSUE: Whether or not the respondent is oblige to pay the continued service rendered by the petitioner.

HELD: Yes. Whether the plaintiff’s services were solicited or whether they were offered to the defendant for his
assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that
there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon
the person benefited by the services to make compensation therefore, since the bilateral obligation to render
services as interpreter, on the one hand, and on the other to pay for the services rendered, is thereby incurred.

The supreme court of Spain in its decision of February 12, 1889, holds, among other things, “that not only is
there an express and tacit consent which produces real contract but there is also a presumptive consent which
is the basis of quasi contracts, this giving rise to the multiple juridical relations which result in obligations for the
delivery of a thing or the rendition of a service.”
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 181658 August 7, 2013

LEE PUE LIONG A.K.A. PAUL LEE, PETITIONER,

vs.
CHUA PUE CHIN LEE, RESPONDENT.

DECISION

VILLARAMA, JR., J.:

Before this Court is a petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, seeking the reversal of the May 31, 2007 Decision2 and the January 31, 2008 Resolution3 of the
Court of Appeals (CA) in CA-G.R. SP No. 81510. The CA affirmed the Orders4 dated August 15, 2003 and
November 5, 2003 of the Metropolitan Trial Court (MeTC) of Manila denying (a) the Omnibus Motion5 for the
exclusion of a private prosecutor in the two criminal cases for perjury pending before the MeTC, and (b) the
Motion for Reconsideration6 of the said order denying the Omnibus Motion, respectively.

The facts follow:

Petitioner Lee Pue Liong, a.k.a. Paul Lee, is the President of Centillion Holdings, Inc. (CHI), a company
affiliated with the CKC Group of Companies (CKC Group) which includes the pioneer company Clothman
Knitting Corporation (CKC). The CKC Group is the subject of intra-corporate disputes between petitioner and
his siblings, including herein respondent Chua Pue Chin Lee, a majority stockholder and Treasurer of CHI.

On July 19, 1999, petitioner’s siblings including respondent and some unidentified persons took over and
barricaded themselves inside the premises of a factory owned by CKC. Petitioner and other factory employees
were unable to enter the factory premises. This incident led to the filing of Criminal Case Nos. 971-V-99, 55503
to 55505 against Nixon Lee and 972-V-99 against Nixon Lee, Andy Lee, Chua Kipsi a.k.a. Jensen Chua and
respondent, which are now pending in different courts in Valenzuela City.7

On June 14, 1999, petitioner on behalf of CHI (as per the Secretary’s Certificate8 issued by Virginia Lee on
even date) caused the filing of a verified Petition9 for the Issuance of an Owner’s Duplicate Copy of Transfer
Certificate of Title (TCT) No. 23223810 which covers a property owned by CHI. The case was docketed as LRC
Record No. 4004 of the Regional Trial Court (RTC) of Manila, Branch 4. Petitioner submitted before the said
court an Affidavit of Loss11 stating that: (1) by virtue of his position as President of CHI, he had in his custody
and possession the owner’s duplicate copy of TCT No. 232238 issued by the Register of Deeds for Manila; (2)
that said owner’s copy of TCT No. 232238 was inadvertently lost or misplaced from his files and he discovered
such loss in May 1999; (3) he exerted diligent efforts in locating the said title but it had not been found and is
already beyond recovery; and (4) said title had not been the subject of mortgage or used as collateral for the
payment of any obligation with any person, credit or banking institution. Petitioner likewise testified in support
of the foregoing averments during an ex-parte proceeding. In its Order12 dated September 17, 1999, the RTC
granted the petition and directed the Register of Deeds of Manila to issue a new Owner’s Duplicate Copy of
TCT No. 232238 in lieu of the lost one.

Respondent, joined by her brother Nixon Lee, filed an Omnibus Motion praying, among others, that the
September 17, 1999 Order be set aside claiming that petitioner knew fully well that respondent was in
possession of the said Owner’s Duplicate Copy, the latter being the Corporate Treasurer and custodian of vital
documents of CHI. Respondent added that petitioner merely needs to have another copy of the title because
he planned to mortgage the same with the Planters Development Bank. Respondent even produced the
Owner’s Duplicate Copy of TCT No. 232238 in open court. Thus, on November 12, 1999, the RTC recalled and
set aside its September 17, 1999 Order.13

In a Complaint-Affidavit14 dated May 9, 2000 filed before the City Prosecutor of Manila, respondent alleged the
following:

1. I am a stockholder, Board Member, and duly elected treasurer of Centillion Holdings, Inc. (CHI),
which corporation is duly organized and existing under Philippine laws.

2. As duly elected treasurer of CHI, I was tasked with the custody and safekeeping of all vital financial
documents including bank accounts, securities, and land titles.

3. Among the land titles in my custody was the Owner’s Duplicate copy of Transfer Certificate of Title
No. 232238 registered in the name of CHI.

4. On June 14, 1999, Lee Pue Liong, a.k.a. Paul Lee, filed a VERIFIED PETITION for the issuance of a
new owner’s duplicate copy of the aforementioned certificate claiming under oath that said duplicate
copy was in his custody but was lost.

xxxx

5. Paul Lee likewise executed an affidavit of loss stating the same fact of loss, which affidavit he used
and presented as exhibit "D".

xxxx

6. On August 18, 1999, Paul Lee testified under oath that TCT No. 232238 was inadvertently lost and
misplaced from his files.

xxxx

7. Paul Lee made a willful and deliberate assertion of falsehood in his verified petition, affidavit and
testimony, as he perfectly knew that I was in possession of the owner’s duplicate copy of TCT No.
232238.

8. I and my brother Nixon Lee opposed the petition of Paul Lee and even produced in open court the
owner’s duplicate copy of TCT No. 232238.

Such fact was contained in the Order of Branch 4, RTC, Manila, dated November 12, 1999, x x x.

9. I and Paul Lee are involved in an intra-corporate dispute, which dispute is now pending with the
SEC.

10. Paul Lee needed to have a new owner’s duplicate of the aforementioned TCT so that he could
mortgage the property covered thereby with the Planters Development Bank, even without my
knowledge and consent as well as the consent and knowledge of my brother Nixon Lee who is likewise
a shareholder, board member and officer of CHI.

11. If not for the timely discovery of the petition of Paul Lee, with his perjurious misrepresentation, a
new owner’s duplicate could have been issued.

x x x x15 (Italics supplied.)

On June 7, 2000, respondent executed a Supplemental Affidavit16 to clarify that she was accusing petitioner of
perjury allegedly committed on the following occasions: (1) by declaring in the VERIFICATION the veracity of
the contents in his petition filed with the RTC of Manila concerning his claim that TCT No. 232238 was in his
possession but was lost; (2) by declaring under oath in his affidavit of loss that said TCT was lost; and (3) by
testifying under oath that the said TCT was inadvertently lost from his files.

The Investigating Prosecutor recommended the dismissal of the case. However, in the Review
Resolution17 dated December 1, 2000 issued by First Assistant City Prosecutor Eufrosino A. Sulla, the
recommendation to dismiss the case was set aside. Thereafter, said City Prosecutor filed the
Informations18 docketed as Criminal Case Nos. 352270-71 CR for perjury, punishable under Article 18319 of the
Revised Penal Code, as amended, against petitioner before the MeTC of Manila, Branch 28.

At the trial, Atty. Augusto M. Macam appeared as counsel for respondent and as private prosecutor with the
consent and under the control and supervision of the public prosecutor. After the prosecution’s presentation of
its first witness in the person of Atty. Ronaldo Viesca, Jr.,20 a lawyer from the Land Registration Authority,
petitioner’s counsel moved in open court that respondent and her lawyer in this case should be excluded from
participating in the case since perjury is a public offense. Said motion was vehemently opposed by Atty.
Macam.21 In its Order22dated May 7, 2003, the MeTC gave both the defense and the prosecution the
opportunity to submit their motion and comment respectively as regards the issue raised by petitioner’s
counsel.

Complying with the MeTC’s directive, petitioner filed the aforementioned Omnibus Motion23 asserting that in
the crime of perjury punishable under Article 183 of the Revised Penal Code, as amended, there is no mention
of any private offended party. As such, a private prosecutor cannot intervene for the prosecution in this case.
Petitioner argued that perjury is a crime against public interest as provided under Section 2, Chapter 2, Title IV,
Book 2 of the Revised Penal Code, as amended, where the offended party is the State alone. Petitioner
posited that there being no allegation of damage to private interests, a private prosecutor is not needed. On the
other hand, the Prosecution filed its Opposition24 to petitioner’s Omnibus Motion.

The MeTC denied the Omnibus Motion in the Order25 dated August 15, 2003, as follows:

[W]hile criminal actions, as a rule, are prosecuted under the direction and control of the public prosecutor,
however, an offended party may intervene in the proceeding, personally or by attorney, especially in cases of
offenses which cannot be prosecuted except at the instance of the offended party. The only exception to this
rule is when the offended party waives his right to [file the] civil action or expressly reserves his right to institute
it after the termination of the case, in which case he loses his right to intervene upon the theory that he is
deemed to have lost his interest in its prosecution. And, in any event, whenever an offended party intervenes in
the prosecution of a criminal action, his intervention must always be subject to the direction and control of the
public prosecutor. (Lim Tek Goan vs. Yatco, 94 Phil. 197).

Apparently, the law makes no distinction between cases that are public in nature and those that can only be
prosecuted at the instance of the offended party. In either case, the law gives to the offended party the right to
intervene, personally or by counsel, and he is deprived of such right only when he waives the civil action or
reserves his right to institute one. Such is not the situation in this case. The case at bar involves a public crime
and the private prosecution has asserted its right to intervene in the proceedings, subject to the direction and
control of the public prosecutor.26

The MeTC also denied petitioner’s motion for reconsideration.27

Petitioner sought relief from the CA via a petition28 for certiorari with a prayer for the issuance of a writ of
preliminary injunction and temporary restraining order. Petitioner prayed, among others, for the CA to enjoin
the MeTC and respondent from enforcing the MeTC Orders dated August 15, 2003 and November 5, 2003,
and likewise to enjoin the MeTC and respondent from further allowing the private prosecutor to participate in
the proceedings below while the instant case is pending.
By Decision29 dated May 31, 2007, the CA ruled in favor of respondent, holding that the presence of the private
prosecutor who was under the control and supervision of the public prosecutor during the criminal proceedings
of the two perjury cases is not proscribed by the rules. The CA ratiocinated that respondent is no stranger to
the perjury cases as she is the private complainant therein, hence, an aggrieved party. 30 Reiterating the
MeTC’s invocation of our ruling in Lim Tek Goan v. Yatco31 as cited by former Supreme Court Associate
Justice Florenz D. Regalado in his Remedial Law Compendium,32 the CA ruled that "the offended party, who
has neither reserved, waived, nor instituted the civil action may intervene, and such right to intervene exists
even when no civil liability is involved."33

Without passing upon the merits of the perjury cases, the CA declared that respondent’s property rights and
interests as the treasurer and a stockholder of CHI were disturbed and/or threatened by the alleged acts of
petitioner. Further, the CA opined that petitioner’s right to a fair trial is not violated because the presence of the
private prosecutor in these cases does not exclude the presence of the public prosecutor who remains to have
the prosecuting authority, subjecting the private prosecutor to his control and supervision.

Petitioner filed a Motion for Reconsideration34 but the CA denied it under Resolution35 dated January 31, 2008.

Hence, this petition raising the following issues:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR

WHEN IT UPHELD THE RESOLUTION OF THE METROPOLITAN TRIAL COURT THAT THERE IS A
PRIVATE OFFENDED PARTY IN THE CRIME OF PERJURY, A CRIME AGAINST PUBLIC
INTEREST; AND

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT UPHELD THE
RESOLUTIONS OF THE LOWER COURT WHICH IN TURN UPHELD THE RIGHT OF
RESPONDENT, AN ALLEGED STOCKHOLDER OF CHI, TO INTERVENE IN THE CRIMINAL CASE
FOR PERJURY AS PRIVATE COMPLAINANT ON BEHALF OF THE CORPORATION WITHOUT ITS
AUTHORITY.36

Petitioner claims that the crime of perjury, a crime against public interest, does not offend any private party but
is a crime which only offends the public interest in the fair and orderly administration of laws. He opines that
perjury is a felony where no civil liability arises on the part of the offender because there are no damages to be
compensated and that there is no private person injured by the crime.

Petitioner argues that the CA’s invocation of our pronouncement in Lim Tek Goan, cited by Justice Regalado in
his book, is inaccurate since the private offended party must have a civil interest in the criminal case in order to
intervene through a private prosecutor. Dissecting Lim Tek Goan, petitioner points out that said case involved
the crime of grave threats where Lim Tek Goan himself was one of the offended parties. Thus, even if the
crime of grave threats did not have any civil liability to be satisfied, petitioner claims that Lim Tek Goan, as a
matter of right, may still intervene because he was one of the offended parties.

Petitioner submits that the MeTC erred in allowing the private prosecutor to represent respondent in this case
despite the fact that the latter was not the offended party and did not suffer any damage as she herself did not
allege nor claim in her Complaint-Affidavit and Supplemental Affidavit that she or CHI suffered any damage
that may be satisfied through restitution,37 reparation for the damage caused38 and indemnification for
consequential damages.39 Lastly, petitioner asserts that respondent is not the proper offended party that may
intervene in this case as she was not authorized by CHI. Thus, he prayed, among others, that Atty. Macam or
any private prosecutor for that matter be excluded from the prosecution of the criminal cases, and that all
proceedings undertaken wherein Atty. Macam intervened be set aside and that the same be taken anew by the
public prosecutor alone.40
On the other hand, respondent counters that the presence and intervention of the private prosecutor in the
perjury cases are not prohibited by the rules, stressing that she is, in fact, an aggrieved party, being a
stockholder, an officer and the treasurer of CHI and the private complainant. Thus, she submits that pursuant
to our ruling in Lim Tek Goan she has the right to intervene even if no civil liability exists in this case.41

The petition has no merit.

Generally, the basis of civil liability arising from crime is the fundamental postulate of our law that "[e]very
person criminally liable x x x is also civilly liable."42 Underlying this legal principle is the traditional theory that
when a person commits a crime, he offends two entities, namely (1) the society in which he lives in or the
political entity, called the State, whose law he has violated; and (2) the individual member of that society whose
person, right, honor, chastity or property was actually or directly injured or damaged by the same punishable
act or omission.43

Section 1, Rule 111 of the Revised Rules of Criminal Procedure, as amended, provides:

SECTION 1. Institution of criminal and civil actions.—(a) When a criminal action is instituted, the civil action for
the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action
unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil
action prior to the criminal action.

x x x x (Emphasis supplied)

For the recovery of civil liability in the criminal action, the appearance of a private prosecutor is allowed under
Section 16 of Rule 110:

SEC. 16. Intervention of the offended party in criminal action.—Where the civil action for recovery of civil
liability is instituted in the criminal action pursuant to Rule 111, the offended party may intervene by counsel in
the prosecution of the offense. (Emphasis supplied.)

Section 12, Rule 110 of the Revised Rules of Criminal Procedure, as amended, defines an offended party as
"the person against whom or against whose property the offense was committed." In Garcia v. Court of
Appeals,44 this Court rejected petitioner’s theory that it is only the State which is the offended party in public
offenses like bigamy. We explained that from the language of Section 12, Rule 10 of the Rules of Court, it is
reasonable to assume that the offended party in the commission of a crime, public or private, is the party to
whom the offender is civilly liable, and therefore the private individual to whom the offender is civilly liable is the
offended party.

In Ramiscal, Jr. v. Hon. Sandiganbayan,45 we also held that Under Section 16, Rule 110 of the Revised Rules
of Criminal Procedure, the offended party may also be a private individual whose person, right, house, liberty
or property was actually or directly injured by the same punishable act or omission of the accused, or that
corporate entity which is damaged or injured by the delictual acts complained of. Such party must be one who
has a legal right; a substantial interest in the subject matter of the action as will entitle him to recourse under
the substantive law, to recourse if the evidence is sufficient or that he has the legal right to the demand and the
accused will be protected by the satisfaction of his civil liabilities. Such interest must not be a mere expectancy,
subordinate or inconsequential. The interest of the party must be personal; and not one based on a desire to
vindicate the constitutional right of some third and unrelated party.46 (Emphasis supplied.)

In this case, the statement of petitioner regarding his custody of TCT No. 232238 covering CHI’s property and
its loss through inadvertence, if found to be perjured is, without doubt, injurious to respondent’s personal
credibility and reputation insofar as her faithful performance of the duties and responsibilities of a Board
Member and Treasurer of CHI. The potential injury to the corporation itself is likewise undeniable as the court-
ordered issuance of a new owner’s duplicate of TCT No. 232238 was only averted by respondent’s timely
discovery of the case filed by petitioner in the RTC.
Even assuming that no civil liability was alleged or proved in the perjury case being tried in the MeTC, this
Court declared in the early case of Lim Tek Goan v. Yatco,47 cited by both MeTC and CA, that whether public
or private crimes are involved, it is erroneous for the trial court to consider the intervention of the offended
party by counsel as merely a matter of tolerance. Thus, where the private prosecution has asserted its right to
intervene in the proceedings, that right must be respected. The right reserved by the Rules to the offended
party is that of intervening for the sole purpose of enforcing the civil liability born of the criminal act and not of
demanding punishment of the accused. Such intervention, moreover, is always subject to the direction and
control of the public prosecutor.48

In Chua v. Court of Appeals,49 as a result of the complaint-affidavit filed by private respondent who is also the
corporation’s Treasurer, four counts of falsification of public documents (Minutes of Annual Stockholder’s
Meeting) was instituted by the City Prosecutor against petitioner and his wife. After private respondent’s
testimony was heard during the trial, petitioner moved to exclude her counsels as private prosecutors on the
ground that she failed to allege and prove any civil liability in the case. The MeTC granted the motion and
ordered the exclusion of said private prosecutors. On certiorari to the RTC, said court reversed the MeTC and
ordered the latter to allow the private prosecutors in the prosecution of the civil aspect of the criminal case.
Petitioner filed a petition for certiorari in the CA which dismissed his petition and affirmed the assailed RTC
ruling.

When the case was elevated to this Court, we sustained the CA in allowing the private prosecutors to actively
participate in the trial of the criminal case. Thus:

Petitioner cites the case of Tan, Jr. v. Gallardo, holding that where from the nature of the offense or where the
law defining and punishing the offense charged does not provide for an indemnity, the offended party may not
intervene in the prosecution of the offense.

Petitioner’s contention lacks merit. Generally, the basis of civil liability arising from crime is the fundamental
postulate that every man criminally liable is also civilly liable. When a person commits a crime he offends two
entities namely (1) the society in which he lives in or the political entity called the State whose law he has
violated; and (2) the individual member of the society whose person, right, honor, chastity or property has been
actually or directly injured or damaged by the same punishable act or omission. An act or omission is felonious
because it is punishable by law, it gives rise to civil liability not so much because it is a crime but because it
caused damage to another. Additionally, what gives rise to the civil liability is really the obligation and the moral
duty of everyone to repair or make whole the damage caused to another by reason of his own act or omission,
whether done intentionally or negligently. The indemnity which a person is sentenced to pay forms an integral
part of the penalty imposed by law for the commission of the crime. The civil action involves the civil liability
arising from the offense charged which includes restitution, reparation of the damage caused, and
indemnification for consequential damages.

Under the Rules, where the civil action for recovery of civil liability is instituted in the criminal action pursuant to
Rule 111, the offended party may intervene by counsel in the prosecution of the offense. Rule 111(a) of the
Rules of Criminal Procedure provides that, "[w]hen a criminal action is instituted, the civil action arising from
the offense charged shall be deemed instituted with the criminal action unless the offended party waives the
civil action, reserves the right to institute it separately, or institutes the civil action prior to the criminal action."

Private respondent did not waive the civil action, nor did she reserve the right to institute it separately, nor
institute the civil action for damages arising from the offense charged. Thus, we find that the private
prosecutors can intervene in the trial of the criminal action.

Petitioner avers, however, that respondent’s testimony in the inferior court did not establish nor prove any
damages personally sustained by her as a result of petitioner’s alleged acts of falsification. Petitioner adds that
since no personal damages were proven therein, then the participation of her counsel as private prosecutors,
who were supposed to pursue the civil aspect of a criminal case, is not necessary and is without basis.

When the civil action is instituted with the criminal action, evidence should be taken of the damages claimed
and the court should determine who are the persons entitled to such indemnity. The civil liability arising from
the crime may be determined in the criminal proceedings if the offended party does not waive to have it
adjudged or does not reserve the right to institute a separate civil action against the defendant. Accordingly, if
there is no waiver or reservation of civil liability, evidence should be allowed to establish the extent of injuries
suffered.

In the case before us, there was neither a waiver nor a reservation made; nor did the offended party institute a
separate civil action. It follows that evidence should be allowed in the criminal proceedings to establish the civil
liability arising from the offense committed, and the private offended party has the right to intervene through the
private prosecutors.50 (Emphasis supplied; citations omitted.)

In the light of the foregoing, we hold that the CA did not err in holding that the MeTC committed no grave
abuse of discretion when it denied petitioner’s motion to exclude Atty. Macam as private prosecutor in Crim.
Case Nos. 352270-71 CR.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated May 31, 2007 and the
Resolution dated January 31, 2008 of the Court of Appeals in CA-G.R. SP No. 81510 are hereby AFFIRMED
and UPHELD.

With costs against the petitioner.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice
Chairperson

ARTURO D. BRION* LUCAS P. BERSAMIN

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution, 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.

MARIA LOURDES P. A. SERENO

Chief Justice
 SECOND DIVISION

JOHN KAM BIAK Y. CHAN, JR., G.R. No. 160283

P e t i t i o n e r,
Present:

PUNO,
Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

Promulgated:
IGLESIA NI CRISTO, INC.,
R e s p o n d e n t. October 14, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review on certiorari[1] assailing the Decision[2] of the Court of Appeals in CA-G.R. CV

No. 65976, dated 25 September 2003. Said Decision denied the petitioners appeal from the decision of the

Regional Trial Court (RTC), La Union, Branch 31, in Civil Case No. A-1646.

THE FACTS

The antecedents of the instant case are quite simple.

The Aringay Shell Gasoline Station is owned by the petitioner. It is located in Sta. Rita East, Aringay, La Union,

and bounded on the south by a chapel of the respondent.

The gasoline station supposedly needed additional sewerage and septic tanks for its washrooms. In view of

this, the services of Dioscoro Ely Yoro (Yoro), a retired general of the Armed Forces of the Philippines, was

procured by petitioner, as the former was allegedly a construction contractor in the locality.
Petitioner and Yoro executed a Memorandum of Agreement[3] (MOA) on 28 February 1995 which is

reproduced hereunder:

MEMORANDUM OF AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This MEMORANDUM OF AGREEMENT, executed this 28th day of February, 1995, by and
between:

JOHN Y. CHAN, of legal age, single, and a resident of Aringay, La Union, now and
hereinafter called the FIRST PARTY;

GEN. ELY E. YORO, Jr., of legal age, married, and a resident of Damortis, Sto. Tomas,
La Union, hereinafter referred to as the SECOND PARTY:

WITNESSETH that:
WHEREAS, the FIRST PARTY is the owner of a parcel of land located at Sta. Rita,
Aringay, La Union.

WHEREAS, the FIRST PARTY, desires to dig a septic tank for its perusal in the property
bordering Iglesia ni Cristo.

WHEREAS, the SECOND PARTY is willing to contract the intended digging of septic tank for
the first party.

WHEREAS, the FIRST PARTY and SECOND PARTY has (sic) agreed verbally as to the
compensation of the said digging of septic tank.

WHEREFORE, for and in consideration of the terms and covenants hereinbelow set forth, the
FIRST PARTY hereby AGREES and ALLOWS the SECOND PARTY to undertake the digging
of the parcel of land for the exclusive purpose of having a septic tank.

TERMS AND COVENANTS

1. The SECOND PARTY shall contract the said digging;

2. The FIRST PARTY shall have complete control over the number of personnel who will be
entering the property for said contract;

3. The digging shall be allowed for a period of three (3) weeks only, commencing on March 28,
1995, unless extended by agreement of the parties;

4. Any damage within or outside the property of the FIRST PARTY incurred during the digging
shall be borne by the SECOND PARTY;

5. In the event that valuable objects are found on the property, the same shall be divided among
the parties as follows:

FIRST PARTY - 60%

SECOND PARTY - 40%
 6. In the event that valuable objects are found outside the property line during the said digging,
the same shall be divided among the parties as follows:

FIRST PARTY - 35%

SECOND PARTY - 65%

7. In case government or military interference or outside intervention is imminent, the FIRST

PARTY hereby reserves the option to stop the digging at any stage thereof.

IN WITNESS WHEREOF, We have hereunto set our hands on the day and year first
above-written at Aringay, La Union.[4]

Diggings thereafter commenced. After some time, petitioner was informed by the members of the

respondent that the digging traversed and penetrated a portion of the land belonging to the latter. The

foundation of the chapel was affected as a tunnel was dug directly under it to the damage and prejudice of the

respondent.

On 18 April 1995, a Complaint[5] against petitioner and a certain Teofilo Oller, petitioners engineer, was filed by

the respondent before the RTC, La Union, Branch 31, docketed therein as Civil Case No. A-1646. Petitioner

and Oller filed an Answer with Third-Party Complaint[6]impleading Yoro as third-party defendant.

Yoro filed an Answer to the Third-Party Complaint[7] dated 13 July 1995. An Amended and Supplemental

Complaint[8] dated 30 August 1995 was later filed by the respondent already naming Yoro as a party-

defendant, to which the petitioner and Oller filed an Answer.[9] Yoro filed his own Answer.[10]

After four years of hearing the case, the trial court promulgated its Decision[11] holding that the diggings were

not intended for the construction of sewerage and septic tanks but were made to construct tunnels to find

hidden treasure.[12] The trial court adjudged the petitioner and Yoro solidarily liable to the respondent on a

35%-65% basis (the petitioner liable for the 35%), and absolving Oller from any liability, viz:

WHEREFORE, this Court renders judgment in favor of plaintiff IGLESIA NI CRISTO and
against defendants JOHN KAMBIAK CHAN and DIOSCORO ELY YORO, JR. who are
respectively solidarily liable to PLAINTIFF on a 35%-65% basis, with JOHN CHAN taking the
35% tab, Ordering the two (2) aforesaid DEFENDANTS to pay PLAINTIFF the following
amounts:

1. SIX HUNDRED THIRTY-THREE THOUSAND FIVE HUNDRED NINETY-FIVE

PESOS AND FIFTY CENTAVOS (P633,595.50); representing ACTUAL DAMAGES;
 2. FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing MORAL
DAMAGES;

3. TEN MILLION PESOS (P10,000,000.00) as EXEMPLARY DAMAGES;

4. FIFTY THOUSAND PESOS (P50,000.00) as plaintiffs attorneys fees; and

5. TWENTY THOUSAND PESOS (P20,000.00) as litigation expenses.

Defendant TEOFILO OLLER is absolved of any civil liability.

Any counterclaim filed against PLAINTIFF IGLESIA NI CRISTO is dismissed.[13]

Petitioner filed a Notice of Appeal[14] dated 18 August 1999. Yoro filed his own Notice of Appeal[15] dated 20

August 1999.

In a Resolution[16] dated 19 November 1999, the trial court disallowed Yoros appeal for failure to pay the

appellate court docket and other lawful fees within the reglementary period for taking an appeal.[17] In view of

Yoros failure to appropriately file an appeal, an order was issued for the issuance of a Writ of Execution as

against him only, the dispositive portion of which reads:

WHEREFORE, premises considered, this Court GRANTS the motion of plaintiff Iglesia
ni Cristo for the issuance of a Writ of Execution as against Dioscoro Ely Yoro, Jr. only.[18]

The petitioners appeal to the Court of Appeals, on the other hand, was given due course.[19] On 25 September

2003, the Court of Appeals rendered its Decision denying the appeal. It affirmed the trial court but with

modifications. The decretal portion of the decision states:

WHEREFORE, the appeal is hereby DENIED. The assailed decision in Civil Case No. A-1646 is
hereby AFFIRMED with MODIFICATIONS as follows:

(a) The award of moral damages in the amount of P500,000.00 is hereby deleted.

(b) The award of exemplary damages is hereby reduced to P50,000.00.

(c) The award of attorneys fees and litigation expenses is hereby reduced to P30,000.00.[20]
Undeterred, petitioner instituted the instant case before this Court. On 15 December 2004, the instant petition

was given due course.[21]

ASSIGNMENT OF ERRORS

Petitioner assigns as errors the following:

THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL

TRIAL COURT (BRANCH 31, AGOO, LA UNION) PARTICULARLY IN SAYING THAT THE
BASIS OF THE SOLIDARY OBLIGATION OF PETITIONER AND YORO VIS--VIS PLAINTIFF
IS BASED NOT ON THE MOA BUT ON TORT

II

THE COURT OF APPEALS ERRED IN NOT GIVING EFFECT TO THE MOA WHICH SHOULD
EXONERATE THE PETITIONER FROM ALL LIABILITIES TO THE PRIVATE RESPONDENT

III

THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE THIRD-PARTY

COMPLAINT AS CROSS-CLAIM OF THE PETITIONER AGAINST YORO.[22]

ISSUE

Drawn from the above assignment of errors, the solitary issue that needs to be resolved is:

WHETHER OR NOT THE MEMORANDUM OF AGREEMENT ENTERED INTO BY THE

PETITIONER AND YORO HAS THE EFFECT OF MAKING THE
LATTER SOLELY RESPONSIBLE FOR DAMAGES TO THE RESPONDENT.

THE RULINGS OF THE COURT

Petitioner avers that no liability should attach to him by laying the blame solely on Yoro. He argues that the

MOA executed between him and Yoro is the law between them and must be given weight by the courts. Since

nothing in the MOA goes against the law, morals, good customs and public policy, it must govern to absolve
him from any liability.[23] Petitioner relies heavily in Paragraph 4 of the MOA, which is again reproduced

hereunder:

4. Any damage within or outside the property of the FIRST PARTY incurred during the digging
shall be borne by the SECOND PARTY.

In answer to this, the respondent asserts that the MOA should not absolve petitioner from any liability. This

written contract, according to the respondent, clearly shows that the intention of the parties therein was to

search for hidden treasure. The alleged digging for a septic tank was just a cover-up of their real

intention.[24] The aim of the petitioner and Yoro to intrude and surreptitiously hunt for hidden treasure in the

respondents premises should make both parties liable.[25]

At this juncture, it is vital to underscore the findings of the trial court and the Court of Appeals as to what was

the real intention of the petitioner and Yoro in undertaking the excavations. The findings of the trial court and

the Court of Appeals on this point are in complete unison. Petitioner and Yoro were in quest for hidden

treasure[26] and, undoubtedly, they were partners in this endeavor.

The Court of Appeals, in its Decision, held in part:

The basis of their solidarity is not the Memorandum of Agreement but the fact that they
have become joint tortfeasors. There is solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.[27]

We find no compelling reason to disturb this particular conclusion reached by the Court of Appeals. The issue,

therefore, must be ruled in the negative.

Article 2176 of the New Civil Code provides:

ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
Based on this provision of law, the requisites of quasi-delict are the following:

(a) there must be an act or omission;

(b) such act or omission causes damage to another;

(c) such act or commission is caused by fault or negligence; and

(d) there is no pre-existing contractual relation between the parties.

All the requisites are attendant in the instant case. The tortious act was the excavation which caused damage

to the respondent because it was done surreptitiously within its premises and it may have affected the

foundation of the chapel. The excavation on respondents premises was caused by fault. Finally, there was no

pre-existing contractual relation between the petitioner and Yoro on the one hand, and the respondent on the

other.

For the damage caused to respondent, petitioner and Yoro are jointly liable as they are joint tortfeasors.

Verily, the responsibility of two or more persons who are liable for a quasi-delict is solidary.[28]

The heavy reliance of petitioner in paragraph 4 of the MOA cited earlier cannot steer him clear of any

liability.

As a general rule, joint tortfeasors are all the persons who command, instigate, promote, encourage,

advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if

done for their benefit.[29]

Indubitably, petitioner and Yoro cooperated in committing the tort. They even had provisions in their

MOA as to how they would divide the treasure if any is found within or outside petitioners property line. Thus,

the MOA, instead of exculpating petitioner from liability, is the very noose that insures that he be so declared

as liable.
 Besides, petitioner cannot claim that he did not know that the excavation traversed the respondents

property. In fact, he had two (2) of his employees actually observe the diggings, his security guard and his

engineer Teofilo Oller.[30]

Coming now to the matter on damages, the respondent questions the drastic reduction of the exemplary

damages awarded to it. It may be recalled that the trial court awarded exemplary damages in the amount

of P10,000,000.00 but same was reduced by the Court of Appeals to P50,000.00.

Exemplary or corrective damages are imposed by way of example or correction for the public good. [31] In quasi-

delicts, exemplary damages may be granted if the defendant acted with gross negligence. [32] By gross

negligence is meant such entire want of care as to raise a presumption that the person in fault is conscious of

the probable consequences of carelessness, and is indifferent, or worse, to the danger of injury to person or

property of others.[33]

Surreptitiously digging under the respondents chapel which may weaken the foundation thereof, thereby

endangering the lives and limbs of the people in worship, unquestionably amounts to gross negligence. Not to

mention the damage that may be caused to the structure itself. The respondent may indeed be awarded

exemplary damages.

For such tortious act done with gross negligence, the Court feels that the amount awarded by the Court of

Appeals is inadequate. The exemplary damages must correspondingly be increased to P100,000.00.

The modification made by this Court to the judgment of the Court of Appeals must operate as against Yoro, for

as fittingly held by the court a quo:

While it is settled that a party who did not appeal from the decision cannot seek any
relief other than what is provided in the judgment appealed from, nevertheless, when the rights
and liability of the defendants are so interwoven and dependent as to be inseparable, in which
case, the modification of the appealed judgment in favor of appellant operates as a modification
to Gen. Yoro who did not appeal. In this case, the liabilities of Gen. Yoro and appellant being
solidary, the above exception applies.[34]
WHEREFORE, the Decision of the Court of Appeals dated 25 September 2003 is AFFIRMED with

MODIFICATION as to the award of exemplary damages, which is hereby increased to P100,000.00. Costs

against petitioner.

SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Associate Justice
Chairman

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice Associate Justice

DANTE O. TINGA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Associate Justice
Chairman, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans 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 Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice