chapter 1 cases full text torts

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G.R. No. L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,vs.MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.Kincaid & Hartigan for appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the employment of Manila Railroad Company in thecapacity of clerk, with a monthly wage of P25. He lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line of thedefendant railroad company; and in coming daily by train to the company's office in the city of Manila where he worked, he used a pass, supplied by thecompany, which entitled him to ride upon the company's trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff arose fromhis seat in the second class-car where he was riding and, making, his exit through the door, took his position upon the steps of the coach, seizing theupright guardrail with his right hand for support.

On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise with a moderate gradient somedistance away from the company's office and extends along in front of said office for a distance sufficient to cover the length of several coaches. As thetrain slowed down another passenger, named Emilio Zuñiga, also an employee of the railroad company, got off the same car, alighting safely at the poinwhere the platform begins to rise from the level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also,but one or both of his feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell violently on theplatform. His body at once rolled from the platform and was drawn under the moving car, where his right arm was badly crushed and lacerated. Itappears that after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted dimly by a single light located some distanceaway, objects on the platform where the accident occurred were difficult to discern especially to a person emerging from a l ighted car.

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that it was the customary season forharvesting these melons and a large lot had been brought to the station for the shipment to the market. They were contained in numerous sacks whichhas been piled on the platform in a row one upon another. The testimony shows that this row of sacks was so placed of melons and the edge ofplatform; and it is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon theplatform. His statement that he failed to see these objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries which he had received were very serious. Hewas therefore brought at once to a certain hospital in the city of Manila where an examination was made and his arm was amputated. The result of thisoperation was unsatisfactory, and the plaintiff was then carried to another hospital where a second operation was performed and the member was againamputated higher up near the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and surgical fees

and for other expenses in connection with the process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages of the defendant company,founding his action upon the negligence of the servants and employees of the defendant in placing the sacks of melons upon the platform and leavingthem so placed as to be a menace to the security of passenger alighting from the company's trains. At the hearing in the Court of First Instance, hisHonor, the trial judge, found the facts substantially as above stated, and drew therefrom his conclusion to the effect that, although negligence wasattributable to the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and from the cars,nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded form recovering. Judgment wasaccordingly entered in favor of the defendant company, and the plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the platform in the manner abovestated; that their presence caused the plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal cause of theinjuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the damage thereby occasioned unless recovery isbarred by the plaintiff's own contributory negligence. In resolving this problem it is necessary that each of these conceptions of liability, to-wit, theprimary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the obligation to respond for thedamage which plaintiff has suffered arises, if at all, from the breach of that contract by reason of the failure of defendant to exercise due care in itsperformance. That is to say, its liability is direct and immediate, differing essentially, in legal viewpoint from that presumptive responsibility for thenegligence of its servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection andsupervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-contractual obligations — or to use thetechnical form of expression, that article relates only to culpaaquiliana and not to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this distinction, which was also recognizedby this Court in its decision in the case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa clearlypoints out the difference between "culpa, substantive and independent, which of itself constitutes the source of an obligation between persons notformerly connected by any legal tie" and culpa considered as an accident in the performance of an obligation already existing . . . ."



In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of the Civil Code is not applicable toacts of negligence which constitute the breach of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not growing out of pre-existingduties of the parties to one another. But where relations already formed give rise to duties, whether springing from contract or quasi-contract,then breaches of those duties are subject to article 1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil.Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain cases imposed upon employers with respect todamages occasioned by the negligence of their employees to persons to whom they are not bound by contract, is not based, as in the English CommonLaw, upon the principle of respondeat superior — if it were, the master would be liable in every case and unconditionally — but upon the principleannounced in article 1902 of the Civil Code, which imposes upon all persons who by their fault or negligence, do injury to another, the obligation ofmaking good the damage caused. One who places a powerful automobile in the hands of a servant whom he knows to be ignorant of the method ofmanaging such a vehicle, is himself guilty of an act of negligence which makes him liable for all the consequences of his imprudence. The obligation tomake good the damage arises at the very instant that the unskillful servant, while acting within the scope of his employment causes the injury. Theliability of the master is personal and direct. But, if the master has not been guilty of any negligence whatever in the selection and direction of theservant, he is not liable for the acts of the latter, whatever done within the scope of his employment or not, if the damage done by the servant does notamount to a breach of the contract between the master and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from liability for the latter's acts —on the contrary, that proof shows that the responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon a voluntary act or omission which, without willful intent, but by mere negligence or inattention, has causeddamage to another. A master who exercises all possible care in the selection of his servant, taking into consideration the qualifications they shouldpossess for the discharge of the duties which it is his purpose to confide to them, and directs them with equal diligence, thereby performs his duty tothird persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by reason of the negligence of his servants, even within

the scope of their employment, such third person suffer damage. True it is that under article 1903 of the Civil Code the law creates apresumption that hehas been negligent in the selection or direction of his servant, but the presumption is rebuttable and yield to proof of due care and diligence in thisrespect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico Code, has held that these articles are applicable to casesof extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was anaction brought upon the theory of the extra-contractual liability of the defendant to respond for the damage caused by the carelessness of his employeewhile acting within the scope of his employment. The Court, after citing the last paragraph of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises apresumption of law that there was negligence on the part of the master or employer either in selection of the servant or employee, or insupervision over him after the selection, or both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, maybe rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised

the care and diligence of a good father of a family, the presumption is overcome and he is relieved from liability.

This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. This is the notablepeculiarity of the Spanish law of negligence. It is, of course, in striking contrast to the American doctrine that, in relations with strangers, thenegligence of the servant in conclusively the negligence of the master.

The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based upon negligence, it is necessary that there shallhave been some fault attributable to the defendant personally, and that the last paragraph of article 1903 merely establishes a rebuttable presumption, isin complete accord with the authoritative opinion of Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason ofthe breach of the duties inherent in the special relations of authority or superiority existing between the person called upon to repair the damage and theone who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents, when such acts or omissionscause damages which amount to the breach of a contact, is not based upon a mere presumption of the master's negligence in their selection or control,and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its source in the breach or omission of thosemutual duties which civilized society imposes upon it members, or which arise from these relations, other than contractual, of certain members of societyto others, generally embraced in the concept of status. The legal rights of each member of society constitute the measure of the corresponding legalduties, mainly negative in character, which the existence of those rights imposes upon all other members of society. The breach of these general dutieswhether due to willful intent or to mere inattention, if productive of injury, give rise to an obligation to indemnify the injured party. The fundamentaldistinction between obligations of this character and those which arise from contract, rests upon the fact that in cases of non-contractual obligation it isthe wrongful or negligent act or omission itself which creates the vinculum juris, whereas in contractual relations the vinculumexists independently of thebreach of the voluntary duty assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect — and ourLegislature has so elected — whom such an obligation is imposed is morally culpable, or, on the contrary, for reasons of public policy, to extend thatliability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those person who acts or mission areimputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our CivilCode has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed



to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in the selection and control of one's agents orservants, or in the control of persons who, by reason of their status, occupy a position of dependency with respect to the person made liable for theirconduct.

The position of a natural or juridical person who has undertaken by contract to render service to another, is wholly different from that to which article1903 relates. When the sources of the obligation upon which plaintiff's cause of action depends is a negligent act or omission, the burden of proof restsupon plaintiff to prove the negligence — if he does not his action fails. But when the facts averred show a contractual undertaking by defendant for thebenefit of plaintiff, and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to specify in his pleadingswhether the breach of the contract is due to willful fault or to negligence on the part of the defendant, or of his servants or agents. Proof of the contractand of its nonperformance is sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume the burden of proof of its existence, asthe only fact upon which his action is based; while on the contrary, in a case of negligence which presupposes the existence of a contractualobligation, if the creditor shows that it exists and that it has been broken, it is not necessary for him to prove negligence. (Manresa, vol. 8, p.71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the negligent conduct of defendant or ofhis servants, even though such be in fact the actual cause of the breach, it is obvious that proof on the part of defendant that the negligence or omissionof his servants or agents caused the breach of the contract would not constitute a defense to the action. If the negligence of servants or agents could beinvoked as a means of discharging the liability arising from contract, the anomalous result would be that person acting through the medium of agents orservants in the performance of their contracts, would be in a better position than those acting in person. If one delivers a valuable watch to watchmakerwho contract to repair it, and the bailee, by a personal negligent act causes its destruction, he is unquestionably liable. Would it be logical to free himfrom his liability for the breach of his contract, which involves the duty to exercise due care in the preservation of the watch, if he shows that it was hisservant whose negligence caused the injury? If such a theory could be accepted, juridical persons would enjoy practically complete immunity fromdamages arising from the breach of their contracts if caused by negligent acts as such juridical persons can of necessity only act through agents orservants, and it would no doubt be true in most instances that reasonable care had been taken in selection and direction of such servants. If one deliverssecurities to a banking corporation as collateral, and they are lost by reason of the negligence of some clerk employed by the bank, would it be just and

reasonable to permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon the payment of the debt by proving thatdue care had been exercised in the selection and direction of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere incident to the performance of a contract hasfrequently been recognized by the supreme court of Spain. (Sentencias of June 27, 1894; November 20, 1896; and December 13, 1896.) In thedecisions of November 20, 1896, it appeared that plaintiff's action arose ex contractu, but that defendant sought to avail himself of the provisions ofarticle 1902 of the Civil Code as a defense. The Spanish Supreme Court rejected defendant's contention, saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as those to which article 1902 of theCivil Code relates, but of damages caused by the defendant's failure to carry out the undertakings imposed by the contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage done by the negligent acts of their servants will show thain no case has the court ever decided that the negligence of the defendant's servants has been held to constitute a defense to an action for damages forbreach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not liable for the damages caused by the negligenceof his driver. In that case the court commented on the fact that no evidence had been adduced in the trial court that the defendant had been negligent inthe employment of the driver, or that he had any knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for damages caused by theloss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of defendant's servants in the course of the performance of acontract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of a contract made between it andthe plaintiff . . . we do not think that the provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages for the personal injuries caused by thenegligence of defendant's chauffeur while driving defendant's automobile in which defendant was riding at the time. The court found that the damageswere caused by the negligence of the driver of the automobile, but held that the master was not liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the owner a reasonable opportunity to observe themand to direct the driver to desist therefrom. . . . The act complained of must be continued in the presence of the owner for such length of time

that the owner by his acquiescence, makes the driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court rested its conclusion as tothe liability of the defendant upon article 1903, although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to himarising out of the contract of transportation. The express ground of the decision in this case was that article 1903, in dealing with the liability of a masterfor the negligent acts of his servants "makes the distinction between private individuals and public enterprise;" that as to the latter the law creates arebuttable presumption of negligence in the selection or direction of servants; and that in the particular case the presumption of negligence had not beenovercome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though founded in tort rather than as based upon the breachof the contract of carriage, and an examination of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theoryViewed from the standpoint of the defendant the practical result must have been the same in any event. The proof disclosed beyond doubt that thedefendant's servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also affirmatively appeared thatdefendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant. Defendant was, therefore, liable for theinjury suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa aquiliana or culpa contractual. As Manresa points ou



(vol. 8, pp. 29 and 69) whether negligence occurs an incident in the course of the performance of a contractual undertaking or its itself the source of anextra-contractual undertaking obligation, its essential characteristics are identical. There is always an act or omission productive of damage due tocarelessness or inattention on the part of the defendant. Consequently, when the court holds that a defendant is liable in damages for having failed toexercise due care, either directly, or in failing to exercise proper care in the selection and direction of his servants, the practical result is identical in eithecase. Therefore, it follows that it is not to be inferred, because the court held in the Yamada case that defendant was liable for the damages negligentlycaused by its servants to a person to whom it was bound by contract, and made reference to the fact that the defendant was negligent in the selectionand control of its servants, that in such a case the court would have held that it would have been a good defense to the action, if presented squarelyupon the theory of the breach of the contract, for defendant to have proved that it did in fact exercise care in the selection and control of the servant.

The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and extra-contractual obligations. Thefield of non- contractual obligation is much more broader than that of contractual obligations, comprising, as it does, the whole extent of juridical humanrelations. These two fields, figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve

him from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the contract under such conditions thatthe same act which constitutes the source of an extra-contractual obligation had no contract existed between the parties.

The contract of defendant to transport plaintiff carried with i t, by implication, the duty to carry him in safety and to provide safe means of entering andleaving its trains (civil code, article 1258). That duty, being contractual, was direct and immediate, and its non-performance could not be excused byproof that the fault was morally imputable to defendant's servants.

The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in placing an obstruction upon theplatform was a breach of its contractual obligation to maintain safe means of approaching and leaving its trains, the direct and proximate cause of theinjury suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a complete stop before alighting. Under thedoctrine of comparative negligence announced in the Rakes case (supra), if the accident was caused by plaintiff's own negligence, no liability is imposedupon defendant's negligence and plaintiff's negligence merely contributed to his injury, the damages should be apportioned. It is, therefore, important toascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular injury suffered by him could not have

occurred. Defendant contends, and cites many authorities in support of the contention, that it is negligence per se for a passenger to alight from amoving train. We are not disposed to subscribe to this doctrine in its absolute form. We are of the opinion that this proposition is too badly stated and isat variance with the experience of every-day life. In this particular instance, that the train was barely moving when plaintiff alighted is shown conclusivelyby the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight from trains under these conditionsevery day of the year, and sustain no injury where the company has kept its platform free from dangerous obstructions. There is no reason to believethat plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its duty to providea safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence (vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train, is thatof ordinary or reasonable care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition of the passenger,would have acted as the passenger acted under the circumstances disclosed by the evidence. This care has been defined to be, not the carewhich may or should be used by the prudent man generally, but the care which a man of ordinary prudence would use under similarcircumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep., 809), we may say that the test is this; Was thereanything in the circumstances surrounding the plaintiff at the time he alighted from the train which would have admonished a person of averageprudence that to get off the train under the conditions then existing was dangerous? If so, the plaintiff should have desisted from alighting; and his failureso to desist was contributory negligence.1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that plaintiff was guilty of contributorynegligence is that he stepped off the car without being able to discern clearly the condition of the platform and while the train was yet slowly moving. Inconsidering the situation thus presented, it should not be overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which wascaused by the sacks of melons piled on the platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford to itspassengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the absence of some circumstance to warn him to the contrary,that the platform was clear. The place, as we have already stated, was dark, or dimly lighted, and this also is proof of a failure upon the part of thedefendant in the performance of a duty owing by it to the plaintiff; for if it were by any possibility concede that it had right to pile these sacks in the path oalighting passengers, the placing of them adequately so that their presence would be revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following circumstances are to be noted: The company'splatform was constructed upon a level higher than that of the roadbed and the surrounding ground. The distance from the steps of the car to the spotwhere the alighting passenger would place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature ofthe platform, constructed as it was of cement material, also assured to the passenger a stable and even surface on which to alight. Furthermore, theplaintiff was possessed of the vigor and agility of young manhood, and it was by no means so risky for him to get off while the train was yet moving asthe same act would have been in an aged or feeble person. In determining the question of contributory negligence in performing such act — that is tosay, whether the passenger acted prudently or recklessly — the age, sex, and physical condition of the passenger are circumstances necessarilyaffecting the safety of the passenger, and should be considered. Women, it has been observed, as a general rule are less capable than men of alightingwith safety under such conditions, as the nature of their wearing apparel obstructs the free movement of the limbs. Again, it may be noted that the placewas perfectly familiar to the plaintiff as it was his daily custom to get on and of the train at this station. There could, therefore, be no uncertainty in hismind with regard either to the length of the step which he was required to take or the character of the platform where he was alighting. Our conclusion isthat the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and that thereforehe was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist clerk, and that the injuries he has suffered havepermanently disabled him from continuing that employment. Defendant has not shown that any other gainful occupation is open to plaintiff. His



While inside the airplane, JAL’s airline crew suspected respondent of carrying a falsified travel document and imputed that he would only use the trip to the

United States as a pretext to stay and work in Japan.[15] The stewardess asked respondent to show his travel documents. Shortly after, the stewardess along with

Japanese and a Filipino haughtily ordered him to stand up and leave the plane.[16] Respondent protested, explaining that he was issued a U.S. visa. Just to allow him to

board the plane, he pleaded with JAL to closely monitor his movements when the aircraft stops over in Narita.[17] His pleas were ignored. He was then constrained to

go out of the plane.[18] In a nutshell, respondent was bumped off the flight.

Respondent went to JAL’s ground office and waited there for three hours. Meanwhile, the plane took off and he was left behind .[19] Afterwards, he wa

informed that his travel documents were, indeed, in order .[20] Respondent was refunded the cost of his plane ticket less the sum of US$500.00 which was deducted by

JAL.[21] Subsequently, respondent’s U.S. visa was cancelled .[22]

Displeased by the turn of events, respondent filed an action for damages against JAL with the Regional Trial Court (RTC) in Valenzuela City, docketed as

Civil Case No. 4195-V-93. He claimed he was not able to donate his kidney to Loreto; and that he suffered terrible embarrassment and mental anguish.[23] He prayed

that he be awarded P3 million as moral damages, P1.5 million as exemplary damages and P500,000.00 as attorney’s fees .

[24]

JAL denied the material allegations of the complaint. It argued, among others, that its failure to allow respondent to fly on his scheduled departure was due

to “a need for his travel documents to be authenticated by the United States Embassy”[25] because no one from JAL’s airport staff had encountered a parole visa

before.[26] It posited that the authentication required additional time; that respondent was advised to take the flight the following day, July 30, 1992. JAL alleged tha

respondent agreed to be rebooked on July 30, 1992.[27]

JAL also lodged a counterclaim anchored on respondent’s alleged wrongful institution of the complaint. It prayed for litigation expenses, exemplary

damages and attorney’s fees.[28]

On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in favor of respondent (plaintiff), disposing as follows:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the amount of P1,000,000.00 as moraldamages, the amount of P500,000.00 as exemplary damages and the amount ofP250,000.00 as attorney’s fees, plus the cost of suit.[29]

The RTC explained:

In summarily and insolently ordering the plaintiff to disembark while the latter was already settled in his assigned seat, the defendant

violated the contract of carriage; that when the plaintiff was ordered out of the plane under the pretext that the genuineness of his traveldocuments would be verified it had caused him embarrassment and besmirched reputation; and that when the plaintiff was finally not allowed totake the flight, he suffered more wounded feelings and social humiliation for which the plaintiff was asking to be awarded moral and exemplarydamages as well as attorney’s fees.

The reason given by the defendant that what prompted them to investigate the genuineness of the travel documents of the plaintiff wasthat the plaintiff was not then carrying a regular visa but just a letter does not appear satisfactory. The defendant is engaged in transporting

passengers by plane from country to country and is therefore conversant with the travel documents. The defendant should not be allowed to pretend, to the prejudice of the plaintiff not to know that the travel documents of the plaintiff are valid documents to allow him entry in theUnited States.

The foregoing act of the defendant in ordering the plaintiff to deplane while already settled in his assigned seat clearly demonstratedthat the defendant breached its contract of carriage with the plaintiff as passenger in bad faith and as such the plaintiff is entitled to moral andexemplary damages as well as to an award of attorney’s fees .[30]

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Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of breach of contract of carriage, hence, not liable fo

damages.[31] It posited that it is the one entitled to recover on its counterclaim.[32]

CA Ruling

In a Decision[33] dated May 31, 2005, the CA affirmed the decision of the RTC with modification in that it lowered the amount of moral and exemplary

damages and deleted the award of attorney’s fees. The fallo of the CA decision reads:

WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant JAPAN AIR LINES is ordered to payappellee JESUS SIMANGAN the reduced sums, as follows: Five Hundred Thousand Pesos (P500,000.00) as moral damages, and Two HundredFifty Thousand Pesos (P250,000.00) as exemplary damages. The award of attorney’s fees is hereby DELETED.[34]

The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful consideration, “there arose a perfected contract between

them.”[35] It found that respondent was “haughtily ejected ”[36] by JAL and that “he was certainly embarrassed and humiliated ”[37] when, in the presence of othe

passengers, JAL’s airline staff “shouted at him to stand up and arrogantly asked him to produce his travel papers, without the least courtesy every human being i

entitled to”;[38] and that “he was compelled to deplane on the grounds that his papers were fake. ”[39]

The CA ratiocinated:

While the protection of passengers must take precedence over convenience, the implementation of security measures must be attended by basic courtesies.

In fact, breach of the contract of carriage creates against the carrier a presumption of liability, by a simple proof of injury, relieving theinjured passenger of the duty to establish the fault of the carrier or of his employees; and placing on the carrier the burden to prove that it was dueto an unforeseen event or to force majeure.

That appellee possessed bogus travel documents and that he might stay illegally in Japan are allegations without substantiation. Also,appellant’s attempt to rebook appellee the following day was too late and did not relieve it from liability. The damage had been done. Besides,

its belated theory of novation, i.e., that appellant’s original obligation to carry appellee to Narita and Los Angeles on July 29, 1992 wasextinguished by novation when appellant and appellant agreed that appellee will instead take appellant’s flight to Narita on the following day,July 30, 1992, deserves little attention. It is inappropriate at bar. Questions not taken up during the trial cannot be raised for the first time onappeal.[40] (Underscoring ours and citations were omitted)

Citing Ortigas, Jr. v. Lufthansa German Airlines,[41] the CA declared that “(i)n contracts of common carriage, inattention and lack of care on the part of the

carrier resulting in the failure of the passenger to be accommodated in the class contracted for amounts to bad faith or fraud which entitles the passengers to the award

of moral damages in accordance with Article 2220 of the Civil Code.”[42]

Nevertheless, the CA modified the damages awarded by the RTC. It explained:

Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongful or negligent act or omission shallhave a fair and just compensation commensurate to the loss sustained as consequence of the defendant’s act. Being discretionary on the court, theamount, however, should not be palpably and scandalously excessive.

Here, the trial court’s award of P1,000,000.00 as moral damages appears to be overblown. No other proof of appellee’s socialstanding, profession, financial capabilities was presented except that he was single and a businessman. To Us, the sum of 500,000.00 is just andfair. For, moral damages are emphatically not intended to enrich a complainant at the expense of the defendant. They are awarded only to enablethe injured party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has undergone, by reason of thedefendant’s culpable action.

Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a reasonable level. The award of exemplarydamages is designed to permit the courts to mould behavior that has socially deleterious consequences and its imposition is required by public

policy to suppress the wanton acts of the offender. Hence, the sum of P250,000.00 is adequate under the circumstances.



















































The award of P250,000.00 as attorney’s fees lacks factual basis. Appellee was definitely compelled to litigate in protecting his rightsand in seeking relief from appellant’s misdeeds. Yet, the record is devoid of evidence to show the cost of the services of his counsel and/or theactual expenses incurred in prosecuting his action.[43] (Citations were omitted)

When JAL’s motion for reconsideration was denied, it resorted to the petition at bar.

Issues

JAL poses the following issues –

I.WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED TO MORAL DAMAGES,CONSIDERING THAT:

A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.

B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES ONLY WHEN THE BREACHIS ATTENDED BY FRAUD OR BAD FAITH. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH,JAL DID NOT ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO MORALDAMAGES.

C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOOD FAITH FROM ONE

ATTENDED BY BAD FAITH.

II.WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS ENTITLED TO EXEMPLARYDAMAGESCONSIDERING THAT:

A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT OF CARRIAGE UNLESSTHE CARRIER IS GUILTY OF WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENTCONDUCT.

B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT IN A WANTONFRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER AS TO ENTITLE RESPONDENT TOEXEMPLARY DAMAGES.

III.ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF DAMAGES, WHETHER OR NOT THE COURTOF APPEALS AWARD OF P750,000 IN DAMAGES WAS EXCESSIVE AND UNPRECEDENTED.

IV.WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON ITS COUNTERCLAIM .[44] (Underscoring Ours)

Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract of carriage; (2) whether or not respondent is entitled to moral

and exemplary damages; and (3) whether or not JAL is entitled to its counterclaim for damages.

Our Ruling

This Court is not a trier of facts.

Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also gave its nod to the reasoning of the RTC except as to th

awards of damages, which were reduced, and that of attorney’s fees, which was deleted.

We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this matter of the lower courts, which are better equipped and have

better opportunity to assess the evidence first-hand, including the testimony of the witnesses.[45]















We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot be reviewed on appeal to the Supreme Court provided they

are based on substantial evidence.[46] We have no jurisdiction, as a rule, to reverse their findings .[47] Among the exceptions to this rule are: (a) when the conclusion is a

finding grounded entirely on speculations, surmises or conjectures; (b) when the inference made is manifestly mistaken, absurd or impossible; (c) where there is grave

abuse of discretion; (d) when the judgment is based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the CA, in making its

findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee .[48]

The said exceptions, which are being invoked by JAL, are not found here. There is no indication that the findings of the CA are contrary to the evidence on

record or that vital testimonies of JAL’s witnesses were disregarded. Neither did the CA commit misapprehension of facts nor did it fail to consider relevant

facts. Likewise, there was no grave abuse of discretion in the appreciation of facts or mistaken and absurd inferences.

We thus sustain the coherent facts as established by the courts below, there being no sufficient showing that the said courts committed reversible error in

reaching their conclusions.

JAL is guilty of breach of contract of carriage.

That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding pass is uncontroverted .[49] His plane ticket

boarding pass, travel authority and personal articles were subjected to rigid immigration and security procedure.[50] After passing through said immigration and security

procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita, Japan.[51] Concisely, there was a contract of carriage between

JAL and respondent.

Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He was not allowed by JAL to fly. JAL thus failed to comply

with its obligation under the contract of carriage.

JAL justifies its action by arguing that there was “a need to verify the authenticity of respondent’s travel document.”[52] It alleged that no one from its airpor

staff had encountered a parole visa before.[53] It further contended that respondent agreed to fly the next day so that it could first verify his travel document, hence, there

was novation.[54] It maintained that it was not guilty of breach of contract of carriage as respondent was not able to travel to the United States due to his own voluntary

desistance.[55]

We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to first check the authenticity of his travel document

with the U.S. Embassy.

[56]

As admitted by JAL, “the flight could not wait for Mr. Simangan because it was ready to depart. ”

[57]

Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but to be left behind. The latter wa

unceremoniously bumped off despite his protestations and valid travel documents and notwithstanding his contract of carriage with JAL. Damage had already been

done when respondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL’s default.



















































Considering that respondent was forced to get out of the plane and left behind against his will, he could not have freely consented to be rebooked the nex

day. In short, he did not agree to the alleged novation. Since novation implies a waiver of the right the creditor had before the novation, such waiver must be

express.[58] It cannot be supposed, without clear proof, that respondent had willingly done away with his right to fly on July 29, 1992.

Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JAL personnel imputed that respondent would only use the

trip to the United States as a pretext to stay and work in Japan.[59]

Apart from the fact that respondent’s plane ticket, boarding pass, travel authority and personal articles already passed the rigid immigration and security

routines,[60] JAL, as a common carrier, ought to know the kind of valid travel documents respondent carried. As provided in Article 1755 of the New Civil Code: “A

common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due

regard for all the circumstances.”[61] Thus, We find untenable JAL’s defense of “verification of respondent’s documents” in its breach of contract of carriage.

It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL .[62]

In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such contract and its non-performance by the carrier

through the latter’s failure to carry the passenger safely to his destination.[63] Respondent has complied with these twin requisites.

Respondent is entitled to moral and exemplary damages and attorney’s fees plus legal interest.

With reference to moral damages, JAL alleged that they are not recoverable in actions ex contractu except only when the breach is attended by fraud or bad

faith. It is contended that it did not act fraudulently or in bad faith towards respondent, hence, it may not be held liable for moral damages.

As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for it is not one of the items enumerated

under Article 2219 of the Civil Code.

[64]

As an exception, such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as

provided in Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as provided in Articl

2220.[65]

The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breached its contract of carriage with respondent in bad

faith. JAL personnel summarily and insolently ordered respondent to disembark while the latter was already settled in his assigned seat. He was ordered out of the

plane under the alleged reason that the genuineness of his travel documents should be verified.

These findings of facts were upheld by the CA, to wit:

x x x he was haughtily ejected by appellant. He was certainly embarrassed and humiliated when, in the presence of other passengers, the appellant’s airline staff shouted at him to stand up and arrogantly asked him to produce his travel papers, without theleast courtesy every human being is entitled to. Then, he was compelled to deplane on the grounds that his papers were fake. His

protestation of having been issued a U.S. visa coupled with his plea to appellant to closely monitor his movements when the aircraftstops over in Narita, were ignored. Worse, he was made to wait for many hours at the office of appellant only to be told later that hehas valid travel documents.[66] (Underscoring ours)







































Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suits predicated on breach of a contract of carriage where

it is proved that the carrier was guilty of fraud or bad faith, as in this case. Inattention to and lack of care for the interests of its passengers who are entitled to its utmos

consideration, particularly as to their convenience, amount to bad faith which entitles the passenger to an award of moral damages. What the law considers as bad faith

which may furnish the ground for an award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as in the enforcement o

its terms, or any other kind of deceit.[67]

JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton, oppressive and malevolent acts against respondent. Exemplary

damages, which are awarded by way of example or correction for the public good, may be recovered in contractual obligations, as in this case, if defendant acted in

wanton, fraudulent, reckless, oppressive, or malevolent manner .[68]

Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in its consequence by creating

negative incentives or deterrents against such behaviour. In requiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that of the

highest possible degree of diligence, from common carriers and in creating a presumption of negligence against them, the law seeks to compel them to control their

employees, to tame their reckless instincts and to force them to take adequate care of human beings and their property .[69]

Neglect or malfeasance of the carrier’s employees could give ground for an action for damages. Passengers have a right to be treated by the carrier’

employees with kindness, respect, courtesy and due consideration and are entitled to be protected against personal misconduct, injurious language, indignities and

abuses from such employees.[70]

The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages in respondent’s favor is, in Our view, reasonable and realistic.

This award is reasonably sufficient to indemnify him for the humiliation and embarrassment he suffered. This also serves as an example to discourage the repetition o

similar oppressive acts.

With respect to attorney's fees, they may be awarded when defendant’s act or omission has compelled plaintiff to litigate with third persons or to incur expenses

to protect his interest.[71] The Court, in Construction Development Corporation of the Philippines v. Estrella,[72] citing Traders Royal BankEmployees Union

Independent v. National Labor Relations Commission,[73]elucidated thus:

There are two commonly accepted concepts of attorney’s fees, the so-called ordinary and extraordinary. In its ordinary concept, anattorney’s fee is the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter. The basis of thiscompensation is the fact of his employment by and his agreement with the client.

In its extraordinary concept, an attorney’s fee is an indemnity for damages ordered by the court to be paid by the losing party

in a litigation. The basis of this is any of the cases provided by law where such award can be made, such as those authorized in Article 2208,Civil Code, and is payable not to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as

additional compensation or as part thereof .[74]

It was therefore erroneous for the CA to delete the award of attorney’s fees on the ground that the record is devoid of evidence to show the cost of the services of

respondent’s counsel. The amount is actually discretionary upon the Court so long as it passes the test of reasonableness. They may be recovered as actual o

compensatory damages when exemplary damages are awarded and whenever the court deems it just and equitable,[75] as in this case.







































Considering the factual backdrop of this case, attorney’s fees in the amount of P200,000.00 is reasonably modest.

The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to the Court’s ruling in Construction Development Corporation of the

Philippines v. Estrella,[76] citing Eastern Shipping Lines, Inc. v. Court of Appeals,[77] to wit:

Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals, that when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of actual and compensatory damages, subject to the followingrules, to wit –

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan orforbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interestdue shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interestshall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the

provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on theamount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,however, shall be adjudged on unliquidated claims or damages except when or until the demand can be











established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interestshall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when suchcertainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from

the date the judgment of the court is made (at which time the quantification of damages may be deemed to havebeen reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amountfinally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate

of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from

such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance ofcredit.[78] (Emphasis supplied and citations omitted)

Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent legal interest. Pursuant to the above ruling of the Court

the legal interest is 6% and it shall be reckoned from September 21, 2000 when the RTC rendered its judgment. From the time this Decision becomes final and

executory, the interest rate shall be 12% until its satisfaction.

JAL is not entitled to its counterclaim for damages.

The counterclaim of JAL in its Answer [79] is a compulsory counterclaim for damages and attorney’s fees arising from the filing of the complaint. There is no

mention of any other counter claims.

This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted inasmuch as the complaint against it is obviously no

malicious or unfounded. It was filed by respondent precisely to claim his right to damages against JAL. Well-settled is the rule that the











commencement of an action does not per se make the action wrongful and subject the action to damages, for the law could not have meant to impose a penalty on the

right to litigate.[80]

We reiterate case law that if damages result from a party’s exercise of a right, it is damnum absque injuria.[81] Lawful acts give rise to no injury. Walang

perhuwisyong maaring idulot ang paggamit sa sariling karapatan.

During the trial, however, JAL presented a witness who testified that JAL suffered further damages. Allegedly, respondent caused the publications of his

subject complaint against JAL in the newspaper for which JAL suffered damages.[82]

Although these additional damages allegedly suffered by JAL were not incorporated in its Answer as they arose subsequent to its filing, JAL’s witness was

able to testify on the same before the RTC.[83] Hence, although these issues were not raised by the pleadings, they shall be treated in all respects as if they had been

raised in the pleadings.

As provided in Section 5, Rule 10 of the Rules of Court, “(w)hen issues not raised by the pleadings are tried with the express or implied consent of the

parties, they shall be treated in all respects as if they had been raised in the pleadings.”

Nevertheless, JAL’s counterclaim cannot be granted.

JAL is a common carrier. JAL’s business is mainly with the traveling public. It invites people to avail themselves of the comforts and advantages it

offers.[84] Since JAL deals with the public, its bumping off of respondent without a valid reason naturally drew public attention and generated a public issue.

The publications involved matters about which the public has the right to be informed because they relate to a public issue. This public issue or concern is

legitimate topic of a public comment that may be validly published.

Assuming that respondent, indeed, caused the publication of his complaint, he may not be held liable for damages for it. The constitutional guarantee o

freedom of the speech and of the press includes fair commentaries on matters of public interest. This is explained by the Court in Borjal v. Court of Appeals,[85] to wit:

To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel orslander. The doctrine of fair comment means that while in general every discreditable imputation publicly made is deemed false, because everyman is presumed innocent until his guilt is judicially proved, and every false imputation is deemed malicious, nevertheless, when thediscreditable imputation is directed against a public person in his public capacity, it is not necessarily actionable. In order that such discreditableimputation to a public official may be actionable, it must either be a false allegation of fact or a comment based on a false supposition. If thecomment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken, as long as it mightreasonably be inferred from the facts.[86] (Citations omitted and underscoring ours)

Even though JAL is not a public official, the rule on privileged commentaries on matters of public interest applies to it. The privilege applies not only to

public officials but extends to a great variety of subjects, and includes matters of public concern, public men, and candidates for office.[87]

Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable imputation to a public person in his public capacity or to a

public official may be actionable. To be considered malicious, the libelous statements must be shown to have been written or published with the knowledge that they

are false or in reckless disregard of whether they are false or no t.[88]







































Considering that the published articles involve matters of public interest and that its expressed opinion is not malicious but based on established facts, the

imputations against JAL are not actionable. Therefore, JAL may not claim damages for them.

WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED WITH MODIFICATION. As modified, petitione

Japan Airlines is ordered to pay respondent Jesus Simangan the following: (1) P500,000.00 as moral damages; (2) P100,000.00 as exemplary damages; and

(3) P200,000.00 as attorney’s fees.

The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date of judgment of the Regional Trial Court on September 21, 2000

until the finality of this Decision. From the time this Decision becomes final and executory, the unpaid amount, if any, shall earn legal interest at the rate of 12% pe

annum until its satisfaction.

SO ORDERED.

G.R. No. L-44748 August 29, 1986

RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner,vs.COURT OF APPEALS and LORETO DIONELA, respondents.

O. Pythogoras Oliver for respondents.

PARAS, J.:

Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying the decision of the trial court in a civil case for recoveryof damages against petitioner corporation by reducing the award to private respondent Loreto Dionela of moral damages from P40,000 to Pl5,000, andattorney's fees from P3,000 to P2,000.

The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended party, Loreto Dionela, readingas follows:

176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI CITY

WIRE ARRIVAL OF CHECK FER

LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER

115 PM

SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL MO

(p. 19, Annex "A")

Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to him not only wounded his feelings but also caused himundue embarrassment and affected adversely his business as well because other people have come to know of said defamatory words. Defendantcorporation as a defense, alleges that the additional words in Tagalog was a private joke between the sending and receiving operators and that theywere not addressed to or intended for plaintiff and therefore did not form part of the telegram and that the Tagalog words are not defamatory. Thetelegram sent through its facilities was received in its station at Legaspi City. Nobody other than the operator manned the teletype machine whichautomatically receives telegrams being transmitted. The said telegram was detached from the machine and placed inside a sealed envelope anddelivered to plaintiff, obviously as is. The additional words in Tagalog were never noticed and were included in the telegram when delivered.

The trial court in finding for the plaintiff ruled as follows:

There is no question that the additional words in Tagalog are libelous. They clearly impute a vice or defect of the plaintiff. Whetheror not they were intended for the plaintiff, the effect on the plaintiff is the same. Any person reading the additional words in Tagalog



will naturally think that they refer to the addressee, the plaintiff. There is no indication from the face of the telegram that theadditional words in Tagalog were sent as a private joke between the operators of the defendant.

The defendant is sued directly not as an employer. The business of the defendant is to transmit telegrams. It will open the door tofrauds and allow the defendant to act with impunity if it can escape liability by the simple expedient of showing that its employeesacted beyond the scope of their assigned tasks.

The liability of the defendant is predicated not only on Article 33 of the Civil Code of the Philippines but on the following articles ofsaid Code:

ART. 19.- Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone hisdue, and observe honesty and good faith.

ART. 20.-Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for thesame.

There is sufficient publication of the libelous Tagalog words. The office file of the defendant containing copies of telegrams receivedare open and held together only by a metal fastener. Moreover, they are open to view and inspection by third parties.

It follows that the plaintiff is entitled to damages and attorney's fees. The plaintiff is a businessman. The libelous Tagalog wordsmust have affected his business and social standing in the community. The Court fixes the amount of P40,000.00 as the reasonableamount of moral damages and the amount of P3,000.00 as attorney's fee which the defendant should pay the plaintiff. (pp. 15-16,Record on Appeal)

The respondent appellate court in its assailed decision confirming the aforegoing findings of the lower court stated:

The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant to take the necessary orprecautionary steps to avoid the occurrence of the humiliating incident now complained of. The company had not imposed anysafeguard against such eventualities and this void in its operating procedure does not speak well of its concern for their clientele'sinterests. Negligence here is very patent. This negligence is imputable to appellant and not to its employees.

The claim that there was no publication of the libelous words in Tagalog is also without merit. The fact that a carbon copy of thetelegram was filed among other telegrams and left to hang for the public to see, open for inspection by a third party is sufficientpublication. It would have been otherwise perhaps had the telegram been placed and kept in a secured place where no one mayhave had a chance to read it without appellee's permission.

The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower court, libelous per se, and fromwhich malice may be presumed in the absence of any showing of good intention and justifiable motive on the part of the appellant.The law implies damages in this instance (Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award ofP40,000.00 as moral damages is hereby reduced to P15,000.00 and for attorney's fees the amount of P2,000.00 is awarded. (pp.

22-23, record)

After a motion for reconsideration was denied by the appellate court, petitioner came to Us with the following:

ASSIGNMENT OF ERRORS

I

The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly and primarily for the civil liabilityarising from the criminal act of its employee.

II

The Honorable Court of Appeals erred in holding that there was sufficient publication of the alleged libelous telegram in question, ascontemplated by law on libel.

III

The Honorable Court of Appeals erred in holding that the liability of petitioner-company-employer is predicated on Articles 19 and 20of the Civil Code, Articles on Human Relations.

IV

The Honorable Court of Appeals erred in awarding Atty's. fees. (p. 4, Record)

Petitioner's contentions do not merit our consideration. The action for damages was filed in the lower court directly against respondent corporation not asan employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of



action of the private respondent is based on Arts. 19 and 20 of the New Civil Code (supra). As well as on respondent's breach of contract thru thenegligence of its own employees.

1

Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message throughthe facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the messageaccurately. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge ofthe sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the privaterespondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messagesare the acts of the petitioner. To hold that the petitioner is not liable directly for the acts of its employees in the pursuit of petitioner's business is todeprive the general public availing of the services of the petitioner of an effective and adequate remedy. In most cases, negligence must be proved inorder that plaintiff may recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSALOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury.

WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED.

SO ORDERED.

G.R. No. 98695 January 27, 1993

JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and ANTHONY C. SYQUIA, petitioners,vs.THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC.,respondents.

Pacis & Reyes Law Offices for petitioners.

Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.

CAMPOS, JR., J.:

Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony Syquia, were the parents and siblings,respectively, of the deceased Vicente Juan Syquia. On March 5, 1979, they filed a complaint

1 in the then Court of First Instance against herein private

respondent, Manila Memorial Park Cemetery, Inc. for recovery of damages arising from breach of contract and/or quasi-delict. The trial court dismissedthe complaint.

The antecedent facts, as gathered by the respondent Court, are as follows:

On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants herein, filed a complaint for

damages against defendant-appellee, Manila Memorial Park Cemetery, Inc.

The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated August 27, 1969 and IntermentOrder No. 7106 dated July 21, 1978 executed between plaintiff-appellant Juan J. Syquia and defendant-appellee, the former, fatherof deceased Vicente Juan J. Syquia authorized and instructed defendant-appellee to inter the remains of deceased in the ManilaMemorial Park Cemetery in the morning of July 25, 1978 conformably and in accordance with defendant-appellant's (sic) intermentprocedures; that on September 4, 1978, preparatory to transferring the said remains to a newly purchased family plot also at theManila Memorial Park Cemetery, the concrete vault encasing the coffin of the deceased was removed from its niche undergroundwith the assistance of certain employees of defendant-appellant (sic); that as the concrete vault was being raised to the surface,plaintiffs-appellants discovered that the concrete vault had a hole approximately three (3) inches in diameter near the bottom of oneof the walls closing out the width of the vault on one end and that for a certain length of time (one hour, more or less), water drainedout of the hole; that because of the aforesaid discovery, plaintiffs-appellants became agitated and upset with concern that the waterwhich had collected inside the vault might have risen as it in fact did rise, to the level of the coffin and flooded the same as well asthe remains of the deceased with ill effects thereto; that pursuant to an authority granted by the Municipal Court of Parañaque,Metro Manila on September 14, 1978, plaintiffs-appellants with the assistance of licensed morticians and certain personnel ofdefendant-appellant (sic) caused the opening of the concrete vault on September 15, 1978; that upon opening the vault, the

following became apparent to the plaintiffs-appellants: (a) the interior walls of the concrete vault showed evidence of total flooding;(b) the coffin was entirely damaged by water, filth and silt causing the wooden parts to warp and separate and to crack the viewingglass panel located directly above the head and torso of the deceased; (c) the entire lining of the coffin, the clothing of thedeceased, and the exposed parts of the deceased's remains were damaged and soiled by the action of the water and silt and werealso coated with filth.

Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver a defect-free concrete vaultdesigned to protect the remains of the deceased and the coffin against the elements which resulted in the desecration of deceased'sgrave and in the alternative, because of defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code infailing to seal the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for moral damages, exemplary damages in the amount determined by thecourt, 20% of defendant-appellee's total liability as attorney's fees, and expenses of litigation and costs of suit.

2

In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the cement vault would be waterproof; thatthere could be no quasi-delict because the defendant was not guilty of any fault or negligence, and because there was a pre-existing contractual relation



between the Syquias and defendant Manila Memorial Park Cemetery, Inc.. The trial court also noted that the father himself, Juan Syquia, chose thegravesite despite knowing that said area had to be constantly sprinkled with water to keep the grass green and that water would eventually seep throughthe vault. The trial court also accepted the explanation given by defendant for boring a hole at the bottom side of the vault: "The hole had to be boredthrough the concrete vault because if it has no hole the vault will (sic) float and the grave would be filled with water and the digging would caved (sic) inthe earth, the earth would caved (sic) in the (sic) fill up the grave."

3

From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract allowed the flooding of the vault; that therewas no desecration; that the boring of the hole was justifiable; and in not awarding damages.

The Court of Appeals in the Decision 4 dated December 7, 1990 however, affirmed the judgment of dismissal. Petitioner's motion for reconsideration was

denied in a Resolution dated April 25, 1991. 5

Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that the Court of Appeals committed thefollowing errors when it:

1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of the vault and the entrancethereto of filth and silt;

2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of desecration was committed;

3. overlooked and refused to consider relevant, undisputed facts, such as those which have been stipulated upon by the parties,testified to by private respondent's witnesses, and admitted in the answer, which could have justified a different conclusion;

4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence; and

5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and exemplary damages, andattorney's fees.

At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the deceased kin of the bereaved petitioners. Thelatter allege that such act was either a breach of private respondent's contractual obligation to provide a sealed vault, or, in the alternative, a negligentact which constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of negligence private respondent has committed, the latter is liablefor desecrating the grave of petitioners' dead.

In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc., breached its contract with petitioners; or,alternatively, whether private respondent was guilty of a tort.

We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more inclined to answer the foregoing questions inthe negative. There is not enough ground, both in fact and in law, to justify a reversal of the decision of the respondent Court and to uphold the pleas ofthe petitioners.

With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of Appeals found no negligent act on thepart of private respondent to justify an award of damages against it. Although a pre-existing contractual relation between the parties does not precludethe existence of a culpa aquiliana, We find no reason to disregard the respondent's Court finding that there was no negligence.

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damagedone. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict . . . .(Emphasis supplied).

In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into a contract entitled "Deed ofSale and Certificate of Perpetual Care"

6 on August 27, 1969. That agreement governed the relations of the parties and defined their

respective rights and obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park Cemetery, Inc., it would beheld liable not for a quasi-delict or culpa aquiliana, but for culpa contractual as provided by Article 1170 of the Civil Code, to wit:

Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene

the tenor thereof, are liable for damages.

The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the interment. Rule 17 of the Rules and Regulations ofprivate respondent provides that:

Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone, brick or concrete, the actualinstallment of which shall be made by the employees of the Association.

7

Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the interment, and was, on the same day,installed by private respondent's employees in the grave which was dug earlier. After the burial, the vault was covered by a cement lid.

Petitioners however claim that private respondent breached its contract with them as the latter held out in the brochure it distributed that the . . . lot mayhold single or double internment (sic) underground in sealed concrete vault."

8 Petitioners claim that the vault provided by private respondent was not

sealed, that is, not waterproof. Consequently, water seeped through the cement enclosure and damaged everything inside it.



We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules and Regulations of the ManilaMemorial Park Cemetery, Inc. that the vault would be waterproof. Private respondent's witness, Mr. Dexter Heuschkel, explained that the term "sealed"meant "closed."

9 On the other hand, the word "seal" is defined as . . . any of various closures or fastenings . . . that cannot be opened without rupture

and that serve as a check against tampering or unauthorized opening."10

The meaning that has been given by private respondent to the word conformswith the cited dictionary definition. Moreover, it is also quite clear that "sealed" cannot be equated with "waterproof". Well settled is the rule that when theterms of the contract are clear and leave no doubt as to the intention of the contracting parties, then the literal meaning of the stipulation shallcontrol.

11 Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment.

12 As ruled

by the respondent Court:

When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the attached Rules andRegulations (Exhibit "1"), it can be assumed that he has accepted defendant-appellee's undertaking to merely provide a concretevault. He can not now claim that said concrete vault must in addition, also be waterproofed (sic). It is basic that the parties are

bound by the terms of their contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of Appeals, eal. 178 SCRA 739). Where there is nothing in the contract which is contrary to law, morals, good customs, public order, or publicpolicy, the validity of the contract must be sustained (Phil. American Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonantwith this ruling, a contracting party cannot incur a liability more than what is expressly specified in his undertaking. It cannot beextended by implication, beyond the terms of the contract (Rizal Commercial Banking Corporation vs. Court of Appeals, supra). Andas a rule of evidence, where the terms of an agreement are reduced to writing, the document itself, being constituted by the partiesas the expositor of their intentions, is the only instrument of evidence in respect of that agreement which the law will recognize, solong as its (sic) exists for the purpose of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco,Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if the terms of the contract are clear and leave no doubt upon theintention of the contracting parties, the literal meaning of its stipulations shall control (Santos vs. CA, et al., G. R. No. 83664, Nov.13, 1989; Prudential Bank & Trust Co. vs. Community Builders Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530).

13

We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this may be so, can private respondent beliable for culpa aquiliana for boring the hole on the vault? It cannot be denied that the hole made possible the entry of more water and soil than wasnatural had there been no hole.

The law defines negligence as the "omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances othe persons, of the time and of the place."

14 In the absence of stipulation or legal provision providing the contrary, the diligence to be observed in the

performance of the obligation is that which is expected of a good father of a family.

The circumstances surrounding the commission of the assailed act — boring of the hole — negate the allegation of negligence. The reason for the actwas explained by Henry Flores, Interment Foreman, who said that:

Q It has been established in this particular case that a certain Vicente Juan Syquia was interred on July 25,1978 at the Parañaque Cemetery of the Manila Memorial Park Cemetery, Inc., will you please tell the Hon.Court what or whether you have participation in connection with said internment (sic)?

A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the next morning a vaultwas taken and placed in the grave and when the vault was placed on the grave a hole was placed on the vaultso that water could come into the vault because it was raining heavily then because the vault has no hole the

vault will float and the grave would be filled with water and the digging would caved (sic) in and the earth, theearth would (sic) caved in and fill up the grave.15

(Emphasis ours)

Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the above-mentioned explanation, privaterespondent has exercised the diligence of a good father of a family in preventing the accumulation of water inside the vault which would have resulted inthe caving in of earth around the grave filling the same with earth.

Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages in favor of petitioners.

In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We are constrained to AFFIRM in toto thedecision of the respondent Court of Appeals dated December 7, 1990. No costs.

SO ORDERED.

G.R. No. 108164 February 23, 1995

FAR EAST BANK AND TRUST COMPANY, petitioner,vs.THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents.

VITUG, J.:

Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a FAREASTCARD issued by petitioner Far East Bank andTrust Company ("FEBTC") at its Pasig Branch. Upon his request, the bank also issued a supplemental card to private respondent Clarita S. Luna.



In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace the lost card, Clarita submitted an affidavit of loss. Incases of this nature, the bank's internal security procedures and policy would appear to be to meanwhile so record the lost card, along with the principalcard, as a "Hot Card" or "Cancelled Card" in its master file.

On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American, and another guest at the Bahia Rooftop Restaurant of theHotel Intercontinental Manila. To pay for the lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had it verified through atelephone call to the bank's Credit Card Department. Since the card was not honored, Luis was forced to pay in cash the bill amounting to P588.13.Naturally, Luis felt embarrassed by this incident.

In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded from FEBTC the payment of damages. Adrian V. Festejo,a vice-president of the bank, expressed the bank's apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part, said:

In cases when a card is reported to our office as lost, FAREASTCARD undertakes the necessary action to avert its unauthorized use (such astagging the card as hotlisted), as it is always our intention to protect our cardholders.

An investigation of your case however, revealed that FAREASTCARD failed to inform you about its security policy. Furthermore, anoverzealous employee of the Bank's Credit Card Department did not consider the possibility that it may have been you who was presentingthe card at that time (for which reason, the unfortunate incident occurred).

1

Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter that private respondents were "very valued clients" ofFEBTC. William Anthony King, Food and Beverage Manager of the Intercontinental Hotel, wrote back to say that the credibility of private respondent hadnever been "in question." A copy of this reply was sent to Luis by Festejo.

Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint for damages with the Regional Trial Court ("RTC") ofPasig against FEBTC.

On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision ordering FEBTC to pay private respondents (a)P300,000.00 moral damages; (b) P50,000.00 exemplary damages; and (c) P20,000.00 attorney's fees.

On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court.

Its motion for reconsideration having been denied by the appellate court, FEBTC has come to this Court with this petition for review.

There is merit in this appeal.

In culpa contractual, moral damages may be recovered where the defendant is shown to have acted in bad faith or with malice in the breach of thecontract.

2 The Civil Code provides:

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances,

such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasissupplied)

Bad faith, in this context, includes gross, but not simple, negligence. 3 Exceptionally, in a contract of carriage, moral damages are also allowed in case of

death of a passenger attributable to the fault (which is presumed 4) of the common carrier.

5

Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card's cancellation. Nothing in the findings of the trial courtand the appellate court, however, can sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private respondents. Neithercould FEBTC's negligence in failing to give personal notice to Luis be considered so gross as to amount to malice or bad faith.

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity; it is different from thenegative idea of negligence in that malice or bad faith contemplates a state of mind affirmatively operating with furtive design or ill will.

6

We are not unaware of the previous rulings of this Court, such as in American Express International, Inc., vs.Intermediate Appellate Court (167 SCRA209) and Bank of Philippine Islands vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the application of Article 21, in relation to Article 2217and Article 2219 7 of the Civil Code to a contractual breach similar to the case at bench. Article 21 states:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shallcompensate the latter for the damage.

Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus, even if we are to assume that the provision couldproperly relate to a breach of contract, its application can be warranted only when the defendant's disregard of his contractual obligation is so deliberateas to approximate a degree of misconduct certainly no less worse than fraud or bad faith. Most importantly, Article 21 is a mere declaration of a generalprinciple in human relations that clearly must, in any case, give way to the specific provision of Article 2220 of the Civil Code authorizing the grant ofmoral damages in culpa contractual solely when the breach is due to fraud or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda 8 explained with great clarity the predominance that we should give to Article 2220 in

contractual relations; we quote:



Anent the moral damages ordered to be paid to the respondent, the same must be discarded. We have repeatedly ruled (Cachero vs. ManilaYellow Taxicab Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599; Necesito, et al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23] 4023), that moraldamages are not recoverable in damage actions predicated on a breach of the contract of transportation, in view of Articles 2219 and 2220 ofthe new Civil Code, which provide as follows:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx xxx xxx

Art. 2220. Wilful injury to property may be a legal ground for awarding moral damages if the court should find that, underthe circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendantacted fraudulently or in bad faith.

By contrasting the provisions of these two articles it immediately becomes apparent that:

(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud (dolus), i.e., wanton or deliberately injuriousconduct, is essential to justify an award of moral damages; and

(b) That a breach of contract can not be considered included in the descriptive term "analogous cases" used in Art. 2219; not only because Art. 2220 specifically provides for the damages that are caused contractual breach, but because the definition of quasi-delict in Art. 2176 of theCode expressly excludes the cases where there is a "preexisitng contractual relations between the parties."

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for thedamage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called aquasi-delict and is governed by the provisions of this Chapter.

The exception to the basic rule of damages now under consideration is a mishap resulting in the death of a passenger, in which case Article1764 makes the common carrier expressly subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of thedeceased passenger to "demand moral damages for mental anguish by reason of the death of the deceased" (Necesito vs. Paras, 104 Phil.84, Resolution on motion to reconsider, September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that wherethe injured passenger does not die, moral damages are not recoverable unless it is proved that the carrier was guilty of malice or bad faith. Wethink it is clear that the mere carelessness of the carrier's driver does not per se constitute or justify an inference of malice or bad faith on thepart of the carrier; and in the case at bar there is no other evidence of such malice to support the award of moral damages by the Court of

Appeals. To award moral damages for breach of contract, therefore, without proof of bad faith or malice on the part of the defendant, asrequired by Art. 2220, would be to violate the clear provisions of the law, and constitute unwarranted judicial legislation.

xxx xxx xxx

The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong doing and negligence (as mere carelessness) istoo fundamental in our law to be ignored (Arts. 1170-1172); their consequences being clearly differentiated by the Code.

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall bethose that are the natural and probable consequences of the breach of the obligation, and which the parties haveforeseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may bereasonably attributed to the non-performance of the obligation.

It is to be presumed, in the absence of statutory provision to the contrary, that this difference was in the mind of the lawmakers when in Art.2220 they limited recovery of moral damages to breaches of contract in bad faith. It is true that negligence may be occasionally so gross as to

amount to malice; but the fact must be shown in evidence, and a carrier's bad faith is not to be lightly inferred from a mere finding that thecontract was breached through negligence of the carrier's employees.

The Court has not in the process overlooked another rule that a quasi-delict can be the cause for breaching a contract that might thereby permit theapplication of applicable principles on tort

9 even where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines vs. Court of

Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117; and Air France vs. Carrascoso, 18 SCRA 155). This doctrine, unfortunately,cannot improve private respondents' case for it can aptly govern only where the act or omission complained of would constitute an actionable tortindependently of the contract. The test (whether a quasi-delict can be deemed to underlie the breach of a contract) can be stated thusly: Where, withouta pre-existing contract between two parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the parties arecontractually bound is no bar to the application of quasi-delict provisions to the case. Here, private respondents' damage claim is predicated solely ontheir contractual relationship; without such agreement, the act or omission complained of cannot by itself be held to stand as a separate cause of actionor as an independent actionable tort.

The Court finds, therefore, the award of moral damages made by the court a quo, affirmed by the appellate court, to be inordinate and substantiallydevoid of legal basis.



Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for the public good in addition to moral, temperate,liquidated or compensatory damages (Art. 2229, Civil Code; see Prudenciado vs. Alliance Transport System, 148 SCRA 440; Lopez vs. Pan AmericanWorld Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposed when the crime is committed with one or more aggravatingcircumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross negligenceas to approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union vs. NLRC, 161 SCRA 655; Globe Mackay Cable and RadioCorp. vs. CA, 176 SCRA 778). Incontracts and quasi-contracts, the court may award exemplary damages if the defendant is found to have acted in awanton, fraudulent, reckless, oppressive, or malevolent manner (Art. 2232, Civil Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).

Given the above premises and the factual circumstances here obtaining, it would also be just as arduous to sustain the exemplary damages granted bythe courts below (see De Leon vs. Court of Appeals, 165 SCRA 166).

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to private respondent Luis should entitle him to recover ameasure of damages sanctioned under Article 2221 of the Civil Code providing thusly:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may bevindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him.

Reasonable attorney's fees may be recovered where the court deems such recovery to be just and equitable (Art. 2208, Civil Code). We see no issue ofsound discretion on the part of the appellate court in allowing the award thereof by the trial court.

WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by deleting the award of moral and exemplary damagesto private respondents; in its stead, petitioner is ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way of nominal damages. Inall other respects, the appealed decision is AFFIRMED. No costs.

SO ORDERED.

[G.R. No. 156109. November 18, 2004]

KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO REGINO, petitioner, vs. PANGASINAN COLLEGES OF SCIENCE ANDTECHNOLOGY, RACHELLE A. GAMUROT and ELISSA BALADAD, respondents .

D E C I S I O N

PANGANIBAN, J.:

Upon enrolment, students and their school enter upon a reciprocal contract. The students agree to abide by the standards of academiperformance and codes of conduct, issued usually in the form of manuals that are distributed to the enrollees at the start of the school term. Further, theschool informs them of the itemized fees they are expected to pay. Consequently, it cannot, after the enrolment of a student, vary the terms of thecontract. It cannot require fees other than those it specified upon enrolment.

The Case

Before the Court is a Petition for Review under Rule 45,[1]

seeking to nullify the July 12, 2002[2]

and the November 22, 2002[3]

Orders of theRegional Trial Court (RTC) of Urdaneta City, Pangasinan (Branch 48) in Civil Case No. U-7541. The decretal portion of the first assailed Order reads:

“WHEREFORE, the Court GRANTS the instant motion to dismiss for lack of cause of action.”[4]

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

The Facts

Petitioner Khristine Rea M. Regino was a first year computer science student at Respondent Pangasinan Colleges of Science and Technology(PCST). Reared in a poor family, Regino went to college mainly through the financial support of her relatives. During the second semester of school yea2001-2002, she enrolled in logic and statistics subjects under Respondents Rachelle A. Gamurot and Elissa Baladad, respectively, as teachers.

In February 2002, PCST held a fund raising campaign dubbed the “Rave Party and Dance Revolution,” the proceeds of which were to go to theconstruction of the school’s tennis and volleyball courts. Each student was required to pay for two tickets at the price of P100 each. The project wasallegedly implemented by recompensing students who purchased tickets with additional points in their test scores; those who refused to pay were deniedthe opportunity to take the final examinations.

Financially strapped and prohibited by her religion from attending dance parties and celebrations, Regino refused to pay for the tickets. On March14 and March 15, 2002, the scheduled dates of the final examinations in logic and statistics, her teachers -- Respondents Rachelle A. Gamurot and

http://sc.judiciary.gov.ph/jurisprudence/2004/nov2004/156109.htm%23_ftn1


















Elissa Baladad -- allegedly disallowed her from taking the tests. According to petitioner, Gamurot made her sit out her logic class while her classmateswere taking their examinations. The next day, Baladad, after announcing to the entire class that she was not permitting petitioner and another student totake their statistics examinations for failing to pay for their tickets, allegedly ejected them from the classroom. Petitioner’s pleas ostensibly wenunheeded by Gamurot and Baladad, who unrelentingly defended their positions as compliance with PCST’s policy.

On April 25, 2002, petitioner filed, as a pauper litigant, a Complain t[5]

for damages against PCST, Gamurot and Baladad. In her Complaint, sheprayed forP500,000 as nominal damages; P500,000 as moral damages; at least P1,000,000 as exemplary damages; P250,000 as actual damages; plusthe costs of litigation and attorney’s fees.

On May 30, 2002, respondents filed a Motion to Dismiss[6]

on the ground of petitioner’s failure to exhaust administrative remedies. According torespondents, the question raised involved the determination of the wisdom of an administrative policy of the PCST; hence, the case should have beeninitiated before the proper administrative body, the Commission of Higher Education (CHED).

In her Comment to respondents’ Motion, petitioner argued that prior exhaustion of administrative remedies was unnecessary, because her actionwas not administrative in nature, but one purely for damages arising from respondents’ breach of the laws on human relations. As such, jurisdiction laywith the courts.

On July 12, 2002, the RTC dismissed the Complaint for lack of cause of action.

Ruling of the Regional Trial Court

In granting respondents’ Motion to Dismiss, the trial court noted that the instant controversy involved a higher institution of learning, two of itsfaculty members and one of its students. It added that Section 54 of the Education Act of 1982 vested in the Commission on Higher Education (CHEDthe supervision and regulation of tertiary schools. Thus, it ruled that the CHED, not the courts, had jurisdiction over the controversy.

[7]

In its dispositive portion, the assailed Order dismissed the Complaint for “lack of cause of action” without, however, explaining this ground.

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

Issues

In her Memorandum, petitioner raises the following issues for our consideration:

“Whether or not the principle of exhaustion of administrative remedies applies in a civil action exclusively for damages based on violation of the human relation provisions of the Civil Code, filed by a student against her former school.

“Whether or not there is a need for prior declaration of invalidity of a certain school administrative policy by the Commission on Higher Education (CHED) before aformer student can successfully maintain an action exclusively for damages in regular courts.

“Whether or not the Commission on Higher Education (CHED) has exclusive original jurisdiction over actions for damages based upon violation of the Civil Code provisions on human relations filed by a student against the school.”

[9]

All of the foregoing point to one issue -- whether the doctrine of exhaustion of administrative remedies is applicable. The Court, however, sees asecond issue which, though not expressly raised by petitioner, was impliedly contained in her Petition: whether the Complaint stated sufficient cause(sof action.

The Court’s Ruling

The Petition is meritorious.

First Issue:Exhaustion of Administrative Remedies

Respondents anchored their Motion to Dismiss on petitioner’s alleged failure to exhaust administrative remedies before resorting to the RTC. According to them, the determination of the controversy hinge on the validity, the wisdom and the propriety of PCST’s academic policy. Thus, theComplaint should have been lodged in the CHED, the administrative body tasked under Republic Act No. 7722 to implement the state policy to “protectfoster and promote the right of all citizens to affordable quality education at all levels and to take appropriate steps to ensure that education is accessibleto all.”

[10]

Petitioner counters that the doctrine finds no relevance to the present case since she is praying for damages, a remedy beyond the domain of theCHED and well within the jurisdiction of the courts.

[11]































Petitioner is correct. First, the doctrine of exhaustion of administrative remedies has no bearing on the present case. In Factoran Jr. v. CA,[12]

theCourt had occasion to elucidate on the rationale behind this doctrine:

“The doctrine of exhaustion of administrative remedies is basic. Courts, for reasons of law, comity, and convenience, should notentertain suits unless the available administrative remedies have first been resorted to and the proper authorities have been given the appropriateopportunity to act and correct their alleged errors, if any, committed in the administrative forum. x x x.

[13]”

Petitioner is not asking for the reversal of the policies of PCST. Neither is she demanding it to allow her to take her final examinations; she wasalready enrolled in another educational institution. A reversal of the acts complained of would not adequately redress her grievances; under thecircumstances, the consequences of respondents’ acts could no longer be undone or rectified.

Second, exhaustion of administrative remedies is applicable when there is competence on the part of the administrative body to act upon thematter complained of .

[14] Administrative agencies are not courts; they are neither part of the judicial system, nor are they deemed judicia

tribunals.[15] Specifically, the CHED does not have the power to award damages.[16] Hence, petitioner could not have commenced her case before theCommission.

Third, the exhaustion doctrine admits of exceptions, one of which arises when the issue is purely legal and well within the jurisdiction of the triacourt.

[17]Petitioner’s action for damages inevitably calls for the application and the interpretation of the Civil Code, a function that falls within the

jurisdiction of the courts.[18]

Second Issue:Cause of Action

Sufficient Causes of Action Stated in the Allegations in the Complaint

As a rule, every complaint must sufficiently allege a cause of action; failure to do so warrants its dismissal.[19]

A complaint is said to assert asufficient cause of action if, admitting what appears solely on its face to be correct, the plaintiff would be entitled to the relief prayed for. Assuming thefacts that are alleged to be true, the court should be able to render a valid judgment in accordance with the prayer in the complaint.

[20]

A motion to dismiss based on lack of cause of action hypothetically admits the truth of the alleged facts. In their Motion to Dismiss, respondentdid not dispute any of petitioner’s allegations, and they admitted that “x x x the crux of plaintiff’s cause of action is the determination of whether or not theassessment of P100 per ticket is excessive or oppressive.”

[21] They thereby premised their prayer for dismissal on the Complaint’s alleged failure to state

a cause of action. Thus, a reexamination of the Complaint is in order.

The Complaint contains the following factual allegations:

“10. In the second week of February 2002, defendant Rachelle A. Gamurot, in connivance with PCST, forced plaintiff and herclassmates to buy or take two tickets each, x x x;

“11. Plaintiff and many of her classmates objected to the forced distribution and selling of tickets to them but the said defendantwarned them that if they refused [to] take or pay the price of the two tickets they would not be allowed at all to take the finalexaminations;

“12. As if to add insult to injury, defendant Rachelle A. Gamurot bribed students with additional fifty points or so in their test score inher subject just to unjustly influence and compel them into taking the tickets;

“13. Despite the students’ refusal, they were forced to take the tickets because [of] defendant Rachelle A. Gamurot’s coercion and actof intimidation, but still many of them including the plaintiff did not attend the dance party imposed upon them by defendantsPCST and Rachelle A. Gamurot;

“14. Plaintiff was not able to pay the price of her own two tickets because aside form the fact that she could not afford to pay them it isalso against her religious practice as a member of a certain religious congregation to be attending dance parties andcelebrations;

“15. On March 14, 2002, before defendant Rachelle A. Gamurot gave her class its final examination in the subject ‘Logic’ she warnedthat students who had not paid the tickets would not be allowed to participate in the examination, for which threat andintimidation many students were eventually forced to make payments:

“16. Because plaintiff could not afford to pay, defendant Rachelle A. Gamurot inhumanly made plaintiff sit out the class but thedefendant did not allow her to take her final examination in ‘Logic;’

“17. On March 15, 2002 just before the giving of the final examination in the subject ‘Statistics,’ defendant Elissa Baladad, inconnivance with defendants Rachelle A. Gamurot and PCST, announced in the classroom that she was not allowing plaintiffand another student to take the examination for their failure and refusal to pay the price of the tickets, and thenceforth sheejected plaintiff and the other student from the classroom;

“18. Plaintiff pleaded for a chance to take the examination but all defendants could say was that the prohibition to give theexaminations to non-paying students was an administrative decision;

“19. Plaintiff has already paid her tuition fees and other obligations in the school;

“20. That the above-cited incident was not a first since PCST also did another forced distribution of tickets to its students in the firstsemester of school year 2001-2002; x x x ”

[22]

The foregoing allegations show two causes of action; first, breach of contract; and second, liability for tort.















































Reciprocity of the School-Student Contract

In Alcuaz v. PSBA,[23]

the Court characterized the relationship between the school and the student as a contract, in which “a student, onceadmitted by the school is considered enrolled for one semester.”

[24] Two years later, in Non v. Dames II,

[25] the Court modified the “termination of contrac

theory” in Alcuaz by holding that the contractual relationship between the school and the student is not only semestral in duration, but for the entireperiod the latter are expected to complete it.”

[26] Except for the variance in the period during which the contractual relationship is considered to

subsist, both Alcuaz and Non were unanimous in characterizing the school-student relationship as contractual in nature.

The school-student relationship is also reciprocal. Thus, it has consequences appurtenant to and inherent in all contracts of such kind -- it givesrise to bilateral or reciprocal rights and obligations. The school undertakes to provide students with education sufficient to enable them to pursue highe

education or a profession. On the other hand, the students agree to abide by the academic requirements of the school and to observe its rules andregulations.

[27]

The terms of the school-student contract are defined at the moment of its inception -- upon enrolment of the student. Standards of academiperformance and the code of behavior and discipline are usually set forth in manuals distributed to new students at the start of every school year.Further, schools inform prospective enrollees the amount of fees and the terms of payment.

In practice, students are normally required to make a down payment upon enrollment, with the balance to be paid before every preliminarymidterm and final examination. Their failure to pay their financial obligation is regarded as a valid ground for the school to deny them the opportunity totake these examinations.

The foregoing practice does not merely ensure compliance with financial obligations; it also underlines the importance of major examinations.Failure to take a major examination is usually fatal to the students’ promotion to the next grade or to graduation. Examination results form a significanbasis for their final grades. These tests are usually a primary and an indispensable requisite to their elevation to the next educational level andultimately, to their completion of a course.

Education is not a measurable commodity. It is not possible to determine who is “better educated” than another. Nevertheless, a student’s gradeare an accepted approximation of what would otherwise be an intangible product of countless hours of study. The importance of grades cannot bediscounted in a setting where education is generally the gate pass to employment opportunities and better life; such grades are often the means bywhich a prospective employer measures whether a job applicant has acquired the necessary tools or skills for a particular profession or trade.

Thus, students expect that upon their payment of tuition fees, satisfaction of the set academic standards, completion of academic requirementsand observance of school rules and regulations, the school would reward them by recognizing their “completion” of the course enrolled in.

The obligation on the part of the school has been established in Magtibay v. Garcia,[28]

Licup v. University of San Carlos[29]

and Ateneo de ManilaUniversity v. Garcia,

[30] in which the Court held that, barring any violation of the rules on the part of the students, an institution of higher learning has

a contractual obligation to afford its students a fair opportunity to complete the course they seek to pursu e.

We recognize the need of a school to fund its facilities and to meet astronomical operating costs; this is a reality in running it. Crystal v. CebuInternational School

[31] upheld the imposition by respondent school of a “land purchase deposit” in the amount of P50,000 per student to be used for the

“purchase of a piece of land and for the construction of new buildings and other facilities x x x which the school would transfer [to] and occupy after theexpiration of its lease contract over its present site.”

The amount was refundable after the student graduated or left the school. After noting that the imposition of the fee was made only after prioconsultation and approval by the parents of the students, the Court held that the school committed no actionable wrong in refusing to admit the childre

of the petitioners therein for their failure to pay the “land purchase deposit” and the 2.5 percent monthly surcharge thereon.

In the present case, PCST imposed the assailed revenue-raising measure belatedly, in the middle of the semester. It exacted the dance party feeas a condition for the students’ taking the final examinations, and ultimately for its recognition of their ability to finish a course. The fee, however, wanot part of the school-student contract entered into at the start of the school year. Hence, it could not be unilaterally imposed to the prejudice of theenrollees.

Such contract is by no means an ordinary one. In Non, we stressed that the school-student contract “is imbued with public interest, consideringthe high priority given by the Constitution to education and the grant to the State of supervisory and regulatory powers over all educationainstitutions.”

[32] Sections 5 (1) and (3) of Article XIV of the 1987 Constitution provide:

“The State shall protect and promote the right of all citizens to quality education at all levels and shall take appropriate steps to makesuch declaration accessible to all.

“Every student has a right to select a profession or course of study, subject to fair, reasonable and equitable admission and academicrequirements.”

The same state policy resonates in Section 9(2) of BP 232, otherwise known as the Education Act of 1982:

“Section 9. Rights of Students in School. – In addition to other rights, and subject to the limitations prescribed by law andregulations, students and pupils in all schools shall enjoy the following rights:

x x x x x x x x x

(2) The right to freely choose their field of study subject to existing curricula and to continue their coursetherein up to graduation, except in cases of academic deficiency, or violation of disciplinary regulations.”

Liability for Tort

























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In her Complaint, petitioner also charged that private respondents “inhumanly punish students x x x by reason only of their poverty, religiouspractice or lowly station in life, which inculcated upon [petitioner] the feelings of guilt, disgrace and unworthiness;”

[33] as a result of such punishment, she

was allegedly unable to finish any of her subjects for the second semester of that school year and had to lag behind in her studies by a full year. Theacts of respondents supposedly caused her extreme humiliation, mental agony and “demoralization of unimaginable proportions” in violation of Articles19, 21 and 26 of the Civil Code. These provisions of the law state thus:

“Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and goodfaith.”

“Article 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latterfor the damage.”

“Article 26. Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, thoughthey may not constitute a criminal offense, shall produce a cause of action for damages, prevention and other relief:

(1) Prying into the privacy of another’s residence;(2) Meddling with or disturbing the private life or family relations of another;(3) Intriguing to cause another to be alienated from his friends;(4) Vexing or humiliating another on account of his beliefs, lowly station in life, place of birth, physical defect, or other personal

condition.”

Generally, liability for tort arises only between parties not otherwise bound by a contract. An academic institution, however, may be held liable fotort even if it has an existing contract with its students, since the act that violated the contract may also be a tort. We ruled thus in PSBA vs. CA,

[34] from

which we quote:

“x x x A perusal of Article 2176 [of the Civil Code] shows that obligations arising from quasi-delicts or tort, also known as extra-contractual obligations,

arise only between parties not otherwise bound by contract, whether express or implied. However, this impression has not prevented this Court fromdetermining the existence of a tort even when there obtains a contract. In Air France v. Carrascoso(124 Phil. 722), the private respondent was awardeddamages for his unwarranted expulsion from a first-class seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline’s liability as one arising from tort, not one arising form a contract of carriage. In effect, Air France is authority for the view that liability from tortmay exist even if there is a contract, for the act that breaks the contract may be also a tort. x x x This view was not all that revolutionary, for even as early as1918, this Court was already of a similar mind. In Cangco v. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus: ‘x x x. When such acontractual relation exists the obligor may break the contract under such conditions that the same act which constitutes a breach of the contract would haveconstituted the source of an extra-contractual obligation had no contract existed between the parties .’

“Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21 x x x. ”[35]

Academic Freedom

In their Memorandum, respondents harp on their right to “academic freedom.” We are not impressed. According to present jurisprudence

academic freedom encompasses the independence of an academic institution to determine for itself (1) who may teach, (2) what may be taught, (3) howit shall teach, and (4) who may be admitted to study.

[36] In Garcia v. the Faculty Admission Committee, Loyola School of Theology,

[37] the Court upheld

the respondent therein when it denied a female student’s admission to theological studies in a seminary for prospective priests. The Court defined thefreedom of an academic institution thus: “to decide for itself aims and objectives and how best to attain them x x x free from outside coercion ointerference save possibly when overriding public welfare calls for some restraint.”

[38]

In Tangonan v. Paño,[39]

the Court upheld, in the name of academic freedom, the right of the school to refuse readmission of a nursing studentwho had been enrolled on probation, and who had failed her nursing subjects. These instances notwithstanding, the Court has emphasized that once aschool has, in the name of academic freedom, set its standards, these should be meticulously observed and should not be used to discriminate againscertain students.

[40] After accepting them upon enrollment, the school cannot renege on its contractual obligation on grounds other than those made

known to, and accepted by, students at the start of the school year.

In sum, the Court holds that the Complaint alleges sufficient causes of action against respondents, and that it should not have been summarilydismissed. Needless to say, the Court is not holding respondents liable for the acts complained of. That will have to be ruled upon in due course by thecourt a quo.

WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders REVERSED. The trial court is DIRECTED to reinstate the Complain

and, with all deliberate speed, to continue the proceedings in Civil Case No. U-7541. No costs.SO ORDERED.

G.R. No. 74041 Jul y 29, 1987

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,vs.ROGELIO LIGON y TRIAS and FERNANDO GABAT y ALMERA, accused,FERNANDO GABAT y ALMERA, accused-appellant.

YAP, J.:



































This is an appeal from the judgment of the Regional Trial Court of Manila, Branch XX, rendered on February 17, 1986, convicting the accused-appellantFernando Gabat, of the crime of Robbery with Homicide and sentencing him to reclusion perpetua. The victim was Jose Rosales y Ortiz, a ,Seventeen-year old working student who was earning his keep as a cigarette vendor. He was allegedly robbed of Es cigarette box containing cigarettes worthP300.00 more or less.

1

Only Fernando Gabat was arrested and brought to trial and convicted. The other accused, Rogelio Ligon, was never apprehended and is still at large.

The fatal incident happened on a Sunday, October 23, 1983 at about 6:10 p.m. The accused, Fernando Gabat, was riding in a 1978 Volkswagen Kombiowned by his father, Antonio Gabat, and driven by the other accused, Rogelio Ligon. The Kombi was coming from Espana Street going towards thedirection of Quiapo. Fernando Gabat was seated beside the driver, in the front seat by the window on the right side of the Kombi. At the intersection ofQuezon Boulevard and Lerma Street before turning left towards the underpass at C.M. Recto Avenue, the Kombi had to stop as the traffic light was red.

While waiting for the traffic light to change, Fernando Gabat beckoned a cigarette vendor, Jose Rosales y Ortiz (Rosales for short) to buy somecigarettes from him. Rosales approached the Kombi and handed Gabat two sticks of cigarettes. While this transaction was occurring, the traffic lightchanged to green, and the Kombi driven by Rogelio Ligon suddenly moved forward. As to what precisely happened between Gabat and Rosales at thecrucial moment, and immediately thereafter, is the subject of conflicting versions by the prosecution and the defense. It is not controverted, however, thaas the Kombi continued to speed towards Quiapo, Rosales clung to the window of the Kombi but apparently lost his grip and fell down on the pavement.Rosales was rushed by some bystanders to the Philippine General Hospital, where he was treated for multiple physical injuries and was confined thereauntil his death on October 30, 1983.

Following close behind the Kombi at the time of the incident was a taxicab driven by Prudencio Castillo. He was behind the Kombi, at a distance of abouthree meters, travelling on the same lane in a slightly oblique position ("a little bit to the right").

2 As the Kombi did not stop after the victim fell down on

the pavement near the foot of the underpass, Castillo pursued it as it sped towards Roxas Boulevard, beeping his horn to make the driver stop. Whenthey reached the Luneta near the Rizal monument, Castillo saw an owner-type jeep with two persons in it. He sought their assistance in chasing theKombi, telling them "nakaaksidente ng tao."

3 The two men in the jeep joined the chase and at the intersection of Vito Cruz and Roxas Boulevard, Castillo

was able to overtake the Kombi when the traffic light turned red. He immediately blocked the Kombi while the jeep pulled up right behind it. The two menon board the jeep turned out to be police officers, Patrolmen Leonardo Pugao and Peter Ignacio. They drew their guns and told the driver, Rogelio Ligonand his companion, Fernando Gabat, to alight from the Kombi. It was found out that there was a third person inside the Kombi, a certain Rodolfo

Primicias who was sleeping at the rear seat.4

The three were all brought by the police officers to the Western Police District and turned over to Pfc.Fernan Payuan. The taxicab driver, Prudencio Castillo, also went along with them. The written statements of Castillo and Rodolfo Primicias were takenby the traffic investigator, Pfc. Fernan Payuan.

5 Payuan also prepared a Traffic Accident Report, dated October 23, 1983.

6 Fernando Gabat and Rodolfo

Primicias were released early morning the following day, but Rogelio Ligon was detained and turned over to the City Fiscal's Office for furtherinvestigation.

Investigating Fiscal Alfredo Cantos, filed an information in court against Rogelio Ligon dated December 6, 1983 charging him with Homicide thruReckless Imprudence.

7 Six months later, however, or on June 28, 1984, Assistant Fiscal Cantos filed another information against Rogelio Ligon and

Fernando Gabat for Robbery with Homicide.8 He filed the latter information on the basis of a Supplemental Affidavit of Prudencio Castillo

9 and a joint

affidavit of Armando Espino and Romeo Castil, cigarette vendors, who allegedly witnessed the incident on October 23, 1983.10

These affidavits werealready prepared and merely sworn to before Fiscal Cantos on January 17, 1984.

On October 31, 1983, an autopsy was conducted by the medico-legal officer of the National Bureau of Investigation, Dr. Orlando V. Salvador, who statedin his autopsy report that the cause of death of Rosales was "pneumonia hypostatic, bilateral, secondary to traumatic injuries of the head."

11

The prosecution tried to establish, through the sole testimony of the taxicab driver, Prudencio Castillo, that Gabat grabbed the box of cigarettes fromRosales and pried loose the latter's hand from the window of the Kombi, resulting in the latter falling down and hitting the pavement. In its decision, thetrial court summarized the testimony of Castillo as follows: At about 6:00 o'clock in the evening of October 23, 1983, Castillo was then driving his taxicabalong Lerma Street near Far Eastern University, and at the intersection of Lerma and Quezon Boulevard, the traffic light changed from green to red. Thevehicular traffic stopped and Prudencio Castillo's taxi was right behind a Volkswagen Kombi. While waiting for the traffic light to change to green, CastilloIdly watched the Volkswagen Kombi and saw Gabat, the passenger sitting beside the driver, signal to a cigarette vendor. The cigarette vendor, Rosales,approached the right side of the Kombi. While Rosales was handing the cigarettes to Gabat, the traffic light suddenly changed to green. When the Kombmoved forward, Gabat suddenly grabbed the cigarette box held by Rosales. Taken aback, Jose Rosales ran beside the Kombi and was able to hold onto the windowsill of the right front door with his right hand. While Rosales was clinging to the windowsill, with both feet off the ground, the Kombicontinued to speed towards the C.M. Recto underpass. Castillo, who was closely following the Kombi, then saw Gabat forcibly remove the hand ofRosales from the windowsill and the latter fell face down on Quezon Boulevard near the Recto underpass.

12

The version of the defense, on the other hand, was summarized by the court as follows: On the date and time in question, Fernando Gabat, 31 yearsold, an underwriter, was on board the Volkswagen Kombi driven by Rogelio Ligon. The Kombi had to stop at the intersection of Lerma Street andQuezon Boulevard when the traffic light turned red. Fernando Gabat, who wanted to buy cigarettes, called a cigarette vendor who approached the rightside of the Kombi. Gabat bought two sticks of cigarettes and handed to the cigarette vendor, Rosales, a P5.00 bill. In order to change the P5.00 big,

Rosales placed his cigarette box containing assorted cigarettes on the windowsill of the front door of the Kombi between the arm of Gabat and thewindow frame. Suddenly, the traffic light changed from red to green and Rogelio Ligon moved the vehicle forward, heedless of the transaction betweenGabat and the cigarette vendor. As the vehicle sped onward, the cigarette box which was squeezed between the right arm of Gabat and the windowframe fell inside the Kombi. Rosales then ran beside the vehicle and clung to the windowsill of the moving vehicle. Gabat testified that when he saw thecigarette vendor clinging on the side of the front door, he told Ligon to veer to the right in order that Rosales could get off at the sidewalk. However,Gabat declared, that Ligon said that it could not be done because of the moving vehicular traffic. Then, while the vehicle slowed down and Ligon wasmaneuvering to the right in an attempt to go toward the sidewalk, Rosales lost his grip on the window frame and fell to the pavement of QuezonBoulevard. Gabat allegedly shouted at Ligon to stop but Ligon replied that they should go on to Las Pinas and report the incident to the parents ofGabat, and later they would come back to the scene of the incident. However, while the Kombi was speeding along Dewey Boulevard, it was blocked bythe taxi of Prudencio Castillo and a jeep driven by policemen. Gabat and Ligon were brought to police headquarters, but neither of them executed anywritten statement.

13

The trial court gave full credence to the prosecution's version, stating that there can be no doubt that Gabat forcibly took or grabbed the cigarette boxfrom Rosales because, otherwise, there could be no reason for the latter to run after the Kombi and hang on to its window. The court also believedCastillo's testimony that Gabat forcibly removed or pried off the right hand of Rosales from the windowsill of the Kombi, otherwise, the latter could nothave fallen down, having already been able to balance himself on the stepboard.

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WHEREFORE, judgment is rendered acquitting the appellant Gabat for the crime of Robbery with Homicide. However, he is hereby held civilly liable forhis acts and omissions, there being fault or negligence, and sentenced to indemnify the heirs of Jose Rosales y Ortiz in the amount of P15.000.00 for thelatter's death, P1,733.35 for hospital and medical expenses, and P4,100.00 for funeral expenses. The alleged loss of income amounting to P20,000.00,not being supported by sufficient evidence, is DENIED. Costs de officio.

SO ORDERED.

[G.R. No. L-75357. November 27, 1987.]

RUFO MAURICIO CONSTRUCTION and/or RUFO MAURICO, P e t i t i o n e r , v. HON. INTERMEDIATE APPELLATE COURT, andPEOPLE OF THE PHILIPPINES, R e s p o n d e n t s .

SYLLABUS

1. CRIMINAL LAW; CRIMINAL LIABILITY; EXTINGUISHED BY DEATH OF ACCUSED DURING THE PENDENCY OF HIS APPEAL ORBEFORE THE JUDGMENT OF CONVICTION BECAME FINAL AND EXECUTORY. — The death of the accused during the pendency of hisappeal or before the judgment of conviction (rendered against him by the lower court) became final and executory extinguished hiscriminal liability meaning his obligation to serve the imprisonment imposed and his pecuniary liability for fines, but not his civilliability should the liability or obligation arise (not from a crime, for here, no crime was committed, the accused not having beenconvicted by final judgment, and therefore still regarded as innocent) but from a quasi-delict (See Arts. 2176 and 2177, Civil Code).

2. ID.; QUASI-DELICT; ID.; EMPLOYER SOLIDARILY LIABLE. — The liability of the employer here would not be subsidiary but solidarywith his driver (unless said employer can prove there was no negligence on his part at all, that is, if he can prove due diligence in theselection and supervision of his driver). (See 8th par. of Art. 2180, Art. 2194, Civil Code; also People v. Navoa, 132 SCRA 412;People v. Tirol, 102 SCRA 558; People v. Sandaydiego, 82 SCRA 120).

3. REMEDIAL LAW; CRIMINAL PROCEDURE; ONE NOT A PARTY IN A CRIMINAL CASE, ENTITLED TO HIS DAY IN COURT AND THEREOPENING OF THE HEARING ON THE MOTION TO QUASH SUBSIDIARY, WRIT OF EXECUTION. — Inasmuch as the employer(petitioner herein) was not a party in the criminal case, and to grant him his day in court for the purpose of cross-examining theprosecution witnesses on their testimonies on the driver’s alleged negligence and the amount of damages to which the heirs of thevictim are entitled, as well as to introduce any evidence or witnesses he may care to present in his defense, the hearing on themotion to quash the subsidiary writ of execution must be reopened.

D E C I S I O N

PARAS, J .

Illustre Cabiliza was charged before the Regional Trial Court of the 5th Judicial Region, Branch II, Legaspi City with homicide anddamage to property through reckless imprudence, in an information which reads —

"That on or about the 20th day of September, 1979, in the city of Legaspi, Philippines, and within the jurisdiction of this HonorableCourt, the above-named accused, being then the driver of an Izusu dump truck, bearing Plate No. WD-224 T Philippines "79,belonging to and owned by RUFO MAURICIO CONSTRUCTIONS, did then and there willfully, unlawfully and feloniously drive, operateand manage the said vehicle in a reckless and imprudent manner without taking the necessary precaution to prevent and/or avoidaccident to persons and/or damage to property, and without regard to traffic rules and regulations, causing as a result of hiscarelessness and imprudence the said vehicle that he was driving to sideswipe and hit a Colt Gallant with Plate No. AC-206 SPilipinas "79, driven and owned by the late JUDGE ARSENIO SOLIDUM, thereby inflicting injuries upon the said Judge ArsenioSolidum which directly caused his untimely death, and further causing damage to the said Colt Gallant in the amount of ThirtyThousand (P30,000.00) PESOS, Philippine Currency to the damage and prejudice of the late Judge Arsenio Solidum and/or his familyand likewise causing damage to the house owned by PABLO NAVARRA, to the damage and prejudice of the said Pablo Navarra.

"CONTRARY TO LAW." (Rollo, pp. 74-75)

After arraignment and trial on the merits, Cabiliza was convicted of the crime charged in a Decision dated October 12, 1983, thedispositive portion of which reads —

"WHEREFORE, this Court finds accused Illustre Cabiliza guilty beyond reasonable doubt of the crime of homicide and damage toproperty thru reckless imprudence and hereby sentences him to suffer the indeterminate penalty of two (2) years and four (4)months, as minimum to six (6) years, as maximum of prision correccional; to indemnify the heirs of the deceased Judge Arsenio G.Solidum, the sum of P115,723.05, as actual and compensatory damages; P1,447,200.00 for the loss of earning capacity of thedeceased; P200,000.00 as moral damages; and P20,000.00 as exemplary damages, and to pay the costs." (Rollo, p. 75)

The aforesaid judgment was promulgated on November 9, 1983. On November 11, 1983, Cabiliza filed a Notice of Appeal. But he didnot live to pursue his appeal as he died on January 5, 1984. A notice of death dated February 4, 1984 was filed by his counsel Atty.Eustaquio S. Beltran. In the same notice of death, Atty. Beltran manifested the intention of Rufo Mauricio, as employer of Cabiliza toproceed with the case on appeal pursuant to his right as employer who is subsidiarily liable.

On March 5, 1984, the lower court issued an Order requiring the heirs of Cabiliza to appear and to substitute him as appellant with



respect to the civil aspect of the case.

On motion of the heirs of the victim, the lower court in its order dated August 23, 1984 ordered the issuance of a writ of executionand accordingly on the same date, the Branch Clerk of Court issued a writ.

The writ of execution was however returned unsatisfied per Sheriff’s return of service dated September 3, 1984, because Cabilizawas found insolvent. A certificate of insolvency was issued by the Register of Deeds of the Province of Cagayan and by the MunicipalAssessor of Claveria, Cagayan where Cabiliza appears to be a permanent resident.

On September 3, 1984, the victim’s widow, Mrs. Aurora Solidum, filed a motion for the issuance of a subsidiary writ of execution tobe enforced against the employer of Cabiliza, Rufo Mauricio and/or Rufo Mauricio Construction Co., which was granted by the court inits order dated September 6, 1984. A subsidiary writ of execution was issued by the Clerk of Court also on September 6, 1984.

On September 12, 1984, Rufo Mauricio thru his counsel Atty. Beltran filed a motion to quash the subsidiary writ of execution.Resolution of this motion was held in abeyance.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

Meanwhile, Rufo Mauricio, as the employer of Cabiliza pursued the latter’s appeal before the Intermediate Appellate Court (AC-G.R.No. 01829). He interposed the following assignment of errors —

I

THE LOWER COURT ERRED IN CONCLUDING THAT THE ACCUSED WAS GROSSLY NEGLIGENT AND IMPRUDENT IN TRYING TOOVERTAKE ANOTHER TRUCK WHEN THERE WAS AN ONCOMING CAR FROM THE OPPOSITE DIRECTION;

II

THE LOWER COURT ERRED IN NOT CONCLUDING THAT THE PROXIMATE CAUSE OF THE COLLISION RESULTING IN DEATH OF JUDGEARSENIO SOLIDUM AND DAMAGE TO HIS CAR, WAS DUE TO THE LATTER’S GROSS NEGLIGENCE AND IMPRUDENCE IN INVADINGTHE PROPER LANE OF THE ISUZU DUMP TRUCK OWNED BY RUFO MAURICIO CONSTRUCTION;

III

THE LOWER COURT ERRED IN AWARDING THE TOTAL OF P1,782,923.05 DAMAGES IN FAVOR OF THE COMPLAINANTS;

IV

THE LOWER COURT ERRED IN NOT DISMISSING THE INFORMATION AGAINST THE ACCUSED UPON PROOF OF HIS DEATH AND INNOT RELEASING THE EMPLOYER RUFO MAURICIO CONSTRUCTIONS AND/OR RUFO MAURICIO FROM LIABILITY;

V

THE LOWER COURT ERRED IN NOT GIVING APPELLANT RUFO MAURICIO AND/OR RUFO MAURICIO CONSTRUCTION A DAY IN COURTTO RESIST THE DAMAGES BEING CLAIMED BY THE HEIRS OF THE VICTIM.

On April 8, 1986, the Intermediate Appellate Court promulgated its now assailed Decision, 1 the pertinent portion of which reads —

"We find that the proper amount of damages for loss of earnings based on life expectancy of the deceased is P1,082 223.84. In thisrespect, the trial court’s findings is modified. The Judgment appealed from is affirmed in all other aspects.

"WHEREFORE, with the afore-mentioned modifications, the appealed Judgment is AFFIRMED." (Rollo, p. 86).

Rufo Mauricio filed a motion for reconsideration which was denied for lack of merit in the Resolution of the Intermediate Appellate

Court dated July 18, 1986.

The said Decision and Resolution are the subject of the present petition. Petitioner contends that —

"1. The dismissal of the criminal case against the accused employee wipes out not only the employee’s primary civil liability, but alsohis employer’s subsidiary liability for such criminal negligence, because:chanrob1es virtual 1aw library

‘a. The criminal case is based on Article 100 of the Revised Penal Code wherein criminal liability and the exemption of criminalliability implies exemption from civil liability arising from crime.

‘b. The civil liability of the employer petitioner is based, if any, on quasi-delict, since the accused was exempted from criminalliability.

"2. Exemplary damages cannot be imposed upon an employer who at the time of the alleged incident was not present nor inside thevehicle involved in the accident.



"3. The petitioner employer cannot be condemned (to pay) an exhorbitant amount of damages to the tune of P1,417,946.89, withoutgiving him opportunity to cross examine the witness supporting such claim and affording him opportunity to adduce evidence toresist the claim, because that would be deprivation of property without due process of law, repugnant to the Freedom Constitution.

"4. The Honorable Intermediate Appellate Court misapplied the facts contrary to the physical evidence and relied on conjectures andsurmises that depicted a different picture of the accident when the evidence shows that it was the victim who was negligent at thetime of the accident." (Rollo, pp. 18-19).

The first contention of petitioner that the death of the accused-employee wipes out not only the employee’s primary civil liability butalso his employer’s subsidiary liability is without merit. The death of the accused during the pendency of his appeal or before the

judgment of conviction (rendered against him by the lower court) became final and executory extinguished his criminal liabilitymeaning his obligation to serve the imprisonment imposed and his pecuniary liability for fines, but not his civil liability should theliability or obligation arise (not from a crime, for here, no crime was committed, the accused not having been convicted by final

judgment, and therefore still regarded as innocent) but from a quasi-delict (See Arts. 2176 and 2177, Civil Code), as in this case.The liability of the employer here would not be subsidiary but solidary with his driver (unless said employer can prove there was nonegligence on his part at all, that is, if he can prove due diligence in the selection and supervision of his driver). (See 8th par. of Art.2180, Art. 2194, Civil Code; also People v. Navoa, 132 SCRA 412; People v. Tirol, 102 SCRA 558; People v. Sandaydiego, 82 SCRA120).chanrobles virtual lawlibrary

Inasmuch as the employer (petitioner herein) was not a party in the criminal case, and to grant him his day in court for the purposeof cross-examining the prosecution witnesses on their testimonies on the driver’s alleged negligence and the amount of damages towhich the heirs of the victim are entitled, as well as to introduce any evidence or witnesses he may care to present in his defense,

the hearing on the motion to quash the subsidiary writ of execution must be reopened precisely for the purpose adverted tohereinabove.

PREMISES CONSIDERED, the assailed decision of the appellate court is hereby SET ASIDE, and this case is REMANDED to the trial

court for the hearing adverted to in the next preceding paragraph.

SO ORDERED.

G.R. No. 108017 April 3, 1995

MARIA BENITA A. DULAY, in her own behalf and in behalf of the minor chi ldren KRIZTEEN ELIZABETH, BEVERLY MARIE and NAPOLEON II,all surnamed DULAY, petitioners,vs.THE COURT OF APPEALS, Former Eighth Division, HON. TEODORO P. REGINO, in his capacity as Presiding Judge of the Regional TrialCourt National Capi tal Region, Quezon City, Br. 84, SAFEGUARD INVESTIGATION AND SECURITY CO., INC., and SUPERGUARD SECURITYCORPORATION, respondents.

BIDIN, J.:

This petition for certiorari prays for the reversal of the decision of the Court of Appeals dated October 29, 1991 in CA-G.R. CV No. 24646 which affirmedthe order of the Regional Trial Court dismissing Civil Case No. Q-89-1751, and its resolution dated November 17, 1991 denying herein, petitioner'smotion for reconsideration.

The antecedent facts of the case are as follows:

On December 7, 1988, an altercation between Benigno Torzuela and Atty. Napoleon Dulay occurred at the "Big Bang Sa Alabang," Alabang Village,Muntinlupa as a result of which Benigno Torzuela, the security guard on duty at the said carnival, shot and killed Atty. Napoleon Dulay.

Herein petitioner Maria Benita A. Dulay, widow of the deceased Napoleon Dulay, in her own behalf and in behalf of her minor children, filed on February8, 1989 an action for damages against Benigno Torzuela and herein private respondents Safeguard Investigation and Security Co., Inc.,

("SAFEGUARD") and/or Superguard Security Corp. ("SUPERGUARD"), alleged employers of defendant Torzuela. The complaint, docketed as CivilCase No. Q-89-1751 among others alleges the following:

1. . . .

Defendants SAFEGUARD INVESTIGATION AND SECURITY CO., INC., (Defendant Safeguard) and SUPERGUARD SECURITYCORPORATION (Defendant Superguard) are corporations duly organized and existing in accordance with Philippine laws, withoffices at 10th Floor, Manufacturers Building, Inc., Plaza Santa Cruz, Manila. They are impleaded as alternative defendants for,while the former appears to be the employer of defendant BENIGNO TORZUELA (defendant TORZUELA), the latter impliedlyacknowledged responsibility for the acts of defendant TORZUELA by extending its sympathies to plaintiffs.

Defendant BENIGNO TORZUELA is of legal age, an employee of defendant SAFEGUARD and/or defendant SUPERGUARD and,at the time of the incident complained of, was under their control and supervision. . . .



3. On December 7, 1988 at around 8:00 a.m., defendant TORZUELA, while he was on duty as security guard at the "Big Bang sa Alabang," Alabang Village, Muntinlupa, Metro Manila shot and killed NAPOLEON V. DULAY with a .38 caliber revolver belonging todefendant SAFEGUARD, and/or SUPERGUARD (per Police Report dated January 7, 1989, copy attached as Annex A);

4. The incident resulting in the death of NAPOLEON V. DULAY was due to the concurring negligence of the defendants. DefendantTORZUELA'S wanton and reckless discharge of the firearm issued to him by defendant SAFEGUARD and/or SUPERGUARD wasthe immediate and proximate cause of the injury, while the negligence of defendant SAFEGUARD and/or SUPERGUARD consistsin its having failed to exercise the diligence of a good father of a family in the supervision and control of its employee to avoid theinjury.

xxx xxx xxx

(Rollo, pp. 117-118)

Petitioners prayed for actual, compensatory, moral and exemplary damages, and attorney's fees. The said Civil Case No. Q-89-1751 was raffled toBranch 84 of the Regional Trial Court of Quezon City, presided by respondent Judge Teodoro Regino.

On March 2, 1989, private respondent SUPERGUARD filed a Motion to Dismiss on the ground that the complaint does not state a valid cause of action.SUPERGUARD claimed that Torzuela's act of shooting Dulay was beyond the scope of his duties, and that since the alleged act of shooting wascommitted with deliberate intent (dolo), the civil liability therefor is governed by Article 100 of the Revised Penal Code, which states:

Art. 100. Civil liability of a person guilty of a felony. — Every person criminally liable for a felony is also civilly liable.

Respondent SUPERGUARD further alleged that a complaint for damages based on negligence under Article 2176 of the New Civil Code, such as theone filed by petitioners, cannot lie, since the civil liability under Article 2176 applies only to quasi-offenses under Article 365 of the Revised Penal Code.

In addition, the private respondent argued that petitioners' filing of the complaint is premature considering that the conviction of Torzuela in a criminalcase is a condition sine qua non for the employer's subsidiary liability (Rollo, p. 55-59).

Respondent SAFEGUARD also filed a motion praying that it be excluded as defendant on the ground that defendant Torzuela is not one of itsemployees (Rollo, p. 96).

Petitioners opposed both motions, stating that their cause of action against the private respondents is based on their liability under Article 2180 of theNew Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those ofpersons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of theirassigned tasks, even though the former are not engaged in any business or an industry.

xxx xxx xxx

(Emphasis supplied)

Petitioners contended that a suit against alternative defendants is allowed under Rule 3, Section 13 of the Rules of Court. Therefore, the inclusion ofprivate respondents as alternative defendants in the complaint is justified by the following: the Initial Investigation Report prepared by Pat. Mario Tubonshowing that Torzuela is an employee of SAFEGUARD; and through overt acts, SUPERGUARD extended its sympathies to petitioners (Rollo, pp. 64and 98).

Meanwhile, an Information dated March 21, 1989 charging Benigno Torzuela with homicide was filed before the Regional Trial Court of Makati and wasdocketed as Criminal Case No. 89-1896.

On April 13, 1989, respondent Judge Regino issued an order granting SUPERGUARD'S motion to dismiss and SAFEGUARD'S motion for exclusion asdefendant. The respondent judge held that the complaint did not state facts necessary or sufficient to constitute a quasi-delict since it does not mentionany negligence on the part of Torzuela in shooting Napoleon Dulay or that the same was done in the performance of his duties. Respondent judge ruledthat mere allegations of the concurring negligence of the defendants (private respondents herein) without stating the facts showing such negligence aremere conclusions of law (Rollo, p. 106). Respondent judge also declared that the complaint was one for damages founded on crimes punishable under

Articles 100 and 103 of the Revised Penal Code as distinguished from those arising from, quasi-delict. The dispositive portion of the order dated April13, 1989 states:

WHEREFORE, this Court holds that in view of the material and ultimate facts alleged in the verified complaint and in accordancewith the applicable law on the matter as well as precedents laid down by the Supreme Court, the complaint against the alternativedefendants Superguard Security Corporation and Safeguard Investigation and Security Co., Inc., must be and (sic) it is herebydismissed. (Rollo, p. 110)

The above order was affirmed by the respondent court and petitioners' motion for reconsideration thereof was denied.



Petitioners take exception to the assailed decision and insist that quasi-delicts are not limited to acts of negligence but also cover acts that areintentional and voluntary, citing Andamo v. IAC (191 SCRA 195 [1990]). Thus, petitioners insist that Torzuela' s act of shooting Napoleon Dulayconstitutes a quasi-delict actionable under Article 2176 of the New Civil Code.

Petitioners further contend that under Article 2180 of the New Civil Code, private respondents are primarily liable for their negligence either in theselection or supervision of their employees. This liability is independent of the employee's own liability for fault or negligence and is distinct from thesubsidiary civil liability under Article 103 of the Revised Penal Code. The civil action against the employer may therefore proceed independently of thecriminal action pursuant to Rule 111 Section 3 of the Rules of Court. Petitioners submit that the question of whether Torzuela is an employee ofrespondent SUPERGUARD or SAFEGUARD would be better resolved after trial.

Moreover, petitioners argue that Torzuela's act of shooting Dulay is also actionable under Article 33 of the New Civil Code, to wit:

Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely separate and distinct from thecriminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution, andshall require only a preponderance of evidence. (Emphasis supplied)

In the same vein, petitioners cite Section 3, Rule 111 of the Rules of Court which provides:

Rule 111. . . . .

Sec. 3. When civil action may proceed independently — In the cases provided for in Articles 32, 33, 34 and 2176 of the Civil Code othe Philippines, the independent civil action which has been reserved may be brought by the offended party, shall proceedindependently of the criminal action, and shall require only a preponderance of evidence. (Emphasis supplied)

The term "physical injuries" under Article 33 has been held to include consummated, frustrated and attempted homicide. Thus, petitioners maintain that

Torzuela's prior conviction is unnecessary since the civil action can proceed independently of the criminal action. On the other hand, it is the privaterespondents' argument that since the act was not committed with negligence, the petitioners have no cause of action under Articles 2116 and 2177 ofthe New Civil Code. The civil action contemplated in Article 2177 is not applicable to acts committed with deliberate intent, but only applies to quasi-offenses under Article 365 of the Revised Penal Code. Torzuela's act of shooting Atty. Dulay to death, aside from being purely personal, was done withdeliberate intent and could not have been part of his duties as security guard. And since Article 2180 of the New Civil Code covers only: acts done withinthe scope of the employee's assigned tasks, the private respondents cannot be held liable for damages.

We find for petitioners.

It is undisputed that Benigno Torzuela is being prosecuted for homicide for the fatal shooting of Napoleon Dulay. Rule 111 of the Rules on CriminalProcedure provides:

Sec. 1. Institution of criminal and civil actions. When a criminal action is instituted, the civil action for the recovery of civil liability isimpliedly instituted with the criminal action, unless the offended party waives the civil action , reserves his right to institute itseparately or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34, and 2176 othe Civil Code of the Philippines arising from the same act or omission of the accused. (Emphasis supplied)

It is well-settled that the filing of an independent civil action before the prosecution in the criminal action presents evidence is even far better than acompliance with the requirement of express reservation (Yakult Philippines v. Court of Appeals, 190 SCRA 357 [1990]). This is precisely what thepetitioners opted to do in this case. However, the private respondents opposed the civil action on the ground that the same is founded on a delict and noon a quasi-delict as the shooting was not attended by negligence. What is in dispute therefore is the nature of the petitioner's cause of action.

The nature of a cause of action is determined by the facts alleged in the complaint as constituting the cause of action (Republic v. Estenzo, 158 SCRA282 [1988]). The purpose of an action or suit and the law to govern it is to be determined not by the claim of the party filing the action, made in hisargument or brief, but rather by the complaint itself, its allegations and prayer for relief. (De Tavera v. Philippine Tuberculosis Society, 112 SCRA 243[1982]). An examination of the complaint in the present case would show that the plaintiffs, petitioners herein, are invoking their right to recover damagesagainst the private respondents for their vicarious responsibility for the injury caused by Benigno Torzuela's act of shooting and killing Napoleon Dulay,as stated in paragraphs 1 and 2 of the complaint.

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 damagedone. Such fault or negligence, if there is no pre-existing contractual relation between the parties is called a quasi-delict and isgoverned by the provisions of this Chapter.

Contrary to the theory of private respondents, there is no justification for limiting the scope of Article 2176 of the Civil Code to acts or omissions resultingfrom negligence. Well-entrenched is the doctrine that article 2176 covers not only acts committed with negligence, but also acts which are voluntary andintentional. As far back as the definitive case of Elcano v. Hill (77 SCRA 98 [1977]), this Court already held that:

. . . Article 2176, where it refers to "fault or negligence," covers not only acts "not punishable by law" but also acts criminal incharacter; whether intentional and voluntary or negligent. Consequently, a separate civil action against the offender in a criminal actwhether or not he is criminally prosecuted and found guilty or acquitted, provided that the offended party is not allowed, if he is



actually charged also criminally, to recover damages on both scores, and would be entitled in such eventuality only to the biggeraward of the two, assuming the awards made in the two cases vary. In other words, the extinction of civil liability referred to in Par.(e) of Section 3, Rule 111, refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civilliability for the same act considered as quasi-delict only and not as a crime is not extinguished even by a declaration in the criminalcase that the criminal act charged has not happened or has not been committed by the accused. Briefly stated, We here hold, inreiteration of Garcia, that culpa aquiliana includes voluntary and negligent acts which may be punishable by law. (Emphasissupplied)

The same doctrine was echoed in the case of Andamo v. Intermediate Appellate Court (191 SCRA 195 [1990]), wherein the Court held:

Article 2176, whenever it refers to "fault or negligence," covers not only acts criminal in character, whether intentional and voluntary

or negligent. Consequently, a civil action lies against the offender in a criminal act, whether or not he is prosecuted or found guilty oracquitted, provided that the offended party is not allowed, (if the tortfeasor is actually also charged criminally), to recover damageson both scores, and would be entitled in such eventuality only to the bigger award of the two, assuming the awards made in the twocases vary. [citing Virata v. Ochoa, 81 SCRA 472] (Emphasis supplied)

Private respondents submit that the word "intentional" in the Andamo case is inaccurate obiter, and should be read as "voluntary" since intent cannot becoupled with negligence as defined by Article 365 of the Revised Penal Code. In the absence of more substantial reasons, this Court will not disturb theabove doctrine on the coverage of Article 2176.

Private respondents further aver that Article 33 of the New Civil Code applies only to injuries intentionally committed pursuant to the ruling in Marcia v.CA (120 SCRA 193 [1983]), and that the actions for damages allowed thereunder are ex-delicto. However, the term "physical injuries" in Article 33 hasalready been construed to include bodily injuries causing death (Capuno v. Pepsi-Cola Bottling Co. of the Philippines, 121 Phil. 638 [1965); Carandangv. Santiago, 97 Phil. 94 [1955]). It is not the crime of physical injuries defined in the Revised Penal Code. It includes not only physical injuries but alsoconsummated, frustrated, and attempted homicide (Madeja v. Caro, 126 SCRA 293 [1983]). Although in the Marcia case (supra), it was held that noindependent civil action may be filed under Article 33 where the crime is the result of criminal negligence, it must be noted however, that Torzuela, theaccused in the case at bar, is charged with homicide, not with reckless imprudence, whereas the defendant in Marcia was charged with reckless

imprudence. Therefore, in this case, a civil action based on Article 33 l ies.

Private respondents also contend that their liability is subsidiary under the Revised Penal Code; and that they are not liable for Torzuela's act which isbeyond the scope of his duties as a security guard. It having been established that the instant action is not ex-delicto, petitioners may proceed directlyagainst Torzuela and the private respondents. Under Article 2180 of the New Civil Code as aforequoted, when an injury is caused by the negligence ofthe employee, there instantly arises a presumption of law that there was negligence on the part of the master or employer either in the selection of theservant or employee, or in supervision over him after selection or both (Layugan v. Intermediate Appellate Court, 167 SCRA 363 [1988]). The liability ofthe employer under Article 2180 is direct and immediate; it is not conditioned upon prior recourse against the negligent employee and a prior showing ofthe insolvency of such employee (Kapalaran Bus Lines v. Coronado, 176 SCRA 792 [1989]). Therefore, it is incumbent upon the private respondents toprove that they exercised the diligence of a good father of a family in the selection and supervision of their employee.

Since Article 2176 covers not only acts of negligence but also acts which are intentional and voluntary, it was therefore erroneous on the part of the trialcourt to dismiss petitioner's complaint simply because it failed to make allegations of attendant negligence attributable to private respondents.

With respect to the issue of whether the complaint at hand states a sufficient cause of action, the general rule is that the allegations in a complaint are

sufficient to constitute a cause of action against the defendants if, admitting the facts alleged, the court can render a valid judgment upon the same inaccordance with the prayer therein. A cause of action exist if the following elements are present, namely: (1) a right in favor of the plaintiff by whatevermeans and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3)an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to theplaintiff for which the latter may maintain an action for recovery of damages (Del Bros Hotel Corporation v. CA, 210 SCRA 33 [1992]); DevelopmentBank of the Philippines v. Pundogar, 218 SCRA 118 [1993])

This Court finds, under the foregoing premises, that the complaint sufficiently alleged an actionable breach on the part of the defendant Torzuela andrespondents SUPERGUARD and/or SAFEGUARD. It is enough that the complaint alleged that Benigno Torzuela shot Napoleon Dulay resulting in thelatter's death; that the shooting occurred while Torzuela was on duty; and that either SUPERGUARD and/or SAFEGUARD was Torzuela's employer andresponsible for his acts. This does not operate however, to establish that the defendants below are liable. Whether or not the shooting was actuallyreckless and wanton or attended by negligence and whether it was actually done within the scope of Torzuela's duties; whether the private respondentsSUPERGUARD and/or SAFEGUARD failed to exercise the diligence of a good father of a family; and whether the defendants are actually liable, arequestions which can be better resolved after trial on the merits where each party can present evidence to prove their respective allegations anddefenses. In determining whether the allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaintdoes not have to establish or allege the facts proving the existence of a cause of action at the outset; this will have to be done at the trial on the merits of

the case (Del Bros Hotel Corporation v. CA, supra). If the allegations in a complaint can furnish a sufficient basis by which the complaint can bemaintained, the same should not be dismissed regardless of the defenses that may be assessed by the defendants (Rava Dev't. Corp. v. CA, 211 SCRA152 [1992] citing Consolidated Bank & Trust Corporation v. Court of Appeals, 197 SCRA 663 [1991]). To sustain a motion to dismiss for lack of cause ofaction, the complaint must show that the claim for relief does not exist rather than that a claim has been defectively stated, is ambiguous, indefinite oruncertain (Azur v. Provincial Board, 27 SCRA 50 [1969]). Since the petitioners clearly sustained an injury to their rights under the law, it would be more

just to allow them to present evidence of such injury.

WHEREFORE, premises considered, the petition for review is hereby GRANTED. The decision of the Court of Appeals as well as the Order of theRegional Trial Court dated April 13, 1989 are hereby REVERSED and SET ASIDE. Civil Case No. Q-89-1751 is remanded to the Regional Trial Courtfor trial on the merits. This decision is immediately executory.

SO ORDERED.



[G.R. No. 150793. November 19, 2004]

FRANCIS CHUA, petitioner, vs. HON. COURT OF APPEALS and LYDIA C. HAO, respondents .

D E C I S I O N

QUISUMBING, J.:

Petitioner assails the Decision,

[1]

dated June 14, 2001, of the Court of Appeals in CA-G.R. SP No. 57070, affirming the Order , dated October 51999, of the Regional Trial Court (RTC) of Manila, Branch 19. The RTC reversed the Order, dated April 26, 1999, of the Metropolitan Trial Court (MeTCof Manila, Branch 22. Also challenged by herein petitioner is the CA Resolution ,

[2] dated November 20, 2001, denying his Motion for Reconsideration.

The facts, as culled from the records, are as follows:

On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Realty Corporation, filed a complaint-affidavit with the City Prosecutor oManila charging Francis Chua and his wife, Elsa Chua, of four counts of falsification of public documents pursuant to Article 172

[3] in relation to Article

171[4]

of the Revised Penal Code. The charge reads:

That on or about May 13, 1994, in the City of Manila, Philippines, the said accused, being then a private individual, did then and there willfully, unlawfully andfeloniously commit acts of falsification upon a public document, to wit: the said accused prepared, certified, and falsified the Minutes of the Annual Stockholdersmeeting of the Board of Directors of the Siena Realty Corporation, duly notarized before a Notary Public, Atty. Juanito G. Garcia and entered in his Notarial Registry aDoc No. 109, Page 22, Book No. IV and Series of 1994, and therefore, a public document, by making or causing it to appear in said Minutes of the Annual StockholdersMeeting that one LYDIA HAO CHUA was present and has participated in said proceedings, when in truth and in fact, as the said accused fully well knew that saidLydia C. Hao was never present during the Annual Stockholders Meeting held on April 30, 1994 and neither has participated in the proceedings thereof to the prejudiceof public interest and in violation of public faith and destruction of truth as therein proclaimed.

CONTRARY TO LAW.[5]

Thereafter, the City Prosecutor filed the Information docketed as Criminal Case No. 285721[6]

for falsification of public document, before theMetropolitan Trial Court (MeTC) of Manila, Branch 22, against Francis Chua but dismissed the accusation against Elsa Chua.

Herein petitioner, Francis Chua, was arraigned and trial ensued thereafter.

During the trial in the MeTC, private prosecutors Atty. Evelyn Sua-Kho and Atty. Ariel Bruno Rivera appeared as private prosecutors andpresented Hao as their first witness.

After Hao’s testimony, Chua moved to exclude complainant’s counsels as private prosecutors in the case on the ground that Hao failed to allegeand prove any civil liability in the case.

In an Order , dated April 26, 1999, the MeTC granted Chua’s motion and ordered the complainant’s counsels to be excluded from activelyprosecuting Criminal Case No. 285721. Hao moved for reconsideration but it was denied.

Hence, Hao filed a petition for certiorari docketed as SCA No. 99-94846 ,[7]entitled Lydia C. Hao, in her own behalf and for the benefit of SienaRealty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega, Presiding Judge, Branch 22, Metropolitan Trial Court of Manila , before theRegional Trial Court (RTC) of Manila, Branch 19.

The RTC gave due course to the petition and on October 5, 1999, the RTC in an order reversed the MeTC Order. The dispositive portion reads:

WHEREFORE, the petition is GRANTED. The respondent Court is ordered to allow the intervention of the private prosecutors in behalf of petitioner Lydia C. Hao inthe prosecution of the civil aspect of Crim. Case No. 285721, before Br. 22 [MeTC], Manila, allowing Attys. Evelyn Sua-Kho and Ariel Bruno Rivera to actively

participate in the proceedings.

SO ORDERED.[8]

Chua moved for reconsideration which was denied.

Dissatisfied, Chua filed before the Court of Appeals a petition for certiorari. The petition alleged that the lower court acted with grave abuse o

discretion in: (1) refusing to consider material facts; (2) allowing Siena Realty Corporation to be impleaded as co-petitioner in SCA No. 99-94846although it was not a party to the criminal complaint in Criminal Case No. 285721; and (3) effectively amending the information against the accused inviolation of his constitutional rights.

On June 14, 2001, the appellate court promulgated its assailed Decision denying the petition, thus:

WHEREFORE, premises considered, the petition is hereby DENIED DUE COURSE and DISMISSED. The Order, dated October 5, 1999 as well as the Order, datedDecember 3, 1999, are hereby AFFIRMED in toto.

SO ORDERED.[9]

Petitioner had argued before the Court of Appeals that respondent had no authority whatsoever to bring a suit in behalf of the Corporation sincethere was no Board Resolution authorizing her to file the suit.







































For her part, respondent Hao claimed that the suit was brought under the concept of a derivative suit. Respondent maintained that when thedirectors or trustees refused to file a suit even when there was a demand from stockholders, a derivative suit was allowed.

The Court of Appeals held that the action was indeed a derivative suit, for it alleged that petitioner falsified documents pertaining to projects of thecorporation and made it appear that the petitioner was a stockholder and a director of the corporation. According to the appellate court, the corporationwas a necessary party to the petition filed with the RTC and even if private respondent filed the criminal case, her act should not divest the Corporationof its right to be a party and present its own claim for damages.

Petitioner moved for reconsideration but it was denied in a Resolution dated November 20, 2001.

Hence, this petition alleging that the Court of Appeals committed reversible errors:

I. … IN RULING THAT LYDIA HAO’S FILING OF CRIMINAL CASE NO. 285721 WAS IN THE NATURE OF A DERIVATIVE SUIT

II. … IN UPHOLDING THE RULING OF JUDGE DAGUNA THAT SIENA REALTY WAS A PROPER PETITIONER IN SCA NO. [99-94846]

III. … IN UPHOLDING JUDGE DAGUNA’S DECISION ALLOWING LYDIA HAO’S COUNSEL TO CONTINUE AS PRIVATEPROSECUTORS IN CRIMINAL CASE NO. 285721

IV. … IN [OMITTING] TO CONSIDER AND RULE UPON THE ISSUE THAT JUDGE DAGUNA ACTED IN GRAVE ABUSE OFDISCRETION IN NOT DISMISSING THE PETITION IN SCA NO. [99-94846] FOR BEING A SHAM PLEADING.

[10]

The pertinent issues in this petition are the following: (1) Is the criminal complaint in the nature of a derivative suit? (2) Is Siena Realty Corporationa proper petitioner in SCA No. 99-94846? and (3) Should private prosecutors be allowed to actively participate in the trial of Criminal Case No. 285721.

On the first issue, petitioner claims that the Court of Appeals erred when (1) it sustained the lower court in giving due course to respondent’spetition in SCA No. 99-94846 despite the fact that the Corporation was not the private complainant in Criminal Case No. 285721, and (2) when it ruledthat Criminal Case No. 285721 was in the nature of a derivative suit.

Petitioner avers that a derivative suit is by nature peculiar only to intra-corporate proceedings and cannot be made part of a criminal action. Hecites the case of Western Institute of Technology, Inc. v. Salas,

[11] where the court said that an appeal on the civil aspect of a criminal case cannot be

treated as a derivative suit. Petitioner asserts that in this case, the civil aspect of a criminal case cannot be treated as a derivative suit, considering thaSiena Realty Corporation was not the private complainant.

Petitioner misapprehends our ruling in Western Institute. In that case, we said:

Here, however, the case is not a derivative suit but is merely an appeal on the civil aspect of Criminal Cases Nos. 37097 and 37098 filed with the RTC of Iloilo forestafa and falsification of public document. Among the basic requirements for a derivative suit to prosper is that the minority shareholder who is suing for and on

behalf of the corporation must allege in his complaint before the proper forum that he is suing on a derivative cause of action on behalf of the corporation and all othershareholders similarly situated who wish to join. . . .This was not complied with by the petitioners either in their complaint before the court a quo nor in the instant

petition which, in part, merely states that “this is a petition for review on certiorari on pure questions of law to set aside a portion of the RTC decision in CriminalCases Nos. 37097 and 37098” since the trial court’s judgment of acquittal failed to impose civil liability against the private respondents. By no amount of equityconsiderations, if at all deserved, can a mere appeal on the civil aspect of a criminal case be treated as a derivative suit .

[12]

Moreover, in Western Institute, we said that a mere appeal in the civil aspect cannot be treated as a derivative suit because the appeal lacked thebasic requirement that it must be alleged in the complaint that the shareholder is suing on a derivative cause of action for and in behalf of the corporationand other shareholders who wish to join.

Under Section 36[13]

of the Corporation Code, read in relation to Section 23,[14]

where a corporation is an injured party, its power to sue is lodgedwith its board of directors or trustees.

[15] An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds

stocks in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued, or hold thecontrol of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest.

[16]

A derivative action is a suit by a shareholder to enforce a corporate cause of action. The corporation is a necessary party to the suit. And the reliewhich is granted is a judgment against a third person in favor of the corporation. Similarly, if a corporation has a defense to an action against it and is noasserting it, a stockholder may intervene and defend on behalf of the corporation.

[17]

Under the Revised Penal Code, every person criminally liable for a felony is also civilly liable.[18]

When a criminal action is instituted, the civil actionfor the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action, unless the offended party waives thecivil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.

[19]

In Criminal Case No. 285721, the complaint was instituted by respondent against petitioner for falsifying corporate documents whose subjecconcerns corporate projects of Siena Realty Corporation. Clearly, Siena Realty Corporation is an offended party. Hence, Siena Realty Corporation has acause of action. And the civil case for the corporate cause of action is deemed instituted in the criminal action.

However, the board of directors of the corporation in this case did not institute the action against petitioner. Private respondent was the one whoinstituted the action. Private respondent asserts that she filed a derivative suit in behalf of the corporation. This assertion is inaccurate. Not every suifiled in behalf of the corporation is a derivative suit. For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf othe corporation must allege in his complaint that he is suing on a derivative cause of action on behalf of the corporation and all other stockholderssimilarly situated who may wish to join him in the suit.

[20] It is a condition sine qua non that the corporation be impleaded as a party because not only is

the corporation an indispensable party, but it is also the present rule that it must be served with process. The judgment must be made binding upon thcorporation in order that the corporation may get the benefit of the suit and may not bring subsequent suit against the same defendants for the samecause of action. In other words, the corporation must be joined as party because it is its cause of action that is being litigated and because judgmentmust be a res adjudicata against it.

[21]

In the criminal complaint filed by herein respondent, nowhere is it stated that she is filing the same in behalf and for the benefit of the corporation.Thus, the criminal complaint including the civil aspect thereof could not be deemed in the nature of a derivative suit.

We turn now to the second issue, is the corporation a proper party in the petition for certiorari under Rule 65 before the RTC? Note that the casewas titled “Lydia C. Hao, in her own behalf and for the benefit of Siena Realty Corporation v. Francis Chua, and the Honorable Hipolito dela Vega,




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Presiding Judge, Branch 22, Metropolitan Trial Court of Manila.” Petitioner before us now claims that the corporation is not a private complainant inCriminal Case No. 285721, and thus cannot be included as appellant in SCA No. 99-94846.

Petitioner invokes the case of Ciudad Real & Dev’t. Corporation v. Court of Appeals .[22]

In Ciudad Real, it was ruled that the Court of Appealscommitted grave abuse of discretion when it upheld the standing of Magdiwang Realty Corporation as a party to the petition for certiorari, even though iwas not a party-in-interest in the civil case before the lower court.

In the present case, respondent claims that the complaint was filed by her not only in her personal capacity, but likewise for the benefit of thecorporation. Additionally, she avers that she has exhausted all remedies available to her before she instituted the case, not only to claim damages foherself but also to recover the damages caused to the company.

Under Rule 65 of the Rules of Civil Procedure,[23]

when a trial court commits a grave abuse of discretion amounting to lack or excess of jurisdictionthe person aggrieved can file a special civil action for certiorari. The aggrieved parties in such a case are the State and the private offended party o

complainant.[24]

In a string of cases, we consistently ruled that only a party-in-interest or those aggrieved may file certiorari cases. It is settled that the offendedparties in criminal cases have sufficient interest and personality as “person(s) aggrieved” to file special civil action of prohibition and certiorari.

[25]

In Ciudad Real, cited by petitioner, we held that the appellate court committed grave abuse of discretion when it sanctioned the standing of acorporation to join said petition for certiorari, despite the finality of the trial court’s denial of its Motion for Intervention and the subsequent Motion toSubstitute and/or Join as Party/Plaintiff.

Note, however, that in Pastor, Jr. v. Court of Appeals[26]

we held that if aggrieved, even a non-party may institute a petition for certiorari. In thacase, petitioner was the holder in her own right of three mining claims and could file a petition for certiorari, the fastest and most feasible remedy sinceshe could not intervene in the probate of her father-in-law’s estate.

[27]

In the instant case, we find that the recourse of the complainant to the respondent Court of Appeals was proper. The petition was brought in heown name and in behalf of the Corporation. Although, the corporation was not a complainant in the criminal action, the subject of the falsification was thecorporation’s project and the falsified documents were corporate documents. Therefore, the corporation is a proper party in the petition for certiorarbecause the proceedings in the criminal case directly and adversely affected the corporation.

We turn now to the third issue. Did the Court of Appeals and the lower court err in allowing private prosecutors to actively participate in the trial oCriminal Case No. 285721?

Petitioner cites the case of Tan, Jr. v. Gallardo,[28]

holding that where from the nature of the offense or where the law defining and punishing theoffense 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 criminallyliable 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 calledthe State whose law he has violated; and (2) the individual member of the society whose person, right, honor, chastity or property has been actually ordirectly 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 civliability 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 theobligation 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 doneintentionally or negligently. The indemnity which a person is sentenced to pay forms an integral part of the penalty imposed by law for the commission othe crime.

[29] 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.[30]

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.[31] Rule 111(a) of the Rules of Criminal Procedure provides that, “[w]hen a criminal action isinstituted, the civil action arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civaction, 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 damagesarising 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 asa result of petitioner’s alleged acts of falsification. Petitioner adds that since no personal damages were proven therein, then the participation of hercounsel 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 whoare the persons entitled to such indemnity. The civil liability arising from the crime may be determined in the criminal proceedings if the offended partydoes 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 nowaiver or reservation of civil l iability, evidence should be allowed to establish the extent of injuries suffered.

[32]

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 tha

evidence should be allowed in the criminal proceedings to establish the civil liability arising from the offense committed, and the private offended partyhas the right to intervene through the private prosecutors.

WHEREFORE, the instant petition is DENIED. The Decision, dated June 14, 2001, and the Resolution, dated November 20, 2001, of the Court o Appeals in CA-G.R. SP No. 57070, affirming the Order, dated October 5, 1999, of the Regional Trial Court (RTC) of Manila, Branch 19, are AFFIRMED Accordingly, the private prosecutors are hereby allowed to intervene in behalf of private respondent Lydia Hao in the prosecution of the civil aspect oCriminal Case No. 285721 before Branch 22, of Metropolitan Trial Court (MeTC) of Manila. Costs against petitioner.

SO ORDERED.

[G.R. No. 151452. Jul y 29, 2005]















































SPS. ANTONIO C. SANTOS and ESPERANZA C. SANTOS, NORA BARNALO, BELINDA LUMACTAD, MARIENELA DY, NIKKA SANTOS andLEONARDO FERRER, petitioners, vs. HON. NORMANDIE B. PIZARDO, as Presiding Judge, RTC of Quezon City, Branch 101DIONISIO M SIBAYAN, and VIRON TRANSPORTATION COMPANY, INC., represented by VIRGILIO Q. RONDARISPresident/Chairman, respondents.

D E C I S I O N

TINGA, J.:

In this Petition for Review on Certiorari[1]

dated March 1, 2002, petitioners assail the Resolutions of the Court of Appeals dated September 102001 and January 9, 2002, respectively dismissing their petition for certiorari and denying their motion for reconsideration, arising from the dismissal of

their complaint to recover civil indemnity for the death and physical injuries of their kin.

The following facts are matters of record.

In an Information dated April 25, 1994, Dionisio M. Sibayan (Sibayan) was charged with Reckless Imprudence Resulting to Multiple Homicide andMultiple Physical Injuries in connection with a vehicle collision between a southbound Viron Transit bus driven by Sibayan and a northbound Lite AceVan, which claimed the lives of the van’s driver and three (3) of its passengers, including a two-month old baby, and caused physical injuries to five (5)of the van’s passengers. After trial, Sibayan was convicted and sentenced to suffer the penalty of imprisonment for two (2) years, four (4) months andone (1) day to four (4) years and two (2) months. However, as there was a reservation to file a separate civil action, no pronouncement of civil liabilitywas made by the municipal circuit trial court in its decision promulgated on December 17, 1998.

[2]

On October 20, 2000, petitioners filed a complaint for damages against Sibayan, Viron Transit and its President/Chairman, Virgilio Q. Rondariswith the Regional Trial Court of Quezon City, pursuant to their reservation to file a separate civil action .

[3] They cited therein the judgment convicting

Sibayan.

Viron Transit moved to dismiss the complaint on the grounds of improper service of summons, prescription and laches, and defective certificatioof non-forum shopping. It also sought the dropping of Virgilio Q. Rondaris as defendant in view of the separate personality of Viron Transit from itsofficers.

[4]

Petitioners opposed the motion to dismiss contending, among others, that the right to file a separate action in this case prescribes in ten (10) yearsreckoned from the finality of the judgment in the criminal action. As there was no appeal of the decision convicting Sibayan, the complaint which wasfiled barely two (2) years thence was clearly filed within the prescriptive period.

The trial court dismissed the complaint on the principal ground that the cause of action had already prescribed. According to the trial court, actionsbased on quasi delict, as it construed petitioners’ cause of action to be, prescribe four (4) years from the accrual of the cause of action. Hencenotwithstanding the fact that petitioners reserved the right to file a separate civil action, the complaint ought to be dismissed on the ground ofprescription.

[5]

Improper service of summons was likewise cited as a ground for dismissal of the complaint as summons was served through a certain JessicaUbalde of the legal department without mentioning her designation or position.

Petitioners filed a motion for reconsideration pointing out yet again that the complaint is not based on quasi delict but on the final judgment oconviction in the criminal case which prescribes ten (10) years from the finality of the judgment .

[6] The trial court denied petitioners’ motion fo

reconsideration reiterating that petitioners’ cause of action was based on quasi delict and had prescribed under Article 1146 of the Civil Code becausethe complaint was filed more than four (4) years after the vehicular accident.

[7] As regards the improper service of summons, the trial court reconsidered

its ruling that the complaint ought to be dismissed on this ground.

Petitioners filed a petition for certiorari with the Court of Appeals which dismissed the same for error in the choice or mode of appeal.[8]

Theappellate court also denied petitioners’ motion for reconsideration reasoning that even if the respondent trial court judge committed grave abuse odiscretion in issuing the order of dismissal, certiorari is still not the permissible remedy as appeal was available to petitioners and they failed to allegethat the petition was brought within the recognized exceptions for the allowance of certiorari in lieu of appeal.

[9]

In this petition, petitioners argue that a rigid application of the rule that certiorari cannot be a substitute for appeal will result in a judicial rejection oan existing obligation arising from the criminal liability of private respondents. Petitioners insist that the liability sought to be enforced in the complaintarose ex delicto and is not based on quasi delict. The trial court allegedly committed grave abuse of discretion when it insisted that the cause of actioninvoked by petitioners is based on quasi delict and concluded that the action had prescribed. Since the action is based on the criminal liability of privaterespondents, the cause of action accrued from the finality of the judgment of conviction.

Assuming that their petition with the appellate court was procedurally flawed, petitioners implore the Court to exempt this case from the rigidoperation of the rules as they allegedly have a legitimate grievance to vindicate, i.e., damages for the deaths and physical injuries caused by privaterespondents for which no civil liability had been adjudged by reason of their reservation of the right to file a separate civil action.

In their Comment[10]

dated June 13, 2002, private respondents insist that the dismissal of the complaint on the ground of prescription was in order

They point out that the averments in the complaint make out a cause of action for quasi delictunder Articles 2176 and 2180 of the Civil Code. As suchthe prescriptive period of four (4) years should be reckoned from the time the accident took place.

Viron Transit also alleges that its subsidiary liability cannot be enforced since Sibayan was not ordered to pay damages in the criminal case. It isViron Transit’s contention that the subsidiary liability of the employer contemplated in Article 103 of the Revised Penal Code presupposes a situationwhere the civil aspect of the case was instituted in the criminal case and no reservation to file a separate civil case was made.

Private respondents likewise allege that the recourse to the Court of Appeals viacertiorari was improper as petitioners should have appealed theadverse order of the trial court. Moreover, they point out several other procedural lapses allegedly committed by petitioners, such as lack of certificatioagainst forum-shopping; lack of duplicate original or certified true copy of the assailed order of the trial court; and non-indication of the full names andaddresses of petitioners in the petition.

Petitioners filed a Reply[11]

dated September 14, 2002, while private respondents filed a Rejoinder [12]

dated October 14, 2002, both in reiteration otheir arguments.

We grant the petition.

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Our Revised Penal Code provides that every person criminally liable for a felony is also civilly liable.[13]

Such civil liability may consist of restitutionreparation of the damage caused and indemnification of consequential damages.

[14] When a criminal action is instituted, the civil liability arising from the

offense is impliedly instituted with the criminal action, subject to three notable exceptions: first, when the injured party expressly waives the right torecover damages from the accused; second,when the offended party reserves his right to have the civil damages determined in a separate action inorder to take full control and direction of the prosecution of his cause; and third, when the injured party actually exercises the right to maintain a privatesuit against the offender by instituting a civil action prior to the filing of the criminal case.

Notably, it was the 1985 Rules on Criminal Procedure, as amended in 1988, which governed the institution of the criminal action, as well as thereservation of the right to file a separate civil action. Section 1, Rule 111 thereof states:

Section 1. Institution of criminal and civil actions.— When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with thecriminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34 and 2176 of the Civil Code of the Philippinesarising from the same act or omission of the accused.

A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation of the right to file, any of said civil actions separately waives theothers.

The reservation of the right to institute the separate civil actions shall be made before the prosecution starts to present its evidence and under circumstances affordingthe offended party a reasonable opportunity to make such reservation.

In no case may the offended party recover damages twice for the same act or omission of the accused.

When the offended party seeks to enforce civil liability against the accused by way of moral, nominal, temperate or exemplary damages, the filing fees for such actionas provided in these Rules shall constitute a first lien on the judgment except in an award for actual damages.

In cases wherein the amount of damages, other than actual, is alleged in the complaint or information, the corresponding filing fees shall be paid by the offended partyupon filing thereof in court for trial.

Petitioners expressly made a reservation of their right to file a separate civil action as a result of the crime committed by Sibayan. On account othis reservation, the municipal circuit trial court, in its decision convicting Sibayan, did not make any pronouncement as to the latter’s civil liability.

Predicating their claim on the judgment of conviction and their reservation to file a separate civil action made in the criminal case, petitioners fileda complaint for damages against Sibayan, Viron Transit and its President/Chairman. Petitioners assert that by the institution of the complaint, they seekto recover private respondents’ civil liability arising from crime. Unfortunately, based on its misreading of the allegations in the complaint, the trial courdismissed the same, declaring that petitioners’ cause of action was based on quasi delict and should have been brought within four (4) years from thetime the cause of action accrued, i.e., from the time of the accident.

A reading of the complaint reveals that the allegations therein are consistent with petitioners’ claim that the action was brought to recover civliability arising from crime. Although there are allegations of negligence on the part of Sibayan and Viron Transit, such does not necessarily mean thapetitioners were pursuing a cause of action based on quasi delict, considering that at the time of the filing of the complaint, the cause of action ex quas

delicto had already prescribed. Besides, in cases of negligence, the offended party has the choice between an action to enforce civil liability arising fromcrime under the Revised Penal Code and an action for quasi delict under the Civil Code.

An act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender, i.e., (1) civil liability exdelicto, under Article 100 of the Revised Penal Code; and (2) independent civil liabilities, such as those (a) not arising from an act or omissioncomplained of as a felony, e.g., culpa contractual or obligations arising from law under Article 31 of the Civil Code, intentional torts under Articles 32 and34, and culpa aquiliana under Article 2176 of the Civil Code; or (b) where the injured party is granted a right to file an action independent and distinctfrom the criminal action under Article 33 of the Civil Code.

[15] Either of these liabilities may be enforced against the offender subject to the caveat unde

Article 2177 of the Civil Code that the plaintiff cannot recover damages twice for the same act or omission of the defendant and the similar proscriptioagainst double recovery under the Rules above-quoted.

At the time of the filing of the complaint for damages in this case, the cause of action ex quasi delicto had already prescribed. Nonethelesspetitioners can pursue the remaining avenue opened for them by their reservation, i.e., the surviving cause of action ex delicto. This is so because theprescription of the action ex quasi delicto does not operate as a bar to an action to enforce the civil liability arising from crime especially as the latteraction had been expressly reserved.

The case of Mendoza v. La Mallorca Bus Company[16]

was decided upon a similar set of facts. Therein, the driver of La Mallorca Bus Company

was charged with reckless imprudence resulting to damage to property. The plaintiff made an express reservation for the filing of a separate civil action.The driver was convicted which conviction was affirmed by this Court. Later, plaintiff filed a separate civil action for damages based on quasi delict whichwas ordered dismissed by the trial court upon finding that the action was instituted more than six (6) years from the date of the accident and thus, hadalready prescribed. Subsequently, plaintiff instituted another action, this time based on the subsidiary liability of the bus company. The trial courdismissed the action holding that the dismissal of the earlier civil case operated as a bar to the filing of the action to enforce the bus company’ssubsidiary liability.

We held that the dismissal of the action based on culpa aquiliana is not a bar to the enforcement of the subsidiary liability of the employer. Oncethere is a conviction for a felony, final in character, the employer becomes subsidiarily liable if the commission of the crime was in the discharge of theduties of the employees. This is so because Article 103 of the Revised Penal Code operates with controlling force to obviate the possibility of theaggrieved party being deprived of indemnity even after the rendition of a final judgment convicting the employee.

Seen in this light, the trial court should not have dismissed the complaint on the ground of prescription, but instead allowed the complaint fordamages ex delicto to be prosecuted on the merits, considering petitioners’ allegations in their complaint, opposition to the motion to dismiss

[17] and

motion for reconsideration[18]

of the order of dismissal, insisting that the action was to recover civil liability arising from crime.



























This does not offend the policy that the reservation or institution of a separate civil action waives the other civil actions. The rationale behind thisrule is the avoidance of multiple suits between the same litigants arising out of the same act or omission of the offender .

[19] However, since the stale

action for damages based onquasi delict should be considered waived, there is no more occasion for petitioners to file multiple suits against privaterespondents as the only recourse available to them is to pursue damages ex delicto. This interpretation is also consistent with the bar against doublerecovery for obvious reasons.

Now the procedural issue. Admittedly, petitioners should have appealed the order of dismissal of the trial court instead of filing a petition forcertiorari with the Court of Appeals. Such procedural misstep, however, should be exempted from the strict application of the rules in order to promotetheir fundamental objective of securing substantial justice.

[20] We are loathe to deprive petitioners of the indemnity to which they are entitled by law and

by a final judgment of conviction based solely on a technicality. It is our duty to prevent such an injustice.[21]

WHEREFORE, judgment is hereby rendered SETTING ASIDE the resolutions of the Court of Appeals dated September 10, 2001 and January 92002, respectively dismissing the present action and denying petitioners’ motion for reconsideration, as well as the orders of the lower court datedFebruary 26, 2001 and July 16, 2001. Let the case be REMANDED to the trial court for further proceedings.

SO ORDERED.

G.R. No. 158995 September 26, 2006

L.G. FOODS CORPORATION and VICTORINO GABOR, Vice-President and General Manager, petitioners,vs.HON. PHILADELFA B. PAGAPONG-AGRAVIADOR, in her capacity as Presiding Judge of Regional Trial Court, Branch 43, Bacolod City, andSPS. FLORENTINO and THERESA VALLEJERA, respondents.

D E C I S I O N

GARCIA, J.:

Assailed and sought to be set aside in this petition for review on certiorari is the Decision1 dated April 25, 2003 of the Court of Appeals (CA), as

reiterated in its Resolution of July 10, 2003,2 in CA-G.R. SP No. 67600, affirming an earlier Order of the Regional Trial Court (RTC) of Bacolod City,

Branch 43, which denied the petitioners' motion to dismiss in Civil Case No. 99-10845, an action for damages arising from a vehicular accident thereatinstituted by the herein private respondents - the spouses Florentino Vallejera and Theresa Vallejera - against the petitioners.

The antecedent facts may be briefly stated as follows:

On February 26, 1996, Charles Vallereja, a 7-year old son of the spouses Florentino Vallejera and Theresa Vallejera, was hit by a Ford Fiera van ownedby the petitioners and driven at the time by their employee, Vincent Norman Yeneza y Ferrer. Charles died as a result of the accident.

In time, an Information for Reckless Imprudence Resulting to Homicide was filed against the driver before the Municipal Trial Court in Cities (MTCC),Bacolod City, docketed as Criminal Case No. 67787, entitled People of the Philippines v. Vincent Norman Yeneza.

Unfortunately, before the trial could be concluded, the accused driver committed suicide, evidently bothered by conscience and remorse. On accountthereof, the MTCC, in its order of September 30, 1998, dismissed the criminal case.

On June 23, 1999, in the RTC of Bacolod City, the spouses Vallejera filed a complaint3 for damages against the petitioners as employers of the

deceased driver, basically alleging that as such employers, they failed to exercise due diligence in the selection and supervision of their employees.Thereat docketed as Civil Case No. 99-10845, the complaint was raffled to Branch 43 of the court.

In their Answer with Compulsory Counterclaim,4 the petitioners as defendants denied liability for the death of the Vallejeras' 7-year old son, claiming that

they had exercised the required due diligence in the selection and supervision of their employees, including the deceased driver. They thus prayed intheir Answer for the dismissal of the complaint for lack of cause of action on the part of the Vallejera couple.

During pre-trial, the defendant petitioners insisted that their dismissal prayer be resolved. Hence, the trial court required them to file within ten days amemorandum of authorities supportive of their position.

Instead, however, of the required memorandum of authorities, the defendant petitioners filed a Motion to Dismiss, principally arguing that the complaint

is basically a "claim for subsidiary liability against an employer" under the provision of Article 1035 of the Revised Penal Code. Prescinding therefrom,they contend that there must first be a judgment of conviction against their driver as a condition sine qua non to hold them liable. Ergo, since the driverdied during the pendency of the criminal action, the sine qua non condition for their subsidiary liability was not fulfilled, hence the of lack of cause ofaction on the part of the plaintiffs. They further argue that since the plaintiffs did not make a reservation to institute a separate action for damages whenthe criminal case was filed, the damage suit in question is thereby deemed instituted with the criminal action. which was already dismissed.

In an Order dated September 4, 2001,6 the trial court denied the motion to dismiss for lack of merit and set the case for pre-trial. With their motion for

reconsideration having been denied by the same court in its subsequent order 7 of September 26, 2001, the petitioners then went on certiorari to the CA

in CA-G.R. SP No. 67600, imputing grave abuse of discretion on the part of the trial judge in refusing to dismiss the basic complaint for damages in CivilCase No. 99-10845.

In the herein assailed decision8 dated April 25, 2003, the CA denied the petition and upheld the trial court. Partly says the CA in its challenged issuance:

xxx xxx xxx










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It is clear that the complaint neither represents nor implies that the responsibility charged was the petitioner's subsidiary liability under Art.103, Revised Penal Code. As pointed out [by the trial court] in the Order of September 4, 2001, the complaint does not even allege the basicelements for such a liability, like the conviction of the accused employee and his insolvency. Truly enough, a civil action to enforce subsidiaryliability separate and distinct from the criminal action is even unnecessary.

xxx xxx xxx

Specifically, Civil Case No. 99-10845 exacts responsibility for fault or negligence under Art. 2176, Civil Code, which isentirely separate and distinct from the civil liability arising from negligence under the Revised Penal Code. Verily, therefore, the liability under

Art. 2180, Civil Code, is direct and immediate, and not conditioned upon prior recourse against the negligent employee or prior showing of thelatter's insolvency. (Underscoring in the original.)

In time, the petitioners moved for a reconsideration but their motion was denied by the CA in its resolution9 of July 10, 2003. Hence, the petitioners'

present recourse on their submission that the appellate court committed reversible error in upholding the trial court's denial of their motion to dismiss.

We DENY.

As the Court sees it, the sole issue for resolution is whether the spouses Vallejeras' cause of action in Civil Case No. 99-10845 is founded on Article 103of the Revised Penal Code, as maintained by the petitioners, or derived from Article 2180

10 of the Civil Code, as ruled by the two courts below.

It thus behooves us to examine the allegations of the complaint for damages in Civil Case No. 99-10845. That complaint alleged, inter alia, as follows:

xxx xxx xxx

3. That defendant [LG Food Corporation] is the registered owner of a Ford Fiera Van with Plate No. NMS 881 and employer sometimeFebruary of 1996 of one Vincent Norman Yeneza y Ferrer, a salesman of said corporation;

4. That sometime February 26, 1996 at around 2:00 P.M. at Rosario St., Bacolod City, the minor son of said plaintiffs [now respondents],Charles Vallejera, 7 years old, was hit and bumped by above-described vehicle then driven by said employee, Vincent Norman Yeneza yFerrer;

5. That the mishap was due to the gross fault and negligence of defendant's employee, who drove said vehicle, recklessly, negligently and ata high speed without regard to traffic condition and safety of other road users and likewise to the fault and negligence of the owner employer,herein defendants LG Food Corporation who failed to exercise due diligence in the selection and supervision of his employee, Vincent NormanYeneza y Ferrer;

6. That as a result of said incident, plaintiffs' son suffered multiple body injuries which led to his untimely demise on that very day;

7. That a criminal case was filed against the defendant's employee, docketed as Criminal Case No. 67787, (earlier filed as Crim. Case No. 96-

17570 before RTC) before MTC-Branch III, entitled "People v. Yeneza" for "Reckless Imprudence resulting to Homicide," but the same wasdismissed because pending litigation, then remorse-stricken [accused] committed suicide;

xxx xxx xxx

8. That the injuries and complications as well as the resultant death suffered by the late minor Charles Vallejera were due to the negligenceand imprudence of defendant's employee;

9. That defendant LG Foods Corporation is civil ly liable for the neglig ence/imprudence of its employee since it failed to exercise thenecessary diligence required of a good father of the family in the selection and supervision of his emplo yee, Vincent NormanYeneza y Ferrer which d iligence if exercised, would have prevented said incident. (Bracketed words and emphasis ours.)

Nothing in the foregoing allegations suggests, even remotely, that the herein petitioners are being made to account for their subsidiary liability under Article 103 of the Revised Penal Code. As correctly pointed out by the trial court in its order of September 4, 2001 denying the petitioners' Motion toDismiss, the complaint did not even aver the basic elements for the subsidiary liability of an employer under Article 103 of the Revised Penal Code, suchas the prior conviction of the driver in the criminal case filed against him nor his insolvency.

Admittedly, the complaint did not explicitly state that plaintiff Vallejeras were suing the defendant petitioners for damages based onquasi-delict. Clear itis, however, from the allegations of the complaint that quasi-delict was their choice of remedy against the petitioners. To stress, the plaintiff spousesalleged in their complaint gross fault and negligence on the part of the driver and the failure of the petitioners, as employers, to exercise due diligence inthe selection and supervision of their employees. The spouses further alleged that the petitioners are civilly liable for the negligence/imprudence of theirdriver since they failed to exercise the necessary diligence required of a good father of the family in the selection and supervision of their employees,which diligence, if exercised, could have prevented the vehicular accident that resulted to the death of their 7-year old son.

Section 2, Rule 2, of the 1997 Rules of Civil Procedure defines cause of action as the "act or omission by which a party violates the right of another."Such act or omission gives rise to an obligation which may come from law, contracts, quasi contracts, delicts or quasi-delicts.

11

Corollarily, an act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender, i.e., 1) civil liability exdelicto;

12 and 2) independent civil liabilities, such as those (a) not arising from an act or omission complained of as felony (e.g., culpa contractual or



















obligations arising from law;13

the intentional torts;14

and culpa aquiliana15

); or (b) where the injured party is granted a right to file an action independentand distinct from the criminal action.

16 Either of these two possible liabilities may be enforced against the offender .

17

Stated otherwise, victims of negligence or their heirs have a choice between an action to enforce the civil liability arising from culpa criminal under Article100 of the Revised Penal Code, and an action for quasi-delict (culpa aquiliana) under Articles 2176 to 2194 of the Civil Code. If, as here, the actionchosen is for quasi-delict, the plaintiff may hold the employer liable for the negligent act of its employee, subject to the employer's defense of exercise ofthe diligence of a good father of the family. On the other hand, if the action chosen is for culpa criminal, the plaintiff can hold the employer subsidiarilyliable only upon proof of prior conviction of its employee.

18

Article 116119

of the Civil Code provides that civil obligation arising from criminal offenses shall be governed by penal laws subject to the provision of Article 2177

20 and of the pertinent provision of Chapter 2, Preliminary Title on Human Relation, and of Title XVIII of this Book, regulating damages.

Plainly, Article 2177 provides for the alternative remedies the plaintiff may choose from in case the obligation has the possibility of arising indirectly fromthe delict/crime or directly from quasi-delict/tort. The choice is with the plaintiff who makes known his cause of action in his initiatory pleading orcomplaint,

21 and not with the defendant who can not ask for the dismissal of the plaintiff's cause of action or lack of it based on the defendant's

perception that the plaintiff should have opted to file a claim under Article 103 of the Revised Penal Code.

Under Article 2180 of the Civil Code, the liability of the employer is direct or immediate. It is not conditioned upon prior recourse against the negligentemployee and a prior showing of insolvency of such employee.

22

Here, the complaint sufficiently alleged that the death of the couple's minor son was caused by the negligent act of the petitioners' driver; and that thepetitioners themselves were civilly liable for the negligence of their driver for failing "to exercise the necessary diligence required of a good father of thefamily in the selection and supervision of [their] employee, the driver, which dil igence, if exercised, would have prevented said accident."

Had the respondent spouses elected to sue the petitioners based on Article 103 of the Revised Penal Code, they would have alleged that the guilt of thedriver had been proven beyond reasonable doubt; that such accused driver is insolvent; that it is the subsidiary liability of the defendant petitioners asemployers to pay for the damage done by their employee (driver) based on the principle that every person criminally liable is also civilly liable.

23 Since

there was no conviction in the criminal case against the driver, precisely because death intervened prior to the termination of the criminal proceedings,the spouses' recourse was, therefore, to sue the petitioners for their direct and primary liability based on quasi-delict.

Besides, it is worthy to note that the petitioners, in their Answer with Compulsory Counter-Claim,24

repeatedly made mention of Article 2180 of the CivilCode and anchored their defense on their allegation that "they had exercised due diligence in the selection and supervision of [their] employees." TheCourt views this defense as an admission that indeed the petitioners acknowledged the private respondents' cause of action as one for quasi-delictunder Article 2180 of the Civil Code.

All told, Civil Case No. 99-10845 is a negligence suit brought under Article 2176 - Civil Code to recover damages primarily from the petitioners asemployers responsible for their negligent driver pursuant to Article 2180 of the Civil Code. The obligation imposed by Article 2176 is demandable notonly for one's own acts or omissions, but also for those of persons for whom one is responsible. Thus, the employer is liable for damages caused by hisemployees and household helpers acting within the scope of their assigned tasks, even though the former is not engaged in any business or industry.

Citing Maniago v. CA,25

petitioner would argue that Civil Case No. 99-10845 should have been dismissed for failure of the respondent spouses to makea reservation to institute a separate civil action for damages when the criminal case against the driver was filed.

The argument is specious.

To start with, the petitioners' reliance on Maniago is obviously misplaced. There, the civil case was filed while the criminal case against the employeewas still pending. Here, the criminal case against the employee driver was prematurely terminated due to his death. Precisely, Civil Case No. 99-10845was filed by the respondent spouses because no remedy can be obtained by them against the petitioners with the dismissal of the criminal case againsttheir driver during the pendency thereof.

The circumstance that no reservation to institute a separate civil action for damages was made when the criminal case was filed is of no moment for thesimple reason that the criminal case was dismissed without any pronouncement having been made therein. In reality, therefor, it is as if there was nocriminal case to speak of in the first place. And for the petitioners to insist for the conviction of their driver as a condition sine qua non to hold them liablefor damages is to ask for the impossible.

IN VIEW WHEREOF, the instant petition is DENIED for lack of merit.

Costs against the petitioners.

SO ORDERED.

G.R. No. 161075 Jul y 15, 2013

RAFAEL JOSE-CONSING, JR., Petitioner,vs.PEOPLE OF THE PHILIPPINES, Respondent.

D E C I S I O N























































BERSAMIN, J.:

An independent civil action based on fraud initiated by the defrauded party does not raise a prejudicial question to stop the proceedings in a pendingcriminal prosecution of the defendant for estafa through falsification. This is because the result of the independent civil action is irrelevant to the issue ofguilt or innocence of the accused.

The Case

On appeal is the amended decision promulgated on August 18, 2003,1 whereby the Court of Appeals (CA) granted the writ of certiorari upon petition by

the State in C.A.-G.R. No. 71252 entitled People v. Han. Winlove M Dumayas, Presiding Judge, Branch 59, Regional Trial Court, Makati City and RafaeConsing, Jr., and set aside the assailed order issued on November 26, 2001 by the Regional Trial Court (RTC), Branch 59, in Makati City deferring thearraignment of petitioner in Criminal Case No. 00-120 entitled People v. Rafael Consing, Jr. upon his motion on the ground of the existence of aprejudicial question in the civil cases pending between him and the complainant in the trial courts in Pasig City and Makati City.

Antecedents

Petitioner negotiated with and obtained for himself and his mother, Cecilia de la Cruz (de la Cruz) various loans totaling P18,000,000.00 from UnicapitalInc. (Unicapital). The loans were secured by a real estate mortgage constituted on a parcel of land (property) covered by Transfer Certificate of Title(TCT) No. T-687599 of the Registry of Deeds for the Province of Cavite registered under the name of de la Cruz.

2 In accordance with its option to

purchase the mortgaged property, Unicapital agreed to purchase one-half of the property for a total consideration ofP21,221,500.00. Payment waseffected by off-setting the amounts due to

Unicapital under the promissory notes of de la Cruz and Consing in the amount of P18,000,000.00 and paying an additional amount of P3,145,946.50.The other half of the property was purchased by Plus Builders, Inc. (Plus Builders), a joint venture partner of Unicapital.

3

Before Unicapital and Plus Builders could develop the property, they learned that the title to the property was really TCT No. 114708 in the names of PoWillie Yu and Juanito Tan Teng, the parties from whom the property had been allegedly acquired by de la Cruz. TCT No. 687599 held by De la Cruzappeared to be spurious.

4

On its part, Unicapital demanded the return of the total amount of P41,377,851.48 as of April 19, 1999 that had been paid to and received by de la Cruzand Consing, but the latter ignored the demands.

5

On July 22, 1999, Consing filed Civil Case No. 1759 in the Pasig City Regional Trial Court (RTC) (Pasig civil case) for injunctive relief, thereby seekingto enjoin Unicapital from proceeding against him for the collection of theP41,377,851.48 on the ground that he had acted as a mere agent of his mother.

On the same date, Unicapital initiated a criminal complaint for estafa through falsification of public document against Consing and de la Cruz in theMakati City Prosecutor’s Office.

6

On August 6, 1999, Unicapital sued Consing in the RTC in Makati City (Civil Case No. 99-1418) for the recovery of a sum of money and damages, withan application for a writ of preliminary attachment (Makati civil case).

7

On January 27, 2000, the Office of the City Prosecutor of Makati City filed against Consing and De la Cruz an information for estafa through falsificationof public document in the RTC in Makati City (Criminal Case No. 00-120), which was assigned to Branch 60 (Makati criminal case).

8

On February 15, 2001, Consing moved to defer his arraignment in the Makati criminal case on the ground of existence of a prejudicial question due tothe pendency of the Pasig and Makati civil cases. On September 25, 2001, Consing reiterated his motion for deferment of his arraignment, citing theadditional ground of pendency of CA-G.R. SP No. 63712 in the CA. On November 19, 2001, the Prosecution opposed the motion.

9

On November 26, 2001, the RTC issued an order suspending the proceedings in the Makati criminal case on the ground of the existence of a prejudicialquestion, and on March 18, 2001, the RTC denied the Prosecution’s motion for reconsideration.

10

The State thus assailed in the CA the last two orders of the RTC in the Makati criminal case via petition for certiorari (C.A.-G.R. SP No. 71252).

On May 20, 2003, the CA promulgated its decision in C.A.-G.R. SP No. 71252,11

dismissing the petition for certiorari and upholding the RTC’squestioned orders, explaining:

Is the resolution of the Pasig civil case prejudicial to the Cavite and Makati criminal cases?

We hold that it is. The resolution of the issue in the Pasig case, i.e. whether or not private respondent may be held liable in the questioned transaction,will determine the guilt or innocence of private respondent Consing in both the Cavite and Makati criminal cases.

The analysis and comparison of the Pasig civil case, Makati criminal case, Makati civil case and Cavite criminal case show that: (1) the parties areidentical; (2) the transactions in controversy are identical; (3) the Transfer Certificate of Titles (TCT) involved are identical; (4) the questioned Deeds ofSale/Mortgage are identical; (5) the dates in question are identical; and (6) the issue of private respondent’s culpability for the questioned transactions isidentical in all the proceedings.















































As discussed earlier, not only was the issue raised in the Pasig civil case identical to or intimately related to the criminal cases in Cavite and Makati. Thesimilarities also extend to the parties in the cases and the TCT and Deed of Sale/ Mortgage involved in the questioned transactions.

The respondent Judge, in ordering the suspension of the arraignment of private respondent in the Makati case, in view of CA-G.R. SP No. 63712, whereUnicapital was not a party thereto, did so pursuant to its mandatory power to take judicial notice of an official act of another judicial authority. It was alsoa better legal tack to prevent multiplicity of action, to which our legal system abhors.

Applying the Tuanda ruling, the pendency of CA-G.R. SP No. 63712 may be validly invoked to suspend private respondent’s arraignment in the MakatiCity criminal case, notwithstanding the fact that CA-G.R. SP No. 63712 was an offshoot, merely, in the Cavite criminal case.

12

In the meanwhile, on October 13, 1999, Plus Builders commenced its own suit for damages against Consing (Civil Case No. 99-95381) in the RTC inManila (Manila civil case).13

On January 21, 2000, an information for estafa through falsification of public document was filed against Consing and De la Cruz in the RTC in Imus,Cavite, docketed as Criminal Case No. 7668-00 and assigned to Branch 21 (Cavite criminal case). Consing filed a motion to defer the arraignment onthe ground of the existence of a prejudicial question, i.e., the pendency of the Pasig and Manila civil cases. On January 27, 2000, however, the RTChandling the Cavite criminal case denied Consing’s motion. Later on, it also denied his motion for reconsideration. Thereafter, Consing commenced inthe CA a special c ivil action for certiorari with prayer for the issuance of a temporary restraining order (TRO) and/or writ of preliminary injunction (C.A.-G.R. SP No. 63712), seeking to enjoin his arraignment and trial in the Cavite criminal case. The CA granted the TRO on March 19, 2001, and laterpromulgated its decision on May 31, 2001, granting Consing’ petition for certiorari and setting aside the January 27, 2000 order of the RTC, andpermanently enjoining the RTC from proceeding with the arraignment and trial until the Pasig and Manila civil cases had been finally decided.

Not satisfied, the State assailed the decision of the CA in this Court (G.R. No. 148193), praying for the reversal of the May 31, 2001 decision of the CA.On January 16, 2003, the Court granted the petition for review in G.R. No. 148193, and reversed and set aside the May 31, 2001 decision of theCA,

14 viz:

In the case at bar, we find no prejudicial question that would justify the suspension of the proceedings in the criminal case (the Cavite criminal case).The issue in Civil Case No. SCA 1759 (the Pasig civil case) for Injunctive Relief is whether or not respondent (Consing) merely acted as an agent of hismother, Cecilia de la Cruz; while in Civil Case No. 99-95381 (the Manila civil case), for Damages and Attachment, the question is whether respondentand his mother are liable to pay damages and to return the amount paid by PBI for the purchase of the disputed lot. Even if respondent is declaredmerely an agent of his mother in the transaction involving the sale of the questioned lot, he cannot be adjudged free from criminal liability. An agent orany person may be held liable for conspiring to falsify public documents. Hence, the determination of the issue involved in Civil Case No. SCA 1759 forInjunctive Relief is irrelevant to the guilt or innocence of the respondent in the criminal case for estafa through falsification of public document.

Likewise, the resolution of PBI’s right to be paid damages and the purchase price of the lot in question will not be determinative of the culpability of therespondent in the criminal case for even if PBI is held entitled to the return of the purchase price plus damages, it does not ipso facto follow thatrespondent should be held guilty of estafa through falsification of public document. Stated differently, a ruling of the court in the civil case that PBI shouldnot be paid the purchase price plus damages will not necessarily absolve respondent of liability in the criminal case where his guilt may still beestablished under penal laws as determined by other evidence.

Moreover, neither is there a prejudicial question if the civil and the criminal action can, according to law, proceed independently of each other. Under

Rule 111, Section 3 of the Revised Rules on Criminal Procedure, in the cases provided in Articles 32, 33, 34 and 2176 of the Civil Code, theindependent civil action may be brought by the offended party. It shall proceed independently of the criminal action and shall require only apreponderance of evidence. In no case, however, may the offended party recover damages twice for the same act or omission charged in the criminalaction.

Thus, in Rojas v. People, the petitioner was accused in a criminal case for violation of Article 319 of the Revised Penal Code, for executing a new chattemortgage on personal property in favor of another party without consent of the previous mortgagee. Thereafter, the offended party filed a civil case fortermination of management contract, one of the causes of action of which consisted of petitioner having executed a chattel mortgage while the previouschattel mortgage was still valid and subsisting. Petitioner moved that the arraignment and trial of the criminal case be held in abeyance on the groundthat the civil case was a prejudicial question, the resolution of which was necessary before the criminal proceedings could proceed. The trial courtdenied the suspension of the criminal case on the ground that no prejudicial question exist. We affirmed the order of the trial court and ruled that:

… the resolution of the liability of the defendant in the civil case on the eleventh cause of action based on the fraudulent misrepresentation that thechattel mortgage the defendant executed in favor of the said CMS Estate, Inc. on February 20, 1957, that his D-6 "Caterpillar" Tractor with Serial No. 9-U-6565 was "free from all liens and encumbrances" will not determine the criminal liability of the accused in the said Criminal Case No. 56042 forviolation of paragraph 2 of Article 319 of the Revised Penal Code. . . . (i) That, even granting for the sake of argument, a prejudicial question is involved

in this case, the fact remains that both the crime charged in the information in the criminal case and the eleventh cause of action in the civil case arebased upon fraud, hence both the civil and criminal cases could proceed independently of the other pursuant to Article 33 of the new Civil Code whichprovides: "In cases of defamation, fraud and physical injuries, a civil action for damages, entirely separate and distinct from the criminal action shallproceed independently of the criminal prosecution, and shall require only a preponderance of evidence." (j) That, therefore, the act of respondent judgein issuing the orders referred to in the instant petition was not made with "grave abuse of discretion."

In the instant case, Civil Case No. 99-95381, for Damages and Attachment on account of the alleged fraud committed by respondent and his mother inselling the disputed lot to PBI is an independent civil action under Article 33 of the Civil Code. As such, it will not operate as a prejudicial question thatwill justify the suspension of the criminal case at bar .

15

Turning back to the Makati criminal case, the State moved for the reconsideration of the adverse decision of the CA, citing the ruling in G.R. No. 148193supra, to the effect that the Pasig and Manila civil cases did not present a prejudicial question that justified the suspension of the proceedings in theCavite criminal case, and claiming that under the ruling in G.R. No. 148193, the Pasig and Makati civil cases did not raise a prejudicial question thatwould cause the suspension of the Makati criminal case.



















In his opposition to the State’s motion for reconsideration, Consing contended that the ruling in G.R. No. 148193 was not binding because G.R. No.148193 involved Plus Builders, which was different from Unicapital, the complainant in the Makati criminal case. He added that the decision in G.R. No.148193 did not yet become final and executory, and could still be reversed at any time, and thus should not control as a precedent to be relied upon; andthat he had acted as an innocent attorney-in-fact for his mother, and should not be held personally liable under a contract that had involved propertybelonging to his mother as his principal.

On August 18, 2003, the CA amended its decision, reversing itself. It relied upon the ruling in G.R. No. 148193, and held thusly:

CA-G.R. SP No. 63712 is similar with the case at bench. The transactions in controversy, the documents involved; the issue of the respondent’sculpability for the questioned transactions are all identical in all the proceedings; and it deals with the same parties with the exception of privatecomplainant Unicapital.

However, the Supreme Court, upon review of CA-G.R. SP No. 63712, People of the Philippines vs. Rafael Jose Consing, Jr. (G.R. No. 148193, January16, 2003) held that "Civil Case No. 99-95381, for Damages and attachment on account of alleged fraud committed by respondent and his mother inselling the disputed lot to Plus Builders, Inc. is an independent civil action under Article 33 of the Civil Code. As such, it will not operate as a prejudicialquestion that will justify the suspension of the criminal case at bar." In view of the aforementioned decision of the Supreme Court, We are thus amendingOur May 20, 2003 decision.

WHEREFORE, the petitioner’s motion for reconsideration is GRANTED. The Orders dated November 26, 2001 and March 18, 2002 issued by therespondent Judge are hereby REVERSED and SET ASIDE. Respondent Judge is hereby ordered to proceed with the hearing of Criminal Case No. 00-120 with dispatch.

SO ORDERED.16

Consing filed a motion for reconsideration,17

but the CA denied the motion through the second assailed resolution of December 11, 2003.18

Hence, this appeal by petition for review on certiorari.

Issue

Petitioner reiterates his contention that the decision in G.R. No. 148193 was not controlling in relation to C.A.-G.R. No. 71252, which involved PlusBuilders, not Unicapital, the complainant in Criminal Case No. 00-120. He posits that in arriving at its amended decision, the CA did not consider thependency of the Makati civil case (Civil Case No. 99-1418), which raised a prejudicial question, considering that the resolution of such civil action wouldinclude the issue of whether he had falsified a certificate of title or had willfully defrauded Unicapital, the resolution of either of which would determine hisguilt or innocence in Criminal Case No. 00-120.

In its comment,19

the Office of the Solicitor General (OSG) counters that Unicapital brought the Makati civil case as an independent civil action intendedto exact civil liability separately from Criminal Case No. 00-120 in a manner fully authorized under Section 1(a) and Section 2, Rule 111 of the Rules ofCourt.

20 It argues that the CA correctly took cognizance of the ruling in G.R. No. 148193, holding in its challenged amended decision that the Makati civil

case, just like the Manila civil case, was an independent civil action instituted by virtue of Article 33 of the Civil Code; that the Makati civil case did not

raise a prejudicial question that justified the suspension of Criminal Case No. 00-120; and that as finally settled in G.R. No. 148193, the Pasig civil casedid not also raise any prejudicial question, because the sole issue thereat was whether Consing, as the mere agent of his mother, had any obligation orliability toward Unicapital.

In his reply,21

Consing submits that the Pasig civil case that he filed and Unicapital’s Makati civil case were not intended to delay the resolution ofCriminal Case No. 00-120, nor to pre-empt such resolution; and that such civil cases could be validly considered determinative of whether a prejudicialquestion existed to warrant the suspension of Criminal Case No. 00-120.

Did the CA err in reversing itself on the issue of the existence of a prejudicial question that warranted the suspension of the proceedings in the Makaticriminal case?

Ruling

The petition for review on certiorari is absolutely meritless.

Consing has hereby deliberately chosen to ignore the firm holding in the ruling in G.R. No. 148193 to the effect that the proceedings in Criminal CaseNo. 00-120 could not be suspended because the Makati civil case was an independent civil action, while the Pasig civil case raised no prejudicialquestion. That was wrong for him to do considering that the ruling fully applied to him due to the similarity between his case with Plus Builders and hiscase with Unicapital.

A perusal of Unicapital’s complaint in the Makati civil case reveals that the action was predicated on fraud. This was apparent from the allegations ofUnicapital in its complaint to the effect that Consing and de la Cruz had acted in a "wanton, fraudulent, oppressive, or malevolent manner in offering assecurity and later object of sale, a property which they do not own, and foisting to the public a spurious title."

22 As such, the action was one that could

proceed independently of Criminal Case No. 00-120 pursuant to Article 33 of the Civil Code, which states as follows:

Article 33. In cases of defamation, fraud, and physical injuries a civil action for damages, entirely separate and distinct from the criminal action, may bebrought by the injured party. Such civil action shall proceed independently of the criminal prosecution, and shall require only a preponderance ofevidence.































It is well settled that a civil action based on defamation, fraud and physical injuries may be independently instituted pursuant to Article 33 of the CivilCode, and does not operate as a prejudicial question that will justify the suspension of a criminal case.

23 This was precisely the Court’s thrust in G.R. No

148193, thus:

Moreover, neither is there a prejudicial question if the civil and the criminal action can, according to law, proceed independently of each other. UnderRule 111, Section 3 of the Revised Rules on Criminal Procedure, in the cases provided in Articles 32, 33, 34 and 2176 of the Civil Code, theindependent civil action may be brought by the offended party. It shall proceed independently of the criminal action and shall require only apreponderance of evidence. In no case, however, may the offended party recover damages twice for the same act or omission charged in the criminalaction.

x x x x

In the instant case, Civil Case No. 99-95381, for Damages and Attachment on account of the alleged fraud committed by respondent and his mother inselling the disputed lot to PBI is an independent civil action under Article 33 of the Civil Code. As such, it will not operate as a prejudicial question thatwill justify the suspension of the criminal case at bar .

24

Contrary to Consing’s stance, it was not improper for the CA to apply the ruling in G.R. No. 148193 to his case with Unicapital, for, although the Manilaand Makati civil cases involved different complainants (i.e., Plus Builders and Unicapital), the civil actions Plus Builders and Unicapital had separatelyinstituted against him were undeniably of similar mold, i.e., they were both based on fraud, and were thus covered by Article 33 of the Civil Code.Clearly, the Makati criminal case could not be suspended pending the resolution of the Makati civil case that Unicapital had filed.

As far as the Pasig civil case is concerned, the issue of Consing’s being a mere agent of his mother who should not be criminally liable for having soacted due to the property involved having belonged to his mother as principal has also been settled in G.R. No. 148193, to wit:

In the case at bar, we find no prejudicial question that would justify the suspension of the proceedings in the criminal case (the Cavite criminal case).The issue in Civil Case No. SCA 1759 (the Pasig civil case) for Injunctive Relief is whether or not respondent (Consing) merely acted as an agent of hismother, Cecilia de la Cruz; while in Civil Case No. 99-95381 (the Manila civil case), for Damages and Attachment, the question is whether respondentand his mother are liable to pay damages and to return the amount paid by PBI for the purchase of the disputed lot. Even if respondent is declaredmerely an agent of his mother in the transaction involving the sale of the questioned lot, he cannot be adjudged free from criminal liability. An agent orany person may be held liable for conspiring to falsify public documents. Hence, the determination of the issue involved in Civil Case No. SCA 1759 forInjunctive Relief is irrelevant to the guilt or innocence of the respondent in the criminal case for estafa through falsification of public document.

25 (Words

in parentheses supplied; bold underscoring supplied for emphasis)

WHEREFORE, the Court AFFIRMS the amended decision promulgated on August 18, 2003; and ORDERS petitioner to pay the costs of suit.

SO ORDERED.

[G.R. No. 122823. November 25, 1999]

SEA COMMERCIAL COMPANY, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, JAMANDRE INDUSTRIES, INC. and TIRSO

JAMANDRE, respondents.

D E C I S I O N

GONZAGA-REYES, J .:

In this petition for review by certiorari, SEA Commercial Company, Inc. (SEACOM) assails the decision of the Court of Appeals in CA-G.R. CV NO. 31263affirming in toto the decision of the Regional Trial Court of Manila, Branch 5, in Civil Case No. 122391, in favor of Jamandre Industries, Inc. (JII) et al., the dispositive

portion of which reads:

“WHEREFORE, judgment is hereby rendered in favor of the defendant and against the plaintiff, ordering the plaintiff:

1) To pay defendant the sum of P66,156.15 (minus 18,843.85) with legal interest thereon, from the date of the filing of the counterclaim until fully paid;

2) To pay defendant P2,000.00 as moral and exemplary damages;

3) To pay attorney’s fees in the sum of P10,000.00; and

4) To pay the costs of this suit.

SO ORDERED.”















SEACOM is a corporation engaged in the business of selling and distributing agricultural machinery, products and equipment. On September 20, 1966,SEACOM and JII entered into a dealership agreement whereby SEACOM appointed JII as its exclusive dealer in the City and Province of Iloil o[1] Tirso Jamandreexecuted a suretyship agreement binding himself jointly and severally with JII to pay for all obligations of JII to SEACOM [2]. The agreement was subsequentlyamended to include Capiz in the territorial coverage and to make the dealership agreement on a non-exclusive basis[3]. In the course of the business relationship arisingfrom the dealership agreement, JII allegedly incurred a balance ofP18,843.85 for unpaid deliveries, and SEACOM brought action to recover said amount plus interestand attorney’s fees.

JII filed an Answer denying the obligation and interposing a counterclaim for damages representing unrealized profits when JII sold to the Farm SystemDevelopment Corporation (FSDC) twenty one (21) units of Mitsubishi power tillers. In the counterclaim, JII alleged that as a dealer in Capiz, JII contracted to sell in1977 twenty-four (24) units of Mitsubishi power tillers to a group of farmers to be financed by said corporation, which fact JII allegedly made known to petitioner, butthe latter taking advantage of said information and in bad faith, went directly to FSDC and dealt with it and sold twenty one (21) units of said tractors, thereby deprivingJII of unrealized profit of eighty-five thousand four hundred fifteen and 61/100 pesos (P85,415.61).

The trial court rendered its decision on January 24, 1990 ordering JII to pay SEACOM the amount of Eighteen Thousand Eight Hundred Forty Three and 85/100(P18,843.85) representing its outstanding obligation. The trial court likewise granted JII’s counterclaim for unrealized profits, and for moral and exemplary damageand attorney’ fees as above quoted.

SEACOM appealed the decision on the counterclaim.

The Court of Appeals held that while there exists no agency relationship between SEACOM and JII, SEACOM is liable for damages and unrealized profits to JII

“This Court, however, is convinced that with or without the existence of an agency relationship between appellant SEACOM and appellee JII and notwithstanding theerror committed by the lower court in finding that an agency relationship existed between appellant and defendant corporation the former is liable for the unrealized

profits which the latter could have gained had not appellant unjustly stepped in and in bad faith unethically intervened.

It should be emphasized that the very purpose of the dealership agreement is for SEACOM to have JII as its dealer to sell its products in the provinces of Capiz andIloilo. In view of this agreement, the second assigned error that the lower court erred in holding that appellant learned of the FSDC transaction from defendant JII isclearly immaterial and devoid of merit. The fact that the dealership is on a non-exclusive basis does not entitle appellant SEACOM to join the fray as against itsdealer. To do so, is to violate the norms of conduct enjoined by Art. 19 of the Civil Code. By virtue of such agreement, the competition in the market as regards thesale of farm equipment shall be between JII, as the dealer of SEACOM and other companies, not as against SEACOM itself. However, SEACOM, not satisfied withthe presence of its dealer JII in the market, joined the competition even as the against the latter and, therefore, changed the scenario of the competition thereby renderinginutile the dealership agreement which they entered into the manifest prejudice of JII. Hence, the trial court was correct when it applied Art. 19 of the Civil Code in thecase at bar in that appellant SEACOM acted in bad faith when it competed with its own dealer as regards the sale of farm machineries, thereby depriving appellee JII ofthe opportunity to gain a clear profit of P85,000.00.”

and affirmed the judgment appealed from in toto.

Hence this petition for review on certiorari, which submits the following reasons for the allowance thereof:

THE RESPONDENT COURT OF APPEALS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW ANDJURISPRUDENCE, CONSIDERING THAT:

A

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY DAMAGES AND UNREALIZEDPROFITS TO THE PRIVATE RESPONDENTS DESPITE THE FACT THAT NO AGENCY RELATIONSHIP EXISTS BETWEEN THEM.

B

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PETITIONER ACTED IN BAD FAITH AGAINST THE PRIVATERESPONDENT CORPORATION DESPITE THE FACT THAT SAID RULING IS CONTRARY TO THE EVIDENCE ON RECORD.

C

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE NON-EXCLUSIVITY CLAUSE IN THE DEALERSHIP AGREEMENTEXECUTED BETWEEN THE PETITIONER AND PRIVATE RESPONDENT CORPORATION PRECLUDES THE PETITIONER FROM COMPETING WITHTHE PRIVATE RESPONDENT CORPORATION.

D

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE RESPONDENT IS ENTITLED TO UNREALIZED PROFITS,MORAL AND EXEMPLARY DAMAGES AND ATTORNEY’S FEES.[4]

Petitioner SEACOM disputes the conclusion of the Court of Appeals that despite the fact that no agency relationship existed between the parties, the SEACOM istill liable in damages and unrealized profits for the reason that it acted in bad faith. Petitioner SEACOM invokes the non-exclusivity clause in the dealershipagreement and claims that the transaction with FSDC was concluded pursuant to a public bidding and not on the basis of alleged information it received from privaterespondent Tirso Jamandre. Moreover, petitioner SEACOM claims that it did not underprice its products during the public bidding wherein both SEACOM and JI

participated. Petitioner also disputes the award of moral damages to JII which is a corporation, in the absence of any evidence that the said corporation had a goodreputation which was debased.

Private respondents in their comment, contends that the four assigned errors raise mixed questions of fact and law and are therefore beyond the jurisdiction of theSupreme Court which may take cognizance of only questions of law. The assigned errors were also refuted to secure affirmance of the appealed decision. JII maintain

http://sc.judiciary.gov.ph/jurisprudence/1999/nov99/122823.htm%23_edn1

















that the bidding set by FSDC on March 24, 1997 was scheduled after the demonstration conducted by JII, and after JII informed SEACOM about the preference of thefarmers to buy Mitsubishi tillers. JII further rebuts the SEACOM’s contention that the transaction with FSDC was pursuant to a public bidding with full disclosure tothe public and private respondent JII considering that JII had nothing to do with the list of 37 bidders and cannot be bound by the listing made by SEACOM’semployee; moreover, JII did not participate in the bidding not having been informed about it. Furthermore, the price at which SEACOM sold to FSDC was lower thanthe price it gave to JII. Also, even if the dealership agreement was not exclusive, it was breached when petitioner in bad faith sold directly to FSDC with whom JII had

previously offered the subject farm equipment. With respect to the awards of moral and exemplary damages, JII seeks an affirmation of the ruling of the Court oAppeals justifying the awards.

SEACOM filed Reply defending the jurisdiction of this Court over the instant petition since the decision of the Court of Appeals was “based on amisapprehension of facts”. SEACOM insists that FSDC’s purchase was made pursuant to a public bidding, and even if SEACOM did not participate thereon, JII wouldnot necessarily have closed the deal since thirty seven (37) bidders participated. SEACOM contends that no evidence was presented to prove that the bidding was afraudulent scheme of SEACOM and FSDC. SEACOM further controverts JII’s contention that JII did not take part in the bidding as Tirso Jamandre was one of th

bidders and that SEACOM underpriced its products to entice FSDC to buy directly from it. In fine, JII is not entitled to the award of unrealized profits and damages.In its Rejoinder, private respondents insist that there is an agency relationship, citing the evidence showing that credit memos and not cash vouchers were issued

to JII by SEACOM for every delivery from November 26, 1976 to December 24, 1978. Private respondents maintain that SEACOM “torpedoed the emerging dea between JII and FSDC after being informed about it by JII by dealing directly with FSDC at a lower price” and after betraying JII, SEACOM would cover up the decei by conniving with FSDC to post up a “sham public bidding.”

SEACOM’s sur-rejoinder contains basically a reiteration of its contention in previous pleadings. Additionally, it is contended that private respondents are barredfrom questioning in their Rejoinder, the finding of the Court of Appeals that there is no agency relationship between the parties since this matter was not raised as erroin their comment.

The core issue is whether SEACOM acted in bad faith when it competed with its own dealer as regards the sale of farm machineries to FSDC.

Both the trial court and the Court of Appeals held affirmatively; the trial court found that JII was an agent of SEACOM and the act of SEACOM in dealingdirectly with FSDC was unfair and unjust to its agent, and that there was fraud in the transaction between FSDC and SEACOM to the prejudice of JII. On the othehand, the Court of Appeals ruled that there was no agency relationship between the parties but SEACOM is nevertheless liable in damages for having acted in bad faithwhen it competed with its own dealer in the sale of the farm machineries to FSDC. Both courts invoke as basis for the award Article 19 of the Civil Code which readas follows:

"Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and goodfaith.”

The principle of abuse of rights stated in the above article, departs from the classical theory that “he who uses a right injures no one”. The modern tendency is todepart from the classical and traditional theory, and to grant indemnity for damages in cases where there is an abuse of rights, even when the act is not illicit .[5]

Article 19 was intended to expand the concept of torts by granting adequate legal remedy for the untold number of moral wrongs which is impossible for humanforesight to provide specifically in statutory law.[6] If mere fault or negligence in one’s acts can make him liable for damages for injury caused thereby, with morereason should abuse or bad faith make him liable. The absence of good faith is essential to abuse of right. Good faith is an honest intention to abstain from taking anunconscientious advantage of another, even through the forms or technicalities of the law, together with an absence of all information or belief of fact which wouldrender the transaction unconscientious. In business relations, it means good faith as understood by men of affairs.[7]

While Article 19 may have been intended as a mere declaration of principle[8], the “cardinal law on human conduct” expressed in said article has given rise tocertain rules, e.g. that where a person exercises his rights but does so arbitrarily or unjustly or performs his duties in a manner that is not in keeping with honesty andgood faith, he opens himself to liability.[9] The elements of an abuse of rights under Article 19 are: (1) there is a legal right or duty; (2) which is exercised in bad faith

(3) for the sole intent of prejudicing or injuring another .[10]

The issue whether JII is “entitled to recovery on its counterclaim for unrealized profit in the twenty one (21) units of Mitsubishi power tillers sold by SEACOMto FSDC” was resolved by the trial court in favor of JII on the basis of documentary evidenc e[11] showing that (1) JII has informed SEACOM as early as February 1977of the promotions undertaken by JII for the sale of 24 contracted units to FSDC and in connection therewith, requested a 50% discount to make the price competitive,and to increase the warranty period for eight months to one year. In said letter Jamandre clarified that they were not amenable to SEACOM’s offering directly toFSDC” and to be only given the usual overriding commission as “we have considerable investments on this transaction”. (2) In response, the general sales manager oSEACOM declined to give the requested 50% discount and offered a “less 30% less 10% up to end March xxx on cash before delivery basis”, granted the requestedextension of the warranty period and stated that “we are glad to note that you have quite a number of units pending with the FSDC.”

The trial court ruled that with said information, SEACOM dealt directly with FSDC and offered its units at a lower price, leaving FSDC “no choice but to acceptthe said offer of (SEACOM)”.

In affirming the judgment of the of the trial court, the Court of Appeals held that by virtue of the dealership agreement the competition in the market as regardthe sale of farm equipment shall be between JII, as the dealer of SEACOM, and other companies, not as against SEACOM itself, the Court stated:

“However, SEACOM not satisfied with the presence of its dealer JII in the market, joined the competition even as against the latter, and thereby changed the scenario ofthe competition thereby rendering inutile the dealership agreement which they entered into to the manifest prejudice of JII. Hence the trial court trial court was correctwhen it applied Art. 19 of the Civil Code in the case at bar in that appellant SEACOM acted in bad faith when it competed with its own dealer as regards the sale offarm machineries, thereby depriving appellee JII of the opportunity to gain a clear profit of P 85,000.00.”

We find no cogent reason to overturn the factual finding of the two courts that SEACOM joined the bidding for the sale of the farm equipment after it wasinformed that JII was already promoting the sales of said equipment to the FSDC. Moreover, the conclusion of the trial court that the SEACOM offered FSDC a lowe

price than the price offered by JII to FSDC is supported by the evidence: the price offered by JII to FSDC is P27,167 per unit[12] but the prices at which SEACOM soldto FSDC were at P22,867.00 for Model CT 83-2, P21,093.50 for model CT 83-E, and P18,979.25 for model CT 534. The fact that SEACOM may have offered to JIIin lieu of a requested 50% discount, a discount effectively translating to 37% of the list price and actually sold to FSDC at 35% less than the list pric e[13] does not detracfrom the fact that by participating in the bidding of FSDC, it actually competed with its own dealer who had earlier conducted demonstrations and promoted its own

products for the sale of the very same equipment, Exh. “N” for the plaintiff confirms that both SEACOM and Jamandre participated in the bidding.[14]However, theSEACOM was awarded the contract directly from Manila.[15] The testimony of Tirso Jamandre that JII was the sole representative of SEACOM in the locademonstrations to convince the farmers and cooperative officers to accept the Mitsubishi brand of equipment in preference to other brands, was unrebutted bySEACOM.














































Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its agricultural equipment, SEACOM recognized the role and undertaking of JIto promote and sell said equipment. Under the dealership agreement, JII was to act as a middleman to sell SEACOM’s products, in its area of operations, i.e. Iloilo andCapiz provinces, to the exclusion of other places,[16] to send its men to Manila for training on repair, servicing and installation of the items to be handled by it, and tocomply with other personnel and vehicle requirements intended for the benefit of the dealership.[17] After being informed of the demonstrations JII had conducted to

promote the sales of SEACOM equipment, including the operations at JII’s expense conducted for five months, and the approval of its facilities (service and parts) byFSDC,[18] SEACOM participated in the bidding for the said equipment at a lower price, placing itself in direct competition with its own dealer. The actuations oSEACOM are tainted by bad faith.

Even if the dealership agreement was amended to make it on a non-exclusive basis,[19]SEACOM may not exercise its right unjustly or in a manner that is not inkeeping with honesty or good faith; otherwise it opens itself to liability under the abuse of right rule embodied in Article 19 of the Civil Code above-quoted. Thi

provision, together with the succeeding article on human relation, was intended to embody certain basic principles “that are to be observed for the rightful relationship between human beings and for the stability of the social order.”[20] What is sought to be written into the law is the pervading principle of equity and justice above stric

legalism.

[21]

We accordingly resolve to affirm the award for unrealized profits. The Court of Appeals noted that the trial court failed to specify to which the two appellees the

award for moral and exemplary damages is granted. However, in view of the fact that moral damages are not as a general rule granted to a corporation, and that TirsoJamandre was the one who testified on his feeling very aggrieved and on his mental anguish and sleepless nights thinking of how SEACOM “dealt with us behind (our)

backs”,[22] the award should go to defendant Jamandre, President of JII.

WHEREFORE, the judgment appealed from is AFFIRMED with the modification that the award of P2,000.00 in moral and exemplary damages shall be paid todefendant Tirso Jamandre.

Costs against appellant.

SO ORDERED.

G.R. No. 81262 August 25, 1989

GLOBE MACKAY CABLE AND RADIO CORP., and HERBERT C. HENDRY, petitioners,

vs.THE HONORABLE COURT OF APPEALS and RESTITUTO M. TOBIAS, respondents.

Atencia & Arias Law Offices for petitioners.

Romulo C. Felizmena for private respondent.

CORTES, J.:

Private respondent Restituto M. Tobias was employed by petitioner Globe Mackay Cable and Radio Corporation (GLOBE MACKAY) in a dual capacityas a purchasing agent and administrative assistant to the engineering operations manager. In 1972, GLOBE MACKAY discovered fictitious purchasesand other fraudulent transactions for which it lost several thousands of pesos.

According to private respondent it was he who actually discovered the anomalies and reported them on November 10, 1972 to his immediate superiorEduardo T. Ferraren and to petitioner Herbert C. Hendry who was then the Executive Vice-President and General Manager of GLOBE MACKAY.

On November 11, 1972, one day after private respondent Tobias made the report, petitioner Hendry confronted him by stating that he was the numberone suspect, and ordered him to take a one week forced leave, not to communicate with the office, to leave his table drawers open, and to leave theoffice keys.

On November 20, 1972, when private respondent Tobias returned to work after the forced leave, petitioner Hendry went up to him and called him a"crook" and a "swindler." Tobias was then ordered to take a lie detector test. He was also instructed to submit specimen of his handwriting, signature,and initials for examination by the police investigators to determine his complicity in the anomalies.

On December 6,1972, the Manila police investigators submitted a laboratory crime report (Exh. "A") clearing private respondent of participation in theanomalies.

Not satisfied with the police report, petitioners hired a private investigator, retired Col. Jose G. Fernandez, who on December 10, 1972, submitted areport (Exh. "2") finding Tobias guilty. This report however expressly stated that further investigation was still to be conducted.

Nevertheless, on December 12, 1972, petitioner Hendry issued a memorandum suspending Tobias from work preparatory to the filing of criminalcharges against him.

On December 19,1972, Lt. Dioscoro V. Tagle, Metro Manila Police Chief Document Examiner, after investigating other documents pertaining to thealleged anomalous transactions, submitted a second laboratory crime report (Exh. "B") reiterating his previous finding that the handwritings, signatures,and initials appearing in the checks and other documents involved in the fraudulent transactions were not those of Tobias. The lie detector testsconducted on Tobias also yielded negative results.

Notwithstanding the two police reports exculpating Tobias from the anomalies and the fact that the report of the private investigator, was, by its ownterms, not yet complete, petitioners filed with the City Fiscal of Manila a complaint for estafa through falsification of commercial documents, later































amended to just estafa. Subsequently five other criminal complaints were filed against Tobias, four of which were for estafa through Falsification ofcommercial document while the fifth was for of Article 290 of' the Revised Penal Code (Discovering Secrets Through Seizure ofCorrespondence).lâwphî1.ñèt Two of these complaints were refiled with the Judge Advocate General's Office, which however, remanded them to thefiscal's office. All of the six criminal complaints were dismissed by the fiscal. Petitioners appealed four of the fiscal's resolutions dismissing the criminalcomplaints with the Secretary of Justice, who, however, affirmed their dismissal.

In the meantime, on January 17, 1973, Tobias received a notice (Exh. "F") from petitioners that his employment has been terminated effective Decembe13, 1972. Whereupon, Tobias filed a complaint for illegal dismissal. The labor arbiter dismissed the complaint. On appeal, the National Labor RelationsCommission (NLRC) reversed the labor arbiter's decision. However, the Secretary of Labor, acting on petitioners' appeal from the NLRC ruling,reinstated the labor arbiter's decision. Tobias appealed the Secretary of Labor's order with the Office of the President. During the pendency of the appeawith said office, petitioners and private respondent Tobias entered into a compromise agreement regarding the latter's complaint for illegal dismissal.

Unemployed, Tobias sought employment with the Republic Telephone Company (RETELCO). However, petitioner Hendry, without being asked byRETELCO, wrote a letter to the latter stating that Tobias was dismissed by GLOBE MACKAY due to dishonesty.

Private respondent Tobias filed a civil case for damages anchored on alleged unlawful, malicious, oppressive, and abusive acts of petitioners. PetitionerHendry, claiming illness, did not testify during the hearings. The Regional Trial Court (RTC) of Manila, Branch IX, through Judge Manuel T. Reyesrendered judgment in favor of private respondent by ordering petitioners to pay him eighty thousand pesos (P80,000.00) as actual damages, twohundred thousand pesos (P200,000.00) as moral damages, twenty thousand pesos (P20,000.00) as exemplary damages, thirty thousand pesos(P30,000.00) as attorney's fees, and costs. Petitioners appealed the RTC decision to the Court of Appeals. On the other hand, Tobias appealed as tothe amount of damages. However, the Court of Appeals, an a decision dated August 31, 1987 affirmed the RTC decision in toto. Petitioners' motion forreconsideration having been denied, the instant petition for review on certiorari was filed.

The main issue in this case is whether or not petitioners are liable for damages to private respondent.

Petitioners contend that they could not be made liable for damages in the lawful exercise of their right to dismiss private respondent.

On the other hand, private respondent contends that because of petitioners' abusive manner in dismissing him as well as for the inhuman treatment hegot from them, the Petitioners must indemnify him for the damage that he had suffered.

One of the more notable innovations of the New Civil Code is the codification of "some basic principles that are to be observed for the rightfulrelationship between human beings and for the stability of the social order." [REPORT ON THE CODE COMMISSION ON THE PROPOSED CIVILCODE OF THE PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect of the old Code which merely stated the effects of the law,but failed to draw out its spirit, incorporated certain fundamental precepts which were "designed to indicate certain norms that spring from the fountain ofgood conscience" and which were also meant to serve as "guides for human conduct [that] should run as golden threads through society, to the end thatlaw may approach its supreme ideal, which is the sway and dominance of justice" (Id.) Foremost among these principles is that pronounced in Article 19which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,and observe honesty and good faith.

This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be observed not only inthe exercise of one's rights but also in the performance of one's duties. These standards are the following: to act with justice; to give everyone his due;and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in their exercise, the norms of humanconduct set forth in Article 19 must be observed. A right, though by itself legal because recognized or granted by law as such, may nevertheless becomethe source of some illegality. When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results indamage to another, a legal wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule ofconduct for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, anaction for damages under either Article 20 or Article 21 would be proper.

Article 20, which pertains to damage arising from a violation of law, provides that:

Art. 20. Every person who contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

However, in the case at bar, petitioners claim that they did not violate any provision of law since they were merely exercising their legal right to dismissprivate respondent. This does not, however, leave private respondent with no relief because Article 21 of the Civil Code provides that:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policyshall compensate the latter for the damage.

This article, adopted to remedy the "countless gaps in the statutes, which leave so many victims of moral wrongs helpless, even though they haveactually suffered material and moral injury" [Id.] should "vouchsafe adequate legal remedy for that untold number of moral wrongs which it is impossiblefor human foresight to provide for specifically in the statutes" [Id. it p. 40; See also PNB v. CA, G.R. No. L-27155, May 18,1978, 83 SCRA 237, 247].

In determining whether or not the principle of abuse of rights may be invoked, there is no rigid test which can be applied. While the Court has nothesitated to apply Article 19 whether the legal and factual circumstances called for its application [See for e.g., Velayo v. Shell Co. of the Phil., Ltd., 100Phil. 186 (1956); PNB v. CA, supra; Grand Union Supermarket, Inc. v. Espino, Jr., G.R. No. L-48250, December 28, 1979, 94 SCRA 953; PAL v. CA,G.R. No. L-46558, July 31,1981,106 SCRA 391; United General Industries, Inc, v. Paler G.R. No. L-30205, March 15,1982,112 SCRA 404; Rubio v. CA,G.R. No. 50911, August 21, 1987, 153 SCRA 183] the question of whether or not the principle of abuse of rights has been violated resulting in damagesunder Article 20 or Article 21 or other applicable provision of law, depends on the circumstances of each case. And in the instant case, the Court, after



examining the record and considering certain significant circumstances, finds that all petitioners have indeed abused the right that they invoke, causingdamage to private respondent and for which the latter must now be indemnified.

The trial court made a finding that notwithstanding the fact that it was private respondent Tobias who reported the possible existence of anomaloustransactions, petitioner Hendry "showed belligerence and told plaintiff (private respondent herein) that he was the number one suspect and to take a oneweek vacation leave, not to communicate with the office, to leave his table drawers open, and to leave his keys to said defendant (petitioner Hendry)"[RTC Decision, p. 2; Rollo, p. 232]. This, petitioners do not dispute. But regardless of whether or not it was private respondent Tobias who reported theanomalies to petitioners, the latter's reaction towards the former upon uncovering the anomalies was less than civil. An employer who harborssuspicions that an employee has committed dishonesty might be justified in taking the appropriate action such as ordering an investigation and directingthe employee to go on a leave. Firmness and the resolve to uncover the truth would also be expected from such employer. But the high-handedtreatment accorded Tobias by petitioners was certainly uncalled for. And this reprehensible attitude of petitioners was to continue when privaterespondent returned to work on November 20, 1972 after his one week forced leave. Upon reporting for work, Tobias was confronted by Hendry who

said. "Tobby, you are the crook and swindler in this company." Considering that the first report made by the police investigators was submitted only onDecember 10, 1972 [See Exh. A] the statement made by petitioner Hendry was baseless. The imputation of guilt without basis and the pattern ofharassment during the investigations of Tobias transgress the standards of human conduct set forth in Article 19 of the Civil Code. The Court hasalready ruled that the right of the employer to dismiss an employee should not be confused with the manner in which the right is exercised and theeffects flowing therefrom. If the dismissal is done abusively, then the employer is liable for damages to the employee [Quisaba v. Sta. Ines-MelaleVeneer and Plywood Inc., G.R. No. L-38088, August 30, 1974, 58 SCRA 771; See also Philippine Refining Co., Inc. v. Garcia, G.R. No. L-21871,September 27,1966, 18 SCRA 107] Under the circumstances of the instant case, the petitioners clearly failed to exercise in a legitimate manner theirright to dismiss Tobias, giving the latter the right to recover damages under Article 19 in relation to Article 21 of the Civil Code.

But petitioners were not content with just dismissing Tobias. Several other tortious acts were committed by petitioners against Tobias after the latter'stermination from work. Towards the latter part of January, 1973, after the filing of the first of six criminal complaints against Tobias, the latter talked toHendry to protest the actions taken against him. In response, Hendry cut short Tobias' protestations by telling him to just confess or else the companywould file a hundred more cases against him until he landed in jail. Hendry added that, "You Filipinos cannot be trusted." The threat unmaskedpetitioner's bad faith in the various actions taken against Tobias. On the other hand, the scornful remark about Filipinos as well as Hendry's earlierstatements about Tobias being a "crook" and "swindler" are clear violations of 'Tobias' personal dignity [See Article 26, Civil Code].

The next tortious act committed by petitioners was the writing of a letter to RETELCO sometime in October 1974, stating that Tobias had beendismissed by GLOBE MACKAY due to dishonesty. Because of the letter, Tobias failed to gain employment with RETELCO and as a result of which,Tobias remained unemployed for a longer period of time. For this further damage suffered by Tobias, petitioners must likewise be held liable fordamages consistent with Article 2176 of the Civil Code. Petitioners, however, contend that they have a "moral, if not legal, duty to forewarn otheremployers of the kind of employee the plaintiff (private respondent herein) was." [Petition, p. 14; Rollo, p. 15]. Petitioners further claim that "it is theaccepted moral and societal obligation of every man to advise or warn his fellowmen of any threat or danger to the latter's life, honor or property. Andthis includes warning one's brethren of the possible dangers involved in dealing with, or accepting into confidence, a man whose honesty and integrity issuspect" [Id.]. These arguments, rather than justify petitioners' act, reveal a seeming obsession to prevent Tobias from getting a job, even after almosttwo years from the time Tobias was dismissed.

Finally, there is the matter of the filing by petitioners of six criminal complaints against Tobias. Petitioners contend that there is no case against them formalicious prosecution and that they cannot be "penalized for exercising their right and prerogative of seeking justice by filing criminal complaints againstan employee who was their principal suspect in the commission of forgeries and in the perpetration of anomalous transactions which defrauded them ofsubstantial sums of money" [Petition, p. 10, Rollo, p. 11].

While sound principles of justice and public policy dictate that persons shall have free resort to the courts for redress of wrongs and vindication of theirrights [Buenaventura v. Sto. Domingo, 103 Phil. 239 (1958)], the right to institute criminal prosecutions can not be exercised maliciously and in bad faith[Ventura v. Bernabe, G.R. No. L-26760, April 30, 1971, 38 SCRA 5871.] Hence, in Yutuk V. Manila Electric Co., G.R. No. L-13016, May 31, 1961, 2SCRA 337, the Court held that the right to file criminal complaints should not be used as a weapon to force an alleged debtor to pay an indebtedness. Todo so would be a clear perversion of the function of the criminal processes and of the courts of justice. And in Hawpia CA, G.R. No. L-20047, June 30,1967. 20 SCRA 536 the Court upheld the judgment against the petitioner for actual and moral damages and attorney's fees after making a finding thatpetitioner, with persistence, filed at least six criminal complaints against respondent, all of which were dismissed.

To constitute malicious prosecution, there must be proof that the prosecution was prompted by a design to vex and humiliate a person and that it wasinitiated deliberately by the defendant knowing that the charges were false and groundless [Manila Gas Corporation v. CA, G.R. No. L-44190, October30,1980, 100 SCRA 602]. Concededly, the filing of a suit by itself, does not render a person liable for malicious prosecution [Inhelder Corporation v. CA,G.R. No. 52358, May 301983122 SCRA 576]. The mere dismissal by the fiscal of the criminal complaint is not a ground for an award of damages formalicious prosecution if there is no competent evidence to show that the complainant had acted in bad faith [Sison v. David, G.R. No. L-11268, January28,1961, 1 SCRA 60].

In the instant case, however, the trial court made a finding that petitioners acted in bad faith in filing the criminal complaints against Tobias, observingthat:

x x x

Defendants (petitioners herein) filed with the Fiscal's Office of Manila a total of six (6) criminal cases, five (5) of which were forestafa thru falsification of commercial document and one for violation of Art. 290 of the Revised Penal Code "discovering secretsthru seizure of correspondence," and all were dismissed for insufficiency or lack of evidence." The dismissal of four (4) of the caseswas appealed to the Ministry of Justice, but said Ministry invariably sustained the dismissal of the cases. As above adverted to, twoof these cases were refiled with the Judge Advocate General's Office of the Armed Forces of the Philippines to railroad plaintiffsarrest and detention in the military stockade, but this was frustrated by a presidential decree transferring criminal cases involvingcivilians to the civil courts.

x x x



To be sure, when despite the two (2) police reports embodying the findings of Lt. Dioscoro Tagle, Chief Document Examiner of theManila Police Department, clearing plaintiff of participation or involvement in the fraudulent transactions complained of, despite thenegative results of the lie detector tests which defendants compelled plaintiff to undergo, and although the police investigation was"still under follow-up and a supplementary report will be submitted after all the evidence has been gathered," defendants hastily filedsix (6) criminal cases with the city Fiscal's Office of Manila, five (5) for estafa thru falsification of commercial document and one (1)for violation of Art. 290 of the Revised Penal Code, so much so that as was to be expected, all six (6) cases were dismissed, withone of the investigating fiscals, Asst. Fiscal de Guia, commenting in one case that, "Indeed, the haphazard way this case wasinvestigated is evident. Evident likewise is the flurry and haste in the filing of this case against respondent Tobias," there can be nomistaking that defendants would not but be motivated by malicious and unlawful intent to harass, oppress, and cause damage toplaintiff.

x x x

[RTC Decision, pp. 5-6; Rollo, pp. 235-236].

In addition to the observations made by the trial court, the Court finds it significant that the criminal complaints were filed during the pendency of theillegal dismissal case filed by Tobias against petitioners. This explains the haste in which the complaints were filed, which the trial court earlier noted. Bupetitioners, to prove their good faith, point to the fact that only six complaints were filed against Tobias when they could have allegedly filed one hundredcases, considering the number of anomalous transactions committed against GLOBE MACKAY. However, petitioners' good faith is belied by the threatmade by Hendry after the filing of the first complaint that one hundred more cases would be filed against Tobias. In effect, the possible filing of onehundred more cases was made to hang like the sword of Damocles over the head of Tobias. In fine, considering the haste in which the criminalcomplaints were filed, the fact that they were filed during the pendency of the illegal dismissal case against petitioners, the threat made by Hendry, thefact that the cases were filed notwithstanding the two police reports exculpating Tobias from involvement in the anomalies committed against GLOBEMACKAY, coupled by the eventual dismissal of all the cases, the Court is led into no other conclusion than that petitioners were motivated by maliciousintent in filing the six criminal complaints against Tobias.

Petitioners next contend that the award of damages was excessive. In the complaint filed against petitioners, Tobias prayed for the following: one

hundred thousand pesos (P100,000.00) as actual damages; fifty thousand pesos (P50,000.00) as exemplary damages; eight hundred thousand pesos(P800,000.00) as moral damages; fifty thousand pesos (P50,000.00) as attorney's fees; and costs. The trial court, after making a computation of thedamages incurred by Tobias [See RTC Decision, pp. 7-8; Rollo, pp. 154-1551, awarded him the following: eighty thousand pesos (P80,000.00) as actuadamages; two hundred thousand pesos (P200,000.00) as moral damages; twenty thousand pesos (P20,000.00) as exemplary damages; thirty thousandpesos (P30,000.00) as attorney's fees; and, costs. It must be underscored that petitioners have been guilty of committing several actionable tortiousacts, i.e., the abusive manner in which they dismissed Tobias from work including the baseless imputation of guilt and the harassment during theinvestigations; the defamatory language heaped on Tobias as well as the scornful remark on Filipinos; the poison letter sent to RETELCO which resultedin Tobias' loss of possible employment; and, the malicious filing of the criminal complaints. Considering the extent of the damage wrought on Tobias, theCourt finds that, contrary to petitioners' contention, the amount of damages awarded to Tobias was reasonable under the circumstances.

Yet, petitioners still insist that the award of damages was improper, invoking the principle of damnum absque injuria. It is argued that "[t]he only probableactual damage that plaintiff (private respondent herein) could have suffered was a direct result of his having been dismissed from his employment, whichwas a valid and legal act of the defendants-appellants (petitioners herein).lâwphî1.ñèt " [Petition, p. 17; Rollo, p. 18].

According to the principle of damnum absque injuria, damage or loss which does not constitute a violation of a legal right or amount to a legal wrong is

not actionable [Escano v. CA, G.R. No. L-47207, September 25, 1980, 100 SCRA 197; See also Gilchrist v. Cuddy 29 Phil, 542 (1915); The Board ofLiquidators v. Kalaw, G.R. No. L-18805, August 14, 1967, 20 SCRA 987]. This principle finds no application in this case. It bears repeating that evengranting that petitioners might have had the right to dismiss Tobias from work, the abusive manner in which that right was exercised amounted to a legawrong for which petitioners must now be held liable. Moreover, the damage incurred by Tobias was not only in connection with the abusive manner inwhich he was dismissed but was also the result of several other quasi-delictual acts committed by petitioners.

Petitioners next question the award of moral damages. However, the Court has already ruled in Wassmer v. Velez, G.R. No. L-20089, December 26,1964, 12 SCRA 648, 653, that [p]er express provision of Article 2219 (10) of the New Civil Code, moral damages are recoverable in the casesmentioned in Article 21 of said Code." Hence, the Court of Appeals committed no error in awarding moral damages to Tobias.

Lastly, the award of exemplary damages is impugned by petitioners. Although Article 2231 of the Civil Code provides that "[i]n quasi-delicts, exemplarydamages may be granted if the defendant acted with gross negligence," the Court, in Zulueta v. Pan American World Airways, Inc., G.R. No. L- 28589,January 8, 1973, 49 SCRA 1, ruled that if gross negligence warrants the award of exemplary damages, with more reason is its imposition justified whenthe act performed is deliberate, malicious and tainted with bad faith. As in the Zulueta case, the nature of the wrongful acts shown to have beencommitted by petitioners against Tobias is sufficient basis for the award of exemplary damages to the latter.

WHEREFORE, the petition is hereby DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 09055 is AFFIRMED.

SO ORDERED.

G.R. No. 161188 June 13, 2008

Heirs o f PURISIMA NALA, represented by their attorney-in-fac t EFEGENIA DIGNA DUYAN, petitioners,vs.

ARTEMIO CABANSAG, respondent.

D E C I S I O N



AUSTRIA-MARTINEZ, J.:

This is a petition for review under Rule 45 of the Rules of Court assailing the Court of Appeals (CA) Decision1 dated December 19, 2002 and

Resolution2 dated October 28, 2003, dismissing petitioners' appeal and affirming with modification the Regional Trial Court (RTC) Decision dated August

10, 1994 rendered in Civil Case No. Q-91-10541.

The facts of the case are as follows:

Artemio Cabansag (respondent) filed Civil Case No. Q-91-10541 for damages in October 1991. According to respondent, he bought a 50-square meterproperty from spouses Eugenio Gomez, Jr. and Felisa Duyan Gomez on July 23, 1990. Said property is part of a 400-square meter lot registered in thename of the Gomez spouses. In October 1991, he received a demand letter from Atty. Alexander del Prado (Atty. Del Prado), in behalf of Purisima Nala(Nala), asking for the payment of rentals from 1987 to 1991 until he leaves the premises, as said property is owned by Nala, failing which criminal andcivil actions will be filed against him. Another demand letter was sent on May 14, 1991. Because of such demands, respondent suffered damages andwas constrained to file the case against Nala and Atty. Del Prado.

3

Atty. Del Prado claimed that he sent the demand letters in good faith and that he was merely acting in behalf of his client, Nala, who disputedrespondent's claim of ownership. Nala alleged that said property is part of an 800-square meter property owned by her late husband, Eulogio Duyan,which was subsequently divided into two parts. The 400-square meter property was conveyed to spouses Gomez in a fictitious deed of sale, with theagreement that it will be merely held by them in trust for the Duyan's children. Said property is covered by Transfer Certificate of Title (TCT) No. 281115in the name of spouses Gomez. Nala also claimed that respondent is only renting the property which he occupies.

4

After trial, the RTC of Quezon City, Branch 93, rendered its Decision on August 10, 1994, in favor of respondent. The dispositive portion of the Decisionprovides:

WHEREFORE, premises considered, by preponderance of evidence, the Court finds in favor of the plaintiff and hereby orders the defendants, jointly and severally, to pay plaintiff the following:

1. P150,000.00 by way of moral damages;

2. P30,000.00 by way of exemplary damages;

3. P20,000.00 as and for reasonable attorney's fees and other litigation expenses; and

4. to pay the costs.

SO ORDERED.5

Nala and Atty. Del Prado appealed to the CA. The herein assailed CA Decision dated December 19, 2002 affirmed the RTC Decision with modification,thus:

WHEREFORE, premises considered, the instant appeal is hereby DISMISSED. The assailed decision of the Regional Trial Court, Branch 93,Quezon City, in Civil Case No. Q-91-10541 is heretofore AFFIRMED with MODIFICATION. Defendants-appellants are ordered to pay, jointlyand severally, plaintiff-appellee the amount of P30,000.00 by way of moral damages. It is further ordered to pay him exemplary damages inthe amount of P10,000.00 and P10,000.00, attorney's fees.

SO ORDERED.6

In affirming the RTC Decision, the CA took note of the Decision dated September 5, 1994 rendered by the RTC of Quezon City, Branch 80, dismissingCivil Case No. 91-8821, an action for reconveyance of real property and cancellation of TCT No. 281115 with damages, filed by Nala against spousesGomez.

7

Hence, herein petition by the heirs of Nala (petitioners)8 with the following assignment of errors:

a) Respondent Court of Appeals erred in not considering the right of Purisima Nala to assert her rights and interest over the property.

b) Respondent Court of Appeals erred in not considering the Decision rendered by the Court of Appeals in the case for reconveyance whichupheld the rights and interest of Purisima Nala and her children over a certain parcel of land, a portion of which is subject of the present case.

c) Respondent Court of Appeals erred in awarding damages and attorney's fees without any basis.9

Atty. Del Prado filed a motion for extension of time to file his separate petition but it was denied by the Court per its Resolution dated January 19, 2004issued in G.R. No. 160829.

Petitioners argue that their predecessor-in-interest had every right to protect and assert her interests over the property. Nala had no knowledge that theproperty was sold by spouses Gomez to respondent when the demand letters were sent. What she was aware of was the fact that spouses Gomez weremanaging the rentals on the property by virtue of the implied trust created between them and Eulogio Duyan. When spouses Gomez failed to remit the

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rentals and claimed ownership of the property, it was then that Nala decided to procure the services of legal counsel to protect their rights over theproperty.

Petitioners also contend that it was error for the CA to take note of the RTC Decision in Civil Case No. 91-8821 without further noting that the CA hadalready reversed and set aside said RTC Decision and ordered reconveyance of the property to Nala and her children in a Decision dated March 8, 2000rendered in CA-G.R. CV No. 49163. Petitioners also argue that respondent did not substantiate his claim for damages.

Preliminarily, the Court notes that both the RTC and the CA failed to indicate the particular provision of law under which it held petitioners liable fordamages. Nevertheless, based on the allegations in respondent's complaint, it may be gathered that the basis for his claim for damages is Article 19 ofthe Civil Code, which provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, andobserve honesty and good faith.

The foregoing provision sets the standards which may be observed not only in the exercise of one's rights but also in the performance of one's duties.When a right is exercised in a manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong isthereby committed for which the wrongdoer must be held responsible. But a right, though by itself legal because recognized or granted by law as such,may nevertheless become the source of some illegality. A person should be protected only when he acts in the legitimate exercise of his right; that is,when he acts with prudence and in good faith, but not when he acts with negligence or abuse. There is an abuse of right when it is exercised only for thepurpose of prejudicing or injuring another. The exercise of a right must be in accordance with the purpose for which it was established, and must not beexcessive or unduly harsh; there must be no intention to injure another .

[10]

In order to be liable for damages under the abuse of rights principle, the following requisites must concur: (a) the existence of a legal right or duty; (b)which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another .

11

It should be stressed that malice or bad faith is at the core of Article 19 of the Civil Code. Good faith is presumed, and he who alleges bad faith has theduty to prove the same.12 Bad faith, on the other hand, does not simply connote bad judgment to simple negligence, dishonest purpose or some moralobloquy and conscious doing of a wrong, or a breach of known duty due to some motives or interest or ill will that partakes of the nature of fraud. Maliceconnotes ill will or spite and speaks not in response to duty. It implies an intention to do ulterior and unjustifiable harm.

13

In the present case, there is nothing on record which will prove that Nala and her counsel, Atty. Del Prado, acted in bad faith or malice in sending thedemand letters to respondent. In the first place, there was ground for Nala's actions since she believed that the property was owned by her husbandEulogio Duyan and that respondent was illegally occupying the same. She had no knowledge that spouses Gomez violated the trust imposed on themby Eulogio and surreptitiously sold a portion of the property to respondent. It was only after respondent fi led the case for damages against Nala thashe learned of such sale. The bare fact that respondent claims ownership over the property does not give rise to the conclusion that the sending of thedemand letters by Nala was done in bad faith. Absent any evidence presented by respondent, bad faith or malice could not be attributed to petitionersince Nala was only trying to protect their interests over the property.

Moreover, respondent failed to show that Nala and Atty. Del Prado's acts were done with the sole intention of prejudicing and injuring him. It may be truethat respondent suffered mental anguish, serious anxiety and sleepless nights when he received the demand letters; however, there is a materialdistinction between damages and injury. Injury is the legal invasion of a legal right while damage is the hurt, loss or harm which results from the

injury.14

Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. In suchcases, the consequences must be borne by the injured person alone; the law affords no remedy for damages resulting from an act which does notamount to a legal injury or wrong. These situations are often called damnum absque injuria.

15

Nala was acting well within her rights when she instructed Atty. Del Prado to send the demand letters. She had to take all the necessary legal steps toenforce her legal/equitable rights over the property occupied by respondent. One who makes use of his own legal right does no injury.

16 Thus, whatever

damages are suffered by respondent should be borne solely by him.

Nala's acts in protecting her rights over the property find further solid ground in the fact that the property has already been ordered reconveyed to herand her heirs. In its Decision dated March 8, 2000 in CA-G.R. CV No. 49163, the CA reversed and set aside the RTC's Decision and ordered thereconveyance of the property to petitioners, and TCT No. 281115 was declared canceled. Said CA Decision was affirmed by this Court in its Decisiondated March 18, 2005 in G.R. No. 144148, which became final and executory on July 27, 2005.

WHEREFORE, the petition is GRANTED. The Decision dated December 19, 2002 and Resolution dated October 28, 2003 rendered by the Court of Appeals in CA-G.R. CV No. 48580 are NULLIFIED. Civil Case No. Q-91-10541 is DISMISSED for lack of merit.

Costs against respondent.

SO ORDERED.

G.R. No. L-50911 August 21, 1987

MIGUEL PEREZ RUBIO, petitioner,vs.COURT OF APPEALS, ROBERTO O. PHILLIPS & SONS, INC., MAGDALENA YSMAEL PHILLIPS, MANUFACTURERS BANK & TRUST CO., INC.,HACIENDA BENITO, INC., ET AL., respondents.

Daniel M. Malabonga for petitioner.































Argel-Guevarra & Associates for respondent Hacienda Benito, Inc.

Meer, Meer & Meer Law Office for respondent Victoria Valley.

Magtanggol C. Gunigundo for respondents Robert O. Phillips & Sons, Inc., Magdalena Ysmael Phillips and Heirs of Robert Phillips.

Ambrosia Padilla, Mempin & Reyes Law Office for respondent Manufacturers Bank & Trust Co Inc.

GUTIERREZ, JR., J.:

Before us for reconsideration are the various motions for reconsideration of the March 12, 1986 decision, the dispositive portion of which reads:

WHEREFORE, the petition is GRANTED. The decision of the former Court of Appeals is hereby REVERSED and SET ASIDE. Therespondents Phillips and Sons and the Phillips spouses are declared to be jointly and severally liable to the petitioner for theoutstanding debt of Phillips and Sons in the amount of FOUR MILLION TWO HUNDRED FIFTY THOUSAND PESOS(P4,250,000.00) with interest at the rate of eight (8%) percent per annum from April 30, 1964 until fully paid as provided for in theparties' agreement dated August 13, 1963. Costs against the respondents. (p. 869, rollo)

The petitioner asks that the decision be reconsidered insofar as it makes no finding against respondent Phillips for moral and exemplary damages aswell as attorney's fees and to the extent that the same decision absolves from joint and solidary liability respondents Manufacturers Bank and TrustCompany (hereinafter called MBTC), Hacienda Benito (hereinafter called HB, and Victoria Valley Development Corporation (hereinafter called VVDC).

The petitioner restates his position that the respondents conspired amongst themselves to put the properties of Hacienda Benito beyond his reach andthus make it impossible for him to collect the sum of P4,250,000.00 still unpaid on the purchase price of his shares of stock in Hacienda Benito.

It may be recalled that on June 5, 1965, respondent Hacienda Benito, Inc., represented by Robert O. Phillips, president and Victoria Valley DevelopmentCorporation which was in the process of incorporation and represented by Alfonso Yuchengco with the conformity of Manufacturers Bank and TrustCompany represented by Galicano Calapatia executed a "MEMORANDUM AGREEMENT. (Exhibit "31" — Miguel Perez Rubio).

The thrust of the agreement is that respondent VVDC will acquire under conditions stated therein 134.1668 hectares of land including accountreceivables belonging to respondent HBI Moreover, it was specifically provided in the agreement that " ... HB warrants that the properties to be acquiredby VVDC are not subject to any other obligations, liens, encumbrances, charges or claims of whatever nature than those mentioned herein, includingreal estate taxes up to the first semester of 1965." (Memorandum Agreement, supra, pp. 3-4).

Included in this 134.1668 hectares are the 78 hectares mortgaged to MBTC. These parcels of land were mortgaged to MBTC to secure obligation andliabilities incurred by HBI and other affiliate companies owned by the Phillips. Of the P7,419,130.19 amount due from these companies, onlyP1,456,276.48 was the liability of HBI.

Under this agreement, MBTC will institute judicial foreclosure of mortgage after which all the companies would confess judgment and enter into acompromise agreement in full satisfaction of the claim of MBTC under the several deeds of mortgage. It was further provided that HBI will convey all the78 hectares in favor of MBTC after which VVDC will purchase from MBTC the same parcels of land together with the receivables. A final proviso was tothe effect that VVDC and HBI will enter into a separate agreement whereby HBI will expressly assign in favor of VVDC its right to redeem the propertiesforeclosed by MBTC.

The consideration of the agreement amounted to Pl1,621,889.11 which VVDC agreed to assume in order to settle the obligations of HBI and the otherPhillips companies.

The Memorandum Agreement was executed under the following factual background: (1) Respondent ROPSI had still to pay its outstandingP4,250.000.00 debt to the petitioner as the result of the latter's sale of his shares of stock of HBI; (2) Negotiations had broken down between the Phillipsspouses, ROPSI and Alfonso Yuchengco as regards the sale of the shares of stock of Hacienda Benito, Inc.; and (3) Petitioner had threatened torescind the contract of sale of his shares of stock of Hacienda Benito.

Obviously, Hacienda Benito through Robert O. Phillips, and VVDC through Alfonso Yuchengco were fully aware of the petitioner's still being unpaid theP4,250,000.00 balance on his shares of stocks of Hacienda Benito sold to ROPSI. MBTC, too, because of the unrebutted evidence that its top officersare also the top officers of VVDC is conclusively presumed to know the petitioner's predicament. These same personalities figures prominently in thenegotiations involving the shares of stock of Hacienda Benito including the unpaid P4,250,000.00 collectibles of the petitioner from the ROPSI as fullpayment for the sale of his shares of stock in Hacienda Benito.

Hence, the scheme provided for in the Memorandum Agreement wherein all the properties of Hacienda Benito will be ultimately transferred to VVDCwithout any mention at all and completely ignoring the petitioner's interest in said Hacienda placed the petitioner's rightful claim to the payment of hisshares of stock in clear jeopardy.

The fact that the Memorandum Agreement was not fully implemented is immaterial. The intent to defraud the petitioner and the damage which led to thefiling of this case was present in the execution of the Memorandum Agreement.

Therefore, an award for damages in favor of the petitioner is in order against respondents Hacienda Benito, VVDC and MBTC.



Article 19 of the New Civil Code provides that:

Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, andobserve honesty and good faith.

while Article 20 thereof provides that:

Every person who, contrary to law, wilfully or negligently causes damage to another shall indemnify the latter for the same.

Parenthetically, these respondents did not observe honesty and good faith in dealing with the rightful claim of the petitioner to the still unpaid

P4,250,000.00 collectibles from ROPSI. The respondents' acts are tortious pursuant to Articles 19 and 20 of the New Civil Code. Hence, theserespondents are obliged to pay for the damage done to the petitioner. (See Article 2176, New Civil Code).

In the case at bar, the tortious and fraudulent scheme of the private respondents made it impossible for the petitioner to collect the P4,250,000.00 stillunpaid purchase price of his shares of stock in Hacienda Benito. All the respondents are, therefore, solidarity liable for these actual damages suffered bythe petitioner. (See Article 2194 of the New Civil Code).

Consequently, we rule that Hacienda Benito, VVDC and MBTC together with ROPSI and the Phillips spouses are solidarity liable to the petitioner for theoutstanding debt of ROPSI in the amount of P14,250,000.00 with interest at the rate of eight (8 % per cent per annum from April 30, 1964 until fully paidas provided for in the parties' agreement dated August 13,1963.

Also, an award for moral damages in favor of the petitioner is in order against respondents Hacienda Benito, VVDC and MBTC. The planned transfer ofall the assets of Hacienda Benito to VVDC which the respondents sought to accomplish through the Memorandum Agreement created further anguishand anxiety on the part of the petitioner who at that time was still trying to collect the P4,250,000.00 full payment of his shares of stock in HaciendaBenito.

Considering the circumstances under which the respondents executed the Memorandum Agreement and the social status of the parties herein, theamount of P100,000.00 as moral damages in favor of the petitioner is awarded.

However, we find no reasonable ground to set aside our findings in the March 12, 1986 decision that respondents Phillips spouses are not liable formoral and exemplary damages and attorney's fees.

Juan Miguel Phillips also filed a motion to intervene in the instant case stating therein that Robert O. Phillips had died leaving as heirs respondentMagdalena Ysmael Phillips and four legitimate children; that he is one of the four (4) children; that as such legal heir, he has a legal interest in thesubject matter of the instant case and will be favored or prejudiced in his interest depending on the final outcome of the instant case. He cites Rule 12,Section 2, Rules of Court.

The right of the movant-intervenor proceeds only from the fact of heirship. Hence his interest to specific portions of the property of the deceased is, if notconjectural, stin contingent and expectant. At this point, he cannot specify any property nor segregate any as his own before the liquidation of the estateis completed. This is in accordance with Article 657 of the Civil Code (Article 777, Civil Code) which provides that the rights to succession of a personare transmitted from the moment of death.

Thus, the heir has the right to impugn the validity of the decedent's transaction only when he is made answerable or when his specific right or propertywould be affected thereby. The instant case is a personal action against Robert O. Phillips, filed while he was still alive. It is Robert O. Phillips and hisestate which are sought to be made liable, not the movant-intervenor or any of his legal heirs.

WHEREFORE, the petitioners motion for reconsideration is GRANTED in that respondent's Hacienda Benito, Victoria Valley Development Corporationand Manufacturers Bank and Trust Company (now Fil ipinas Bank) together with respondents Robert 0. Phillips & Sons and the Phillips spouses aredeclared to be jointly and severally liable to the petitioner for the outstanding debt of Phillips and Sons in the amount of FOUR MILLION TWOHUNDRED FIFTY THOUSAND PESOS (P4,250,000.00) with interest at the rate of eight (8%) per cent per annum from April 30, 1964 until fully paid asprovided for in the parties' agreement dated August 13, 1963; that respondents Hacienda Benito, Inc., Victoria Valley Development Corporation andManufacturers Bank and Trust Company (now Filipinas Bank) are jointly and severally liable to the petitioner in the amount of ONE HUNDREDTHOUSAND PESOS (P100,000.00) as moral damages. Juan Miguel Phillips' motion for reconsideration is DENIED for lack of merit. The motions forreconsideration filed by Robert O. Phillips and Sons, Magdalena Ysmael Phillips and the heirs of Robert O. Phillips, Hacienda Benito, Inc., andManufacturers Bank and Trust Company are DENIED it appearing that no new substantial reasons have been invoked to warrant reconsideration of the

said decision as far as these parties' motions are concerned, and this DENIAL is FINAL.

SO ORDERED.

JOSE S. ROQUE, JR., substituted by his wife NORMA

ROQUE, Petitioner,

- versus -

G.R. No. 157632

Present:

PANGANIBAN, C.J. Chairperson,

YNARES-SANTIAGO,AUSTRIA-MARTINEZ,CALLEJO, SR., andCHICO-NAZARIO, JJ .



JAIME T. TORRES, substituted by his son JAMES KENLEYM. TORRES, and the HONORABLE COURT OF APPEALS,

Respondents. Promulgated:

December 6, 2006x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CHICO-NAZARIO, J .:

Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, assailing the Decisio n[1] of the Court of Appeals in CA-G.R

CV No. 55895, dated 21 March 2003, which reversed and set aside the Judgmen t[2] of the Regional Trial Court (RTC) of Quezon City, Branch 104, in Civil Case No. Q-

93-14408, dated 8 April 1997, ordering respondent to pay petitioner damages in the total amount of P1,600,000.00 and attorney’s fees.

The instant case sprang from an action for damages filed by the original petitioner, the late Jose Roque, Jr., against respondent, the recently deceased Jaime

Torres, for injuries sustained by petitioner on 27 August 1989, allegedly inflicted by the security guards employed by respondent.

In this petition, the deceased petitioner Jose Roque, Jr. is substituted by his wife Norma Roque while respondent Jaime T. Torres, per agreement of all his

heirs, is herein represented by his son James Kenley M. Torres.

Petitioner was the administrator of certain parcels of land in Upper Boso-Boso, Antipolo, Rizal, particularly Lots No. 13259 and 13260 covered by Origina

Certificates of Titles (OCTs) No. NP-419 and NP-422, both registered in the name of his son Rafael Roque. Sometime before the incident, respondent, claiming to b

the owner of said property, hired security guards from Anchor Security and Detective Agency, namely Cesar Aquino, Alfredo Negro, and Mariano Cabos, who

allegedly barred petitioner from entering the property and threatened him with physical harm should he attempt to tend the said land. As a result, petitioner filed a case

for grave threats against said security guards before the Municipal Trial Court (MTC) of Rizal.

Prior to the incident, or on 9 September 1988, respondent instituted an Action[3] for cancellation of OCTs No. NP-419 and NP-422 in the name of petitioner’s

son Rafael Roque before the RTC of Antipolo which was dismissed by the trial court in an Order [4] dated 26 June 1989. According to the court a quo, therein petitione

Torres’ action was premature for failure to exhaust administrative remedies in the Bureau of Lands, consistent with the established doctrine that where a party seeks fo

the cancellation of a Free Patent, he must pursue his action in the proper agency and a review by the court will not be permitted unless administrative remedies have

been exhausted. The trial court also declared that the said action was in effect an action for reversion under Section 101 of the Public Land Act, thus, the action shoul

be in the name of the government and not the private complainants. Respondent appealed the dismissal before the Court of Appeals, which later affirmed the decision

of the lower court in a Decision[5] dated 11 June 1990. Respondent’s appeal to this Court was also dismissed in a Resolution dated 11 February 1991.

Petitioner maintained that at around four o’clock in the afternoon of 27 August 1989, he, together with his housemaid Leilyn Saplot Kandt, MagnoImperial,

Jose Imperial, and Eliseo Pesito, visited the said property and was surprised to see seven security guards, including the above-mentioned security guards, guarding the

property upon orders of respondent. Aquino, Negro, andCabos approached petitioner and asked: “Bakit wala ka noong arraignment saAntipolo noong August 16

1989?” [6] to which he replied that his presence was not necessary since he was not the accused. Thereafter, the said security guards asked him to leave the property and

uttered: “Bakit mo kami kinakalaban? Utos ni Torres na ito’y bantayan pagkat ito’y kanyang property raw!.” Petitioner showed his son’s titles to the property but th

security guards merely answered:“Fake ‘yan at hindi kayo maaaring pumasok dito. Kayo ay dapat paalisin.” A security guard then cocked his shotgun and warned

petitioner to leave the place. Petitioner offered to settle the dispute in the office of Anchor Security Agency, through its manager, Mrs. Nassam, but the security guard

merely replied: “Wala kaming pakialam kay Nassam. Lahat ginagawa dito, lahat ayutos ni Torres. A

‘yan ay sinusunod naming dahil si Torres ang bumubuhay saamin.”

When petitioner refused to leave the premises, Cabos threatened petitioner that should he stay inside, Cabos would shoot him, so petitioner immediately left

the place. However, Cabos still fired at him but missed. Petitioner ran fast to his makeshift hut where Cabos followed him. Petitioner ran to the back of his makeshif

hut and was shot again by Cabos, hitting petitioner on the back. When petit ioner fell, he turned and saw Cabos and Negro shooting at him. At the sam

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time, Aquino was also firing at the makeshift hut. After a while, the other security guards, namely Sulla, Betasulo, and Romy Mendoza, came, and togethe

with Cabos and Negro, mauled and kicked petitioner all over his body until he lost consciousness.

As a result of the incident, petitioner was hospitalized and placed under continuous treatment and medication. Due to the multiple gunshot

wounds,hematoma, and contusions sustained by petitioner, his left eye became 90 to 95% blind and his body was paralyzed from the bustline down. Consequently

petitioner filed a criminal case[7] for frustrated murder before the RTC ofAntipolo against the security guards. Eventually, after suffering for more than nine years

petitioner died.

On his part, respondent admits the existence of the titles in the name of Rafael Roque but denies the latter’s ownership over the property. He further admit

the dismissal of his case for cancellation of Roque’s titles based on a technical ground. Respondent likewise admits to the posting of the security guards on the property

to guard the same from any intruder but denies that they were his personal security guards, and moreover claimed that they were security guards o

the Antipolo Landowners and Farmers Association, Inc. (ALFAI), of which he was president. Respondent further asserts that being the President of ALFAI, hi

instruction to the security guards was to prevent squatters or intruders from entering the property and to make use of reasonable force to repel aggression in the event of

any untoward incident.

After trial, the lower court, on 8 April 1997, rendered judgment in favor of petitioner. According to the court a quo:

After a thorough examination of the evidence presented by both parties, the Court is faced with the issue of: “Whether or not

defendant Torres can be held liable for damages to herein plaintiff as a result of the injuries inflicted by the security guards deployed in the property in question onAugust 28, 1989 [sic].

There is no question that the security guards involved in the shooting incident on August 28, 1989 [sic] were employed of [sic]Anchor Security and Detective Agency. There is also no question that the same security guards were hired by defendant Torres to man and guardthe property in question in Boso-Boso, Antipolo, Rizal. In this simple scenario and in the event that said security guards caused wrong to

others while in their tour of duty, the law provides that the liability falls on the employer being the principal. On the contrary, for illegalor harmful acts committed by the security guards as [sic] per order of the client or the one who hired them, liability attaches to the

latter. In the instant case, the unlawful act committed by the security guards against the plaintiff is within the strict compliance of theinstruction of the defendant. This is because of the fact that defendant Torres exercised direct supervision of the said security guards. As amatter of fact, he provided the guards with his school bus to perform their duties effectively. Hence, defendant Torres is liable for the unlawfulacts committed by the said security guards against herein plaintiff. Such unlawful acts would not have been accomplished had defendant Torres

being their “employer” at that time, not instructed them so. What resulted to the shooting of the plaintiff by the security guards cannot be given justice except by indemnifying him. And considering that plaintiff suffered paralization of his body and blindness in his left eye, notwithstandingthe fact of incurring the amount of P300,000.00 as hospitalization and medical expenses plus the continuous medication up to the present, theCourt believes that the plaintiff should be compensated. (Emphasis ours.)

WHEREFORE, judgment is hereby rendered in favor of the plaintiff as against defendant Torres and the latter is ordered to pay the plaintiff the following:

a) the amount of P300,000.00 as actual damages;

b) the amount of P1,000,000.00 as moral damages;

c) the amount of P300,000.00 as exemplary damages; and

d) the amount of P50,000.00 as attorney’s fee.[8]

Aggrieved by the above judgment, respondent lodged an appeal before the Court of Appeals. According to respondent, he did not know that the security

guards would commit the alleged aggressive acts until the commission thereof, and that said security guards acted upon their own judgment. Respondent claimed tha

petitioner was an intruder and squatter on the property who entered it without permission from members of the ALFAI, the real owners of the said property. Thusrespondent argued that petitioner forcibly entered the property and that the security guards merely repelled the unlawful aggression.

Subsequently, the appellate court reversed the RTC judgment and rendered a Decision, the pertinent portions of which read:

It is appellee’s contention that appellant as employer of the said security guards is liable for the injuries inflicted by the latter whoacted under his instructions to guard the subject premises.

Verily, the obligation imposed under Article 2176 of the Civil Code is demandable not only for one’s own acts or omissions but alsofor those persons for whom, one is responsible. The owners and managers of an establishment or enterprise are likewise responsible for damagescaused by their employees in exercise of their duties and/or functions.

Relevantly, Article 2180 of the Civil Code provides that:











Art. 2180. The obligation imposed by article 2176 is not demandable not only for one’s own acts or omissions, butalso for those persons for whom one is responsible.

x x x x

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by theiremployees in the service of the branches in which the latter are employed or on occasion of their functions.

Under the facts obtaining, the above provision of law does not apply. The court a quo succinctly declared:

“There is no question that the security guards involved in the shooting incident on August 28, 1989 were employed(sic) of Anchor Security Detective Agency. There is also no question that the same security guards were hired by

defendant Torres to man and guard the property in question in Boso-Boso, Antipolo, Rizal.

x x x x

There is no question therefore that the said security guards who inflicted the injuries sustained by the appellee were not employees ofherein appellant. This being so, the ruling in the case of Soliman, Jr. vs. Tuazonapplies , viz:

It is settled that where the security agency, as here recruits, hires and assigns the work of its watchmen or securityguards, the agency is the employer of such security guards or watchmen. Liability for illegal or harmful acts committed bythe security guards attaches to the employer agency, and not to the clients or customers of such agency.

At any rate, the appellant cannot be held liable under Art. 33 of the Civil Code as no evidence whatsoever, was adduced to show his participation in the commission of the acts complained of. Neither was appellee able to prove that appellant can be held liable in the alternativeunder Article 2176 in relation to Article 2180 of the Civil Code.

x x x x

WHEREFORE, the assailed decision is hereby REVERSED and SET ASIDE and the complaint as well as the counterclaim filed before the court a quo is DISMISSED.[9]

With the reversal of the trial court judgment, petitioner filed the instant appeal, raising the following issues:

I. Whether or not the Court of Appeals committed grave and reversible error in ruling that petitioner failed to prove by mere preponderance ofevidence that respondent Torres was involved in any malevolent designs on petitioner;

II. Whether or not the Court of Appeals committed grave and reversible error in ruling that Article 2180 in relation to Article 2176 of the CivilCode is not applicable to the case at bar; and

III. Whether or not the Court of Appeals committed grave and reversible error in applying the case of Soliman, Jr. v. Tuazon to the case at bar.

We agree with the Court of Appeals’ finding that respondent cannot be held liable under Article 2180 of the Civil Code for the damages suffered by

petitioner because respondent is not the employer of the security guards who inflicted the injuries upon the person of the petitioner. As reiterated in the recent case

of Mercury Drug Corporation v. Libunao: [10]

In Soliman, Jr. v. Tuazon, we held that where the security agency recruits, hires and assigns the works of its watchmen or securityguards to a client, the employer of such guards or watchmen is such agency, and not the client, since the latter has no hand in selecting thesecurity guards. Thus, the duty to observe the diligence of a good father of a family cannot be demanded from the said client:

x x x [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns the work of its watchmen orsecurity guards, the agency is the employer of such guards or watchmen. Liability for illegal or harmful acts committed by the security guardsattaches to the employer agency, and not to the clients or customers of such agency. As a general rule, a client or customer of a security agencyhas no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it; the duty to observethe diligence of a good father of a family in the selection of the guards cannot, in the ordinary course of events, be demanded from the clientwhose premises or property are protected by the security guards.

x x x [T]he fact that a client company may give instructions or directions to the security guards assigned to it, does not, by itself, render the clientresponsible as an employer of the security guards concerned and liable for their wrongful acts or omissions.[11]

This conclusion, however, does not necessarily preclude this Court from holding respondent liable under the law for damages resulting from the injuries

inflicted on petitioner by the unlawful acts of the security guards. As stressed by petitioner in his Memorandum:

Assuming arguendo that the security guards are not respondent’s employees, the same does not constitute a valid defense atall. Article 2176 of the Civil Code provides that a person who, by act or omission, causes damage to another through fault or negligence may beheld liable in damages. By making it appear that he owns the disputed properties, putting security guards thereat to inti[mi]date, harass















or cause the rightful owner and his representatives and by providing the escape vehicle,more than sufficient evidence was established on

the civil liability of private respondent under Article 2176 of the Civil Code of the Philippines.

It must be emphasized that private respondent committed all these overt acts despite an earlier Decision by the Regional Trial Courtof Antipolo, Branch 71, affirming Rafael Roque’s ownership of the properties and dismissing the case he (private respondent) filed for thecancellation of NP-419 and NP-422 in Rafael Roque’s name. Had he not misrepresented to the security guards that he owns the properties

and had he not hired these security guards/common thugs to secure the premises which he does not own, then the untoward incidentwould not have happened. To allow private respondent to escape liability, despite his misdeeds, will not only result in grave injustice to JoseRoque, Jr. who eventually died after having been paralyzed for several years as a result of [the] incident but will likewise result in the impliedtolerance by this Honorable Court of private respondent’s disobedience or disrespect of a lawful order/decision of the trial court (RTC Branch71, Antipolo) which he failed or refused to honor .[12](Emphasis ours.)

Article 2176 of the Civil Code states that “whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the

damage done.” In the case at bar, respondent cannot feign ignorance of the fact that at the time of the shooting incident, the titles to the disputed property were already

registered in the name of petitioner’s son, the cancellation for title case filed by respondent having been dismissed. In fact, during trial, the offer for stipulation o

petitioner’s counsel that at the time of the shooting incident, there is a valid and existing title in the name of petitioner’s son which was never cancelled by

the court, was accepted by the respondent. Therefore, by hiring the security guards to prevent entry, possibly even by the registered owner, to the subject property, title

to which he fully knew he did not possess, respondent blatantly acted in bad faith. Respondent’s unwarranted act of posting security guards within the property, which

he clearly knew is registered in the name of another, unduly placed petitioner at harm and deprived him of his right to fully exercise his privileges and duties as

administrator of said property. Respondent, by his grossly faulty acts, paved the way to the infliction of injuries by the security guards on petitioner.

Furthermore, respondent’s palpable display of bad faith in claiming a superior right to the property over petitioner’s son entitles petitioner to damages

resulting therefrom. In order that a plaintiff may maintain an action for the injuries which he sustained, he must establish that such injuries resulted from a breach o

duty which the defendant owed to the plaintiff – a concurrence of injury to the plaintiff and legal responsibility by the person causing it.[13] In other words, in order tha

the law will give redress for an act causing damage, the act must be not only hurtful, but wrongful .[14]

In the case at bar, it is clear that respondent violated the principle embodied in Article 19 of the Civil Code which mandates that “ every person must, in the

exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.” When a right is exercised in

manner which discards these norms resulting in damage to another, a legal wrong is committed for which the actor can be held accountable.[15] As we have stated in a

previous case, if mere fault or negligence in one’s acts can make him liable for damages for injury caused thereby, with more reason should abuse or bad faith make

him liable.[16]

With respect to the award of damages, we sustain the ruling of the trial court. It is essential in the award of damages that the claimant must have

satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant’s acts.[17] During trial, petitioner, through

his own testimony and that of his wife, was able to establish that they have incurred actual damages in the amount of P300,000.00 for the hospitalization of petitioner as

a result of the shooting and the mauling incident, thus, the award of actual damages in said amount is proper.

As regards the award of moral damages, we have ruled that there is no hard and fast rule in the determination of what would be a fair amount of mora

damages, since each case must be governed by its own peculiar circumstances.[18] As reflected in the records of the instant case, there is no gainsaying the fact that

petitioner, together with his family, had suffered physical suffering, mental anguish, fright, serious anxiety and moral shock resulting from respondent’s acts which

caused petitioner grave physical injuries eventually leading to his death. The several years of torment and agonizing on the part of the deceased petitioner and his family

more than justifiy the award of moral damages. It must be emphasized that moral damages are not intended to enrich the complainant at the expense of a

defendant.[19] They are awarded only to enable the injured parties to obtain means, diversions or amusements that will serve to alleviate the moral sufferings the injured

parties have undergone by reason of defendant’s culpable action.[20] In other words, the award of moral damages is aimed at a restoration within the limits of the

possible, of the spiritual status quo ante; and therefore it must be proportionate to the suffering inflicted . [21] Therefore, in light of the sufferings sustained by petitione

and his family, we are inclined to sustain the award of P1,000,000.00 as moral damages.

As to exemplary damages, Article 2229 of the Civil Code provides that such damages may be imposed by way of example or correction for the public good,

in addition to the moral, temperate, liquidated or compensatory damages. While exemplary damages cannot be recovered as a matter of right, they need not be proved

although plaintiff must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary

damages should be awarded .[22] In the case at bar, having determined that petitioner is entitled to the award of actual and moral damages as a result of the wanton ac















































of respondent in stationing security guards in the property, the title of which is under the name of petitioner’s son, said act ultimately resulting in the paralysis and

blindness of petitioner, we find the award of exemplary damages to be proper by way of correction for the public good of respondent’s flagrant display of bad faith.

WHEREFORE, premises considered, the Petition for Review is herebyGRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 55895 i

hereby REVERSED and SET ASIDE. The Judgment of the Regional Trial Court of Quezon City, Branch 104, in Civil Case No. Q-93-14408 ordering responden

Torres to pay petitioner Roque the amount of P300,000.00 as actual damages; the amount of P1,000,000.00 as moral damages; the amount ofP300,000.00 as exemplary

damages; and the amount of P50,000.00 as attorney’s fee is hereby REINSTATED.

SO ORDERED.

G.R. No. 132344 February 17, 2000

UNIVERSITY OF THE EAST, petitioner,vs.ROMEO A. JADER, respondent.

YNARES-SANTIAGO, J.:

May an educational institution be held liable for damages for misleading a student into believing that the latter had satisfied all the requirements forgraduation when such is not the case? This is the issue in the instant petition for review premised on the following undisputed facts as summarized bythe trial court and adopted by the Court of Appeals (CA),

1 to wit:

Plaintiff was enrolled in the defendants' College of Law from 1984 up to 1988. In the first semester of his last year (School year 1987-1988),he failed to take the regular final examination in Practice Court I for which he was given an incomplete grade (Exhibits "2", also Exhibit "H").He enrolled for the second semester as fourth year law student (Exhibit "A") and on February 1, 1988 he filed an application for the removal ofthe incomplete grade given him by Professor Carlos Ortega (Exhibits "H-2", also Exhibit "2") which was approved by Dean CeledonioTiongson after payment of the required fee. He took the examination on March 28, 1988. On May 30, 1988, Professor Carlos Ortegasubmitted his grade. It was a grade of five (5). (Exhibits "H-4", also Exhibits "2-L", "2-N").1âwphi1.nêt

In the meantime, the Dean and the Faculty Members of the College of Law met to deliberate on who among the fourth year students should beallowed to graduate. The plaintiff's name appeared in the Tentative List of Candidates for graduation for the Degree of Bachelor of Laws(LL.B) as of Second Semester (1987-1988) with the following annotation:

JADER ROMEO A.

Def. Conflict of Laws — x-1-87-88, Practice Court I Inc., 1-87-88 C-1 to submit transcript with S.O. (Exhibits "3", "3-C-1", "3-C-2").

The 35th Investitures & Commencement Ceremonies for the candidates of Bachelor of Laws was scheduled on the 16th of April 1988 at 3:00o'clock in the afternoon, and in the invitation for that occasion the name of the plaintiff appeared as one of the candidates. (Exhibits "B", "B-6","B-6-A"). At the foot of the list of the names of the candidates there appeared however the following annotation:

This is a tentative list Degrees will be conferred upon these candidates who satisfactorily complete requirements as stated in theUniversity Bulletin and as approved of the Department of Education, Culture and Sports (Exhibit "B-7-A").

The plaintiff attended the investiture ceremonies at F. dela Cruz Quadrangle, U.E., Recto Campus, during the program of which he went upthe stage when his name was called, escorted by her (sic) mother and his eldest brother who assisted in placing the Hood, and his Tassel wasturned from left to right, and he was thereafter handed by Dean Celedonio a rolled white sheet of paper symbolical of the Law Diploma. Hisrelatives took pictures of the occasion (Exhibits "C" to "C-6", "D-3" to "D-11").

He tendered a blow-out that evening which was attended by neighbors, friends and relatives who wished him good luck in the forthcoming barexamination. There were pictures taken too during the blow-out (Exhibits "D" to "D-1").

He thereafter prepared himself for the bar examination. He took a leave of absence without pay from his job from April 20, 1988 to September30, 1988 (Exhibit "G") and enrolled at the pre-bar review class in Far Eastern University. (Exhibits "F" to "F-2"). Having learned of thedeficiency he dropped his review class and was not able to take the bar examination.

2

Consequently, respondent sued petitioner for damages alleging that he suffered moral shock, mental anguish, serious anxiety, besmirched reputation,wounded feelings and sleepless nights when he was not able to take the 1988 bar examinations arising from the latter's negligence. He prayed for anaward of moral and exemplary damages, unrealized income, attorney's fees, and costs of suit.

In its answer with counterclaim, petitioner denied liability arguing mainly that it never led respondent to believe that he completed the requirements for aBachelor of Laws degree when his name was included in the tentative list of graduating students. After trial, the lower court rendered judgment asfollows:



WHEREFORE, in view of the foregoing judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter topay plaintiff the sum of THIRTY FIVE THOUSAND FOUR HUNDRED SEVENTY PESOS (P35,470.00) with legal rate of interest from the filingof the complaint until fully paid, the amount of FIVE THOUSAND PESOS (P5,000.00) as attorney's fees and the cost of suit.

Defendant's counterclaim is, for lack of merit, hereby dismissed.

SO ORDERED.3

which on appeal by both parties was affirmed by the Court of Appeals (CA) with modification. The dispositive portion of the CA decision reads:

WHEREFORE, in the light of the foregoing, the lower Court's Decision is hereby AFFIRMED with the MODIFICATION that defendant-appellee, in addition to the sum adjudged by the lower court in favor of plaintiff-appellant, is also ORDERED to pay plaintiff-appellant theamount of FIFTY THOUSAND (P50,000.00) PESOS for moral damages. Costs against defendant-appellee.

SO ORDERED.4

Upon the denial of its motion for reconsideration, petitioner UE elevated the case to this Court on a petition for review under Rule 45 of the Rules ofCourt, arguing that it has no liability to respondent Romeo A. Jader, considering that the proximate and immediate cause of the alleged damagesincurred by the latter arose out of his own negligence in not verifying from the professor concerned the result of his removal exam.

The petition lacks merit.

When a student is enrolled in any educational or learning institution, a contract of education is entered into between said institution and the student. Theprofessors, teachers or instructors hired by the school are considered merely as agents and administrators tasked to perform the school's commitmentunder the contract. Since the contracting parties are the school and the student, the latter is not duty-bound to deal with the former's agents, such as theprofessors with respect to the status or result of his grades, although nothing prevents either professors or students from sharing with each other suchinformation. The Court takes judicial notice of the traditional practice in educational institutions wherein the professor directly furnishes his/her studentstheir grades. It is the contractual obligation of the school to timely inform and furnish sufficient notice and information to each and every student as towhether he or she had already complied with all the requirements for the conferment of a degree or whether they would be included among those whowill graduate. Although commencement exercises are but a formal ceremony, it nonetheless is not an ordinary occasion, since such ceremony is theeducational institution's way of announcing to the whole world that the students included in the list of those who will be conferred a degree during thebaccalaureate ceremony have satisfied all the requirements for such degree. Prior or subsequent to the ceremony, the school has the obligation topromptly inform the student of any problem involving the latter's grades and performance and also most importantly, of the procedures for remedying thesame.

Petitioner, in belatedly informing respondent of the result of the removal examination, particularly at a time when he had already commenced preparingfor the bar exams, cannot be said to have acted in good faith. Absence of good faith must be sufficiently established for a successful prosecution by theaggrieved party in a suit for abuse of right under Article 19 of the Civil Code. Good faith connotes an honest intention to abstain from taking undueadvantage of another, even though the forms and technicalities of the law, together with the absence of all information or belief of facts, would render thetransaction unconscientious.

5 It is the school that has access to those information and it is only the school that can compel its professors to act and

comply with its rules, regulations and policies with respect to the computation and the prompt submission of grades. Students do not exercise control,

much less influence, over the way an educational institution should run its affairs, particularly in disciplining its professors and teachers and ensuringtheir compliance with the school's rules and orders. Being the party that hired them, it is the school that exercises general supervision and exclusivecontrol over the professors with respect to the submission of reports involving the students' standing. Exclusive control means that no other person orentity had any control over the instrumentality which caused the damage or injury.

6

The college dean is the senior officer responsible for the operation of an academic program, enforcement of rules and regulations, and the supervision ofaculty and student services.

7 He must see to it that his own professors and teachers, regardless of their status or position outside of the university, must

comply with the rules set by the latter. The negligent act of a professor who fails to observe the rules of the school, for instance by not promptlysubmitting a student's grade, is not only imputable to the professor but is an act of the school, being his employer.

Considering further, that the institution of learning involved herein is a university which is engaged in legal education, it should have practiced what itinculcates in its students, more specifically the principle of good dealings enshrined in Articles 19 and 20 of the Civil Code which states:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, andobserve honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

Art. 19 was intended to expand the concept of torts by granting adequate legal remedy for the untold number of moral wrongs which is impossible forhuman foresight to provide specifically in statutory law.

8 In civilized society, men must be able to assume that others will do them no intended injury —

that others will commit no internal aggressions upon them; that their fellowmen, when they act affirmatively will do so with due care which the ordinaryunderstanding and moral sense of the community exacts and that those with whom they deal in the general course of society will act in good faith. Theultimate thing in the theory of liability is justifiable reliance under conditions of civilized society.

9 Schools and professors cannot just take students for

granted and be indifferent to them, for without the latter, the former are useless.

Educational institutions are duty-bound to inform the students of their academic status and not wait for the latter to inquire from the former. Theconscious indifference of a person to the rights or welfare of the person/persons who may be affected by his act or omission can support a claim fordamages.

10 Want of care to the conscious disregard of civil obligations coupled with a conscious knowledge of the cause naturally calculated to produce

them would make the erring party liable.11

Petitioner ought to have known that time was of the essence in the performance of its obligation to inform



respondent of his grade. It cannot feign ignorance that respondent will not prepare himself for the bar exams since that is precisely the immediateconcern after graduation of an LL.B. graduate. It failed to act seasonably. Petitioner cannot just give out its student's grades at any time because astudent has to comply with certain deadlines set by the Supreme Court on the submission of requirements for taking the bar. Petitioner's liability arosefrom its failure to promptly inform respondent of the result of an examination and in misleading the latter into believing that he had satisfied allrequirements for the course. Worth quoting is the following disquisition of the respondent court:

It is apparent from the testimony of Dean Tiongson that defendant-appellee University had been informed during the deliberation that theprofessor in Practice Court I gave plaintiff-appellant a failing grade. Yet, defendant-appellee still did not inform plaintiff-appellant of his failureto complete the requirements for the degree nor did they remove his name from the tentative list of candidates for graduation. Worse,defendant-appellee university, despite the knowledge that plaintiff-appellant failed in Practice Court I, again included plaintiff-appellant's namein the "tentative list of candidates for graduation which was prepared after the deliberation and which became the basis for thecommencement rites program. Dean Tiongson reasons out that plaintiff-appellant's name was allowed to remain in the tentative list of

candidates for graduation in the hope that the latter would still be able to remedy the situation in the remaining few days before graduationday. Dean Tiongson, however, did not explain how plaintiff appellant Jader could have done something to complete his deficiency ifdefendant-appellee university did not exert any effort to inform plaintiff-appellant of his failing grade in Practice Court I.

12

Petitioner cannot pass on its blame to the professors to justify its own negligence that led to the delayed relay of information to respondent. When one oftwo innocent parties must suffer, he through whose agency the loss occurred must bear it.

13 The modern tendency is to grant indemnity for damages in

cases where there is abuse of right, even when the act is not illicit.14

If mere fault or negligence in one's acts can make him liable for damages for injurycaused thereby, with more reason should abuse or bad faith make him liable. A person should be protected only when he acts in the legitimate exerciseof his right, that is, when he acts with prudence and in good faith, but not when he acts with negligence or abuse.

15

However, while petitioner was guilty of negligence and thus liable to respondent for the latter's actual damages, we hold that respondent should not havebeen awarded moral damages. We do not agree with the Court of Appeals' findings that respondent suffered shock, trauma and pain when he wasinformed that he could not graduate and will not be allowed to take the bar examinations. At the very least, it behooved on respondent to verify forhimself whether he has completed all necessary requirements to be eligible for the bar examinations. As a senior law student, respondent should havebeen responsible enough to ensure that all his affairs, specifically those pertaining to his academic achievement, are in order. Given these

considerations, we fail to see how respondent could have suffered untold embarrassment in attending the graduation rites, enrolling in the bar reviewclasses and not being able to take the bar exams. If respondent was indeed humiliated by his failure to take the bar, he brought this upon himself by notverifying if he has satisfied all the requirements including his school records, before preparing himself for the bar examination. Certainly, taking the barexaminations does not only entail a mental preparation on the subjects thereof; there are also prerequisites of documentation and submission ofrequirements which the prospective examinee must meet.

WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with MODIFICATION. Petitioner is ORDERED to PAY respondent the sumof Thirty-five Thousand Four Hundred Seventy Pesos (P35,470.00), with legal interest of 6% per annum computed from the date of filing of the complainuntil fully paid; the amount of Five Thousand Pesos (P5,000.00) as attorney's fees; and the costs of the suit. The award of moral damages isDELEIED.1âwphi1.nêt

SO ORDERED.

TITUS B. VILLANUEVA, G.R. No. 180764

Petitioner,Present:

Carpio, J ., Chairperson,

- versus - Brion,

Del Castillo,

Abad, and

Perez, JJ.

EMMA M. ROSQUETA,

Respondent. Promulgated:

January 19, 2010

x --------------------------------------------------------------------------------------- x

DECISION



ABAD, J .:

This case is about the right to recover damages for alleged abuse of right committed by a superior public officer in preventing a subordinate from doing her

assigned task and being officially recognized for it.

The Facts and the Case

Respondent Emma M. Rosqueta (Rosqueta), formerly Deputy Commissioner of the Revenue Collection and Monitoring Group of the Bureau of Customs

(the Bureau), tendered her courtesy resignation from that post on January 23, 2001, shortly after President Gloria Macapagal-Arroyo assumed office. But five month

later on June 5, 2001, she withdrew her resignation, claiming that she enjoyed security of tenure and that she had resigned against her will on orders of her

superior.[1]

Meantime, on July 13, 2001 President Arroyo appointed Gil Valera (Valera) to respondent Rosqueta’s position. Challenging such appointment, Rosqueta

filed a petition for prohibition, quo warranto, and injunction against petitioner Titus B. Villanueva (Villanueva), then Commissioner of Customs, the Secretary of

Finance, and Valera with the Regional Trial Court[2]

(RTC) of Manila in Civil Case 01-101539. On August 27, 2001 the RTC issued a temporary restraining order (TRO)

enjoining Villanueva and the Finance Secretary[3]

from implementing Valera’s appointment. On August 28, 2001 the trial court superseded the TRO with a writ of

preliminary injunction.[4]

Petitioner Villanueva, Valera, and the Secretary of Finance challenged the injunction order before the Court of Appeals (CA) in CA-G.R. SP 66070. On

September 14, 2001 the CA issued its own TRO, enjoining the implementation of the RTC’s injunction order. But the TRO lapsed after 60 days and the CA eventually

dismissed the petition before it.

On November 22, 2001 while the preliminary injunction in the quo warranto case was again in force, petitioner Villanueva issued Customs Memorandum

Order 40-2001, authorizing Valera to exercise the powers and functions of the Deputy Commissioner.

During the Bureau’s celebration of its centennial anniversary in February 2002, its special Panorama magazine edition featured all the customs deputy

commissioners, except respondent Rosqueta. The souvenir program, authorized by the Bureau’s Steering Committee headed by petitioner Villanueva to be issued on

the occasion, had a space where Rosqueta’s picture was supposed to be but it instead stated that her position was “under litigation.” Meanwhile, the

commemorative billboard displayed at the Bureau’s main gate included Valera’s picture but not Rosqueta’s.

http://sc.judiciary.gov.ph/jurisprudence/2010/january2010/180764.htm%23_ftn1


















On February 28, 2002 respondent Rosqueta filed a complaint[5]

f or damages before the RTC of Quezon City against petitioner Villanueva in Civil Case Q-02

46256, alleging that the latter maliciously excluded her from the centennial anniversary memorabilia. Further, she claimed that he prevented her from performin

her duties as Deputy Commissioner, withheld her salaries, and refused to act on her leave applications. Thus, she asked the RTC to award herP1,000,000.00 in mora

damages, P500,000.00 in exemplary damages, andP300,000.00 in attorney’s fees and costs of suit.

But the RTC dismissed[6]

respondent Rosqueta’s complaint, stating that petitioner Villanueva committed no wrong and incurred no omission that entitled

her to damages. The RTC found that Villanueva had validly and legally replaced her as Deputy Commissioner seven months before the Bureau’s centennia

anniversary.

But the CA reversed the RTC’s decision,[7]

holding instead that petitioner Villanueva’s refusal to comply with the preliminary injunction order issued in

the quo warranto case earned for Rosqueta the right to recover moral damages from him.[8]

Citing the abuse of right principle, the RTC said that Villanueva acted

maliciously when he prevented Rosqueta from performing her duties, deprived her of salaries and leaves, and denied her official recognition as Deputy Commissione

by excluding her from the centennial anniversary memorabilia. Thus, the appellate court ordered Villanueva to pay P500,000.00 in moral damages, P200,000.00 i

exemplary damages and P100,000.00 in attorney’s fees and litigation expenses. With the denial of his motion for reconsideration, Villanueva filed this petition fo

review on certiorari under Rule 45.

The Issue Presented

The key issue presented in this case is whether or not the CA erred in holding petitioner Villanueva liable in damages to respondent Rosqueta for ignoring

the preliminary injunction order that the RTC issued in the quo warranto case (Civil Case 01-101539), thus denying her of the right to do her job as Deputy

Commissioner of the Bureau and to be officially recognized as such public officer.


Under the abuse of right principle found in Article 19 of the Civil Code,[9] a person must, in the exercise of his legal right or duty, act in good faith. He

would be liable if he instead acts in bad faith, with intent to prejudice another. Complementing this principle are Articles 20[10] and 21[11] of the Civil Code which gran

the latter indemnity for the injury he suffers because of such abuse of right or duty .[12]

Petitioner Villanueva claims that he merely acted on advice of the Office of the Solicitor General (OSG) when he allowed Valera to assume the office as

Deputy Commissioner since respondent Rosqueta held the position merely in a temporary capacity and since she lacked the Career Executive Service eligibility

required for the job.



































But petitioner Villanueva cannot seek shelter in the alleged advice that the OSG gave him. Surely, a government official of his rank must know that a

preliminary injunction order issued by a court of law had to be obeyed, especially since the question of Valera’s right to replace respondent Rosqueta had not yet

been properly resolved.

That petitioner Villanueva ignored the injunction shows bad faith and intent to spite Rosqueta who remained in the eyes of the law the Deputy

Commissioner. His exclusion of her from the centennial anniversary memorabilia was not an honest mistake by any reckoning. Indeed, he withheld her salary and

prevented her from assuming the duties of the position. As the Court said in Amonoy v. Spouses Gutierrez,[13]

a party’s refusal to abide by a court order enjoining him

from doing an act, otherwise lawful, constitutes an abuse and an unlawful exercise of right.

That respondent Rosqueta was later appointed Deputy Commissioner for another division of the Bureau is immaterial. While such appointment, when

accepted, rendered the quo warranto case moot and academic, it did not have the effect of wiping out the injuries she suffered on account of petitioner Villanueva’s

treatment of her. The damage suit is an independent action.

The CA correctly awarded moral damages to respondent Rosqueta. Such damages may be awarded when the defendant’s transgression is the immediate

cause of the plaintiff’s anguish[14]

in the cases specified in Article 2219[15]

of the Civil Code.[16]

Here, respondent Rosqueta’s colleagues and friends testified that she suffered severe anxiety on account of the speculation over her employment

status.[17]

She had to endure being referred to as a “squatter” in her workplace. She had to face inquiries from family and friends about her exclusion from the

Bureau’s centennial anniversary memorabilia. She did not have to endure all these affronts and the angst and depression they produced had Villanueva abided in

good faith by the court’s order in her favor. Clearly, she is entitled to moral damages.

The Court, however, finds the award of P500,000.00 excessive. As it held in Philippine Commercial International Bank v. Alejandro,[18]

moral damages are

not a bonanza. They are given to ease the defendant’s grief and suffering. Moral damages should reasonably approximate the extent of hurt caused and the gravit

of the wrong done. Here, that would be P200,000.00.

The Court affirms the grant of exemplary damages by way of example or correction for the public good but, in line with the same reasoning, reduces it

toP50,000.00. Finally, the Court affirms the award of attorney’s fees and litigation expenses but reduces it to P50,000.00.

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of Appeals dated April 30, 2007 in CA-G.R. CV 85931

with MODIFICATION in that petitioner Titus B. Villanueva is ORDEREDto pay respondent Emma M. Rosqueta the sum of P200,000.00 in moral damages, P50,000.00

in exemplary damages, and P50,000.00 in attorney’s fees and litigation expenses.



























SO ORDERED.

[G.R. No. 147076. June 17, 2004]

METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM,petitioner , vs . ACT THEATER, INC., respondent .

D E C I S I O N

CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari filed by the Metropolitan Waterworks and Sewerage System (MWSS), seeking to reverse andset aside the Decision

[1] dated January 31, 2001 of the Court of Appeals in CA-G.R. CV No. 58581, which affirmed the civil aspect of the

Decision[2]

dated May 5, 1997 of the Regional Trial Court of Quezon City, Branch 77, directing the petitioner MWSS to pay the respondent Act TheaterInc. damages and attorney’s fees.

The present case stemmed from the consolidated cases of Criminal Case No. Q-89-2412 entitled People of the Philippines v. Rodolfo Tabian, eal., for violation of Presidential Decree (P.D.) No. 401, as amended by Batas Pambansa Blg. 876, and Civil Case No. Q-88-768 entitled Act Theater, Incv. Metropolitan Waterworks and Sewerage System. The two cases were jointly tried in the court a quo as they arose from the same factua

circumstances, to wit:

On September 22, 1988, four employees of the respondent Act Theater, Inc., namely, Rodolfo Tabian, Armando Aguilar, Arnel Concha andModesto Ruales, were apprehended by members of the Quezon City police force for allegedly tampering a water meter in violation of P.D. No. 401, asamended by B.P. Blg. 876. The respondent’s employees were subsequently criminally charged (Criminal Case No. Q-89-2412) before the court aquo. On account of the incident, the respondent’s water service connection was cut off. Consequently, the respondent filed a complaint for injunctionwith damages (Civil Case No. Q-88-768) against the petitioner MWSS.

In the civil case, the respondent alleged in its complaint filed with the court a quo that the petitioner acted arbitrarily, whimsically and capriciouslyin cutting off the respondent’s water service connection without prior notice. Due to lack of water, the health and sanitation, not only of the respondent’spatrons but in the surrounding premises as well, were adversely affected. The respondent prayed that the petitioner be directed to pay damages.

After due trial, the court a quo rendered its decision, the dispositive portion of which reads:

In Criminal Case No. Q-89-2412

WHEREFORE, for failure of the prosecution to prove the guilt of the accused beyond reasonable doubt, the four (4) above-named Accused are hereby ACQUITTED ofthe crime charged .[3]

In Civil Case No. Q-88-768

...

1. Ordering defendant MWSS to pay plaintiff actual or compensatory damages in the amount of P25,000.00; and to return the sum of P200,000.00deposited by the plaintiff for the restoration of its water services after its disconnection on September 23, 1988;

2. Defendant’s counterclaim for undercollection of P530,759.96 is dismissed for lack of merit;

3. Ordering defendant MWSS to pay costs of suit;

4. Ordering defendant MWSS to pay plaintiff the amount of P5,000.00 as attorney’s fees;

5. Making the mandatory injunction earlier issued to plaintiff Act Theater, Inc. permanent.

SO ORDERED.[4]

Aggrieved, the petitioner appealed the civil aspect of the aforesaid decision to the CA. The appellate court, however, dismissed the appeal According to the CA, the court a quo correctly found that the petitioner’s act of cutting off the respondent’s water service connection without prior noticewas arbitrary, injurious and prejudicial to the latter justifying the award of damages under Article 19 of the Civil Code.

Undaunted, the petitioner now comes to this Court alleging as follows:

I

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WHETHER OR NOT THE HONORABLE COURT OF APPEAL[S] VALIDLY AFFIRMED THE DECISION OF THE REGIONAL TRIAL COURT INRESOLVING THE PETITIONER’S APPEAL;

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS VALIDLY UPHELD THE AWARD OF ATTORNEY’S FEES;

III

WHETHER OR NOT THE HONORABLE COURT OF APPEAL[S] CORRECTLY APPLIED THE PROVISION OF ARTICLE 19 OF THE NEW CIVIL CODE

WITHOUT CONSIDERING THE APPLICABLE PROVISION OF ARTICLE 429 OF THE SAME CODE.[5]

Preliminarily, the petitioner harps on the fact that, in quoting the decretal portion of the court a quo’s decision, the CA erroneously typed P500,000as the attorney’s fees awarded in favor of the respondent when the same should only be P5,000. In any case, according to the petitioner, whether theamount is P500,000 or P5,000, the award of attorney’s fees is improper considering that there was no discussion or statement in the body of theassailed decision justifying such award. The petitioner insists that in cutting off the respondent’s water service connection, the petitioner merelyexercised its proprietary right under Article 429 of the Civil Code.

The petition is devoid of merit.

Article 429 of the Civil Code, relied upon by the petitioner in justifying its act of disconnecting the water supply of the respondent without prionotice, reads:

Art. 429. The owner or lawful possessor of a thing has the right to exclude any person from the enjoyment and disposal thereof. For this purpose, he may use suchforce as may be reasonable to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property.

A right is a power, privilege, or immunity guaranteed under a constitution, statute or decisional law, or recognized as a result of longusage,

[6] constitutive of a legally enforceable claim of one person against the other .

[7]

Concededly, the petitioner, as the owner of the utility providing water supply to certain consumers including the respondent, had the right toexclude any person from the enjoyment and disposal thereof. However, the exercise of rights is not without limitations. Having the right should not bconfused with the manner by which such right is to be exercised.

[8]

Article 19 of the Civil Code precisely sets the norms for the exercise of one’s rights:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and goodfaith.

When a right is exercised in a manner which discards these norms resulting in damage to another, a legal wrong is committed for which actor cabe held accountable.

[9] In this case, the petitioner failed to act with justice and give the respondent what is due to it when the petitioner unceremoniously

cut off the respondent’s water service connection. As correctly found by the appellate court:

While it is true that MWSS had sent a notice of investigation to plaintiff-appellee prior to the disconnection of the latter’s water services, this was done only a few hours before the actual disconnection. Upon receipt of the notice and in order to ascertain the matter, Act sent its assistant manager Teodulo Gumalid, Jr. to the MWSS office but he was treated badly on the flimsy excuse that he had no authority to represent Act. Act’s water services were cut at midnight of the day following the apprehensionof the employees. Clearly, the plaintiff-appellee was denied due process when it was deprived of the water services. As a consequence thereof, Act had to contractanother source to provide water for a number of days. Plaintiff-appellee was also compelled to deposit with MWSS the sum of P200,000.00 for the restoration of theirwater services.

[10]

There is, thus, no reason to deviate from the uniform findings and conclusion of the court a quo and the appellate court that the petitioner’s acwas arbitrary, injurious and prejudicial to the respondent, justifying the award of damages under Article 19 of the Civil Code.

Finally, the amount of P500,000 as attorney’s fees in that portion of the assailed decision which quoted the fallo of the court a quo’s decision wasobviously a typographical error. As attorney’s fees, the court a quo awarded the amount ofP5,000 only. It was this amount, as well as actual andcompensatory damages ofP25,000 and the reimbursement of P200,000 deposited by the respondent for the restoration of its water supply, that the CAaffirmed, as it expressly stated in its dispositive portion that “finding no cogent reason to reverse the appealed Decision which is in conformity with thelaw and evidence, the same is hereby AFFIRMED.”

[11]

The award of P5,000 as attorney’s fees is reasonable and warranted. Attorney’s fees may be awarded when a party is compelled to litigate oincur expenses to protect his interest by reason of an unjustified act of the other party.

[12]

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated January 31, 2001 in CA-G.R. CV No. 58581 is AFFIRMED intoto.

SO ORDERED.

[G.R. No. 147614. January 29, 2004]



































H.L. CARLOS CONSTRUCTION, INC., petitioner, vs. MARINA PROPERTIES CORPORATION, JESUS K. TYPOCO SR. and TANYU, respondents .

D E C I S I O N

PANGANIBAN, J.:

There is unjust enrichment when a building contractor is denied payment for increased labor cost validly incurred and additional work validlyrendered with the owner’s express or implied agreement.

The Case

The Petition for Review[1]

before the Court, filed under Rule 45, seeks the reversal of the Decision[2]

dated March 29, 2001, issued by the Court o Appeals

[3] in CA-GR CV No. 60975. The assailed Decision disposed as follows:

“WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE , and a new one entered DISMISSING the [petitioner’s] Complaint, ANDPARTIALLY GRANTING THE [RESPONDENT-CORPORATION’S] COUNTERCLAIM, IN THAT THE [PETITIONER] IS DIRECTED TO PAY UNTO THE[RESPONDENT-CORPORATION] THE SUM OF P4,604,579.00 in ACTUAL DAMAGES PLUSP3,549,416.00 AS AND FOR LIQUIDATED DAMAGES.”[4]

The Facts

The facts of the case, summarized by the Court of Appeals (CA), are as follows:

“[Respondent] MARINA PROPERTIES CORPORATION (MPC for brevity) is engaged in the business of real estate development. On May 10, 1988, MPC enteredinto a contract[5]with [Petitioner] H.[L.] CARLOS CONSTRUCTION, INC. (HLC) to construct Phase III of a condominium complex called MARINA BAYHOMESCONDOMINIUM PROJECT, consisting of townhouses and villas, totaling 31 housing units, for a total consideration ofP38,580,609.00, within a period of 365 daysfrom receipt of ‘Notice to Proceed’. The original completion date of the project was May 16, 1989, but it was extended to October 31, 1989 with a grace period until

November 30, 1989.[6]

“The contract was signed by Jovencio F. Cinco, president of MPC, and Honorio L. Carlos, president of HLC.

“On December 15, 1989, HLC instituted this case for sum of money against not only MPC but also against the latter’s alleged president, [Respondent] Jesus K. TypocoSr. (Typoco) and [Respondent] Tan Yu (Tan), seeking the payment of various sums with an aggregate amount of P14 million pesos, broken down as follows:

a) P7,065,885.03 for costs of labor escalation, change orders and material price escalation;

b) P2,000,000.00 as additional compensatory damages, exclusive of the cost of suit.

c) P3,147,992.00 representing retention money allegedly withheld by MPC on HLC’s Progress Billings as of January 1990, and

d) P2,000,000.00 representing the value of construction materials allegedly withheld/detained by MPC.

“Traversing the allegations of the complaint, [respondents] filed separate answers, whereby the two individual [respondents] alleged that they are not parties to theConstruction Contract and Amendatory Contract and are therefore not liable to HLC. [Respondent] MPC on the other hand alleged that the [petitioner] has no cause ofaction against it and that it (HLC) is not entitled to its various claims. MPC interposed a counterclaim in the aggregate sum of P68,296,227.14 for actual andcompensatory damages, liquidated damages, unliquidated advances, and attorney’s fees.”[7]

On May 15, 1997, the trial cour t[8]

ruled as follows:[9]

“WHEREFORE, premises above considered, judgment is hereby rendered for [Petitioner] H.L. CARLOS CONSTRUCTION, INC. and as against [Respondents]MARINA PROPERTIES CORPORATION, TAN YU, and JESUS K. TYPOCO, SR., who are hereby ordered to pay, jointly and severally, the [petitioner], as follows:

“1. the amount of P7,065,885.03, representing unpaid labor escalation costs, change orders and material price escalations, plus 12% interest per annum from date offiling of the complaint, until fully paid;

“2. the amount of P3,147,992.39 representing the 10% retention money withheld by the [respondents] [from] [petitioner’s] progress billing as of January 1990, plus12% interest per annum from the date of filing of the complaint, until fully paid;

“3. the amount of P2,000,000.00 representing the value of construction materials and the like detained by the [respondents], plus 12% legal interest from the date offiling of the complaint, until fully paid;

“4. the sum equivalent to 15% of the principal sum as and by way of attorney’s fees; and to

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“5. [p]ay the costs of this suit.

“The counterclaim for liquidated damages, are hereby DISMISSED for lack of evidence. Liquidated damages can only be awarded under paragraph 2 of the amendedconstruction contract that extended the completion period and mainly on the finding of the 85% substantial completion of the project, and that the delay and stoppage ofthe project was caused by [respondents’] default in payment of [the] progress billings that would have allowed [petitioner] to have the capability to continue andcomplete the project.”

Ruling of the Court of Appeals

On appeal, the CA held that respondents were not liable for escalations in the cost of labor and construction materials, because of the followingreasons: (1) the contract between the parties was for a lump sum consideration, which did not allow for cost escalation; and (2) petitioner failed to showany basis for the award sought.

Respondents were also absolved from paying for change orders and extra work, inasmuch as there was no supplemental agreement coveringthem as required in the main Construction Contract. Although Progress Billing No. 24 apparently indicates that extra work was rendered by petitionerthis claim is not supported by sufficient evidence.

The CA further failed to find any basis for the release of the 10 percent retention fee. The Construction Contract had provided that such releasewould be made only under certain conditions, none of which was complied with, as petitioner failed to complete the work required. Furthermore, MPCwas not held liable for detained or withheld construction materials, since petitioner had eventually withdrawn them.

Nothing in the records indicated any personal liability on the part of Typoco and Tan. Moreover, they had nothing to assume, as MPC was noheld liable to petitioner.

Furthermore, the CA ruled that petitioner was liable for actual and liquidated damages. The latter had abandoned the project prior to itscompletion; hence, MPC contracted out the work to another entity and incurred actual damages in excess of the remaining balance of the contractprice. In addition, the Construction Contract had stipulated payment of liquidated damages in an amount equivalent to 1/1000 of the contract price foeach calendar day of delay.

Hence, this Petition.[10]

Issues

In its Memorandum, petitioner raises the following issues:

“a. Whether or not the respondents are liable to pay the petitioner its claim for price escalation of construction materials and labor costescalation.

“b. Whether or not the respondents are liable to the petitioner for cost of change orders and extra works.

“c. Whether or not the respondents are liable to the petitioner for the ten percent retention money.

“d. Whether or not the respondents are liable to pay the petitioner attorney’s fees.

“e. Whether or not the respondents are liable to the petitioner for the cost of illegally detained materials.

“f. Whether or not the respondents Jesus Typoco Sr., and Tan Yu are jointly and solidarily liable to the petitioner for the latter’s claims.

“g. Whether or not the petitioner is liable to the respondents for actual and liquidated damages.”[11]

In simpler terms, the issues to be resolved are as follows:

(1) Whether petitioner is entitled to (a) a price escalation for labor and material cost, (b) the cost of change orders and extra work, (c) therelease of the 10 percent retention money, (d) the cost of illegally detained materials, and (e) attorney’s fees

(2) Whether Typoco and Tan are solidarily liable with MPC

(3) Whether petitioner is liable for actual and liquidated damages


The Petition is partly meritorious.

First Issue:Liability for Additional Costs











Petitioner argues that it is entitled to price escalation for both labor and materials, because MPC was delayed in paying for its obligations. Theformer admits that it is normally not entitled to any price increase for labor and materials, because a contractor is expected to build into its price acontingency factor to protect it from cost increases that may occur during the contract period.

[12] It justifies its claim, however, on the ground that a

contractor cannot be expected to anticipate price increases beyond the original contract period. Respondents, on the other hand, aver that it wasdelayed in finishing the project; hence, it is not entitled to any price increase.

It must be pointed out that the reason for the CA’s denial of petitioner’s claim was that the contract between the parties was for a lump sumconsideration, and petitioner was guilty of delay in completing the project.

Labor and Material

Cost Escalation

We agree with petitioner that it is entitled to price escalation, but only for the labor component of Progress Billing No. 24. The ConstructionContract contains the following provision on the considerations therefor:

“6.1 For and in consideration of the true and faithful performance of the work by the CONTRACTOR, the OWNER shall pay the LumpSum Contract Price of PESOS: THIRTY EIGHT MILLION FIVE HUNDRED EIGHTY THOUSAND SIX HUNDRED NINE(P38,580,609.00) broken down as shown in the Bid Form. No cost escalation shall be allowed except on the labor componentof the work x x x.”

[13]

Since the Contract allows escalation only of the “labor component,” the implication is that material cost escalations are barred. There appears tobe no provision, either in the original or in the amended contract, that would justify billing of increased cost of materials. Furthermore, no evidence -- likeofficial economic data showing an increase in the price index of construction materials -- was even adduced by petitioner to prove that there had indeedbeen increases in material costs.

[14]

Petitioner attempts to pass off these cost escalations as a form of damages suffered by it as a natural consequence of the delay in the payment o

billings and claims for additional work. It argues that the baseless and malicious refusal to pay for those claims renders respondents liable for damageunder Article 2201 of the Civil Code.

We disagree. Without tackling the issue of delay, we find that the contentious Progress Billing No. 24 contains no claim for material cosescalation. The other unsettled bills claimed by petitioner are those for change orders or extra work, which have not been shown to be related to theincrease in cost of materials. Dealt with in separate contracts between the parties were such claims, the costs of which were to be determined andagreed upon only when required by MPC. Materials used for those additional jobs were to be purchased only when the work was contracted, not priothereto. As admitted by petitioner, expenses for change orders/additional work were not included in the agreed contract price

[15] and, hence, were no

subject to increases.

MPC admits that the labor cost escalation clause was adopted by the parties to safeguard the contractor against losses in the event that, duringthe execution of the Contract, the government would order a minimum wage adjustment, which would then inflate the labor cost .

[16] Respondents deny

liability for this added expense because, according to the Contract, the allowance for labor cost escalation is available only within the duration of theoriginal construction period.

We clarify. The claimed cost of labor escalation pertains to the period September 1 to December 15, 1989, in the amount of P170,722.10; andDecember 16 to January 27, 1990, P45,983.91. During those periods, petitioner had not yet incurred any delay in the project, originally stipulated to be

finished by May 16, 1989. But by mutual agreement, the period was extended up to October 31, 1989, with a grace period until November 30, 1989.Furthermore, a legislated wage increase became effective after the expiration of the original period .

[17] Respondents are, therefore, liable for this

increase in labor cost, because they allowed petitioner to continue working on the project until April 20, 1990 (even beyond November 30, 1989).

MPC argues that to allow the claim for labor cost escalation would be to reward petitioner for incurring delay, thereby breaching a contractualobligation.

This contention is untenable. Before the expiration of the extended period, petitioner was not yet in delay. It was granted by MPC an extension tocomplete the project until November 30, 1989. Moreover, despite the expiration of the extended period, MPC allowed it to continue working on theproject until the former took over and awarded that project to another contractor. Hence, labor costs were actually incurred by petitioner until April 201990. It was thus entitled to reimbursement for labor cost escalation until that date. MPC cannot now be allowed to question the true valuation of theadditional labor because, instead of submitting to an independent evaluator, it violated the Temporary Restraining Order (TRO) issued by the trial courand hired another contractor to finish the project.

Noteworthy is the fact that MPC paid for the labor cost escalation during the period August 1-15, 1989,[18]

which was past the expiration of theoriginal period. Apparently, it thereafter stopped paying for labor cost escalation in response to the suit filed against it by petitioner.

The CA denied the labor cost escalation claim because, despite having billed MPC therefor, petitioner accepted payments that did not includesuch claim. The appellate court construed the acceptance by petitioner as a waiver of the latter’s right to be reimbursed for the increased labor cost.

We believe that this position is untenable. The CA mistook Exhibits “C-7-B”[19]

and “D-1”[20]

as bills coming from petitioner, when in truth they were Accomplishment Evaluation Sheets issued by MPC. The notation “labor escalation not included” in the said Exhibits was an admission on the part oMPC that it had not paid such amount, upon the advice of Atty. Jose C. Laureta, its resident counsel. According to him, petitioner should be faulted fohaving incurred labor cost increases after the expiration of the original period (after May 16, 1989). Not having waived such increases, it should thusbear them.

[21]

To allow MPC to acquire the partially accomplished project without paying for labor cost escalation validly incurred would constitute unjusenrichment at the expense of petitioner .

[22] There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly benefited, and (2

such benefit is derived at the expense of or with damages to another .[23]

Since petitioner had rendered services that were accepted by MPC, then theformer should be compensated for them. Labor cost escalation, in this case, has already been earned by petitioner.



















































Change Orders and Extra Work

Petitioner claims entitlement to compensation for change orders and extra work that were covered by construction memoranda. MPC countershowever, that the former never presented any cost estimate for additional work. The estimate would have formed the basis for a consensual agreemenand a computation of actual accomplishment, for which MPC could have been unilaterally billed. Worse, the extra work was allegedly assessed by itengineer to be worth only P705.41.

We side with petitioner. The “General Conditions to the Construction Contract” provides:

“13. CLAIMS FOR EXTRA AND FORCE ACCOUNT WORK:

If the Contractor claims that any construction by drawings or otherwise involve extra cost under this Contract, he shall give the Owner and/or the Architect, writtennotice thereof within a reasonable time after receipt of such instructions, and in any event before proceeding to execute the work, except in emergency endangering lifeor property. No such claim shall be valid unless so made.

Extra work for which no price is provided in the proposal shall be covered by a supplementary agreement to be signed by both parties before suchwork is commenced.” [24]

The CA is correct in holding that there is no supplemental agreement covering the claimed extra work and change orders. Exhibits “C-1,” “C-2,“C-2-A,” “C-3” and “C-4” show billings for extra work sent by petitioner to MPC. But the former did not submit in evidence the alleged constructiomemoranda covering them. Neither were they mentioned in the letter

[25] of Roilo Golez dated November 24, 1989.

Progress Billing No. 24, which pertained to the project as covered by the Construction Contract, did not mention any claim for extra work orchange orders. These additional jobs were covered by separate bills other than the twenty-four Progress Billings sent by petitioner.

MPC, however, never denied having ordered additional work. In Item No. 12 of its Amended Answer ,[26]

it averred that petitioner’s claim for change

orders and extra work were premature. Limneo P. Miranda, respondent’s work engineer, manifested that additional work was indeed done, but thaclaims therefor were not settled for the following reasons: (1) reconciliation between the parties was never completed due to the absence of petitioner’srepresentative in scheduled meetings; (2) difference in opinion on the proper valuation of the additional work, as MPC wanted to use the net quantitymethod, while petitioner preferred the gross method; and (3) some claims were rejected by MPC, because they had not been properly approved inaccordance with the Contract.

[27]

Evidence on record further reveals that MPC approved some change order jobs despite the absence of any supplementary agreement. In its“Over-all Summary of Reconciled Quantities” as of September 6, 1989 (Annex “C”) ,

[28] it valued petitioner’s valid claim therefor at P79,340.52. Afte

noting that the claim had extremely been bloated, Atty. Laureta, in-house counsel for respondent corporation, affirmed as valid the amount stated in thesummary.

[29]

Petitioner may have failed to show the construction memoranda covering its claim, but it inarguably performed extra work that was accepted byMPC. Hence, we will consider Annex “C” as the proper valuation thereof.

Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the thing or services rendered despite the lack oa written contract, in order to avoid unjust enrichment.

[30] Quantum meruit means that in an action for work and labor, payment shall be made in such

amount as the plaintiff reasonably deserves.[31]

To deny payment for a building almost completed and already occupied would be to permit unjus

enrichment at the expense of the contractor .

[32]

The CA held that since Billing No. 24 did not include any claim for additional work, such work had presumably been previously paid for. Thisreasoning is not correct. It is beyond dispute that the change orders and extra work were billed separately from the usual progress billings petitionesent to MPC.

Retention Money

The CA denied the claim for the 10 percent retention money, because petitioner had failed to comply with the conditions under paragraph 6.3 ofthe Construction Contract. On the other hand, the latter avers that these conditions were deemed fulfilled under Article 1186 of the Civil Code becausewhen its contract was terminated, MPC prevented the fulfillment of those conditions. It would allegedly be unfair and unreasonable for petitioner toguarantee a project finished by another contractor.

We disagree with petitioner. In the construction industry, the 10 percent retention money is a portion of the contract price automatically deducted

from the contractor’s billings, as security for the execution of corrective work -- if any -- becomes necessary. This amount is to be released one yeaafter the completion of the project, minus the cost of corrective work.

[33] The conditions for its release are stated in the Construction Contract as follows:

“6.3 In all cases, however, payment of the progress billings shall be subject to deduction of twenty percent (20%) recoupment of thedownpayment, ten percent (10%) retention and expanded withholding tax on CONTRACTOR’S income. Upon issuance of theCertificate of Completion of the work by the OWNER and upon submission of Guaranty Bond, Ninety Percent (90%) of theretained amount shall be released to the CONTRACTOR and the balance thereof shall be released by the OWNER withinthirty (30) days after the expiration of the guaranty period which is 365 days after issuance of the certificate of completion.”

[34]

None of the foregoing conditions were satisfied; hence, the CA was correct in forfeiting the retention fee. The completion of the work wasstipulated in the Contract to be within 365 days from the issuance of a Notice to Proceed or until May 16, 1989. Then the period was extended up toNovember 30, 1989. Petitioner worked on the project till April 20, 1990. It was given by MPC ample time and two extensions to complete theproject. The simple truth is that in failing to finish the project, the former failed to fulfill a prerequisite for the release of the retention money.















































Detained Materials

Petitioner claims cost reimbursement of illegally detained materials, as it was allowed to withdraw them from the site only after two years from theunilateral termination of the Contract. By 1992, only 30 percent of the materials detained were salvageable, while the rest had depreciated.

This contention has no merit. According to the CA’s ruling, the only proof that MPC detained materials belonging to petitioner was the denial othe request, contained in the latter’s February 1990 letter ,

[35] for the release of used form lumber. Aside from that letter, however, no other attempt wa

shown to have been made by petitioner to obtain its request. It should have tried again to do so before claiming that respondents unreasonablyprevented it from removing its construction materials from the premises. As to the other materials, there was absolutely no attempt to remove them fromthe construction site. Hence, we cannot say that these were ever withheld from petitioner.

Detention is not proved by Atty. Laureta’s letter

[36]

dated July 4, 1992, allowing petitioner to remove its materials from the site. The letter wasmerely a directive for it to clear out its belongings therefrom, in view of the hiring of a second contractor to finish the project.

Moreover, in a specifically designated yard inside the construction site, petitioner maintained a warehouse that was guarded by its own securitycomplement and completely inaccessible to MPC personnel.

[37] It therefore had control over those materials and should have made provisions to keep

them safe from the elements and from pilferage.

Attorney’s Fees

Petitioner argues that it is entitled to attorney’s fees based on Article 2208 of the Civil Code, because (1) respondents’ act or omission hascompelled it to litigate with third persons or to incur expenses to protect its interest; and (2) respondents acted in gross and evident bad faith in refusingto satisfy its plainly valid, just and demandable claim.

The grant of some of the claims of petitioner does not change the fact that it did not finish the project. Attorney’s fees are not granted every time a

party prevails in a suit, because no premium should be placed on the right to litigate.[38] Petitioner is not, after all, blameless in the presencontroversy. Just because MPC withheld some payments from petitioner does not mean that the former was in gross or evident bad faith. MPC haclaims that it wanted to offset with those of the latter.

Second Issue:Typoco and Tan’s Liabilities

Petitioner claims that Respondents Jesus Typoco and Tan Yu are solidarily liable with MPC.

We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides:

“Section 31. Liability of directors, trustees or officers. Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporationor who are guilty of gross negligence or bad faith x x x shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, itsstockholders and other persons.”

The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they areguilty of bad faith or gross negligence in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholdersor other persons.

[39]

The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope ohis authority as company president. The unilateral termination of the Contract during the existence of the TRO was indeed contemptible -- for whichMPC should have merely been cited for contempt of court at the most -- and a preliminary injunction would have then stopped work by the secondcontractor. Besides, there is no showing that the unilateral termination of the Contract was null and void.

Respondent Tan is not an officer or a director of MPC. His participation is limited to an alleged conversation between him and Engineer MarioCornista, petitioner’s project manager. Supposedly, the former verbally agreed therein to guarantee the payment of the latter’s progress billings. Wefind no satisfactory evidence to show respondent’s alleged solidary liability to petitioner.

Third Issue:Liability for Actual and Liquidated Damages

Petitioner avers that it should be exonerated from the counterclaims for actual and liquidated damages, because its failure to complete the projecwas due to respondents’ acts.

Central to the resolution of this issue is the question of which party was in delay. Aside from the contentious Progress Billing No. 24, there are noother unpaid claims. The bills for extra work and change orders, aside from those for the beams and columns, were premature and still subject toreconciliation and adjustment. Hence, we cannot hold MPC liable for them.

In comparison, petitioner did not fulfill its contractual obligations. It could not totally pass the blame to MPC for hiring a second contractorbecause the latter was allowed to terminate the services of the contractor.























“10.1 The OWNER shall have the right to terminate this Contract in the event that the CONTRACTOR incurs a fifteen percent (15%) orgreater slippage in the prosecution of the overall work evaluated against the Project schedule as indicated by the critical pathof the approved PERT/CPM network for the Project or as amended by Art. II herein.

Either party shall have the right to terminate this Contract for reason of violation or non-compliance by the other party of the terms and conditions herein agreedupon.”[40]

As of November 30, 1989, petitioner accomplished only approximately 80 percent of the project. In other words, it was already in delay at thetime. In addition, Engineer Miranda testified that it would lose money even if it finished the project;

[41] thus, respondents already suspected that it had no

intention of finishing the project at all.

Petitioner was in delay and in breach of contract. Clearly, the obligor is liable for damages that are the natural and probable consequences of itsbreach of obligation.[42]

Petitioner was already paid by MPC in the amount of P31,435,187 out of the total contract price of P38,580,609; thusonly P7,145,422 remained outstanding. In order to finish the project, the latter had to contract the services of a second construction firmfor P11,750,000. Hence, MPC suffered actual damages in the amount of P4,604,579 for the completion of the project.

Petitioner is also liable for liquidated damages as provided in the Contract,[43]

the pertinent portion of which is quoted as follows:

“4.1 Time is an essential feature of this Contract and in the event that the CONTRACTOR fails to complete the contracted work withinthe stipulated time inclusive of any granted extension of time, the CONTRACTOR shall pay the OWNER, as liquidateddamages, the amount of one over one thousand (1/1000) of the value of the contract price for each and every calendar day ofdelay (Sundays and Holidays included), not to exceed 15% of [the] Contract amount, in the completion of the work asspecified in Article II above. It is understood that the liquidated damages herein provided are fixed, agreed upon and not byway of penalty, and as such, the OWNER shall not be further required to prove that he has incurred actual damages to beentitled thereto. In the case of such delays, the OWNER is hereby authorized to deduct the amount of liquidated damagesfrom any money due or which may become due the CONTRACTOR in this or any other contract or to collect such amountfrom the CONTRACTOR’s performance bond whichever is convenient and expeditious to the OWNER.”

Liquidated damages are those that the parties agree to be paid in case of a breach.[44]

As worded, the amount agreed upon answers for damagessuffered by the owner due to delays in the completion of the project. Under Philippine laws, these damages take the nature of penalties.[45] A penaclause is an accessory undertaking to assume greater liability in case of a breach. It is attached to an obligation in order to ensure performance.

Thus, as held by the CA, petitioner is bound to pay liquidated damages for 92 days, or from the expiration of the grace period in the AmendedContract until February 1, 1990, when it effectively abandoned the project.

WHEREFORE, the Petition is partly GRANTED and the assailed DecisionMODIFIED. Petitioner is AWARDED labor cost escalation in the sumof P1,196,202 and cost of extra work in the sum of P79,340.52. In all other respects, the appealed Decision is AFFIRMED.

SO ORDERED.

VICENTE S. ALMARIO, Petitioner,

- versus -

PHILIPPINE AIRLINES, INC., Respondent.

G.R. No. 170928

Present:

QUISUMBING,* J ., Chairperson,SANDOVAL-GUTIERREZ,**

CARPIO,***

CARPIO MORALES, TINGA, andVELASCO, JR., JJ .

Promulgated:

September 11, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

CARPIO MORALES, J.:

On October 21, 1988, petitioner, Vicente S. Almario (Almario), was hired by respondent, Philippine Airlines, Inc. (PAL), as a Boeing 747 Systems

Engineer.

On April 28, 1995, Almario, then about 39 years of age[1] and a Boeing 737 (B-737) First Officer at PAL, successfully bid for the higher position of Airbu

300 (A-300) First Officer .[2] Since said higher position required additional training, he underwent, at PAL’s expense, more than five months of training consisting o

ground schooling in Manila and flight simulation inMelbourne, Australia.[3]



















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After completing the training course, Almario served as A-300 First Officer of PAL, but after eight months of service as such or on September 16, 1996, he

tendered his resignation, for “personal reasons,” effective October 15, 1996.[4]

On September 27, 1996, PAL’s Vice President for Flight Operations sentAlmario a letter, the pertinent portions of which read:

x x x x

2. Our records show that you have been trained by the Company as A300 First Officer starting on 04 September 1995 and have completedsaid training on 08 February 1996. As you are aware the Company invested heavily on your professional training in the estimatedamount of PHP786,713.00 on the basis that you continue to serve the Company for a definite period of time which is

approximately three (3) years or thirty-six (36) months.

3. In view of the foregoing, we urge you to reconsider your proposed resignation otherwise you will be required to reimburse the Companyan amount equivalent to the cost of your professional training and the damaged [sic] caused to the Company.[5] (Emphasis andunderscoring supplied)

Despite receipt of the letter, Almario pushed through with his resignation.

By letter of October 9, 1996, Almario’s counsel sought PAL’sexplanation behind its September 27, 1996 letter considering that Almario “did not sign

anything regarding any reimbursement.”[6] PAL did not reply,prompting Almario’s counsel to send two letters dated January 6, 1997 andFebruary 10, 1997 following

up PAL’s reply, as well as the release ofAlmario’s clearances which he needed to avail of his benefits .[7]

On February 11, 1997, PAL filed a Complaint[8] against Almario before the Makati Regional Trial Court (RTC), for reimbursement of P 851,107 worth o

training costs, attorney’s fees equivalent to 20% of the said amount, and costs of litigation. PAL invoked the existence of an innominate contract of do ut facias (I give

that you may do) with Almario in that by spending for his training, he would render service to it until the costs of training were recovered in at least three (3)

years.[9] Almario having resigned before the 3-year period, PAL prayed that he should be ordered to reimburse the costs for his training.

In his Answer with Special and Affirmative Defenses and Compulsory Counterclaims,[10]

Almario denied the existence of any agreement with PAL that he

would have to render service to it for three years after his training failing which he would reimburse the training costs. He pointed out that the 1991-1994 Collective

Bargaining Agreement (CBA) between PAL and the Airline Pilot’s Association of the Philippines (ALPAP), of which he was a member ,[11] carried no such agreement.

Almario thus prayed for the award of actual damages on account ofPAL’s withholding of the necessary clearances which he needed in order to obtain hi

lawful benefits, and moral and exemplary damages for malicious prosecution and unjust harassment.[12]

PAL, in its Reply to Defendant’s Answer and Answer to Counterclaim,[13] argued as follows:

The right of PAL to be reimbursed for training expenses is based onArticle XXIII, Section 1 of the 1991-1994 CollectiveBargaining Agreement (CBA, for brevity) and which was taken from the decision of the Secretary of Labor.

[The Secretary of Labor] ruled that a pilot should remain in the position where he is upon reaching the age of fifty-seven (57),irrespective of whether or not he has previously qualified in the Company’s turbo-jet operations. The rationale behind this is that a pilot who will

be compulsorily retired at age sixty (60) should no longer be burdened with training for a new position.

Thus, Article XXIII, Section 1 of the CBA provide[s]:

“Pilots fifty-seven (57) years of age shall be frozen in their position. Pilots who are less than fifty-seven (57)years of age provided they have previously qualified in any company’s turbo-jet aircraft shall be permitted to occupy any

position in the company’s turbo-jet fleet.

The reason why pilots who are 57 years of age are no longer qualified to bid for a higher position is because they have only three (3)

years left before the mandatory retirement age [of 60] and to send them to training at that age, PAL would no longer be able to recoverwhatever training expenses it will have to incur.











































Simply put, the foregoing provision clearly and unequivocally recognizes the prohibitive training cost principle such that it will take a

period of at least three (3) years before PAL could recover from the training expenses it incurred .[14] (Emphasis and underscoring supplied)

By Decision[15] of October 25, 2000, Branch 147 of the Makati RTC, finding no provision in the CBA between PAL and ALPAP stipulating that a pilot who

underwent a training course for the position of A-300 First Officer must serve PAL for at least three years failing which he should reimburse the training expenses,

rendered judgment in favor of Almario.

The trial court denied Almario’s claim for moral damages, however .[16] It denied too Almario’s claim for the monetary equivalent of his family trip pas

benefits (worth US$49,824), it holding that the same had been forfeited as he did not avail of them within one year from the date of his separation.

Thus the trial court disposed:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of defendant Vicente Almario and against the plaintiff:

1- Dismissing the plaintiff’s complaint;2- Ordering the plaintiff to pay the defendant:

a- the amount of P312,425.00 as actual damages with legal interest from the filing of the counterclaim; b- the amount of P500,000.00 as exemplary damages;c- the amount of P150,000.00 as attorney’s fees;d- the costs of the suit.

SO ORDERED.[17]

On appeal by both parties,[18] the Court of Appeals, by Decision[19]d ated March 31, 2005, reversed the trial court’s decision. It found Almarioliable under th

CBA between PAL and ALPAP and, in any event, under Article 22 of the Civil Code. Thus it disposed:

WHEREFORE, the appealed Decision is REVERSED and SET ASIDE. In lieu thereof, a new judgment is hereby ENTERED, as

follows: (a) Appellee Vicente Almario is hereby ordered to pay appellant Philippine Airlines, Inc. the sum of Five Hundred Fifty Nine Thousand,Seven Hundred [T]hirty Nine & 9/100 Pesos (P559, 739.90) with six percent (6%) interest as above-computed; and (b) the award of exemplarydamages and attorney’s fees in favor of appellee is hereby DELETED.[20] (Emphasis in the original; underscoring supplied)

His Motion for Reconsideration[21] having been denied ,[22] Almario filed the instant Petition for Certiorari [sic] (Under Rule 45),[23] raising the following

issues:

A. Whether the Court of Appeals committed reversible error in interpreting the Collective Bargaining Agreement between PhilippineAirlines, Inc. (PAL) and the Airline Pilots Association of the Philippines (ALPAP) as an ordinary civil law contract applying ordinarycontract law principles which is contrary to the ruling of the Supreme Court in SamahangManggagawa sa Top Form Manufacturing-

United Workers of the Philippines (SMTFM-UWP) v. NLRC and, therefore, erroneously reading into the CBA a clause that was notagreed to during the negotiation and not expressly stated in the CBA;

B. Whether the Court of Appeals committed reversible error in holding that Article 22 of the Civil Code can be applied to recover trainingcostswhich were never agreed to nor included as reimbursable expenses under the CBA;

C. Whether the availing by petitioner of a required training is a legal ground justifying the entitlement to a benefit and therefore, negatingclaims of unjust enrichment;

D. Whether the failure of private respondent to honor and provide the Family Trip Pass Benefit in the equivalent amount of US$ 49,824.00which petitioner and his family were not able to avail of within the one (1) year from date of separation due to the actions of PALamounts to unjust enrichment;

E. Whether or not respondent is liable for malicious prosecution[.][24] (Underscoring supplied)















































Almario insists on the absence of any written contract or explicit provision in the CBA obliging him to reimburse the costs incurred by PAL for his

training. And he argues:

[T]here can be no unjust enrichment because petitioner was entitled to the benefit of training when his bid was accepted, andx x x PAL did not suffer any injury because the failure to include a reimbursement provision in the CBA was freely entered into by thenegotiating parties;

x x x x

It is not disputed that the petitioner merely entered a bid for a higherposition, and that when he was accepted based on seniority andqualification, the position was awarded to him. It is also not disputed that petitioner [had] not asked, requested, or demanded for the training. Itcame when his bid was accepted by PAL;

Because the training was provided when the bid was accepted, the acceptance of the bid was the basis and legal ground for thetraining;

Therefore, since there is a legal ground for the entitlement of the training, contrary to the ruling of the Court of Appeals, there can beno unjust enrichment;[25] (Underscoring supplied)

The petition fails.

As reflected in the above-enumerated issues raised by Almario, he cites the case of Samahang Manggagawa sa Top Form Manufacturing-United Workers of

the Philippines (SMTFM-UWP) v. NLRC [26] ( Manggagawa) in support of his claim that the appellate court erred in interpreting the CBA as an ordinary civil law

contract and in reading into it “a clause that was not agreed to during the negotiation and not expressly stated in the CBA.”

On the contrary, the ruling in Manggagawa supports PAL’s position. Thus this Court held:

The CBA is the law between the contracting parties – the collective bargaining representative and the employer-company. Compliance with a CBA is mandated by the expressed policy to give protection to labor. In the same vein, CBA provisionsshould be “construed liberally rather than narrowly and technically, and the courts must place a practical and realistic construction

upon it, giving due consideration to the context in which it is negotiated and purpose which it is intended to serve.” This isfounded on the dictum that a CBA is not an ordinary contract but one impressed with public interest. It goes without saying, however,that only provisions embodied in the CBA should be so interpreted and complied with. Where a proposal raised by a contracting

party does not find print in the CBA, it is not a part thereof and the proponent has no claim whatsoever to itsimplementation.[27] (Emphasis and underscoring supplied)

In N.S. Case No. 11-506-87, “ In re Labor Dispute at the Philippine Airlines, Inc.,” the Secretary of the Department of Labor and Employment (DOLE)

passing on the failure of PAL and ALPAP to agree on the terms and conditions for the renewal of their CBA which expired on December 31, 1987 and construin

Section 1 of Article XXIII of the 1985-1987 CBA, held:

x x x x

Section 1, Article XXIII of the 1985-1987 CBA provides:

Pilots fifty-five (55) years of age or over who have not previously qualified in any Company turbo-jet aircraftshall not be permitted to bid into the Company’s turbo-jet operations. Pilots fifty-five (55) years of age or over who have

previously qualified in the company’s turbo-jet operations may be by-passed at Company option, however, any such pilotshall be paid the by-pass pay effective upon the date a junior pilot starts to occupy the bidded position.

x x x PAL x x x proposed to amend the provision in this wise:

The compulsory retirement age for all pilots is sixty (60) years. Pilots who reach the age of fifty-five (55) yearsand over without having previously qualified in any Company turbo-jet aircraft shall not be permitted to occupy any

position in the Company’s turbo-jet fleet. Pilots fifty-four (54) years of age and over are ineligible for promotion to any position in Group I. Pilots reaching the age of fifty-five (55) shall be frozen in the position they currently occupy at thattime and shall be ineligible for any further movement to any other positions.

PAL’s contention is basically premised on prohibitive training costs. The return on this investment in the form of the pilotpromoted is allegedly five (5) years. Considering the pilot’s age, the chances of full recovery [are] asserted to be quite slim.














ALPAP opposed the proposal and argued that the training cost is offset by the pilot’s maturity, expertise and experience.

By way of compromise, we rule that a pilot should remain in the position where he is upon reaching age fifty-seven (57), irrespectiveof whether or not he has previously qualified in the Company’s turbo-jet operations. The rationale behind this is that a pilot who will becompulsorily retired at age sixty (60) should no longer be burdened with training for a new position. But if a pilot is only at age fifty-five (55),and promotional positions are available, he should still be considered and promoted if qualified, provided he has previously qualified in anycompany turbo-jet aircraft. In the latter case, the prohibitive training costs are more than offset by the maturity, expertise, and experience

of the pilot.

Thus, the provision on age limit should now read:

Pilots fifty-seven (57) years of age shall be frozen in their positions. Pilots fifty-five (55) [sic] years of age

provided they have previously qualified in any company turbo-jet aircraft shall be permitted to occupy any position in thecompany’s turbo-jet fleet.[28] (Emphasis and underscoring supplied)

The above-quoted provision of Section 1 of Article XXIII of the 1985-1987 CBA, as construed by the DOLE Secretary, was substantially incorporated in the

1991-1994 CBA between PAL and ALPAP[29] as follows:

Pilots fifty-seven (57) years of age shall be frozen in their position. Pilots who are less than fifty-seven (57) years of age provided theyhave previously qualified in any company’s turbo-jet aircraft shall be permitted to occupy any position in the company’s turbo-jet fleet .[30]

The same section of Article XXIII of the 1991-1994 CBA was reproduced in the 1994-2000 CBA .[31]

Arturo Gabanton, PAL’s Senior Vice President for Flight Operations, testifying on PAL’s “policy or practice” on underwriting the training costs of its pilots

at the time Almario was trained, with the “expectation” of benefitingtherefrom “in order to recover the cost of training,” explained:

Atty. Parinas:Q: At the time the defendant was accepted for training as A300 First Officer, would you know what was the governing policy or practice of

Philippine Airlines that was being employed regarding the training cost[s] for the pilots?

Witness:A: The company has to spend for the training of the pilots and after that the company expecting that services will be rendered in order

to recover the cost[s] of training.

Atty. Parinas:Q: You stated that the pilot must serve the company after completing the training, for how long after completing the training?

Witness:A: At least for three (3) years.

Atty. Parinas:Q: What is your basis in saying that a pilot must serve the company after completing the training?

Witness:A: That is embodied in the Collective Bargaining Agreement between Philippine Airlines and the Airline Pilot Association of

thePhilippines.[32]

x x x x

Atty. Parinas:Q: Can you point to the provision in this agreement relating to the three (3) year period you stated a while ago?

NOTE: Witness going over the document shown to him by counsel.

Witness:A: It is on page 99 of the Collective Bargaining Agreement, Article 23, Miscellaneous.

Atty. Parinas: I would like to manifest that this provision pointed out by the witness is already marked as Exhibit B-1 by the plaintiff.

x x x x

[Atty. Parinas]























Q: Mr. witness, Exhibit B-1 states in part that “Pilots, 57 years of age shall be frozen in their position. Pilots who are less than 57 years ofage provided they have been previously qualified in any company’s Turbo-Jet Aircraft shall be permitted to occupy any position in thecompany’s Turbo-jet Fleet”, why do you say this is the basis for the three (3) year period within which a pilot must render service tothe company after completing the training?

[Witness]A: The reason why 57 years old is placed here in the Collective Bargaining Agreement [is that] it is expected that you serve the position

for three (3) years because the retirement age is at 60, therefore, if you are past 57 years old, it will fall short of the three (3) yearsrecovery period for the company. So it was established that [anyone] past 57 years old will not be allowed to train for another

position.[33] (Emphasis and underscoring supplied)

It bears noting that when Almario took the training course, he was about 39 years old, 21 years away from the retirement age of 60. Hence, with the

maturity, expertise, and experience he gained from the training course, he was expected to serve PAL for at least three years to offset “the prohibitive costs” thereof.

The pertinent provision of the CBA and its rationale aside, contrary toAlmario’s claim, Article 22 of the Civil Code which reads:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession ofsomething at the expense of the latter without just or legal ground, shall return the same to him,

applies.

This provision on unjust enrichment recognizes the principle that one may not enrich himself at the expense of another. An authority on Civil Law[34] writes on

the subject, viz:

Enrichment of the defendant consists in every patrimonial, physical, or moral advantage, so long as it is appreciable in money. It mayconsist of some positive pecuniary value incorporated into the patrimony of the defendant, such as: (1) the enjoyment of a thing belonging to the

plaintiff; (2) the benefits from service rendered by the plaintiff to the defendant; (3) the acquisition of a right, whether real or personal; (4) theincrease of value of property of the defendant; (5) the improvement of a right of the defendant, such as the acquisition of a right of

preference; (6) the recognition of the existence of a right in the defendant; and (7) the improvement of the conditions of life of the defendant.

x x x x

The enrichment of the defendant must have a correlative prejudice, disadvantage, or injury to the plaintiff. This prejudice may consist,not only of the loss of property or the deprivation of its enjoyment, but also of non-payment of compensation for a prestation or service rendered

to the defendant without intent to donate on the part of the plaintiff, or the failure to acquire something which the latter would have obtained. Theinjury to the plaintiff, however, need not be the cause of the enrichment of the defendant. It is enough that there be some relation between them,that the enrichment of the defendant would not have been produced had it not been for the fact from which the injury to the plaintiff isderived. (Underscoring supplied )[35]

Admittedly, PAL invested for the training of Almario to enable him to acquire a higher level of skill, proficiency, or technical competence so that he could

efficiently discharge the position of A-300 First Officer. Given that, PAL expected to recover the training costs by availing of Almario’s services for at least thre

years. The expectation of PAL was not fully realized, however, due to Almario’s resignation after only eight months of service following the completion of his training

course. He cannot, therefore, refuse to reimburse the costs of training without violating the principle of unjust enrichment.

Following the computation by the appellate court which was arrived at by offsetting the respective claims of the parties, viz:

Training Cost P851,107.00Less: Appellee’s corresponding 8 months

Service after training [P850,107.00divided by 36 months (3 years)= P23,640.86 x 8 months] 189,126.88Equals P661,980.12

Less: Accrued Benefits 102,240.22Net Reimbursable Amount or P559,739.90

[36] Appellee’s Outstanding Account **********,



















Almario must pay PAL the sum of P559,739.90, to bear the legal interest rate of 6% per annum from the filing of PAL’s complaint on February 11, 1997 until the

finality of this decision.

In light of the foregoing discussions on the main issue, the Court finds it unnecessary to dwell on the other issues raised by Almario. Suffice it to state tha

the appellate court’s disposition thereof is, as its decision reflects, well-taken.

WHEREFORE, the petition is DENIED and the decision appealed from is AFFIRMED.

Costs against petitioner.

SO ORDERED.

ADVANCED FOUNDATION CONSTRUCTION SYSTEMS

CORPORATION, Petitioner,

- versus -

NEW WORLD PROPERTIES AND VENTURES, INC., Respondent.

x - - - - - - - - - - - - - - - - - - - - - - - - xNEW WORLD PROPERTIES AND VENTURES, INC.,

Petitioner.

- versus -

ADVANCED FOUNDATION CONSTRUCTION SYSTEMS

CORPORATION,

Respondent.

G.R. No. 143154

G.R. No. 143177

Present:

PANGANIBAN, CJ Chairperson,

YNARES-SANTIAGO,AUSTRIA-MARTINEZ,CALLEJO, SR., andCHICO-NAZARIO, JJ .

Promulgated:

June 21, 2006x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

D E C I S I O N

CHICO-NAZARIO, J .:

Before Us are two consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Civil Procedure assailing the Decision[1] of the Court o

Appeals which affirmed with modification the Decision[2] of the Construction Industry Arbitration Commission (CIAC) awarding Advanced Foundation Construction

Systems Corporation’s (AFCSC) claim against New World Properties and Ventures, Inc. (New World) in the total amount ofP10,700,384.00 with interest, as well as the

Resolution dated 3 May 2000 denying both parties’ Motion for Partial Reconsideration.

Sometime in November 1996, New World conducted a bidding for the construction of 69 bored piles which would form the foundation of the 36

storey World Trade Exchange Building it planned to erect on a parcel of land it owned in Binondo, Manila.

After inspecting the site and conducting soil investigation, the bidding participants submitted their respective bids. On 18 November 1996, New

World notified AFCSC of the acceptance of its bid to construct the 69 bored piles for the lump sum of Thirty-six Million Pesos ( P36,000,000.00).

http://sc.judiciary.gov.ph/jurisprudence/2006/june2006/G.R.%20No.%20143154.htm%23_ftn1










On 20 November 1996, New World issued to AFCSC the Notice to Proceed Work wherein AFCSC was instructed to commence work on 27 November

1996 and complete the same by 24 February 1997. Under said notice, it was stated that in case of delay in the completion of the project, AFCSC would pay New

World liquidated damages in the amount ofP36,000.00 per calendar day of delay.

After the issuance of the Notice to Proceed, but before the signing of the contract, AFCSC, on 21 November 1996, proposed an amendment to the contract

conditions, to wit:

1.6 Excluded in the contractor scope of work shall be as follows:1.6.2. Removal of Underground Obstruction: - The contractor shall execute probing of underground obstruction on each pile

position. Should the bored piling contractor encounter underground obstruction during drilling such as footings, tie beams, piles, andany other incidental impenetrable obstruction, the contractor shall be paid on the actual daywork expenses for equipment andmanpower plus 25% overhead (sic).

1.6.3. Should the underground obstruction cannot be recover the contractor shall notify the owner in writing which in turn refer tothe structural engineer for further instructions provided however that the contractor will not entail delay and stand by in thefaithful execution of the work. Idle time shall be charge as per actual operating expenses of manpower and equipmentsubject to the evaluation of the owner’s engineer representative (sic).

New World did not respond to said proposal but instead directed AFCSC to proceed with the construction. On 29 November 1996, both parties signed th

contract for the construction of the 69 bored piles. AFCSC’s proposal, however, was not incorporated in said contract.

During the subsistence of the contract, New World directed AFCSC to make the following changes and additional works: 1) the addition of one bored pile

2) the increase in the pile depths from 55m. to 60m. with respect to 23 bored piles and from 55m. to 70m. with respect to 47 bored piles; 3) the increase in the diameter

of six bored piles from 1.5m. to 1.8m.; and 4) the change in the compressive strength of concrete from 3,000 psi to 4,000 psi for all piles. Due to said changes in the

scope of work, AFCSC informed New World in a letter dated 13 January 1997 that the original contract price ofP36,000,000.00 would increase to P48,400,000.00.

Thereafter, sometime in August 1997, AFCSC billed New World the costs of the change orders in addition to the original contract price. Included in said

billing is the cost of the removal of underground obstructions in the project site as well as the installation of sonic pipes to be used to conduct load tests on the bored

piling works. AFCSC claimed that these works were not part of the original contract and should be treated as extra work. In a letter dated 9 September 1997, New

World informed AFCSC of the former’s rejection of the21 November 1996 proposal of AFCSC regarding the exclusion of the removal of underground obstructions

from the original scope of work and AFCSC’sclaim for compensation for alleged extra work. New World maintained that the alleged additional works were all part o

the contract signed by both parties.

After removing the underground obstructions and incorporating the change in the scope of work, the construction of the bored piles were completed only

on 27 November 1997, or more than eight months after the original date of24 February 1997 contemplated in the contract.

Subsequently, during the early part of 1998, New World informed AFCSC of its intention to test the bored piles constructed on the project site to check thei

structural integrity. The tests to be conducted consisted of sonic logging test, dynamic pile test, and pile integrity test. Results of the testing showed that five piles were

found defective, namely, Pile Nos. 9, 21, 25, 49, and 62. The high-strain dynamic test (PDA) done to Pile No. 21, which was the only pile subjected to said test in orde

to determine its load capacity, revealed that it had a load capacity of only 800 metric tons, far less than the required 1,200 metric tons.

When it came time to settle the accounts, the parties found that their respective records of accounts were at variance with each other. Thus, on 29 May 1998

AFCSC, represented by Engr. Joel S. Arceo, and New World, represented by Engr. Gaudencio Lambino, reconciled the amount due to AFCSC and arrived at the sum

of P6,326,318.72 as the unpaid balance of the original contract price and P2,133,658.46 as the cost of the change orders after deducting the liquidated damages due to

New World for the delay incurred by AFCSC.

New World, however, refused to pay its outstanding obligations to AFCSC due to the defective bored piles. On 2 June 1998, AFCSC made a final demand

upon New World to pay the consolidated billing in the amount ofP23,478,251.29 consisting of the reconciled amount of P8,515,396.63, and the cost of removing the

underground obstructions, sonic pipe installation, build up of pile test cap, soil investigation and crane rental.



Upon New World’s continuous refusal to pay its obligation, AFCSC filed a Request for Adjudication before the CIA C[3] on 2 July 1998. Among the issue

submitted for resolution by the parties were whether or not the removal of underground obstructions, installation of sonic pipes, build up of pile test cap, soi

investigation, and crane rental constitute additional works which will entitle AFCSC to its claim of additional pay; and whether or not AFCSC was in delay, thus

making it liable for liquidated damages.

In the Decision dated 8 December 1998, the CIAC disposed of the controversy in this wise:

The bone of contention is whether or not the removal of underground obstruction is part of the scope of the work of the contractor as

claimed by the respondents or is extra work as claimed by the contractor.

x x x x

It is clear to us that this controversy could have been avoided if the owner’s designers had clearly stated the contractor’s scope ofwork. The bid documents failed to give bidders of the lump-sum bids details of the underground obstruction or at least made provisions for thetreatment of the parties’ reciprocal obligations in the event such obstruction is encountered. Upon the other hand, the contractor, one which isexperienced in foundation work, had been remiss in its obligation to obtain as much information as possible on the contingency that the unknownobstruction would impede its work and make it more costly, or at least provided a qualification in its bid so as to make clear its right to claimcontract price and time adjustment caused by such obstruction. Assuming, therefore, that these omissions of both parties may be treated as acts in bad faith, we shall have to apply the rule that in such case, their rights and obligations shall be resolved as if both had acted in good faith up to thetime of the bid.

x x x x

x x x We also reviewed the bid of the claimant as well as the bids of the other bidders made on a form supplied by New World. The items

mentioned in the bid form indicated the general pay items of work of the contractor, but it does not mention anything about the removal ofobstruction. Mr. Chika G. Go, however, argued that the item on removal of obstruction fell under the item “miscellaneous”. [t.s.n., October19,1998, pp. 56-57] We reject this argument as facetious. The removal of underground obstruction is a major item of work and cannot

be understood as being subsumed under the general heading “miscellaneous”.

The removal of underground obstruction, in our view, is covered by the General Conditions of Contract which provide as follows:

“Should the Contractor encounter subsurface or latent physical conditions differing materially from those indicated,or unknown physical conditions at the site of an unusual nature differing materially from those ordinarily encountered…the Owner’s Representative shall be promptly notified of such conditions before they are disturbed. The Owner’sRepresentative shall thereupon promptly investigate the conditions at the site and if he finds that they do so materiallydiffer and cause an increase or decrease in the cost, or the time required for performance of the Contract, an equitableadjustment will be made and the Contract modified in accordance with existing laws on the matter or as agreed upon the

provided for [sic] under the Contract.”

x x x x

We have no hesitation, therefore, in holding that the removal of underground obstructions by the claimant falls under Clause56.2 of the General Conditions which should therefore be treated as extra work.

On the additional sub-issues:

x x x x

In its Reply, claimant alleged in its paragraph 9 that:

9. Claimant did not ‘cover up several bored piles before the same were tested’ [par.4.14, Answer]. This is yet another of manyreckless allegations that discredit the whole Answer. Claimant was not the contractor for the mat foundation (the flooring of the

basement which is constructed on top of the bored piles) and accordingly, had nothing to do with ‘cover[ing] up’ the bored piles.

9.1. On the contrary, after completing the bored piles, claimant left their tops, sticking overground, together withextra rebarsand extra lengths as allowance for dirty concrete, which were later cut off and discarded.

10. It was only after the bored piles were covered up by the mat foundation contractor that respondents informed claimant ofthe results of the pile testing – rendering it impossible for claimant to challenge definitively the results and, more importantly, toundertake remedial work on the five [5] piles alleged found defective.”

We accept the foregoing assertions in pars. 9 and 9.1 of the claimant as being in accord with industry practice, and as being consistentwith the facts.

The issue, therefore, boils down to whether or not the cost of testing shall be for the account of claimant or of New World.

At the outset, it must be stressed that Clause 38.4 of the General Conditions cover tests of contractor-supplied materials such asconcrete, cement, or rebars, not finished products. In accordance with accepted industry practice, this provision, which is also a standard

provision in construction contracts, is not interpreted to include tests on finished structural members. It does not cover, for example, tests on thereinforced concrete column of a building to see if it can carry 35 floors above or test a girder to check if it carry the designed seismic load.

The claim of the claimant is for the installation of sonic pipes amounting to P320,000.00; for built-up of pile test cap, toP104,002.33; for crane rental, P75,000.00 and for soil investigation, P60,000.00 should be for the account of New World. However,







claimant agreed that it will absorb the cost of the soil investigation if the contract is awarded to it. Further, since the installation of sonic pipeswas defective in 34 out of 69 piles, we reduce to a corresponding extent the claimant’s claim for sonic pipe installation. x x x

We also find that claimant should be liable for part of the cost of the sonic pipes defectively installed by it. x x x

Issue No. 2 concerns liquidated damages. As formulated, the issue submitted for resolution is this: Whether or not claimant was indelay and, as such, whether it is liable to pay respondent liquidated damages. If it is found to be liable, how much liquidated damaged should beawarded to the respondent?

x x x x

Article 7.1 of the contract provides that: “7.1 The OWNER may, at any time, by a written order, make changes in the schedule and

work required under this Agreement. If any such changes causes an increase or decrease in the work or the time required for performing thework, an equitable adjustment shall be made of the contract price and completion date upon mutual agreement of the parties reflecting suchadjustments by way of a written variation order subject to the negotiation by both parties.[Underscoring supplied]

Clause 49.2.4 of the General Conditions provide that “The Contractor shall be entitled to claim an adjustment of his Contract Timewhere: [i] the amount of additional work under a Change Order, or [ii] special circumstances had occurred, so as to fairly entitle the Contractor toan extension of Contract Time.”

In light of the facts, and in our discussion above of the changes made, it is clear that we have found that indeed there were

circumstances fairly entitling the claimant to an extension of its contract period.

x x x x

We examined the numerous exhibits submitted by the claimant all mentioning directly or indirectly compensation to it for extra work performed. x x x In none of these exhibits did claimant request an extension of the contract period. Engr. Joel S. Arceo’s comprehensive 12- page affidavit failed to mention any letter or request for the adjustment of the completion time due to extra works.

Claimant, in its memorandum, dismisses the request for time extension as a mere formality. [See claimant’s Memorandum, p.12] Wedo not agree. The contract provides that the contractor shall pay liquidated damages for delay unless the period for completion of the

work is extended by the owner. The procedure for requesting extension of time and for the approval of the request by the owner is laid

out. We have not been shown why these important provisions of the contract between the parties should be treated by us as a mereformality. [See Clauses 49.3.1 and 49.3.2 of the General Conditions] We accordingly hold that claimant is not entitled to extension of time forthe extra works performed and is accordingly liable to the respondent for liquidated damages in accordance with the contract.

x x x x

We note, however, that the purpose of giving punctual notice of claim for time extension is to enable the owner immediately to“investigate the actual basis of the claim, decide whether or not to grant the request, and in case the request is granted, to fix the period ofextension of Contract Time.” In this case, the claimant submitted Exhs. “R” to “R-138” to show on a daily basis the removal of obstruction andeach report is acknowledged received by the owner’s representative. Thus, New World was not unaware of the difficulty attending the

removal of obstruction. There is no showing of material prejudice caused to New World by the failure of claimant to give formal noticeof its extension of time to request time extension. Incidentally, no evidence has been presented to show that the claimant lacked workers,materials and/or equipment as a result of which there was a slippage in the work. Liquidated damages are imposed as a penalty for delay. [See

Article 1226, Civil Code] As such, a contract provision for the imposition of liquidated damages shall be strictly construed. According to Article1229, Civil Code, “The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by thedebtor. Even if there has been no performance, the penalty may be reduced by the courts if it is iniquitous or unconscionable.” [See also Article2227, Civil Code.]

In view of the circumstances of the case, taking into account the fact that there was no material prejudice caused to New World by thefailure of claimant to request extension of the completion time, applying Articles 1229 and 2227 of the Civil Code, we have decided to reduce theamount of liquidated damages to P1,000,000.00.

The most difficult issue submitted for resolution is a highly technical one, namely: “Did the result of the test piles accuratelydetermine the capacity of the piles?”

x x x x

The test results were evaluated by Dr. Benjamin R. Buencuseso, Jr. who submitted his own report on June 5, 1998 [Exh. “K”]Dr. Buensucesotestified that he is a registered civil engineer from 1979; that he took his post-graduate studies in Bangkok where he earned adoctorate degree in geo-technical engineering; that he was associate professor in a university in Japan where he taught foundations; that from

1993 he taught on a full-time basis at the University of the Philippines; that he is also a consultant to various companies with particular emphasison pile testing; and that he started dynamic pile testing since 1993 and he has been doing this type of consultancy since 1996 [t.s.n., October 19,1998, p. 15] In his report [Exh. “K”], Dr. Buensuceso made the following conclusion: “In closing, my evaluation of the results of the various piletests conducted at the World Trade Exchange Center Project shows that the defects found for all the test piles are not critical froma geotechnical engineering standpoint. Inasmuch as these defects do not result to a significant reduction in the skin resistance provided by thesoils surrounding the predominantly frictional piles. However, the effects of the presence of a 2m layer of contaminated concrete cover in Pile Nos. 9, 25, 46 and 62, the structural capacity and behavior of the subject piles should be evaluated by the Structural Engineer.”

x x x x

We find that only one pile test was done to assess both integrity and capacity. The other tests simply evaluated qualitatively pileintegrity. [Exh.“K”] A pile capacity in this context is meant to carry vertical loads and is dependent on any of three factors, namely: integrity,skin friction and end-bearing.

A total of 34 piles were tested. A total of 35 tests were conducted. Pile No. 25 was tested twice, one by sonic logging and the second, for pile integrity. The pile integrity tests resulted in a finding that all piles, except Pile No. 9, were of acceptable integrity. Pile No. 9 was found to



have defects in the lower portion of the pile shift. Pile No. 25 which was subjected to sonic logging and pile integrity tests, passed the integritytest but the result of the sonic test was inconclusive.

Engr. Rogelio Menguito gave his formula for computing the capacity of each pile. The formula he gave is the standard formula meant todetermine the capacity of a reinforced concrete column with loads and reaction at each end and is not generally applicable to piles which arelaterally supported throughout its length and with skin friction capabilities. The capacity of a pile, with length of 70 meters, and at the projectsite, the soil quality of which is described in three soil investigation reports, is normally determined by skin friction and point bearingwhich Engr. Menguito merely considered as factors of safety. As admitted by him during the hearing, he had no mathematical or technical basisfor his conclusion, and that the bored poles could actually carry a load much heavier than 800 tons.

x x x x

We found support for this view from two recognized authorities. The first is Peck, Hanson and Thorburn’s “Foundation Engineering”, inwhich it was stated that “a point bearing pile is sometimes erroneously regarded as a structural member that transfers its load like a column fromthe top of the pile to the bottom where it is delivered to the underlying rock or soil.” [At p. 182, a photocopy of this page is hereto attached asAnnex “A”] The second are H.G. Poulos and E.H. Davis, who in their book, “Pile Foundation, Analysis and Design”, set the general equation forthe ultimate capacity of a pile. A photocopy of the page where the equation appeared is hereto attached as Annex “B”] It is clear from thisequation that the ultimate capacity of a pile is dependent on skin friction and end-bearing and not a pile acting as a column. Other that a piledriven in water or on very soft soil, a pile is laterally supported on its entire length. Hence, it does not act as a reinforced concrete columnsubjects to buckling. Because of the above discussion, the Arbitral Panel is of the opinion that the test results were inconclusive and did not trulymeasure the capacity of the piles. Engr. Menguito’s use of the result and his admission that all the values for pile capacities were simply based onassumptions without any or technical basis [t.s.n., pp. 113-116] seriously undermines the value of his recommendation to reduce the capacity ofthe piles and tends to give the impression that this was an accommodation to a client.

x x x x

AWARD

We find that:

[a] As admitted by New World, claimant is entitled to the balance of the contract price amounting to P6,326,318.72 and the cost ofapproved change orders amounting to P2,133,658.46 or the total amount ofP8,459,977.17.

[b] Since the foregoing is a liquidated amount as due from June 2, 1998, we order New World to pay claimant the foregoing amountofP8,459,977.17 plus interest at 6% per annum from June 2, 1998. The amount which has accrued as interest from that date to December 2,1998 isP253,799.32.

[c] Claimant is entitled to payment for and hereby order New World to pay claimant the cost of additional works consisting of theremoval of underground obstructions and the conduct of various tests ordered by the latter amounting to P8,366,336.55.

[d] Claimant is entitled to payment for the installation of 34 sonic pipes in the amount of P157,681.16.

The foregoing amount to a total of P17,237,794.20.

On the counterclaims, we find for New World and order claimant to pay it the following amounts:

[a] P190,141.30 representing the value of sonic pipes which were defectively installed by claimant;

[b] P1,000,000 as liquidated damages for delay; and

[c] P5,347,268.90 as the cost of the five [5] bored piles which were found defective, or the total amount of P6,537,410.20.

All other claims and counterclaims are dismissed.

After offsetting the amount due claimant from respondent and the amount due respondent from claimant, there is a balanceof P10,700,384. which New World is hereby ordered to pay claimant. This amount shall earn interest at 6% per annum from the date of thisaward.

The arbitration fees and expenses have been paid initially on a pro rata basis. In light of the findings above, no change in the abovesharing of expenses is warranted .[4] [Emphases ours]

Aggrieved by the Decision of the CIAC, New World filed a Petition for Review of the said decision before the Court of Appeals. On 31 January 2000, th

appellate court rendered the assailed Decision. According to the Court of Appeals:

But for one point, the appeal lacks merit.

One. The pronouncements of CIAC on the question of whether the removal of underground obstructions was covered by the contract between the parties are evidently conclusions of law. This is so because the conclusions drawn by an adjudicatory body from a set of facts is aquestion of law. (Pilar Development Corporation v. IAC, 146 SCRA 215; Cunanan v. de Lazatin, 74 Phil. 719) Consequently, the window forreview is fully open for this Court to examine the correctness of said conclusions.

Try as it might, this Court cannot share the view of CIAC that respondent’s November 21, 1996 proposals (Exhibit 7) to exclude theremoval of underground obstructions from the scope of work in the contract (Exhibit A) and to treat them as extra work was impliedly admitted

by petitioner. CIAC’s conclusion contravenes No. 9 of the Terms of Reference (TOR) reproduced above which expressly states that such proposals were “refused” by respondent.







Neither can this Court go along with CIAC in its determination that said proposals modified respondent’s bid offer so that when the

contract was signed without petitioner expressly rejecting the proposals, the same were deemed impliedly accepted. The reasoning is quitestrained. The proposals were made on November 21, 1996 while the contract was signed on November 29, 1996. The contract was thedocumentation of the agreement between the parties arising from respondent’s bid and petitioner’s award (Exhibit 5). When the parties signedthe contract which did not contain the proposals, what was logically implied was not the acceptance of the proposals but their rejection. The

proposals were actually nothing more than counter offers which were not accepted and, therefore, did not ripen into a perfected agreement. (Art.1319, Civil Code).

But this Court fully agrees with CIAC that the removal of the underground obstructions was covered by Clause 56.2 of the GeneralConditions of the Contract.

x x x x

It is clear to this Court that petitioner did not agree with respondent’s proposals but in order to address the latter’s concern aboutunderground obstructions, the parties adopted Clause 56.2. Therefore, the contractual rule governing underground obstructions was the above-quoted Clause 56.2.

But alas, respondent did not comply with said stipulation. Respondent did not formally notify the petitioner about the undergroundobstruction that it encountered, hence, the petitioner did not conduct its investigation to verify the existence and nature of the obstructions. Themechanism for a modification of the contract and an equitable adjustment of the contract price was not set in motion through the fault ofrespondent.

The vital question then is: For its fault in not complying with the steps provided for in the above-quoted stipulation, should respondent beleft alone to shoulder the heavy cost of he removal of the obstruction?

x x x x

It is not disputed that the removal of the underground obstructions was a major work entailing additional expense and extra working

time. The experts and CIAC agreed that such work was not covered by the scope of work in the contract. That determination is logical andcorrect. Petitioner’s rejection of this holding and its insistence post factum that such major work was embraced in the scope of work in thecontract puts to doubt its good faith and fairness. This stance may be perceived as taking advantage of the imprudence of respondent in notfaithfully observing the requirements of Clause 56.2 above quoted.

To deny respondent any relief for the expenses it incurred and the extra time that it spent in removing the underground obstructions is toallow the petitioner to unjustly enrich itself at the expense of the respondent. That is anathema to the great principle of equity. When itbecomesclear – as in this case – that the application to the law in sensustrictione would result in patently unjust juridical situation, a court of justice whichis also a court of equity is called upon to exercise itsequitas juridictio in order to refine the rough edges of the rules and avoid injustice. The CodeCommission which drafted the Civil Code justifies a resort to equity stating beautifully that every good law draws its breath of life from morals,from those principles written with the words of fire in the conscience of man. Appropriately, these guides for human conduct should run asgolden threads through society, to the end that law may approach its supreme ideal which is the sway and dominance of justice. (Report of theCode Commission, pp. 4041).

Inspired by such profound pronouncements, this Court, invoking its equity jurisdiction and in order to prevent unjust enrichment andmanifest injustice, holds that respondent should be accorded a relief. But then respondent should not expect for a full recovery of its claim for it

should realize that it had been contractually negligent not just once but several times. The cost of the removal of the underground obstructionswas P8,025,836.37. This Court allows respondent a concessional award of one-half (1/2) of said amount which is P4,012,918.18.

x x x x

Petitioner protests CIAC’s lowering of the amount of liquidated damages due it from P7.2 million to P1 million on the justificationthat petitioner did not suffer any material prejudice. This Court, rejects petitioner’s protest. The reasons – not just CIAC’s finding that petitionerdid not suffer material damage – given by the CIAC for reducing the claimed liquidated damages are clear, logical and correct. The law gives awide degree of discretion to trial courts and quasi-judicial bodies to determine the amount of damages recoverable as long as there is ampleevidence to support the same. In the absence of a clear case of abuse of discretion, as in the present case, there is no reason for this Court tounsettle CIAC’s determination of the proper and conscionable liquidated damages due the petitioner.

WHEREFORE, premises considered, this Court renders judgment MODIFYING the appealed Decision in this wise:

I. FOR PETITIONER

The respondent Advanced Foundation Construction Systems Corporation is hereby ordered to pay the petitioner New World

Properties and Ventures, Inc. the following:

1. Php190,141.30 representing the value of sonic pipes which were defectively installed by respondent;2. Php1,000,000.00 as liquidated damages for delay; and3. Php5,347,268.90 as cost of the five (5) bored piles which were found defective, or a total amount of P6,537,410.20.

II. FOR RESPONDENT:

The petitioner is hereby ordered to pay the respondent the following:

1. Php8,459,977.17 as the sum of the balance on the contract price amounting to Php6,326,318.72 and cost of approvedchange orders amounting to Php2,133,658.46 plus six (6) percent interest per annum on said total amount(Php8,459,977.17) from June 2, 1998 until fully paid;

2. Php4,353,418.37 as cost of additional works consisting of the removal of the underground obstructions and the costof various tests; and

3. Php157,681.16 as payment for the installation of 34 sonic pipes.



After compensating the obligations of the parties to each other, the balance shall earn six (6%) percent interest per annum from the

date of this decision.[5]

The Motion for Partial Reconsideration of both parties having been denied, both New World and AFCSC filed their respective Petitions for Review before this

Court.

The resolution of the instant case lies in the determination of two pivotal issues, namely: (1) Which between New World and AFCSC should shoulder the

expenses incurred for the removal of the underground obstructions and the conduct of the pile tests; and (2) Whether or not AFCSC is liable for liquidated damages forits failure to complete the construction work by 24 February 1997.

At this point, We find it necessary to reiterate that our jurisprudence is replete with the rule that findings of fact of quasi-judicial bodies which have acquired

expertise because their jurisdiction is confined to specific matters, are accorded not only with respect but even finality if they are supported by substantial

evidence.[6] This is because there are certain cases which require the expertise, specialized skills, and knowledge of the proper administrative bodies because technical

matters or intricate questions of facts are involved .[7]

In the case at bar, it would seem that the CIAC, in interpreting the contract covering the construction work in the light of the facts present in the case, was

guided by the prevailing practices in the construction industry. The members of the three-man panel, all equipped with considerable knowledge and training in the field

of engineering and significant experience in construction industry arbitration, reconciled the conflicting claims of both parties by applying industry accepted practice

with respect to the treatment of removal of underground obstructions and the conduct of pile tests. According to the panel, the removal of underground obstruction is

‘major item of work and it cannot be understood as being subsumed under the general heading miscellaneous’ and should therefore be treated as extra work. With

respect to the pile tests, the CIAC stated that in accordance with accepted industry practice, the provisions in the contract only cover tests of contractor-supplied

materials and not tests on finished products to see whether it can carry a certain load.

In light of the ratiocination of the CIAC that the removal of underground obstruction is a major item of work and cannot merely be contemplated as a

miscellaneous item in a construction bid and must therefore be considered as extra work, We conclude that there was nothing in the bid nor in the contract explicitly

discussing the obligations of both parties in the event that the contractor will encounter underground obstructions in the project site and may be constrained to remove

the same.

However, there is a provision in the contract that can be made applicable in the case of underground obstructions, which the CIAC and the Court of Appeals

have correctly pointed out, to wit:

56.2. Should the Contractor encounter subsurface or latent physical conditions differing materially from those indicated, or unknown physical conditions at the site of an unusual nature differing materially from those ordinarily encountered and generally recognized as inherent inthe work of character provided for in the Contract, the Owner’s Representative shall be promptly notified of such conditions before they aredisturbed. The Owner’s Representative shall thereupon promptly investigate the conditions at the site and if he finds that they do so materiallydiffer and cause an increase or decrease in the cost, or the time required for performance of the Contract, an equitable adjustment will be madeand the Contract modified in accordance with existing laws on the matter or as agreed upon the provided for [sic] under the Contract.

The appellate court laid stress the fact that AFCSC failed to comply with the stipulations of the abovequoted provision. According to the Court of Appeals

in failing to formally notify New World regarding the underground obstructions that it has encountered, AFCSC failed to set in motion the mechanism for a

modification of the contract and the equitable adjustment of the contract price. Thus, for such negligence, the appellate court reduced the original award of the CIAC to

only one-half of the cost of the removal of the underground obstructions.

We do not agree. As explained by the appellate court itself, the experts and CIAC have agreed that the removal of the underground obstructions was no

covered by the scope of work in the contract. It is not disputed though that the same was a major work entailing additional expenses and extra working time. Neithe

was it denied that such major work was indeed necessary for the successful completion of the project. Indeed, to deny AFCSC relief for the expenses it incurred in

removing said obstructions would result in allowingNew World to unjustly enrich itself at the expense of AFCSC. Equity necessarily dictates that New World be held

liable for the expenses incurred for the extra work conducted for its sole benefit. Further, it cannot be said thatNew World was not made aware of the existence of the

underground obstruction nor of the additional expense that would be necessary for its removal. As heretofore stated, AFCSC, on 21 November 1996, sent a proposal to

New World regarding the additional expenses that would be incurred in the instance that the contractor shall encounter underground obstructions; however, New World















never responded to said proposal until 9 September 1997, when it informed AFCSC of the rejection of said proposal or almost ten (10) months after said proposal wa

first offered, and after all the necessary extra work had been accomplished.

Article 22 of the Civil Code which embodies the maxim, Nemo exalterius incommode debet lecupletari (no man ought to be made rich out of another’s

injury) states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession ofsomething at the expense of the latter without just or legal ground, shall return the same to him .[8]

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as “basic principles to be observed fo

the rightful relationship between human beings and for the stability of the social order, x x x designed to indicate certain norms that spring from the fountain of good

conscience, x x x guides human conduct [that] should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and

dominance of justice.[9] Hence, to allow New World to acquire the finished project at a price far below its actual construction cost would undoubtedly constitute unjust

enrichment for the bank to the prejudice of AFCSC. Such unjust enrichment, as previously discussed, is not allowed by law.[10]

AFCSC submitted proof before the CIAC of the additional cost of manpower and equipment usage for the removal of the underground obstructions and

other supporting documents, the veracity of which was never questioned by New World. In fact, New World did not question the necessity of removing the

underground obstructions nor the facts on the bases of which the claim for extra work due to underground obstructions were made. As found by the CIAC and affirmed

by the Court of Appeals, the cost of the removal of the underground obstructions was P8,025,836.37. Beyond cavil, AFCSC is entitled to full payment of the expense

incurred for the removal of the underground obstructions.

As to the question of which between AFCSC and New World should shoulder the expenses for the pile tests, We uphold the ruling of the CIAC, affirmed by

the Court of Appeals, that the pile tests conducted should be for the account of New World in accordance with the accepted practice in the construction industry. W

see no reason to disregard the determination of the CIAC on this matter. This being in accordance with the established principle that determination of certain question

of fact falling within the peculiar technical expertise of an administrative agency, must be accorded great respect, if not finality by this Court. A long line of case

establish the basis rule that the courts will not interfere in matters which are addressed to the sound discretion of government agencies entrusted with the regulation of

activities coming under the special technical knowledge and training of such agencies.[11] Therefore, AFCSC is entitled to the payment of the total amoun

of P336,683.48consisting of P157,681.15 for sonic pipe installation; P104,002.33 for build up of pile test cap; and P75,000.00 for crane rental.

Finally, with respect to the issue of whether or not AFCSC is liable for liquidated damages for its failure to complete the construction work by the contract

date of 24 February 1997, We agree with the findings of the CIAC that AFCSC never sent notice to New World regarding a request for extension of time to finish the

work despite the existence of circumstances fairly entit ling it to an extension of the contract period. Thus, AFCSC, must bear some consequences for the delay in the

completion of the project and for disregarding the owner’s right to determine the length of extension to be given to the contractor and to consequently adjust the period

to finish the extra work.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 31 January 2000, which modified the Decision dated 8 December 1998 o

the Construction Industry Arbitration Commission, is hereby MODIFIED in that New World Properties and Ventures, Inc is hereby ordered to pay Advanced

Foundation Construction Systems Corporation the following amounts:

1. P8,025,836.37 as cost of additional work consisting of the removal of the underground obstructions;

2. P336,683.48 as costs for the various test conducted consisting of P157,681.15 for sonic pipe installation; P104,002.33 for build up o

pile test cap; and P75,000.00 for crane rental.

The remainder of the same Decision of the Court of Appeals are hereby AFFIRMED. No costs.

SO ORDERED.

G.R. No. 153674 December 20, 2006



















AVON COSMETICS, INCORPORATED and JOSE MARIE FRANCO, petitioners,vs.LETICIA H. LUNA, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse and set aside the Decision1 dated 20 May 2002

of the Court of Appeals in CA-G.R. CV No. 52550, which affirmed in totothe Decision2 dated 26 January 1996 of the Regional Trial Court (RTC) of

Makati City, Branch 138, in Civil Case No. 88-2595, in favor of herein respondent Leticia H. Luna (Luna), rendered by the Honorable Ed Vicente S. Albano, designated as the "assisting judge" pursuant to Supreme Court Administrative Order No. 70-94, dated 16 June 1994.

The Facts

The facts of the case are not in dispute. As culled from the records, they are as follows:

The present petition stemmed from a complaint3 dated 1 December 1988, filed by herein respondent Luna alleging,inter alia¸ that she began working for

Beautifont, Inc. in 1972, first as a franchise dealer and then a year later, as a Supervisor.

Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and operations of Beautifont, Inc.Nonetheless, respondent Luna continued working for said successor company.

Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of petitioner Avon’s Theatrical Promotion’s Group, for which shereceived a per diem for each theatrical performance.

On 5 November 1985, petitioner Avon and respondent Luna entered into an agreement, entitled Supervisor’s Agreement, whereby said partiescontracted in the manner quoted below:

The Company agrees:

x x x x

1) To allow the Supervisor to purchase at wholesale the products of the Company.

x x x x

The Supervisor agrees:

1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and licenses required to sellthe products on retail.

x x x x

The Company and the Supervisor mutually agree:

x x x x

2) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor has no authority tobind the Company in any contracts with other parties.

3) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole discretion to determinewhere and how products purchased from the Company will be sold. However, the Supervisor shall not sell such products to stores,supermarkets or to any entity or person who sells things at a fixed place of business.

4) That this agreement supersedes any agreement/s between the Company and the Supervisor.

http://www.lawphil.net/judjuris/juri2006/dec2006/gr_153674_2006.html%23fnt1














x x x x

Aggrieved, respondent Luna filed a complaint for damages before the RTC of Makati City, Branch 138. The complaint was docketed as Civil Case No.88-2595.

On 26 January 1996, after trial on the merits, the RTC rendered judgment in favor of respondent Luna stating that:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of the plaintiff, and against defendant, Avon, orderingthe latter:

1) to pay moral damages to the plaintiff in the amount of P100,000.00 with interest from the date of this judgment up to the time of completepayment;

2) to pay attorney’s fees in the amount of P20,000.00;

3) to pay the costs.6

On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the same day. In an Order 7 dated 15 February 1996, the RTC gave due course to the

appeal and directed its Branch Clerk of Court to transmit the entire records of the case to the Court of Appeals, which docketed the appeal as CA G.R.CV No. 52550.

On 20 May 2002, the Court of Appeals promulgated the assailed Decision, the dispositive part of which states thus:

WHEREFORE, the foregoing premises considered, the decision appealed from is hereby AFFIRMED in toto.8

The Issues

In predictable displeasure with the conclusions reached by the appellate court, petitioner Avon now implores this Court to review, via a petition for reviewon certiorari under Rule 45 of the Revised Rules of Court, the former’s decision and to resolve the following assigned errors:

9

I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING THAT THE SUPERVISOR’S AGREEMENT EXECUTEDBETWEEN AVON AND RESPONDENT LUNA AS NULL AND VOID FOR BEING AGAINST PUBLIC POLICY;

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT AVON HAD NO RIGHT TO TERMINATE OR CANCELTHE SUPERVIOSR’S AGREEMENT;

III.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN UPHOLDING THE AWARD OF MORAL DAMAGES AND ATTORNEY’SFEES IN FAVOR OF RESPONDENT LUNA; and

IV.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT AWARDING ATTORNEY’S FEES AND LITIGATION EXPENSES INFAVOR OF PETITIONER.


A priori, respondent Luna objects to the presentation, and eventual resolution, of the issues raised herein as they allegedly involve questions of facts.

To be sure, questions of law are those that involve doubts or controversies on what the law is on certain state of facts; and questions of fact, on the othehand, are those in which there is doubt or difference as to the truth or falsehood of the alleged facts. One test, it has been held, is whether the appellatecourt can determine the issue raised without reviewing or evaluating the evidence, in which case it is a question of law, otherwise it will be a question offact.

10

In the present case, the threshold issues are a) whether or not paragraph 5 of the Supervisor’s Agreement is void for being violative of law and publicpolicy; and b) whether or not paragraph 6 of the Supervisor’s Agreement which authorizes petitioner Avon to terminate or cancel the agreement at will isvoid for being contrary to law and public policy. Certainly, it is quite obvious that the foregoing issues are questions of law.

In affirming the decision of the RTC declaring the subject contract null and void for being against public policy, the Court of Appeals ruled thatthe exclusivity clause, which states that:
























x x x x

5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. [Emphasis supplied.]

should be interpreted to apply solely to those products directly in competition with those of petitioner Avon’s, i.e., cosmetics and/or beauty supplies andlingerie products. Its declaration is anchored on the fact that Avon products, at that time, were not in any way similar to the products sold by SandréPhilippines, Inc. At that time, the latter was merely selling vitamin products. Put simply, the products of the two companies do not compete with eachother. The appellate court ratiocinated that:

x x x If the agreement were interpreted otherwise, so as to include products that do not directly compete with the products of defendant-appellant Avon, such would result in absurdity. x x x [A]greements which prohibit a person from engaging in any enterprise whether similar ornot to the enterprise of the employer constitute an unreasonable restraint of trade, thus, it is void as against public policy.

11

Petitioner Avon disputes the abovestated conclusion reached by the Court of Appeals. It argues that the latter went beyond the literal and obvious intentof the parties to the subject contract when it interpreted the abovequoted clause to apply only to those products that do not compete with that ofpetitioner Avon’s; and that the words "only and exclusively" need no other interpretation other than the literal meaning – that "THE SUPERVISORSCANNOT SELL THE PRODUCTS OF OTHER COMPANIES WHETHER OR NOT THEY ARE COMPETING PRODUCTS."

12

Moreover, petitioner Avon reasons that:

The exclusivity clause was directed against the supervisors selling other products utilizing their training and experience, and capitalizing on Avon’s existing network for the promotion and sale of the said products. The exclusivity clause was meant to protect Avon from othercompanies, whether competitors or not, who would exploit the sales and promotions network already established by Avon at great expense

and effort.

x x x x

Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and network to sell and promote its products. It was preciselywhy Sandre simply invited, and then and there hired Luna and other Avon supervisors and dealers to sell and promote its products. They hadthe training and experience, they also had a ready market for the other products – the customers to whom they had been selling the Avonproducts. It was easy to entice the supervisors to sign up. The supervisors could continue to sell Avon products, and at the same time earnadditional income by selling other products.

This is most unfair to Avon. The other companies cannot ride on and exploit the training and experience of the Avon sales force to sell andpromote their own products. [Emphasis supplied.]

On the other hand, in her Memorandum, respondent Luna counters that "there is no allegation nor any finding by the trial court or the Court of Appeals oan ‘existing nationwide sales and promotions network established by Avon’ or ‘Avon’s existing sales promotions network’ or ‘Avon’s tried and testedsales and promotions network’ nor the alleged damage caused to such system caused by other companies." Further, well worth noting is the opinion ofrespondent Luna’s counsel which started the set off the series of events which culminated to the termination or cancellation of the Supervisor’s

Agreement. In response to the query-letter 13

of respondent Luna, the latter’s legal counsel opined that, as allegedly held in the case of Ferrazzini v.Gsell,

14 paragraph 5 of the subject Supervisor’s Agreement "not only prohibits the supervisor from selling products which compete with the company’s

product but restricts likewise the supervisor from engaging in any industry which involves sales in general."15

Said counsel thereafter concluded that thesubject provision in the Supervisor’s Agreement constitutes an unreasonable restraint of trade and, therefore, void for being contrary to public policy.

At the crux of the first issue is the validity of paragraph 5 of the Supervisor’s Agreement, viz:


x x x x

5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. [Emphasis supplied.]

In business parlance, this is commonly termed as the "exclusivity clause." This is defined as agreements which prohibit the obligor from engaging in"business" in competition with the obligee.

This exclusivity clause is more often the subject of critical scrutiny when it is perceived to collide with the Constitutional proscription against "reasonablerestraint of trade or occupation." The pertinent provision of the Constitution is quoted hereunder. Section 19 of Article XII of the 1987 Constitution on theNational Economy and Patrimony states that:

SEC. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfaircompetition shall be allowed.

First off, restraint of trade or occupation embraces acts, contracts, agreements or combinations which restrict competition or obstruct due course oftrade.

16



























Now to the basics. From the wordings of the Constitution, truly then, what is brought about to lay the test on whether a given agreement constitutes anunlawful machination or combination in restraint of trade is whether under the particular circumstances of the case and the nature of the particularcontract involved, such contract is, or is not, against public interest.

17

Thus, restrictions upon trade may be upheld when not contrary to public welfare and not greater than is necessary to afford a fair and reasonableprotection to the party in whose favor it is imposed.

18 Even contracts which prohibit an employee from engaging in business in competition with the

employer are not necessarily void for being in restraint of trade.

In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis-à-vis all the circumstances surrounding such agreement indeciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.

The question that now crops up is this, when is a restraint in trade unreasonable? Authorities are one in declaring that a restraint in trade isunreasonable when it is contrary to public policy or public welfare. As far back as 1916, in the case of Ferrazzini v. Gsell,

19 this Court has had the

occasion to declare that:

There is no difference in principle between the public policy (orden público) in the in the two jurisdictions (United States and the PhilippineIslands) as determined by the Constitution, laws, and judicial decisions.

In the United States it is well settled that contracts in undue or unreasonable restraint of trade are unenforcible because they are repugnant tothe established public policy in that country. Such contracts are illegal in the sense that the law will not enforce them. The Supreme Court inthe United States, in Oregon Steam Navigation Co. vs. Winsor )20 Will., 64), quoted with approval in Gibbs v. Consolidated gas Co. ofBaltimore (130 U.S., 396), said:

‘Cases must be judged according to their circumstances, and can only be rightly judged when reason and grounds of the rule arecarefully considered. There are two principle grounds on which the doctrine is founded that a contract in restraint of trade is void asagainst public policy. One is, the injury to the public by being deprived of the restricted party’s industry; and the other is, the injury tothe party himself by being precluded from pursuing his occupation, and thus being prevented from supporting himself and hisfamily.’

And what is public policy? In the words of the eminent Spanish jurist, Don Jose Maria Manresa, in his commentaries of the Codigo Civil, public policy(orden público):

Represents in the law of persons the public, social and legal interest, that which is permanent and essential of the institutions, that which, evenif favoring an individual in whom the right lies, cannot be left to his own will. It is an idea which, in cases of the waiver of any right, ismanifested with clearness and force.

20

As applied to agreements, Quintus Mucius Scaevola, another distinguished civilist gives the term "public policy" a more defined meaning:

Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly and wholly a public law(derecho) or whether a law of the person, but law which in certain respects affects the interest of society.

21

Plainly put, public policy is that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to thepublic or against the public good.

22 As applied to contracts, 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, isagainst the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends c learly toundermine the security of individual rights, whether of personal liability or of private property.

23

From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing competitors or new entrants from competition inthe covered portion of the relevant market during the term of the agreement.

24Only those arrangements whose probable effect is to foreclose competition

in a substantial share of the line of commerce affected can be considered as void for being against public policy. The foreclosure effect, if any, dependson the market share involved. The relevant market for this purpose includes the full range of selling opportunities reasonably open to rivals, namely, allthe product and geographic sales they may readily compete for, using easily convertible plants and marketing organizations.

25

Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in the objectives sought to be attained byparagraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products other than those

manufactured by petitioner Avon. We quote with approval the determination of the U.S. Supreme Court in the case of Board of Trade of Chicago v.U.S.

26 that "the question to be determined is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition, or

whether it is such as may suppress or even destroy competition."

Such prohibition is neither directed to eliminate the competition like Sandré Phils., Inc. nor foreclose new entrants to the market. In its Memorandum, itadmits that the reason for such exclusion is to safeguard the network that it has cultivated through the years. Admittedly, both companies employ thedirect selling method in order to peddle their products. By direct selling, petitioner Avon and Sandre, the manufacturer, forego the use of a middleman inselling their products, thus, controlling the price by which they are to be sold. The limitation does not affect the public at all. It is only a means by whichpetitioner Avon is able to protect its investment.

It was not by chance that Sandré Philippines, Inc. made respondent Luna one of its Group Franchise Directors. It doesn’t take a genius to realize that bymaking her an important part of its distribution arm, Sandré Philippines, Inc., a newly formed direct-selling business, would be saving time, effort andmoney as it will no longer have to recruit, train and motivate supervisors and dealers. Respondent Luna, who learned the tricks of the trade frompetitioner Avon, will do it for them. This is tantamount to unjust enrichment. Worse, the goodwill established by petitioner Avon among its loyal customerswill be taken advantaged of by Sandre Philippines, Inc. It is not so hard to imagine the scenario wherein the sale of Sandré products by Avon dealers wil










































engender a belief in the minds of loyal Avon customers that the product that they are buying had been manufactured by Avon. In other words, they willbe misled into thinking that the Sandré products are in fact Avon products. From the foregoing, it cannot be said that the purpose of thesubject exclusivity clause is to foreclose the competition, that is, the entrance of Sandré products in to the market. Therefore, it cannot be consideredvoid for being against public policy. How can the protection of one’s property be violative of public policy? Sandré Philippines, Inc. is still very much freeto distribute its products in the market but it must do so at its own expense. The exclusivity clause does not in any way limit its selling opportunities, justthe undue use of the resources of petitioner Avon.

It has been argued that the Supervisor’s Agreement is in the nature of a contract of adhesion; but just because it is does not necessarily mean that it isvoid. A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely affixes his signature signifying hisadhesion thereto.

27 Such contract is just as binding as ordinary contracts. "It is true that we have, on occasion, struck down such contracts as void when

the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving i t, completelydeprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se and they are not entirely prohibited.

The one who adheres to the contract is in reality free to reject it entirely, if he adheres, he gives his consent."28 In the case at bar, there was no indicationthat respondent Luna was forced to sign the subject agreement. Being of age, financially stable and with vast business experience, she is presumed tohave acted with due care and to have signed the assailed contract with full knowledge of its import. Under the premises, it would be difficult to assumethat she was morally abused. She was free to reject the agreement if she wanted to.

Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply fully and not selectively with its terms. A contract ofadhesion is no exception.

29

The foregoing premises noted, the Court of Appeals, therefore, committed reversible error in interpreting the subjectexclusivity clause to apply merely tothose products in direct competition to those manufactured and sold by petitioner Avon. When the terms of the agreement are clear and explicit, thatthey do not justify an attempt to read into any alleged intention of the parties, the terms are to be understood literally just as they appear on the face ofthe contract.

30 Thus, in order to judge the intention of the contracting parties, "the circumstances under which it was made, including the situation of the

subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those whose language he is to interpret."31

Ithas been held that once this intention of the parties has been ascertained, it becomes an integral part of the contract as though it has been originallyexpressed therein in unequivocal terms.

32

Having held that the "exclusivity clause" as embodied in paragraph 5 of the Supervisor’s Agreement is valid and not against public policy, we now passto a consideration of respondent Luna’s objections to the validity of her termination as provided for under paragraph 6 of the Supervisor’s Agreementgiving petitioner Avon the right to terminate or cancel such contract. The paragraph 6 or the "termination clause" therein expressly provides that:


x x x x

6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. [Emphasis supplied.]

In the case of Petrophil Corporation v. Court of Appeals,33

this Court already had the opportunity to opine that termination or cancellation clauses suchas that subject of the case at bar are legitimate if exercised in good faith. The facts of said case likewise involved a termination or cancellation clausethat clearly provided for two ways of terminating the contract, i.e., with or without cause. The utilization of one mode will not preclude the use of the

other. Therein, we stated that the finding that the termination of the contract was "for cause," is immaterial. When petitioner terminated the contract"without cause," it was required only to give x x x a 30-day prior written notice, which it did.

In the case at bar, the termination clause of the Supervisor’s Agreement clearly provides for two ways of terminating and/or canceling the contract. Onemode does not exclude the other. The contract provided that it can be terminated or cancelled for cause, it also stated that it can be terminated withoutcause, both at any time and after written notice. Thus, whether or not the termination or cancellation of the Supervisor’s Agreement was "for cause," isimmaterial. The only requirement is that of notice to the other party. When petitioner Avon chose to terminate the contract, for cause, respondent Lunawas duly notified thereof.

Worth stressing is that the right to unilaterally terminate or cancel the Supervisor’s Agreement with or without cause is equally available to respondentLuna, subject to the same notice requirement. Obviously, no advantage is taken against each other by the contracting parties.

WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated 20 May 2002 rendered by the Court of Appeals in CA-G.R. CV No. 52550, affirming the judgment of the RTC of Makati City, Branch 138, in Civil Case No. 88-2595, are hereby REVERSED and SET ASIDE.

Accordingly, let a new one be entered dismissing the complaint for damages. Costs against respondent Leticia Luna.

SO ORDERED.

Ynares-Santiago, (Working Chairman) and Austria-Martinez,, JJ., concur.Panganiban, CJ, retired as of 7 December 2006.Callejo, Sr., J., no part.

G.R. No. L-8851 March 16, 1914

AGAPITO BONZON, Plaintiff-Appellant , vs. STANDARD OIL COMPANY OF NEW YORK and LEONARDO OSORIO, assheriff, Defendants-Appellees.































Escader & Salas for appellant.Bruce, Laurence, Ross & Block for appellees.

CARSON, J .

This is an appeal from a judgment sustaining a demurrer to the original complaint filed in this action. The complaint appellees, insubstance, that plaintiff purchased certain real estate at an execution sale, paying therefor the sum of P2,170 to the defendantsheriff, who turned over the purchase price to the defendant company, the execution creditor, at whose instance the sale was had;that thereafter, plaintiff having gone into possession of the land was evicted therefrom in judicial proceedings, wherein the courtfound that the land in question was the property of certain third parties, and that neither the judgment debtor nor the purchaser at

the execution sale had any title thereto. The prayer of the complaint is for judgment against the judgment creditor and the sheriff forthe amount of the purchase price paid at the execution sale.

The principal contention of counsel for appellee is as follows:

The only question presented by plaintiff is the interpretation to be placed upon section 470 of the Code of Civil Procedure. Unless thissection gives him the remedy for which he contends, he has stated no cause of action, because the only other theory upon which hecould possibly require a reinbursement of the price paid by him at the sheriff's sale is that of an implied warranty by the judgmentcreditor and the sheriff. The complaint shows no compliance, as to the Standard Oil Company, with article 1481 of the Civil Code.

We must admit that section 470 of the code of Civil Procedure leaves something to be desired in the way of clearness. Its Englishtext. which of course must govern in case of any discrepancy between the English and the Spanish versions, is as follows:

"SEC. 470. If the purchaser of real property sold on execution, or his successor in interest, be evicted therefrom in consequence ofirregularities in the proceedings concerning the sale, or of the reversal or discharge of the judgment, he may recover the price paid,with interest, from the judgment creditor. If the purchaser of property at such official sale, or his successor in interest, fail to recoverpossession in consequence of irregularity in the proceedings concerning the sale, or because the property sold was not subject toexecution and sale, the court having jurisdiction thereof shall, after notice and on motion of such party in interest, or his attorney,revive the original judgment in the name of the petitioner, for the amount paid by such purchaser at the sale, with interest thereon

from the time of payment of the same rate that the original judgment bore; and the judgment so revived shall have the same forceand effect as would an original judgment of the date of the revival and no more."

It appears, as appellant says, that this section divides naturally into two parts; (1) Authorizing the recovery of the purchase priceunder certain conditions, and (2) authorizing the revival of the judgment in behalf of the purchaser in other circumstances. Plaintiffclaims to be entitled to the remedy set out in the first part of the section. It is apparent, however, that plaintiff's eviction, as set upin his complaint, is not due to any of the causes shown in this first part of section 470. So far as appears, 'the proceedingsconcerning the sale were perfectly regular, and the complaint discloses no reversal or discharge of the judgment' upon whoseexecution plaintiff became a purchaser.

The second part of section 470, applied by the judge of the trial court, seems, at f irst glance, not exactly applicable, because itprovides for the case where the purchaser may "fail to recover possession," while in the present case the purchaser entered intopossession and was subsequently dispossessed by others. We think, however, that the phrase "fail to recover possession" wasintended to meet such a case as this; otherwise section 470 would not meet a case like the present, although it was obviouslyintended to.

We agree with counsel for the appellee that the section of the Code in question leaves something to be desired in the way ofclearness; and it may be admitted that it is only by a liberal construction of the language used in the statute that the sale of propertyunder execution in which the judgment debtor has no title, can be held to be an "irregularity in the proceedings concerning thesale."

But we are of opinion, that the section of the Code of Civil Procedure under consideration, being remedial in its character, should beconstrued liberally so as to give a remedy as broad as that to be obtained by the corresponding suit in equity, which we think, wouldextend to a case where the sale of property under execution is held to be void on the ground that the judgment had no title.

The supreme court of California, discussing the provisions of section 708 of the California Code of Civil Procedure in the case ofMerguire vs. O'Donnell (139 Cal., 6), held as follows:

We think a sale made by a sheriff on an order of the court and void execution is "irregular" in the extreme degree, and that a salehad on a void execution is void for the reason of "irregularity in the proceedings concerning the sale." Section 708 of the Code ofCivil Procedure being remedial in its character, should be liberally construed. (Hitchcock vs.Caruthers, 100 Cal., 100; Cross vs. Zane,47 Cal., 602.) The section under consideration was intended to give a remedy by petition in the action which had culminated in the

judgment sough to be revived. There was and is a remedy by an independent suit in equity by which similar relief may be had as isgiven by the statute (Scherr vs.Himmelman, 53 Cal., 312); an this remedy ad administered in equity extends to cases where theexecution and sale under it are both held to be void (Smith vs.Reed, 52 Cal., 345); and, giving the section the liberal constructionrequired, it is clear that the remedy intended to be given under it is as board as that to be obtained in the corresponding action inequity. It is certainly necessary and consonant with the principles of equity that a party should have relief in cases where theexecution and sale are void as well as in those cases where there is an irregularity of such a character as to render the sale merely



voidable. Indeed, it would seem that the requirements of equity were the same in both the supposed cases, and there is no goodreason for applying the section to one of them and not to the other.

Upon like principles we think that where sheriff, by virtue of the authority conferred upon him by the issuance of an execution it sellthe property of the judgment debtor, undertakes to sell and does sell property o r an interest in property to which the judgmentdebtor is n no wise entitled, there is certainly a gave irregularity in the procedure had under color of the authority conferred by theexecution, and it would seem that in the irregularity may fairly be held to be an "irregularity in the proceedings concerning thesale."

No sound reason suggested itself for restricting the meaning of the language of the statute so as to exclude there from- cases such

as that under consideration. While the doctrine of caveat emptor , relied upon by counsel for appellee, has its legitimate force andeffect in precluding any idea of a warranty by plaintiff or defendant in execution or by the sheriff, it has no application in a casewhere a purchaser acquires no title to the property sold, as distinguished from a case wherein there is only a partial failure of title;and it has been universally held that in case of failure of title a bona fide purchaser s entitled to recover the purchase price from theofficer, if the funds are still in his hands, or from the judgment debtor. True it is that in some jurisdiction in the United Statespurchasers at execution sales where the debtor had no title to the property sold have no cause of action against the judgmentcreditors, but in others, "by judicial construction or express statutory enactment," bona fide purchaser s given a cause of actionagainst the execution creditors as well as the judgment debtor n case of failure of title. See text and cases cited under heading"Right and remedies on failure of title." (17 Cyc., 1319.) And we think that such was the intention of the legislator in enacting thesection under consideration.

In this jurisdiction (even n the absence of the statute), under the general principles tat one person may not enrich himself at theexpense of another, a judgment creditor would not be permitted to retain the purchaser price of land sold as the property of the

judgment debtor after it has been made to appear that the judgment debtor had no title to the land and that the purchaser hadfailed to secure title thereto, and we find no difficulty therefore in accepting a liberal construction of the statute which arrives at thesame equitable result.

The judgment in favor of the Standard Oil Company, and the execution issued thereon, gave to that company merely the right tohave the property of the judgment debtor sold in satisfaction of the judgment. It did not and could not give the company the right tohave the judgment satisfied out of the property of any other person. By the tortious act of the sheriff, certain property was sold towhich the judgment debtor had no title whatever; and the proceedings concerning the sale having been found to be and thepurchaser having been evicted from the property, it s clear that the company had right under its judgment to the proceeds of thesale, and that the sale having been held to have been void, the purchaser at the sale is equitably entitled to the return of thepurchaser price. This is precisely the result which we hold the remedial provisions of the section under consideration were intendedto secure, and it is the result which naturally and properly follows from a liberal construction of its terms.

We think that it will help to clear up the uncertainly as to the meaning of the different provisions of the statute if it be kept in mindthat the remedy provided in cases where "the property sold was not subject to execution and sale" was evidently intended to includecases wherein exempted property of the judgment debtor is sold under execution, and does not refer to cases wherein property ofthird persons is tortiously seized and sold, the case of Hitchcock vs. Caruthers(100 Cal., 100), cited in appellee's brief, to thecontrary notwithstanding. We think that the reasoning on which that decision should have been based is that set froth in the later

case of Merguire vs. O'Donnell, above cited.

The plaintiff's right to recovery from the judgment creditor not being predicated on the theory of an express or implied warranty oftitle, defendant's contentions based on the provisions of article 1481 of the code need not be considered at this time. If defendantwas not given an opportunity to be heard in the eviction proceedings, it would seem that the can avail himself in the pending actionof any defense which if set up in the former action would have relieved him from liability to reimburse the purchaser.

Let judgment be entered reversing the order of the court below sustaining the demurrer to the complaint, and directing that therecord be returned to the court below for further proceedings in accordance with law the principles herein set forth.

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