torts cases set 3-originals

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EN BANC

[G.R. No. L-12163. March 4, 1959.]

PAZ FORES, petitioner, vs. IRENEO MIRANDA, respondent.

Alberto O. Villaraza for petitioner.

Almazan & Ereneta for respondent.

SYLLABUS

1.PUBLIC UTILITIES; SALE OF PUBLIC SERVICE VEHICLE;APPROVAL OF PUBLIC SERVICE COMMISSION; REASON.Transfer of a

Public Service Commission, is not effective and binding in so far as the responsibility

of the grantee under the franchise in relation to the public is concerned. The

provisions of Section 20 of the Public Service Act are clear and prohibit the sale,

alienation, lease, of an operator's property, franchise , certificates, privileges or rights,

or any part thereof without approval or authorization of the Public Service

Commission. The law was designed primarily for the protection of the public interest;

and until the approval of the Public Service Commission is obtained, the vehicle is in

contemplation of law, still under the service of the owner or operation standing in the

records of the Commission to which the public has a right to rely upon.2.STATUTORY CONSTRUCTION; PROVISION OF SECTION 20 (Z)

PUBLIC SERVICE ACT INTERPRETED.--The proviso contained in Section 20 (Z)

of the Public Service Act, to the effect that nothing therein shall be construed "to

prevent the transaction from being negotiated or completed before its approval",

means only that the sale without the required approval is still valid and binding

between the parties. (Montoya vs. Ignacio 50 Off. Gaz., No. 1, p. 108). the phrase "in

ordinary course of its business" found in the other proviso "or to prevent the sale,

alienation, or lease by any public service of any of its property," could not have been

intended to include the sale of the vehicle itself but at most may refer only to such

property that can be conceivably disposed of by the carrier in the ordinary course ofits business, like junked equipment or spare parts.

3.DAMAGES; ACTUAL DAMAGES; ATTORNEY'S FEES INCLUDED IN

THE CONCEPT; AWARD BY COURT OF APPEALS MOTU PROPRIO.

Although the Court of First Instance did not provide for attorney's fees in the sum of

P3,000 and no appeal to the Court of Appeals was interposed on the point, it was not

an error for the Court of Appeals to award them motu propio because attorney's fees


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are included in the concept of actual damages under the Civil Code and may be

awarded whenever the court deems it just and equitable.

4.ID.; MORAL DAMAGES NOT RECOVERABLE IN ACTION ON

BREACH OF CONTRACT OF TRANSPROTATION.Moral damages are

generally not recoverable in damage actions predicated on a breach of contract of

transportation in view or the provisions of Articles 2218 and 2220 of the new Civil

Code.

5.ID.; ID.; EXCEPTION IN CASE OF DEATH OF PASSENGER.The

exception to the basic rule of damages is a mishap resulting in the death of a

passenger, in which case Article 1764 makes the common carrier expressly subject to

the rule of Art. 2206, of the Civil Code that entitles the spouse, descendants and

ascendants of the deceased passenger to "demand moral damages for mental anguish

by reason of the death of the deceased." (Necesito vs. Paras G. R. No. L-10605,

Resolution on motion to reconsider, Sept. 11, 1958).

6.ID.; ID.; NO DEATH; PROOF OF MALICE OR BAD FAITH REQUIRED.Where the injured passenger does not die, moral damages are not recoverable

unless it is proved that the carrier was guilty of malice or bad faith. The mere

carelessness of the carrier's driver does not per se constitute or justify an inference of

malice or bad faith on the part of the carrier.

7.ID.; ID.; NEGLIGENCE; NOT CARRIER'S BAD FAITH.While it is

true that negligence may be occasionally so gross as to amount to malice, that fact

must be shown in evidence. A carrier's bad faith is not to be lightly inferred from a

mere finding that the contract was breached through negligence of the carrier's

employees.

8.ID.; ID.; FAILURE TO TRANSPORT PASSENGERS SAFELY.The

theory that carrier's violation of its engagement to safely transport the passenger

involves a breach of the passenger's confidence, and therefore should be regarded as a

breach of contract in bad faith, justifying recovery of moral damages, under Article

2220 of the New Code is untenable, for under it the carrier would always be deemed

in bad faith in every case its obligation to the passenger is infringed and it would

never be accountable for simple negligence while under Article 1756 of the Civil

Code the presumption is that common carriers acted negligently and not maliciously,

and Article 1762 speaks ofnegligence of the common carrier.

9.ID.; CARRIERS; ACTIONS FOR BREACH OF CONTRACT; WHEN

PRESUMPTION OR CARRIER'S LIABILITY ARISES.An action for breach of

contract imposes on the carrier a presumption of liability upon mere proof of injury of

the passenger; the latter does not have to establish the fault of the carrier, or of his

employees, and the burden is placed on the carrier to prove that it was due to an

unforeseen event or to force majeure (Congco vs. Manila Railroad Co. 38 Phil., 768,

777.) Morever, the carrier, unlike in suits for quasi-delict may not escape liability by

proving that it has exercised due diligence in the selection and supervision of its


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employees. (Art. 1759 New Civil Code, Cangco vs. Manila Railroad Co. Supra; Prado

vs. Manila Electric Co., 51 Phil., 900)

D E C I S I O N

REYES, J.B.L., Jp:

Defendant-petitioner Paz Fores brings this petition for review of the decision

of the Court of Appeals (C. A. Case No. 1437-R) awarding to the plaintiff-respondent

Ireneo Miranda the sums of P5,000 by way of actual damages and counsel fees, and

P10,000 as moral damages, with costs.

Respondent was one of the passengers on a jeepney driven by Eugenio Luga.

While the vehicle was descending the Sta. Mesa bridge at an excessive rate of speed,

the driver lost control thereof, causing it to swerve and to hit the bridge wall. Theaccident occurred on the morning of March 22, 1953. Five of the passengers were

injured, including the respondent who suffered a fracture of the upper right humerus.

He was taken to the National Orthopedic Hospital for treatment, and later was

subjected to a series of operations; the first on May 23, 1953, when wire loops were

wound around the broken bones and screwed into place; a second, effected to insert a

metal splint, and a third one to remove such splint. At the time of the trial, it appears

that respondent had not yet recovered the use of his right arm.

The driver was charged with serious physical injuries through reckless

imprudence, and upon interposing a plea of guilty was sentenced accordingly.

The contention that the evidence did not sufficiently establish the identity of

the vehicle as that belonging to the petitioner was rejected by the appellate court

which found, among other things, that it carried plate No. TPU-1163, series of 1952,

Quezon City, registered in the name of Paz Fores, (appellant herein) and that the

vehicle even had the name of "Dona Paz" painted below its windshield. No evidence

to the contrary was introduced by the petitioner, who relied on an attack upon the

credibility of the two policemen who went to the scene of the incident.

A point to be further remarked is petitioner's contention that on March 21,

1953, or one day before the accident happened, she allegedly sold the passenger jeep

that was involved therein to a certain Carmen Sackerman.The initial problem raised by the petitioner in this appeal may be formulated

thus"Is the approval of the Public Service Commission necessary for the sale of a

public service vehicle even without conveying therewith the authority to operate the

same?" Assuming the dubious sale to be a fact, the Court of Appeals answered the

query in the affirmative. The ruling should be upheld.

Section 20 of the Public Service Act (Commonwealth Act No. 146) provides:


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"SEC. 20.Subject to established limitations and saving provisions to the

contrary, it shall be unlawful for any public service or for the owner, lessee or

operation thereof, without the previous approval and authority of theCommission previously had

(g)To sell, alienate, mortgage, encumber or lease its property, franchises,

certificates, privileges, or rights, or any part thereof; or merge or consolidate itsproperty, franchises, privileges or rights, or any part thereof, with those of anyother public service. The approval herein required shall be given, after notice to

the public and after hearing the persons interested at a public hearing, if it be

shown that there are just and reasonable grounds for making the mortgage orencumbrance, for liabilities of more than one year maturity, or the sale,

alienation, lease, merger, or consolidation to be approved and the same are not

detrimental to the public interest, and in case of a sale, the date on which the

same is to be consummated shall be fixed in the order or approval:Provided,

however, That nothing herein contained shall be construed to prevent the

transaction from being negotiated or completed before its approval or to prevent

the sale, alienation, or lease by any public service of any of its property in theordinary course of its business."

Interpreting the effects of this particular provision of law, we have held in the

recent cases of Montoya vs. Ignacio, * 50 Off. Gaz. No. 1, p. 108; Timbol vs. Osias,

et al., G. R. No. L-7547, April 30, 1955, and Medina vs. Cresencia, 99 Phil, 506; 52

Off. Gaz. No. 10, p. 4606, that a transfer contemplated by the law, if made without the

requisite approval of the Public Service Commission, is not effective and binding in

so far as the responsibility of the grantee under the franchise in relation to the public

is concerned. Petitioner assails case, contending that in those cases, the operator, the

operator did not convey, by lease or by sale, the vehicle independently of his rights

under the franchise. This line of reasoning does not find support in the law. Theprovisions of the statute are clear and property, franchise, certificate, privileges or

rights, or any part thereof of the owner or operator of the public service without

approval or authorization of the Public Service Commission. The law was designed

primarily for the protection of the public interest; and until the approval of the Public

Service Commission is obtained the vehicle is, in contemplation of law, still under the

service of the owner or operator standing in the records of the Commission which the

public has a right to rely upon.

The proviso contained in the aforequoted law, to the effect that nothing therein

shall be construed "to prevent the transaction from being negotiated or completed

before its approval", means only that the sale without the required approval is still

valid and binding between the parties (Montoya vs. Ignacio, supra). The phrase "in

the ordinary course of its business" found in the other proviso "or to prevent the sale,

alienation, or lease by any public service of any of its property". as correctly observed

by the lower court, could not have been intended to include the sale of the vehicle

itself, but at most may refer only to such property that may be conceivably disposed


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or by the carrier in the ordinary course of its business, like junked equipment or spare

parts.

The case of Indalecio de Torres vs. Visente Ona (63 Phil., 594,597) is

enlightening; and there, it was held:

"Under the law, the Public Service Commission has not only generalsupervision and regulation of, but also full jurisdiction and control over allpublic utilities including the property, equipment and facilities used, and the

property rights and franchises enjoyed by every individual and company

engaged in the performance of a public service in the sense this phrase is used in

the Public Service Act or Act No. 3108). By virtue of the provisions of said Act,motor vehicles used in the performance of a service, as the transportation of

freightfrom one point to another, have to this date been consideredand they

cannot but be so considered public service property; and, by reason of its own

nature, a TH truck, which means that the operator thereof places it at thedisposal of anybody who is willing to pay a rental for its use, when he desires to

transfer or carry his effects, merchandise or any other cargo from one place toanother, is necessarily a public service property." (Emphasis supplied)

Of course, this Court has held in the case of Bachrach Motor Co. vs.

Zamboanga Transportation Co., 52 Phil., 244, that there may be a nunc pro tunc

authorization which had the effect of having the approval retroact to the date of the

transfer; but such outcome cannot prejudice rights intervening in the meantime. It

appears that no such approval was given by the Commission before the accident

occurred.

The P10,000 actual damages awarded by the Court of First Instance of Manila

were reduced by the Court of Appeals to only P2,000, on the ground that a review of

the records failed to disclose a sufficient basis for the trial court's appraisal, since theonly evidence presented on this point consisted of respondent's bare statement that his

expenses and loss of income amounted to P20,000. On the other hand, "it cannot be

denied," the lower court said, "that appellee (respondent ) did incur expenses." It is

well to note further that respondent was a painter by profession and a professor of

Fine Arts, so that the amount of P2,000 awarded cannot be said to be excessive (see

Arts. 2224 and 2225, Civil Code of the Philippines). The attorney's fees in the sum of

P3,000 also awarded to the respondent are assailed on the ground that the Court of

First Instance did not provide for the same, and since no appeal was interposed by

said respondent, it was allegedly error for the Court of Appeals to award them motu

proprio. Petitioner fails to note that attorney's fees are included in the concept ofactual damaged under the Civil Code and may be awarded whenever the court deems

it just and equitable (Art. 2208, Civil Code of the Philippines). We see no reason to

alter these awards.

Anent the moral damages ordered to be paid to the respondent, the same must

be discarded. We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc.

101 Phil., 523; 54 Off. Gaz., [26], 6599; Necesito, et al vs. Paras, 104 Phil., 75; 56


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Off. Gaz., [23] 4023, that moral damages are not recoverable in damage actions

predicated on a breach of the contract of transportation, in view of Articles 2219 and

2220 of the 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.Willful injury to property may be a legal ground forawarding moral damages if the court should find that, under the circumstance,

such damages are justly due. The same rule applies to breaches of contract

where the defendant acted 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 injurious conduct, is essential to

justify an award of moral damages; and

(b)That a breach of contract can not be considered included in the description

term "analogous cases" used in Art. 2219; not only because Art. 2220 specifically

provides for the damages that are caused by contractual breach, but because the

definition ofquasi-delictin Act. 2176 of the Code expressly excludes the cases where

there is a "preexisting contractual relation between the parties."

"ART. 2176.Whoever by act or omission caused damage to another,

there being fault or negligence, is obliged to pay for the damage done. Suchfault or negligence, if there is no pro-existing contractual relation between theparties, is called a quasi-delict and is governed by the provision 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 Article 1764 makes the common

carrier expressly subject to the rule of Art. 2206, that entitles the spouse, descendants

and ascendants of the deceased 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 where the injured passenger does not die,moral damages are not recoverable unless it is proved that the carrier was guilty of

malice or bad faith. We think 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 the

part of the carrier; and in the case at bar there is no other evidence of such malice to

support the award of moral damages for breach of contract, therefore, without proof

of bad faith or malice on the part of the defendant, as required by Art. 2220, would be


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to violate the clear provisions of the law, and constitute unwarranted judicial

legislation.

The Court of Appeals has invoked our ruling in Castro vs. Acro Taxicab Co.,

R. G. No. 49155, December 14, 1948 and Layda vs. Court of Appeals, 90 Phil., 724;

but these doctrines were predicated upon our former law of damages, before judicial

discretion in fixing them became limited by the express provisions of the new Civil

Code (previously quoted). Hence, the aforesaid rulings are now inapplicable.

Upon the other hand, the advantageous position of a party suing a carrier for

breach of the contract of transportation explains, to some extent, the limitation

imposed by the new Code on the amount of the recovery. The action for breach of

contract imposes on the defendant carrier a presumption of liability upon mere proof

of injury to the passenger; that latter is relieved from the duty to establish the fault of

the carrier, or of his employees, and the burden is placed on the carrier to prove the it

was due to an unforeseen event or to force majeure (Cangco vs. Manila Railroad Co.,

38 Phil., 768 777). Moreover, the carrier, unlike in suits for quasi-delict, may notescape liability by proving that it has exercised due diligence in the selection and

supervision of its employees (Art. 1759, new Civil Code; Cangco vs. Manila Railroad

Co.,supra; Prado vs. Manila Electric Co., 51 Phil., 900).

The difference in conditions, defenses and proof, as well as the codal concept

ofquasi-delictas essentially extra contractualnegligence, compel us to differentiate

between action ex contractu, and actions quasi ex delicto, and prevent us from

viewing the action for breach of contract as simultaneously embodying an action on

tort. Neither liability under Art. 103 of the Revised Penal Code, since the

responsibility is not alleged to be subsidiary, nor is there on record any averment or

proof that the driver of appellant was insolvent. In fact, he is not even made a party tothe suit.

It is also suggested that a carrier's violation of its engagement to safety

transport the passenger involves a breach of the passenger's confidence, and therefore

should be regarded as a breach of contract in bad faith, justifying recovery of moral

damages under Art. 2220. This theory is untenable, for under it the carrier would

always be deemed in bad faith, in every case its obligation to the passenger is

infringed, and it would be never accountable for simple negligence; while under the

law (Art. 1756) the presumption is that common carriers acted negligently (and not

maliciously), and Art. 1762 speaks of negligence of the common carrier.

"ART. 1756.In case of death of or injuries to passengers, commoncarriers are presumed to have been at fault or to have acted negligently, unlessthe prove that they observed extraordinary diligence as prescribed in article

1733 and 1755."

"ART. 1762.The contributory negligence of the passenger does not bar

recovery of damages for his death or injuries, it the proximate cause thereof is


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the negligence of the common carrier, but the amount of damages shall be

equitably reduced."

The distinction between fraud, bad faith or malice in the sense of deliberate or

wanton wrong doing and negligence (as mere carelessness) is too 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 be those that are the natural and

probable consequence of the breach of the obligation, and which the partieshave foreseen or could have reasonable 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 be reasonably 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 that fact must be

shown in evidence, from a mere finding that the contract was breached through

negligence of the carrier's employees.

In view of the foregoing considerations, the decision of the Court of Appeals is

modified by eliminating the award of P5.000.00 by way of moral damages (Court of

Appeals Resolution of May 5, 1957). In all other respects, the judgment is affirmed.

No costs in this instance. So ordered.

SECOND DIVISION

[G.R. No. 133179. March 27, 2008.]

ALLIED BANKING CORPORATION, petitioner, vs. LIM SIOWAN, METROPOLITAN BANK AND TRUST CO., andPRODUCERS BANK, respondents.

D E C I S I O N

VELASCO, JR., Jp:


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To ingratiate themselves to their valued depositors, some banks at times bend over

backwards that they unwittingly expose themselves to great risks.

The Case

This Petition for Review on Certiorari under Rule 45 seeks to reverse the Court ofAppeals' (CA's) Decision promulgated on March 18, 19981in CA-G.R. CV No. 46290

entitled Lim Sio Wan v. Allied Banking Corporation, et al. The CA Decision modified the

Decision dated November 15, 19932of the Regional Trial Court (RTC), Branch 63 in

Makati City rendered in Civil Case No. 6757. cCaEDA

The Facts

The facts as found by the RTC and affirmed by the CA are as follows:

On November 14, 1983, respondent Lim Sio Wan deposited with petitioner AlliedBanking Corporation (Allied) at its Quintin Paredes Branch in Manila a money market

placement of PhP1,152,597.35 for a term of 31 days to mature on December 15, 1983,3

as evidenced by Provisional Receipt No. 1356 dated November 14, 1983.4

On December 5, 1983, a person claiming to be Lim Sio Wan called up Cristina So, an

officer of Allied, and instructed the latter to pre-terminate Lim Sio Wan's money market

placement, to issue a manager's check representing the proceeds of the placement, and to

give the check to one Deborah Dee Santos who would pick up the check.5Lim Sio Wan

described the appearance of Santos so that So could easily identify her.6

Later, Santos arrived at the bank and signed the application form for a manager's check tobe issued.7The bank issued Manager's Check No. 035669 for PhP1,158,648.49,

representing the proceeds of Lim Sio Wan's money market placement in the name of Lim

Sio Wan, as payee.8The check was cross-checked "For Payee's Account Only" and

given to Santos.9

Thereafter, the manager's check was deposited in the account of Filipinas Cement

Corporation (FCC) at respondent Metropolitan Bank and Trust Co. (Metrobank),10with

the forged signature of Lim Sio Wan as indorser.11

Earlier, on September 21, 1983, FCC had deposited a money market placement for PhP2million with respondent Producers Bank. Santos was the money market trader assigned to

handle FCC's account.12Such deposit is evidenced by Official Receipt No. 317568 13

and a Letter dated September 21, 1983 of Santos addressed to Angie Lazo of FCC,

acknowledging receipt of the placement.14The placement matured on October 25, 1983

and was rolled-over until December 5, 1983 as evidenced by a Letter dated October 25,

1983.15When the placement matured, FCC demanded the payment of the proceeds of
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the placement.16On December 5, 1983, the same date that So received the phone call

instructing her to pre-terminate Lim Sio Wan's placement, the manager's check in the

name of Lim Sio Wan was deposited in the account of FCC, purportedly representing the

proceeds of FCC's money market placement with Producers Bank.17In other words, the

Allied check was deposited with Metrobank in the account of FCC as Producers Bank's

payment of its obligation to FCC.

To clear the check and in compliance with the requirements of the Philippine Clearing

House Corporation (PCHC) Rules and Regulations, Metrobank stamped a guaranty on

the check, which reads: "All prior endorsements and/or lack of endorsement guaranteed."

18

The check was sent to Allied through the PCHC. Upon the presentment of the check,

Allied funded the check even without checking the authenticity of Lim Sio Wan's

purported indorsement. Thus, the amount on the face of the check was credited to the

account of FCC.19

On December 9, 1983, Lim Sio Wan deposited with Allied a second money market

placement to mature on January 9, 1984.20

On December 14, 1983, upon the maturity date of the first money market placement, Lim

Sio Wan went to Allied to withdraw it.21She was then informed that the placement had

been pre-terminated upon her instructions. She denied giving any instructions and

receiving the proceeds thereof. She desisted from further complaints when she was

assured by the bank's manager that her money would be recovered.22

When Lim Sio Wan's second placement matured on January 9, 1984, So called Lim Sio

Wan to ask for the latter's instructions on the second placement. Lim Sio Wan instructed

So to roll-over the placement for another 30 days.23On January 24, 1984, Lim Sio Wan,

realizing that the promise that her money would be recovered would not materialize, sent

a demand letter to Allied asking for the payment of the first placement.24Allied refused

to pay Lim Sio Wan, claiming that the latter had authorized the pre-termination of the

placement and its subsequent release to Santos.25

Consequently, Lim Sio Wan filed with the RTC a Complaint dated February 13, 198426

docketed as Civil Case No. 6757 against Allied to recover the proceeds of her first money

market placement. Sometime in February 1984, she withdrew her second placement fromAllied. DSHcTC

Allied filed a third party complaint27against Metrobank and Santos. In turn, Metrobank

filed a fourth party complaint28against FCC. FCC for its part filed a fifth party

complaint29against Producers Bank. Summonses were duly served upon all the parties

except for Santos, who was no longer connected with Producers Bank.30
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On May 15, 1984, or more than six (6) months after funding the check, Allied informed

Metrobank that the signature on the check was forged.31Thus, Metrobank withheld the

amount represented by the check from FCC. Later on, Metrobank agreed to release the

amount to FCC after the latter executed an Undertaking, promising to indemnify

Metrobank in case it was made to reimburse the amount.32

Lim Sio Wan thereafter filed an amended complaint to include Metrobank as a party-

defendant, along with Allied.33The RTC admitted the amended complaint despite the

opposition of Metrobank.34Consequently, Allied's third party complaint against

Metrobank was converted into a cross-claim and the latter's fourth party complaint

against FCC was converted into a third party complaint. 35

After trial, the RTC issued its Decision, holding as follows:

WHEREFORE, judgment is hereby rendered as follows:

1.Ordering defendant Allied Banking Corporation to pay plaintiff the amount ofP1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully

paid;

2.Ordering defendant Allied Bank to pay plaintiff the amount of P100,000.00 by

way of moral damages;

3.Ordering defendant Allied Bank to pay plaintiff the amount of P173,792.20 by

way of attorney's fees; and,

4.Ordering defendant Allied Bank to pay the costs of suit. aTcIAS

Defendant Allied Bank's cross-claim against defendant Metrobank is

DISMISSED.

Likewise defendant Metrobank's third-party complaint as against Filipinas

Cement Corporation is DISMISSED.

Filipinas Cement Corporation's fourth-party complaint against Producer's Bank

is also DISMISSED.

SO ORDERED.36

The Decision of the Court of Appeals

Allied appealed to the CA, which in turn issued the assailed Decision on March 18, 1998,

modifying the RTC Decision, as follows:
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WHEREFORE, premises considered, the decision appealed from is

MODIFIED. Judgment is rendered ordering and sentencing defendant-appellant

Allied Banking Corporation to pay sixty (60%) percent and defendant-appelleeMetropolitan Bank and Trust Company forty (40%) of the amount of

P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully

paid. The moral damages, attorney's fees and costs of suit adjudged shalllikewise be paid by defendant-appellant Allied Banking Corporation anddefendant-appellee Metropolitan Bank and Trust Company in the same

proportion of 60-40. Except as thus modified, the decision appealed from is

AFFIRMED. HcSDIE

SO ORDERED.37

Hence, Allied filed the instant petition.

The Issues

Allied raises the following issues for our consideration:

The Honorable Court of Appeals erred in holding that Lim Sio Wan did not

authorize [Allied] to pre-terminate the initial placement and to deliver the check

to Deborah Santos.

The Honorable Court of Appeals erred in absolving Producers Bank of any

liability for the reimbursement of amount adjudged demandable.

The Honorable Court of Appeals erred in holding [Allied] liable to the extent of

60% of amount adjudged demandable in clear disregard to the ultimate liabilityof Metrobank as guarantor of all endorsement on the check, it being the

collecting bank.38

The petition is partly meritorious. SAEHaC

A Question of Fact

Allied questions the finding of both the trial and appellate courts that Allied was not

authorized to release the proceeds of Lim Sio Wan's money market placement to Santos.

Allied clearly raises a question of fact. When the CA affirms the findings of fact of the

RTC, the factual findings of both courts are binding on this Court.39

We also agree with the CA when it said that it could not disturb the trial court's findings

on the credibility of witness So inasmuch as it was the trial court that heard the witness

and had the opportunity to observe closely her deportment and manner of testifying.

Unless the trial court had plainly overlooked facts of substance or value, which, if
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considered, might affect the result of the case,40we find it best to defer to the trial court

on matters pertaining to credibility of witnesses.

Additionally, this Court has held that the matter of negligence is also a factual question.

41Thus, the finding of the RTC, affirmed by the CA, that the respective parties were

negligent in the exercise of their obligations is also conclusive upon this Court. ACETIa

The Liability of the Parties

As to the liability of the parties, we find that Allied is liable to Lim Sio Wan.

Fundamental and familiar is the doctrine that the relationship between a bank and a client

is one of debtor-creditor.

Articles 1953 and 1980 of the Civil Code provide:

Art. 1953.A person who receives a loan of money or any other fungible thing

acquires the ownership thereof, and is bound to pay to the creditor an equalamount of the same kind and quality.

Art. 1980.Fixed, savings, and current deposits of money in banks and similarinstitutions shall be governed by the provisions concerning simple loan. CEDScA

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple loan

or mutuum.42More succinctly, in Citibank, N.A. (Formerly First National City Bank) v.

Sabeniano, this Court ruled that a money market placement is a simple loan or mutuum.

43Further, we defined a money market in Cebu International Finance Corporation v.Court of Appeals, as follows:

[A] money market is a market dealing in standardizedshort-term credit

instruments (involving large amounts) where lenders and borrowers do not deal

directly with each other but through a middle man or dealer in open market. In amoney market transaction, the investor is a lender who loans his money to a

borrower through a middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the

private respondent is in the nature of a loan.44

Lim Sio Wan, as creditor of the bank for her money market placement, is entitled to

payment upon her request, or upon maturity of the placement, or until the bank is

released from its obligation as debtor. Until any such event, the obligation of Allied to

Lim Sio Wan remains unextinguished.
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Art. 1231 of the Civil Code enumerates the instances when obligations are considered

extinguished, thus:

Art. 1231.Obligations are extinguished:

(1)By payment or performance;

(2)By the loss of the thing due;

(3)By the condonation or remission of the debt;

(4)By the confusion or merger of the rights of creditor and debtor;

(5)By compensation;

(6)By novation. HCISED

Other causes of extinguishment of obligations, such as annulment, rescission,fulfillment of a resolutory condition, and prescription, are governed elsewhere

in this Code. (Emphasis supplied.)

From the factual findings of the trial and appellate courts that Lim Sio Wan did not

authorize the release of her money market placement to Santos and the bank had been

negligent in so doing, there is no question that the obligation of Allied to pay Lim Sio

Wan had not been extinguished. Art. 1240 of the Code states that "payment shall be made

to the person in whose favor the obligation has been constituted, or his successor in

interest, or any person authorized to receive it." As commented by Arturo Tolentino:

Payment made by the debtor to a wrong party does not extinguish the obligation

as to the creditor, if there is no fault or negligence which can be imputed to the

latter. Even when the debtor acted in utmost good faith and by mistake as to the

person of his creditor, or through error induced by the fraud of a third person,the payment to one who is not in fact his creditor, or authorized to receive such

payment, is void, except as provided in Article 1241. Such payment does notprejudice the creditor, and accrual of interest is not suspended by it.45(Emphasis supplied.)

Since there was no effective payment of Lim Sio Wan's money market placement, the

bank still has an obligation to pay her at six percent (6%) interest from March 16, 1984

until the payment thereof. 2005jur

We cannot, however, say outright that Allied is solely liable to Lim Sio Wan.

Allied claims that Metrobank is the proximate cause of the loss of Lim Sio Wan's money.

It points out that Metrobank guaranteed all prior indorsements inscribed on the manager's
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check, and without Metrobank's guarantee, the present controversy would never have

occurred. According to Allied:

Failure on the part of the collecting bank to ensure that the proceeds of the

check is paid to the proper party is, aside from being an efficient intervening

cause, also the last negligent act, . . . contributory to the injury caused in thepresent case, which thereby leads to the conclusion that it is the collecting bank,

Metrobank that is the proximate cause of the alleged loss of the plaintiff in the

instant case.46

We are not persuaded.

Proximate cause is "that cause, which, in natural and continuous sequence, unbroken by

any efficient intervening cause, produces the injury and without which the result would

not have occurred."47Thus, there is an efficient supervening event if the event breaks

the sequence leading from the cause to the ultimate result. To determine the proximate

cause of a controversy, the question that needs to be asked is: If the event did not happen,would the injury have resulted? If the answer is NO, then the event is the proximate

cause.

In the instant case, Allied avers that even if it had not issued the check payment, the

money represented by the check would still be lost because of Metrobank's negligence in

indorsing the check without verifying the genuineness of the indorsement thereon.

Section 66 in relation to Sec. 65 of the Negotiable Instruments Law provides:

Section 66.Liability of general indorser.Every indorser who indorseswithout qualification, warrants to all subsequent holders in due course;

a)The matters and things mentioned in subdivisions (a), (b) and (c)of the next preceding section; and

b)That the instrument is at the time of his indorsement valid and

subsisting;

And in addition, he engages that on due presentment, it shall be accepted or

paid, or both, as the case may be according to its tenor, and that if it be

dishonored, and the necessary proceedings on dishonor be duly taken, he willpay the amount thereof to the holder, or to any subsequent indorser who may be

compelled to pay it.

Section 65.Warranty where negotiation by delivery, so forth.Every person

negotiating an instrument by delivery or by a qualified indorsement, warrants:
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a)That the instrument is genuine and in all respects what it purportsto be;

b)That he has a good title of it;

c)That all prior parties had capacity to contract;

d)That he has no knowledge of any fact which would impair the validityof the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor ofno holder other than the immediate transferee.

The provisions of subdivision (c) of this section do not apply to personsnegotiating public or corporation securities, other than bills and notes.

(Emphasis supplied.)

The warranty "that the instrument is genuine and in all respects what it purports to be"

covers all the defects in the instrument affecting the validity thereof, including a forged

indorsement. Thus, the last indorser will be liable for the amount indicated in the

negotiable instrument even if a previous indorsement was forged. We held in a line of

cases that "a collecting bank which indorses a check bearing a forged indorsement and

presents it to the drawee bank guarantees all prior indorsements, including the forged

indorsement itself, and ultimately should be held liable therefor."48

However, this general rule is subject to exceptions. One such exception is when the

issuance of the check itself was attended with negligence. Thus, in the cases cited above

where the collecting bank is generally held liable, in two of the cases where the checks

were negligently issued, this Court held the institution issuing the check just as liable as

or more liable than the collecting bank. aSHAIC

In isolated cases where the checks were deposited in an account other than that of the

payees on the strength of forged indorsements, we held the collecting bank solely liable

for the whole amount of the checks involved for having indorsed the same. In Republic

Bank v. Ebrada,49the check was properly issued by the Bureau of Treasury. While in

Banco de Oro Savings and Mortgage Bank (Banco de Oro) v. Equitable Banking

Corporation,50Banco de Oro admittedly issued the checks in the name of the correct

payees. And in Traders Royal Bank v. Radio Philippines Network, Inc.,51the checkswere issued at the request of Radio Philippines Network, Inc. from Traders Royal Bank.

However, in Bank of the Philippine Islands v. Court of Appeals, we said that the drawee

bank is liable for 60% of the amount on the face of the negotiable instrument and the

collecting bank is liable for 40%. We also noted the relative negligence exhibited by two

banks, to wit:
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In the instant case, the trial court correctly found Allied negligent in issuing the

manager's check and in transmitting it to Santos without even a written authorization. 54

In fact, Allied did not even ask for the certificate evidencing the money market placement

or call up Lim Sio Wan at her residence or office to confirm her instructions. Both

actions could have prevented the whole fraudulent transaction from unfolding. Allied's

negligence must be considered as the proximate cause of the resulting loss.

To reiterate, had Allied exercised the diligence due from a financial institution, the check

would not have been issued and no loss of funds would have resulted. In fact, there would

have been no issuance of indorsement had there been no check in the first place.

The liability of Allied, however, is concurrent with that of Metrobank as the last indorser

of the check. When Metrobank indorsed the check in compliance with the PCHC Rules

and Regulations55without verifying the authenticity of Lim Sio Wan's indorsement and

when it accepted the check despite the fact that it was cross-checked payable to payee's

account only,56its negligent and cavalier indorsement contributed to the easier releaseof Lim Sio Wan's money and perpetuation of the fraud. Given the relative participation of

Allied and Metrobank to the instant case, both banks cannot be adjudged as equally

liable. Hence, the 60:40 ratio of the liabilities of Allied and Metrobank, as ruled by the

CA, must be upheld. DEIHAa

FCC, having no participation in the negotiation of the check and in the forgery of Lim

Sio Wan's indorsement, can raise the real defense of forgery as against both banks.57

As to Producers Bank, Allied Bank's argument that Producers Bank must be held liable as

employer of Santos under Art. 2180 of the Civil Code is erroneous. Art. 2180 pertains to

the vicarious liability of an employer for quasi-delicts that an employee has committed.

Such provision of law does not apply to civil liability arising from delict.

One also cannot apply the principle of subsidiary liability in Art. 103 of the Revised

Penal Code in the instant case. Such liability on the part of the employer for the civil

aspect of the criminal act of the employee is based on the conviction of the employee for

a crime. Here, there has been no conviction for any crime.

As to the claim that there was unjust enrichment on the part of Producers Bank, the same

is correct. Allied correctly claims in its petition that Producers Bank should reimburse

Allied for whatever judgment that may be rendered against it pursuant to Art. 22 of theCivil Code, which provides: "Every person who through an act of performance by

another, or any other means, acquires or comes into possession of something at the

expense of the latter without just cause or legal ground, shall return the same to him."

The above provision of law was clarified in Reyes v. Lim, where we ruled that "[t]here is

unjust enrichment when a person unjustly retains a benefit to the loss of another, or when
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a person retains money or property of another against the fundamental principles of

justice, equity and good conscience."58

In Tamio v. Ticson, we further clarified the principle of unjust enrichment, thus: "Under

Article 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly

benefited, and (2) such benefit is derived at the expense of or with damages to another."59

In the instant case, Lim Sio Wan's money market placement in Allied Bank was pre-

terminated and withdrawn without her consent. Moreover, the proceeds of the placement

were deposited in Producers Bank's account in Metrobank without any justification. In

other words, there is no reason that the proceeds of Lim Sio Wans' placement should be

deposited in FCC's account purportedly as payment for FCC's money market placement

and interest in Producers Bank. With such payment, Producers Bank's indebtedness to

FCC was extinguished, thereby benefitting the former. Clearly, Producers Bank was

unjustly enriched at the expense of Lim Sio Wan. Based on the facts and circumstancesof the case, Producers Bank should reimburse Allied and Metrobank for the amounts the

two latter banks are ordered to pay Lim Sio Wan. TCaAHI

It cannot be validly claimed that FCC, and not Producers Bank, should be considered as

having been unjustly enriched. It must be remembered that FCC's money market

placement with Producers Bank was already due and demandable; thus, Producers Bank's

payment thereof was justified. FCC was entitled to such payment. As earlier stated, the

fact that the indorsement on the check was forged cannot be raised against FCC which

was not a part in any stage of the negotiation of the check. FCC was not unjustly

enriched.

From the facts of the instant case, we see that Santos could be the architect of the entire

controversy. Unfortunately, since summons had not been served on Santos, the courts

have not acquired jurisdiction over her.60We, therefore, cannot ascribe to her liability in

the instant case.

Clearly, Producers Bank must be held liable to Allied and Metrobank for the amount of

the check plus 12% interest per annum, moral damages, attorney's fees, and costs of suit

which Allied and Metrobank are adjudged to pay Lim Sio Wan based on a proportion of

60:40.

WHEREFORE, the petition is PARTLY GRANTED. The March 18, 1998 CA Decision

in CA-G.R. CV No. 46290 and the November 15, 1993 RTC Decision in Civil Case No.

6757 are AFFIRMED with MODIFICATION.

Thus, the CA Decision is AFFIRMED, the fallo of which is reproduced, as follows:
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WHEREFORE, premises considered, the decision appealed from is

MODIFIED. Judgment is rendered ordering and sentencing defendant-appellant

Allied Banking Corporation to pay sixty (60%) percent and defendant-appelleeMetropolitan Bank and Trust Company forty (40%) of the amount of

P1,158,648.49 plus 12% interest per annum from March 16, 1984 until fully

paid. The moral damages, attorney's fees and costs of suit adjudged shalllikewise be paid by defendant-appellant Allied Banking Corporation anddefendant-appellee Metropolitan Bank and Trust Company in the same

proportion of 60-40. Except as thus modified, the decision appealed from is

AFFIRMED. CaATDE

SO ORDERED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to pay

Allied and Metrobank the aforementioned amounts. The liabilities of the parties are

concurrent and independent of each other. TACEDI

SO ORDERED.

EN BANC

[G.R. No. 108164. February 23, 1995.]

FAR EAST BANK AND TRUST COMPANY, petitioner, vs.THEHONORABLE COURT OF APPEALS, LUIS A. LUNA and

CLARITA S. LUNA, respondents.

SYLLABUS

1.CIVIL LAW; DAMAGES; MORAL DAMAGES; WHEN MAY BE RECOVERED IN

CASE OF CULPA CONTRACTUAL; RULE; CASE AT BAR.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 the contract. Bad faith, in this context, includesgross, but

not simple, negligence. Exceptionally, in contract ofcarriage, moral damages are also

allowed in case of death of a passenger attributable to the fault (which is presumed) of the

common carrier. Concededly, the bank was remiss in indeed neglecting to personallyinform Luis of his own card's cancellation. Nothing in the findings of the trial court and

the appellate court, however, can sufficiently indicate any deliberate intent on the part of

FEBTC to cause harm to private respondents. Neither could 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 the negative idea of


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negligence in that malice or bad faith contemplates a state of mind affirmatively

operating with furtive design or ill-will. 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 could properly relate to a breach of contract, its application can be warranted

only when the defendant's disregard of his contractual obligation is so deliberate as to

approximate a degree of misconduct certainly no less worse than fraud or bad faith. Mostimportantly, Article 21 is a mere declaration of a general principle in human relations that

clearly must, inanycase, give way to the specific provision of Article 2220 of the Civil

Code authorizing the grant of moral damages in culpa contractualsolely when the breach

is due to fraud or bad faith.

2.ID.; ID.; ID.; ID.; ID.; APPLICATION OF THE PROVISION ON QUASI-DELICT.

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 the application of applicable

principles on tort 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 thePhil. Islands, 23 SCRA 1117; andAir 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 tort

independently of the contract. The test (whether a quasi-delict can be deemed to underlie

the breach of a contract) can be stated thusly: Where, without a pre-existing contract

between two parties, an act or omission can nonetheless amount to an actionable tort by

itself, the fact that the parties are contractually bound is no bar to the application of quasi-

delict provisions to the case. Here, private respondents' damage claim is predicated solely

on their contractual relationship; without such agreement, the act or omission complained

of cannot by itself be held to stand as a separate cause of action or as an independentactionable tort.

3.ID.; ID.; EXEMPLARY OR CORRECTIVE DAMAGES; WHEN AVAILABLE.

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; seePrudenciado vs. Alliance Transport System, 148

SCRA 440;Lopez vs. Pan American World Airways, 16 SCRA 431). In criminal

offenses, exemplary damages are imposed when the crime is committed with one or more

aggravating circumstances (Art. 2230, Civil Code). In quasi-delicts, such damages are

granted if the defendant is shown to have been so guilty of gross negligence as to

approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers Union

vs. NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA

778. In contractsand quasi-contracts, the court may award exemplary damages if the

defendant is found to have acted in a wanton, fraudulent, reckless, oppressive, or

malevolent manner (Art. 2232, Civil Code;PNB vs. Gen. Acceptance and Finance Corp.,

161 SCRA 449).


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4.ID.; ID.; NOMINAL DAMAGES; WHEN AVAILABLE; APPLICATION IN CASE

AT BAR.The bank's failure, even perhaps inadvertent, to honor its credit card issued

to private respondent Luis should entitle him to recover a measure 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 be vindicated or recognized, and not for the purpose of indemnifying theplaintiff for any loss suffered by him."

D E C I S I O N

VITUG,Jp:

Some time in October 1986, private respondent Luis A. Luna applied for, and

was accorded, a FAREASTCARD issued by petitioner Far East Bank and TrustCompany ("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. In cases of this

nature, the banks internal security procedures and policy would appear to be to

meanwhile so record the lost card, along with the principal card, 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 the Hotel

Intercontinental Manila. To pay for the lunch, Luis presented his FAREASTCARD to

the attending waiter who promptly had it verified through a telephone 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, FAREASTCARDundertakes the necessary action to avert its unauthorized use (such as tagging

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, an overzealous employee

of the Bank's Credit Card Department did not consider the possibility that it


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may have been you who was presenting the 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" of FEBTC.

William Anthony King, Food and Beverage Manager of the Intercontinental Hotel,wrote back to say that the credibility of private respondent had never 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") of Pasig 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 the contract.2The

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 damagesare justly due. The same rule applies to breaches of contract where the

defendant acted fraudulently or in bad faith." (Emphasis supplied)cdasia

Bad faith, in this context, includesgross, but not simple, negligence.3Exceptionally,

in a contract ofcarriage, moral damages are also allowed in case of death of a

passenger attributable to the fault (which is presumed4) of the common carrier.5

Concededly, the bank was remiss in indeed neglecting to personally inform

Luis of his own cards cancellation. Nothing in the findings of the trial court and the

appellate court, however, can sufficiently indicate any deliberate intent on the part ofFEBTC to cause harm to private respondents. Neither could FEBTC's negligence in

failing to give personal notice to Luis be considered so gross as to amount to malice

or bad faith. llcd

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 the negative idea of
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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 inAmerican

Express International, Inc. vs. Intermediate Appellate Court(167 SCRA 209) and

Bank of Philippine Islands vs. Intermediate Appellate Court(206 SCRA 408),

sanctioning the application of Article 21, in relation to Article 2217 and 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 willfully causes loss or injury to another in a mannerthat is contrary to morals, good customs or public policy shall compensate 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 could properly relate toa breach of contract, its application can be warranted only when the defendant's

disregard of his contractual obligation is so deliberate as 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 general principle 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 of moral damages in culpa contractualsolely when the breach is

due to fraud or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia inFores vs. Miranda8explained

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. Manila Yellow Taxicab

Co. Inc., 101 Phil. 523; 54 Off. Gaz., [26], 6599;Necesito, et al. vs. Paras, 104Phil., 75; 56 Off. Gaz., [23] 4023, that moral damages are not recoverable in

damage actions predicated on a breach of the contract of transportation, in view

of Articles 2219 and 2220 of the new Civil Code, which provide as follows:cdasia

"'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
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'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 tobreaches of contract where the defendant acted 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 injurious

conduct, 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 onlybecause Art. 2220 specifically provides for the damages that are

caused contractual breach, but because the definition ofquasi-delictin Art. 2176 of the Code expressly excludes the cases

where there is a 'pre-exisiting contractual relations between theparties.' LexLib

"'Art. 2176.Whoever by act or omission causes damage to another, therebeing fault or negligence, is obliged to pay for the damage done. Such

fault or negligence, if there is no pre-existing contractual relation

between the parties, is called a quasi-delict and is governed by theprovisions of this Chapter.'

"The exception to the basic rule of damages now under consideration is amishap resulting in the death of a passenger, in which case Article 1764 makes

the common carrier expressly subject to the rule of Art. 2206, that entitles the

spouse, descendants and ascendants of the deceased passenger to 'demand moraldamages 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 thatwhere the injured passenger does not die, moral damages are not recoverable

unless it is proved that the carrier was guilty of malice or bad faith. We think it

is clear that the mere carelessness of the carrier's driver does notper se

constitute or justify an inference of malice or bad faith on the part of the carrie

torts cases set 3-originals

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