Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 83086 June 19, 1991
REYNALDO C. HONRADO, JR., petitioner,
vs.
COURT OF APPEALS and JARDINE-MANILA FINANCE, INC., respondent.
A.M. Navarro Law Office for petitioner.
I.M. Barredo & Associates Law Office for private respondent.

FERNAN, C.J.:p
In this petition for review on certiorari, petitioner Reynaldo C. Honrado, Jr. seeks the reversal of the decision of the Court of
Appeals dated August 5, 1987 1 which affirmed the decision dated January 22, 1986 of the Regional Trial Court, Branch CXL at
Makati, Metro Manila. The dispositive portion of the affirmed decision reads as follows:
WHEREFORE, judgment is hereby rendered ordering defendant Reynaldo C. Honrado, Jr., to pay plaintiff MB Finance, formerly
Jardine-Manila Finance Corporation, as follows:
1.
P81,325.05, of which P40,769.00 representing balance of the principal amount due shall earn interest of 14% per
annum from January 1984;
2.

P4,076.00 as liquidated damages;

3.

P6,115.35 as attorney's fees; and

4.

The costs of suit. 2

The factual background of this case as found by the trial court and affirmed by the Court of Appeals is as follows:
On August 21, 1978, Hadd Construction and Trading Corporation (HCTC for brevity) purchased on installment basis a Toyota
Corolla Hardtop, 2 Door, 1978 Model with Engine No. 3K-7515608, Serial No. KE 35-915409, Plate No. B-YE-290 from Cressida
Sales Corporation (Cressida for brevity). HCTC represented by petitioner Reynaldo C. Honrado, Jr. as president, executed a
promissory note in favor of Cressida, in the amount of P49,120.20, payable at the rate of P1,364.45 a month for thirty six (36)
months beginning September 25, 1978 and every 25th day of the month thereafter until full payment. In said promissory
note, HCTC agreed to a waiver of formal demand and presentment as well as notices of protest and dishonor, among others.
Petitioner Honrado signed the promissory note a second time as co-maker of HCTC. 3 A chattel mortgage on the motor
vehicle was also executed by HCTC in favor of Cressida.
On September 4, 1978, Cressida executed a deed of assignment of the promissory note with warranty of soundness in favor
of Jardine-Manila Finance, Inc. for and in consideration of P30,985.54. This was executed with HCTC's conformity, represented
again by petitioner as its president. Petitioner Honrado likewise signed this deed of assignment as co-maker. 4
For failure of HCTC to pay the monthly amortization as stipulated in the promissory note, private respondent Jardine-Manila
Finance, Inc. filed on May 22, 1979 an action for replevin and damages with the Regional Trial Court of Makati, Branch CXL
docketed as Civil Case No. 2096, praying for the seizure and delivery of the questioned motor vehicle to private respondent,
with alternative prayer, that in the event the normal delivery of the motor vehicle cannot be effected, judgment be rendered
ordering HCTC to pay P41,011.34 with 14% interest per annum from the date the obligation became due and demandable
until fully paid. Private respondent impleaded petitioner Reynaldo Honrado, Jr. as party-defendant on the contention that he
signed the documents as co-maker.
After an answer with compulsory counterclaim was filed on November 7, 1981 by herein petitioner as defendant therein, the
case was thereafter set for pre-trial conference.
On September 14, 1983, private respondent informed the trial court that it was waiving the recovery of the motor vehicle and
chose to pursue instead its alternative prayer considering that since the filing of the complaint, it has not been able to recover
said motor vehicle, and that even if recovered, its current value would not allegedly be commensurate to the amount of
P41,011.34.
On the same day, private respondent moved to dismiss the case against HCTC without prejudice on the ground that summons
could not be served on said defendant corporation since it was no longer holding office at its given address and its present
address could not be ascertained. This motion was granted by the trial court on October 3, 1983.
In due time, the trial court rendered the assailed decision against petitioner who seasonably appealed to the Court of Appeals.
On August 5, 1987, the Court of Appeals promulgated its decision affirming that of the trial court.
Hence the present recourse of petitioner.
To support his prayer for reversal of the appellate court's decision, petitioner argues that he signed the promissory note and
deed of chattel mortgage in his official capacity as president of HCTC only. He never intended to sign these documents as comaker. Thus, petitioner in his Memorandum raises the following issues:
1)
WAS PRIVATE RESPONDENT CORRECT IN ITS CONTENTION THAT PETITIONER WAS A CO-MAKER OF HCTC IN THE
EXECUTION OF THE PROMISSORY NOTE AND DEED OF CHATTEL MORTGAGE IN QUESTION?
2)
WAS THE COURT OF APPEALS CORRECT IN ITS INTERPRETATION OF SUBJECT PROMISSORY NOTE AND DEED OF
CHATTEL MORTGAGE IN FAVOR OF PRIVATE RESPONDENT AND AGAINST PETITIONER? 5

On the first issue, petitioner Honrado vehemently denies any liability as co-maker of HCTC on the ground that the body of the
documents in question, namely, the promissory note and deed of chattel mortgage, indicates that the contract was between
HCTC and Cressida only. In addition, petitioner cites the testimony of Mr. George Caruncho, the sales agent of Cressida, who
stated that petitioner was asked to sign these documents in his official capacity as president of HCTC.
We find no merit in the above contention. Petitioner Honrado cannot plead that he signed these documents in his official
capacity only as president of HCTC and not as co-maker with HCTC. The documents in question, including the deed of
assignment which contains petitioner's signatures as co-maker, whose genuineness and due execution were admitted by
petitioner, clearly indicate otherwise. As stated by respondent Court of Appeals:
The promissory note (Exhibit "A") clearly shows on its face that the appellant signed the same in his capacity as President of
the Hadd Construction & Trading Corp. and again as co-maker in his private capacity (Exhibits "A-2" & "A-3"). Appellant also
signed the Deed of Chattel Mortgage and the Affidavit of Good Faith four (4) times; twice as President and twice as co-maker
(Exhibit "B"). And the appellant lastly signed his conformity to the Deed of Assignment (Exhibit "C") as president and again as
co-maker.
From the above facts, petitioner, by signing these documents several times as co-maker, is presumed to be aware of the
consequences of his actions. Considering that petitioner Honrado is of age and a businessman, holding the highest position in
Hadd Construction Trading Corporation, he is presumed to have acted with due care, and to have signed the documents in
question with full knowledge of its contents as well as the attendant obligations and responsibilities. As aptly observed by the
trial court:
. . . defendant Honrado is presumed to have intended the ordinary consequences of his voluntary act and taken ordinary care
of his concerns. When defendant signed eight times on three documents, and always as president and as co-maker, it is
presumed that he had exercised care in verifying his involvement in the transaction, considering his age, business life,
intelligence and the fact that he occupied the highest office in the corporation. 6
Furthermore, there is no evidence of fraud. Petitioner on cross-examination testified as follows:
Q
At the left hand margin of the promissory note there appears a signature over the name Reynaldo C. Honrado Jr.,
President, Hadd Construction and Trading Corp. Will you kindly tell us if this is your signature?
A

Yes, sir.

xxx

xxx

xxx

Q
Also, at the right hand margin of the promissory note there appears a signature above the typewritten name
Reynaldo C. Honrado, Jr., co-maker, is this your signature?
A

Yes, sir, that is my signature. 7

Since petitioner Honrado did not question and in fact admitted the genuineness and due execution of these documents,
including the genuineness of his signatures, then these documents must be given legal effects.
The testimony of the sales agent, Mr. Caruncho, can not change the legal effect of these documents. Granting that he told
petitioner to sign these documents in his official capacity as president of HCTC the mere fact that petitioner also signed
voluntarily as co-maker proves his participation in the transactions as a co-maker. Furthermore, Mr. Caruncho testified that
when petitioner signed these documents, all the type-written words already appeared therein.
On the matter of interpretation of contracts, it is basic and fundamental that if the terms of the contract are clear, the literal
meaning of the stipulation shall control. 8 The intention of the parties to a contract must be determined from the contract
itself. When petitioner Honrado signed several times on these documents as president of HCTC and as co-maker, there is no
other interpretation but to conclusively presume that he bound himself also as co-maker. He cannot therefore renege on the
obligations and liabilities attached to a co-maker. When the terms of a contract are clear and do not leave room for doubt as
to the intention of the contracting parties, it is not necessary to interpret the same, the literal meaning of its clauses should
be followed. 9
The promissory note clearly stipulates a solidary obligation as shown by the following clause "For value received I/We jointly
and severally promised to pay Cressida Motor Sales Corp. . . . Signed: Hadd Construction & Trading Corporation by Reynaldo
C. Honrado, Jr., President and Reynaldo C. Honrado, Jr., Co-maker". In the case of Parot vs. Gemora, 10 this Court had occasion
to state:
Where a promissory note is signed by two or more persons promissing to pay the amount of the said note juntos o
separadamente, such co-makers are individually liable for the payment of the full amount of the obligation of such contract.
Therefore, petitioner Honrado is solidarily liable to pay the full amount of the obligation as stipulated in the promissory note
to which private respondent is entitled.
However, the award of P81,325.00 based on the Statement of Account as of December 10, 1983, 11 prepared by private
respondent includes other charges aside from the principal obligation. These charges have not been satisfactorily proved
during the trial. Moreover, a careful examination of the records of the case failed to support these charges. The records are
bereft of any evidence to show how these charges were computed nor is there an adequate showing that private respondent
is entitled thereto. A mere mention of the outstanding obligation of petitioner in the amount of P81,747.05 as of December
10, 1985 in the testimony of Alfonso Flores, private respondent's manager for collection, 12 is not sufficient without proof
presented before the court of the expenses and other charges imputed to petitioner. Thus, in the interest of justice and
equity, petitioner should be liable only for the outstanding balance based on the promissory note in the amount of
P40,769.00. This is computed by deducting the total payments equivalent to four (4) monthly installments made by HCTC in
the amount of P8,351.20 from the principal amount of the promissory note of P49,120.20. In addition, this amount of
P40,769.00 shall earn interest at the rate of 14% per annum to be computed from March 10, 1979 when the total amount of
the principal obligation became due and demandable 13 until actual payment. The award of 10% liquidated damages and
15% attorney's fees based on the principal obligation is found to be equitable.
WHEREFORE, the assailed decision is hereby AFFIRMED, with modification as indicated below, ordering petitioner Honrado to
pay private respondent MB Finance, formerly Jardine-Manila Finance Corporation as follows:
1)

P40,769.00 with 14 % interest per annum from March 10, 1979 until actual payment;

2)

P4,076.90 as liquidated damages;

3)

P6,115.35 as attorney's fees; and

4)

The costs of the suit.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-30115

September 28, 1973

FE PEREZ, plaintiff-appellant,
vs.
JOSEFINA GUTIERREZ, defendant third-party plaintiff-appellee, PANFILO ALAJAR, third-party defendant-appellee.
Julian C. Gonzales, Jr. for plaintiff-appellant.
Gerardo E. Angeles for defendant-third-party plaintiff-appellee.
Apostadera, Palabrica and Muyco for third-party defendant-appellee.

CASTRO, J.:
This appeal from the decision dated June 9, 1967 of the Court of First Instance of Davao in its civil case 3163 poses
objections to the manner the trial court adjudicated the claim for damages filed by the plaintiff-appellant Fe Perez
against the defendant-third-party plaintiff-appellee Josefina Gutierrez.
The complaint (later amended) filed on October 29, 1959 by Fe Perez with the Court of First Instance of Davao against
Josefina Gutierrez, for breach of contract of carriage, alleges that on September 6, 1959 while she, together with nine
co-teachers, was a passenger of an AC jeepney registered under the name of the defendant Gutierrez, the said vehicle,
due to the reckless negligence of its driver Leopoldo Cordero, met with an accident, resulting in injuries to herself
which required her hospitalization. In her answer, Josefina Gutierrez averred that if the claim of Fe Perez is at all
justified, responsibility therefor should devolve on one Panfilo Alajar, the actual owner, by purchase, of the said
passenger jeepney when the accident occurred and against whom she has filed a third-party complaint.
The deed of sale attached to the third-party complaint recites, inter alia,
That it is mutually agreed by the herein vendor and vendee that the TITLE to the aforementioned vehicle shall remain
with the VENDOR, pending approval of the herein SALE by the Public Service Commission, said motor vehicle being
registered as a public utility auto-calesa under "AC" denomination; ...
That the vendee herein, by these presents, do [sic] hereby binds himself and do [sic] hereby assume, [sic]
responsibility for all actions, claims, demands, and rights of action, and whatever kind and nature, that may hereafter
develop as a consequence of or in the course of operation of the aforementioned vehicle; ...
In his answer to the third-party complaint, Panfilo Alajar disclaimed responsibility for the accident, alleging that (a) the
mentioned deed of sale is null and void because it has not been registered with the Public Service Commission despite
repeated demands on the 3rd-party complainant to do so; (b) the said passenger jeepney remained in the control of
the 3rd-party complainant who, together with her lawyer-husband, had been collecting rentals from him for the use of
the said vehicle; and (c) by express agreement, title to the said vehicle remained with the 3rd-party complainant
pending approval of the sale by the Public Service Commission.
The defendant Leopoldo Cordero was declared in default and did not appeal.
On June 9, 1967, after trial on the merits, the court a quo rendered its decision, in the main finding Leopoldo Cordero
guilty of reckless imprudence, and finding that Panfilo Alajar owned and operated the auto calesa in question and, in
fact, after the accident, even assumed responsibility for the payment of the hospital bills due to the Brokenshire
Memorial Hospital for treatment of the injuries suffered by Fe Perez. Based on these findings as well as the proof of the
damages suffered by Fe Perez, the court adjudged as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering third-party defendant Panfilo Alajar to pay
plaintiff the amount of P1,552.20 hospital expenses; P2,000.00, actual damages; P5,000.00 moral damages; P500.00
incidental expenses; and P2,000.00 attorney's fees.
Ordering likewise Panfilo Alajar to pay defendant third-party plaintiff Josefina Gutierrez P500.00 moral damages; and
P1,000.00 attorney's fees, and to pay the costs of the proceedings on both cases.
The present appeal questions the correctness of the dispositive portion of the decision a quo which adjudged Panfilo
Alajar, instead of Josefina Gutierrez, as the party liable to her for the payment of the damages adjudicated in her favor.
Specifically, Fe Perez argues that the registered owner of a motor vehicle should be the one held liable for damages
resulting from breach of contract of carriage by a common carrier.
We find the appeal meritorious and in accord with settled law on the matter.
In Peralta vs. Mangusang 1 this Court, in approbation of a similar argument, said:

The law (Sec. 20 [g], Public Service Act) really requires the approval of the Public Service Commission in order that a
franchise, or any privileges pertaining thereto, may be sold or leased without infringing the certificate issued to the
grantee. The reason is obvious. Since a franchise is personal in nature any transfer or lease thereof should be
submitted for approval of the Public Service Commission, so that the latter may take proper safeguards to protect the
interest of the public. It follows that if the property covered by the franchise is transferred or leased to another without
obtaining the requisite approval, the transfer is not binding on the Public Service Commission and, in contemplation of
law, the grantee continues to be responsible under the franchise in relation to the Commission and to the public for the
consequences incident to the operation of the vehicle, one of them being the collision under consideration. (Montoya v.
Ignacio, 50 O.G. No. 1. 108; Vda. de Medina, et al. v. Cresencia, et al., 52 O.G. No. 10, 4604; Erezo v. Jepte, et al., G.R.
No. L-9605, Sept. 30, 1957; Tamayo v. Aquino, 56 O.G. No. 36,5617).
In the earlier case of Erezo vs. Jepte, 2 which is cited in the foregoing opinion, this Court held that the doctrine making
the registered owner of a common carrier answerable to the public for negligence injuries to its passengers or third
persons, even though the vehicle had already been transferred to another, is based upon the principle
... that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume
that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that
they may have for injuries caused to them by the vehicles being negligently operated if the public should be required
to prove who the actual owner is. How would the public or third persons know against whom to enforce their rights in
case of subsequent transfers of the vehicles? We do not imply by this doctrine, however, that the registered owner
may not recover whatever amount he had paid by virtue of his liability to third persons from the person to whom he
had actually sold, assigned or conveyed the vehicle.
In Tamayo vs. Aquino, 3 also cited in Mangusang, supra, this Court, reiterating what was stated en passant in Jepte,
supra, described the nature of the liability of the actual transferee of a vehicle the negligent operation of which gives
rise to injuries to its passengers:
The question that is posed, therefore, is how should the holder of the certificate of public convenience Tamayo
participate with his transferee operator Rayos, in the damages recoverable by the heirs of the deceased passenger, if
their liability is not that of joint tortfeasors in accordance with Article 2194 of the Civil Code. The following
considerations must be borne in mind in determining this question. As Tamayo is the registered owner of the truck, his
responsibility to the public or to any passenger riding in the vehicle or truck must be direct, for the reasons given in
our decision in the case of Erezo vs. Jepte, supra, as quoted above. But as the transferee, who operated the vehicle
when the passenger died, is the one directly responsible for the accident and death, he should in turn be made
responsible to the registered owner for what the latter may have been adjudged to pay. In operating the truck without
transfer thereof having been approved by the Public Service Commission, the transferee acted merely as agent of the
registered owner and should be responsible to him (the registered owner), for any damages that he may cause the
latter by his negligence."
Upon the foregoing, it is quite clear that the court below erred in holding Panfilo Alajar, rather than Josefina Gutierrez,
as the one directly liable to Fe Perez for the latter's injuries and the corresponding damages incurred. This Court notes
moreover, that the court below inexplicably failed to hold the driver (Leopoldo Cordero), whom it found guilty of
reckless imprudence, jointly and solidarily liable with Josefina Gutierrez to Fe Perez in accordance with the provisions of
article 2184 in relation to article 2180 of the new Civil Code. 4
ACCORDINGLY, the judgment below is hereby modified in the sense that Josefina Gutierrez and Leopoldo Cordero are
hereby adjudged directly and jointly and solidarily liable to Fe Perez for the sums adjudicated in the judgment below in
her (Fe Perez') favor, while Panfilo Alajar is, in turn, hereby held answerable to Josefina Gutierrez for such amount as
the latter may pay to Fe Perez in satisfaction of the judgment appealed from. Costs against both the defendant-third
party plaintiff-appellee Josefina Gutierrez and the third party defendant-appellee Panfilo Alajar.
Makalintal, Actg.. C.J., Zaldivar, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Footnotes
1

L-18110, July 31, 1964, 11 SCRA 598.

102 Phil. 106. (See also Roque vs. Malibay Transit, Inc. 97 Phil. 1004).

105 Phil. 949.

Viluan vs. Court of Appeals, L-21477-81, April 29, 1966.

The Lawphil Project - Arellano Law Foundation

Third Division
MARSMAN DRYSDALE LAND, INC.,
Petitioner,

- versus -

PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC.,

Respondents.
x--------------------------------------------x
GOTESCO PROPERTIES, INC.,
Petitioner,

- versus -

MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE GEOANALYTICS, INC.,

Respondents.
G.R. No. 183374
Present:
CARPIO,*
CARPIO MORALES, Chairperson,
BRION,
ABAD,** and
VILLARAMA, JR., JJ.
G.R. No. 183376
Promulgated:
June 29, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CARPIO MORALES, J.:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco)
entered into a Joint Venture Agreement (JVA) for the construction and development of an office building on a land
owned by Marsman Drysdale in Makati City.[1]
The JVA contained the following pertinent provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to implement this Agreement by investing in the PROJECT on a FIFTY (50%)
PERCENT- FIFTY (50%) PERCENT basis.
4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the Property.
The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY MILLION (P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition within ninety (90) days
from signing of this Agreement barring any unforeseen circumstances over which [Marsman Drysdale] has no control.
Buildable condition shall mean that the old building/structure which stands on the Property is demolished and taken to
ground level.

4.2.
Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00) in cash which shall be payable as follows:
4.2.1.

The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of this Agreement.

4.2.2.
The balance of PESOS: THREE HUNDRED SEVENTY MILLION (P370,000,000.00) shall be paid based on
progress billings, relative to the development and construction of the Building, but shall in no case exceed ten (10)
months from delivery of the Property in a Buildable condition as defined in section 4.1.
A joint account shall be opened and maintained by both Parties for handling of said balance, among other Project
concerns.
4.3. Funding and Financing
4.3.1

Construction funding for the Project shall be obtained from the cash contribution of [Gotesco].

4.3.2
Subsequent funding shall be obtained from the pre-selling of units in the Building or, when necessary, from
loans from various banks or financial institutions. [Gotesco] shall arrange the required funding from such banks or
financial institutions, under such terms and conditions which will provide financing rates favorable to the Parties.
4.3.3

[Marsman Drysdale] shall not be obligated to fund the Project as its contribution is limited to the Property.

4.3.4
If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds obtained from the preselling of units and proceeds from loans, the Parties shall agree on other sources and terms of funding such excess as
soon as practicable.
4.3.5

x x x x.

4.3.6

x x x x.

4.3.7

x x x x.

4.3.8
All funds advanced by a Party (or by third parties in substitution for advances from a Party) shall be repaid
by the JV.
4.3.9
If any Party agrees to make an advance to the Project but fails to do so (in whole or in part) the other party
may advance the shortfall and the Party in default shall indemnify the Party making the substitute advance on demand
for all of its losses, costs and expenses incurred in so doing. (emphasis supplied; underscoring in the original)

Via Technical Services Contract (TSC) dated July 14, 1997,[2] the joint venture engaged the services of Philippine
Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic study and geotechnical
engineering for the project. PGI, was, however, able to drill only four of five boreholes needed to conduct its
subsurface soil exploration and laboratory testing, justifying its failure to drill the remaining borehole to the failure on
the part of the joint venture partners to clear the area where the drilling was to be made.[3] PGI was able to complete
its seismic study though.
PGI then billed the joint venture on November 24, 1997 for P284,553.50 representing the cost of partial subsurface soil
exploration; and on January 15, 1998 for P250,800 representing the cost of the completed seismic study.[4]
Despite repeated demands from PGI,[5] the joint venture failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and the planned
building project was eventually shelved.[6]
PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and damages at the Regional
Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of paying PGI to Gotesco
which, under the JVA, was solely liable for the monetary expenses of the project.[7]
Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to complete the
services enumerated in the contract; and that Marsman Drysdale failed to clear the property of debris which
prevented PGI from completing its work.[8]
By Decision of June 2, 2004,[9] Branch 226 of the Quezon City RTC rendered judgment in favor of PGI, disposing as
follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:
(1)

the sum of P535,353.50 with legal interest from the date of this decision until fully paid;

(2)

the sum of P200,000.00 as exemplary damages;

(3)

the sum of P200,000.00 as and for attorneys fees; and

(4)

costs of suit.

The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby GRANTED as follows:
a)
Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman Drysdale] in the amount of
P535,353.[50] in accordance with the [JVA].
b)
Defendant [Gotesco] is further ordered to pay co-defendant [Marsman Drysdale] the sum of P100,000.00
as and for attorneys fees.
SO ORDERED. (underscoring in the original; emphasis supplied)
Marsman Drysdale moved for partial reconsideration, contending that it should not have been held jointly liable with
Gotesco on PGIs claim as well as on the awards of exemplary damages and attorneys fees. The motion was, by
Resolution of October 28, 2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by Decision of January 28, 2008,[10]
affirmed with modification the decision of the trial court. Thus the appellate court disposed:
WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The assailed Decision dated June 2, 2004
and the Resolution dated October 28, 2005 of the RTC of Quezon City, Branch 226, in Civil Case No. Q99-39248 are
hereby AFFIRMED with MODIFICATION deleting the award of exemplary damages in favor of [PGI] and the P100,000.00
attorneys fees in favor of [Marsman Drysdale] and ordering defendant-appellant [Gotesco] to REIMBURSE [Marsman
Drysdale] 50% of the aggregate sum due [PGI], instead of the lump sum P535,353.00 awarded by the RTC. The rest of
the Decision stands.
SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)

In partly affirming the trial courts decision, the appellate court ratiocinated that notwithstanding the terms of the JVA,
the joint venture cannot avoid payment of PGIs claim since [the JVA] could not affect third persons like [PGI] because
of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who
entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with
knowledge thereof.[11]
Their motions for partial reconsideration having been denied,[12] Marsman Drysdale and Gotesco filed separate
petitions for review with the Court which were docketed as G.R. Nos. 183374 and 183376, respectively. By Resolution
of September 8, 2008, the Court consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in
A. ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER CONCEDING THAT [GOTESCO] SHOULD
ULTIMATELY BE SOLELY LIABLE TO [PGI].
B. AWARDING ATTORNEYS FEES IN FAVOR OF [PGI]
C. IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE REQUIREMENT OF SATISFACTORY PERFORMANCE OF
ITS PRESTATION WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE CONDITION SINE QUA NON TO
COMPENSATION.
D. DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN DRYSDALES] ENTITLEMENT TO AN AWARD OF
ATTORNEYS FEES.[13]
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court committed error when it
ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK PERFORMED BY [PGI] AND P100,000.00 [AS]
ATTORNEYS FEES [AND] TO REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY [MARSMAN
DRYSDALE] P100,000.00 AS ATTORNEYS FEES. [14]

On the issue of whether PGI was indeed entitled to the payment of services it rendered, the Court sees no imperative
to re-examine the congruent findings of the trial and appellate courts thereon. Undoubtedly, the exercise involves an
examination of facts which is normally beyond the ambit of the Courts functions under a petition for review, for it is
well-settled that this Court is not a trier of facts. While this judicial tenet admits of exceptions, such as when the
findings of facts of the appellate court are contrary to those of the trial courts, or when the judgment is based on a
misapprehension of facts, or when the findings of facts are contradicted by the evidence on record,[15] these
extenuating grounds find no application in the present petitions.
AT ALL EVENTS, the Court is convinced that PGI had more than sufficiently established its claims against the joint
venture. In fact, Marsman Drysdale had long recognized PGIs contractual claims when it (PGI) received a Certificate of
Payment[16] from the joint ventures project manager[17] which was endorsed to Gotesco for processing and
payment.[18]
The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco bears the liability
to pay PGI its unpaid claims.

To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the project was to be obtained from
Gotescos cash contribution, as its (Marsman Drysdales) participation in the venture was limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman Drysdale that
PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was never a party to the JVA. While the JVA clearly
spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco (cash) as well as the funding
and financing mechanism for the project, the same cannot be used to defeat the lawful claim of PGI against the two
joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the project,[19]
and all billing invoices indicated the consortium therein as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same obligation does
not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire
compliance with the prestations. There is a solidary liability only when the obligation expressly so states, or when the
law or nature of the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article refers the
contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are
creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court
governing the multiplicity of suits. (emphasis and underscoring supplied),

presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.
The only time that the JVA may be made to apply in the present petitions is when the liability of the joint venturers to
each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws on partnership.[20]
Civil Code provides:

Article 1797 of the

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each in the profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his capital. (emphasis and underscoring supplied)

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the project.[21] They did not
provide for the splitting of losses, however. Applying the above-quoted provision of Article 1797 then, the same ratio
applies in splitting the P535,353.50 obligation-loss of the joint venture.
The appellate courts decision must be modified, however. Marsman Drysdale and Gotesco being jointly liable, there
is no need for Gotesco to reimburse Marsman Drysdale for 50% of the aggregate sum due to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to the law on
partnership on division of losses but would partake of a clear case of unjust enrichment at Gotescos expense. The
grant by the lower courts of Marsman Drysdale cross-claim against Gotesco was thus erroneous.
Marsman Drysdales supplication for the award of attorneys fees in its favor must be denied. It cannot claim that it
was compelled to litigate or that the civil action or proceeding against it was clearly unfounded, for the JVA provided
that, in the event a party advances funds for the project, the joint venture shall repay the advancing party. [22]
Marsman Drysdale was thus not precluded from advancing funds to pay for PGIs contracted services to abate any
legal action against the joint venture itself. It was in fact hardline insistence on Gotesco having sole responsibility to
pay for the obligation, despite the fact that PGIs services redounded to the benefit of the joint venture, that spawned
the legal action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be imposed from the time of demand[23] as
the delay in payment makes the obligation one of forbearance of money, conformably with this Courts ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals.[24] Marsman Drysdale and Gotesco should bear legal interest on their
respective obligations.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that
the order for Gotesco to reimburse Marsman Drysdale is DELETED, and interest of 12% per annum on the respective
obligations of Marsman Drysdale and Gotesco is imposed, computed from the last demand or on January 5, 1999 up to
the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall be 12% per annum computed
from the time the judgment becomes final and executory until it is fully satisfied. The appealed decision is, in all other
respects, affirmed.

Costs against petitioners Marsman Drysdale and Gotesco.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 168987

October 17, 2012

PHILIPPINE AIRLINES, INC., Petitioner,

vs.
FRANCISCO LAO LIM, THE HEIRS OF HENRY GO, MANUEL LIMTONG and RAINBOW TOURS AND TRAVEL, INC.,
Respondents.
DECISION
PERALTA, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the Decision1 of the
Court of Appeals (CA), dated March 22, 2005, and its Resolution2 dated July 15, 2005, denying herein petitioner's
Motion for Reconsideration of the aforementioned Decision, be reversed and set aside.
The records reveal the CA's narration of the facts to be accurate, to wit:
Plaintiffs are Cebu-based businessmen, that is, plaintiff Francisco Lao Lim is engaged in real estate and trading, Mr.
Henry Go in export and distribution of weighing scales and Mr. Manuel Limtong in the printing press business. All three
plaintiffs decided to venture into business transactions involving the purchase of weighing scales from one Mrs. Ng
Yuen Ming of Hongkong and printing press equipments from Mrs. Myrna Irsch of Germany. In line with these ventures,
they scheduled important appointments with the said dealers in Hongkong on 26 February 1991 in order to conclude
their agreements and thereafter sign the necessary contracts.
On 22 February 1991, plaintiff Francisco Lao Lim went to the office of third-party defendant Rainbow Tours and Travel,
Inc. ("Rainbow Tours") and purchased three (3) confirmed PAL roundtrip tickets. They were booked on a Link-Flight
PR842 Cebu-Manila on February 25, 1991 (Monday) at 12:05 P.M. and Flight PR300 Manila-Hongkong on February 26,
1991 (Tuesday) at 8:00 A.M. The return trip was on March 1, 1991 at 11:05 A.M. Hongkong-Manila (Flight PR301) and
Manila-Cebu (Link-Flight PR512) at 2:50 P.M. of the same day.

On February 23, 1991, plaintiff Francisco Lao Lim returned to the office of Rainbow Tours to inquire on the availability
of seats for the PAL Manila-Hongkong flight on February 26, 1992 at 5:00 p.m. so that they could reset their Hongkong
meetings scheduled on 26 February 1991 to a later time. Francisco Lao Lim was referred to Rainbow Tours travel
agent, Gemma Dingal, who called up PAL Reservations. Upon being informed of the unavailability of seats for the 5:00
p.m. flight, Francisco Lao Lim left Rainbow Tours without making any cancellations of their confirmed bookings that
were stated in their respective tickets.
As scheduled, plaintiffs took the Cebu-Manila Flight No. PR842 on February 25, 1991. The next day, February 26, 1991,
at the check-in counter at the Ninoy Aquino International Airport (NAIA), plaintiffs Francisco Lao Lim and Henry Go were
informed by PAL's check-in clerk that their bookings on Flight PR300 Manila-Hongkong (8:00 a.m.) had been cancelled
and that their names were not on the computer's passenger list for the said flight. Plaintiff Manuel Limtong, however,
was able to board the flight. Francisco Lao Lim and Henry Go explained to the check-in clerk that they were holding
confirmed bookings and that they did not have the same cancelled. They likewise begged and pleaded that they be
allowed to board the said flight but their pleas fell on deaf ears. At 5:00 p.m. of the same day, plaintiffs Francisco Lao
Lim and Henry Go took Flight No. PR301 leaving Manila to Hongkong.
Plaintiffs brought this suit for breach of contract of carriage and damages against PAL alleging that the PAL personnel
at the check-in clerk at NAIA arrogantly shouted at them and humiliated them in front of the other passengers by
labeling their tickets "cheap tickets" thus entitling them to moral damages in the amount of P350,000.00 each as such
abusive and injurious language had humiliated them, wounded their feelings and besmirched their reputations.
Plaintiffs further claimed that because of their failure to reach Hongkong in time for the scheduled business
conferences, their contacts did not anymore wait for them. They claimed that the 26 February 1991 business meeting
with Mrs. Ng involving the purchase of weighing scales at discounted rates should have pushed through since this was
the last day given to the plaintiffs to close the deal otherwise Mrs. Ng is selling the stocks to other interested buyers.
Even though Manuel Limtong was able to meet with Mrs. Ng, the deal was not finalized since it was only plaintiff Henry
Go who could properly negotiate with Mrs. Ng as to what kind of scales they should purchase. Plaintiffs likewise claim
that the transaction on the purchase of several German printing press equipments on consignment was not
consummated because their German contact, Mrs. Irche, insisted on meeting all three plaintiffs considering that the
proposed transaction involved a huge amount. According to the plaintiffs, Mrs. Ng disposed the stocks of weighing
scales to another buyer whereas Mrs. Irche left Hongkong without meeting with them despite their efforts to schedule
another meeting with her. Since the business deals that could have earned them a profit of P3,567,000.00 were not
consummated, they should then be entitled to the said amount.
Plaintiffs also seek the payment of exemplary damages and attorney's fees.
In its defense, PAL contended that plaintiffs were revenue passengers who made their travel arrangements with
Rainbow Tours. PAL then impleaded Rainbow Tours and Travel, Inc. as third-party defendants, ascribing liability on the
latter for whatever damages were suffered by plaintiffs Lao Lim and Go. Based on the Post Date Investigation Print-out
and the testimonies of PAL witnesses Racil Corcuera (PAL Passenger load analyst at Cebu Mactan Office) and Rosy
Mancao (Sales Representative), PAL contended that the cancellation of plaintiffs Mr. Lao Lim and Mr. Go's confirmed
bookings for the 8:00 a.m. Manila-Hongkong flight on 26 February 1991 was upon request of Gemma Dingal
("Gemma") of Rainbow Tours. PAL alleges that Gemma called Racil Corcuera ("Racil") at 10:46 a.m. of 23 February
1991 and instructed Racil to cancel the original confirmed bookings of plaintiffs Mr. Lao Lim and Mr. Go. While in the
process of encoding the new itinerary, Racil found out that PR310 Manila-Hongkong (5:00 p.m. flight) on 26 February
1991 was already fully booked. Racil asked Gemma if she was definite about the new itinerary even if there was no
confirmation of the PR310 flight and that plaintiffs will be put on the waitlist, to which, Gemma replied that plaintiffs
clearly instructed her that they did not want to stay overnight in Manila and that it was alright to cancel their original
confirmed reservations, put the plaintiffs on waitlist status for PR310 February 26, 1991 and then book them for the
PR511 (Cebu-Manila) flight at 12:10 p.m. on 26 February 1991 to be connected to PR310 (Manila Hongkong) flight at
5:00 p.m. on 26 February 1991. As for the Hongkong-Manila trip, Gemma instructed that plaintiffs be booked on PR301
at 11:05 a.m. on 3 March 1991 with connecting flight to Cebu at 2:50 p.m. of the same day. After giving all the
foregoing instructions, Gemma then requested Racil to retain plaintiffs' confirmed booking PR300 (8:00 a.m.) ManilaHongkong on 26 February 1991). Records show, however, that Racil erroneously requested for the reinstatement for
the PR 300 flight on February 25, 1991 instead of February 26, 1991. Three hours later, Racil made the proper
correction by requesting for the reinstatement of plaintiffs' booking for PR300 on 26 February 1991. Several requests
for reinstatement were subsequently made but there was no respond from the flight controller. Eventually, Racil
learned from Violy of the Manila Office that the request was on critical status because of the overflow of passengers
since the PR300 (Manila-Hongkong) flight on 25 February 1991 had been cancelled. Despite several efforts by PAL
employees, viz, Rosy Mancao, Lyndon Maceren (Senior Passenger Loan Analyst) and Lito Camboanga (Shift
Supervisor), plaintiffs' bookings for the PR300 flight could not be confirmed.
A perusal of the records show that PAL witness Rosy Mancao testified that PAL and Rainbow Tours agreed not to tell the
plaintiffs that their confirmed bookings for PR300 on 26 February 1991 had been erroneously cancelled and that the
said flight was on critical status due to an overbooking of passengers because if they inform the plaintiffs "it would just
create further problems."
PAL witness Mariano Aldee III who was assigned at the Check-In Counter disputed plaintiffs' claims that they were
rudely treated by PAL employees, giving five reasons why passengers must be handled politely and courteously, to wit:
(1) PAL employees underwent 5-week trainings on proper handling and courteous treatment; (2) airline employees'
uniform practice of treating passengers politely; (3) PAL's corporate policy is "Total Passenger Care"; (4) PAL subjects
employees to administrative sanctions when employees are impolite and discourteous, and (5) their superiors would
make them explain if employees exhibit any rudeness or discourtesy to passengers. Mr. Aldee further testified that
Flight PR300 on February 26, 1991 was an Airbus 300 with a capacity of 344 passengers, 24 of these on the business
class while 220 seats for the economy class. Two jump seats were occupied by non-revenue passengers who were PAL
employees but not on duty on that particular flight. For that said flight, PAL overbooked for 44 more passengers, that
is, 28 for the business class and 260 for the economy class. Since there were only 22 business class passengers who
showed up, two passengers from the economy class were "upgraded" to business class. Witness further testified that
no waitlisted passenger was accepted for boarding on that flight.
Rainbow Tours presented Gemma Dingal and Ruby Lim (one of the owners of Rainbow Tours) as its witnesses, whose
testimonies mainly attributed the erroneous cancellation of Mr. Lao Lim and Mr. Go's confirmed bookings for the PR300

Manila-Hongkong flight at 8:00 a.m. to Racil Corcuera. According to Gemma, she called up PAL merely to inquiry (sic)
as to the availability of seats for the 5:00 p.m. Manila-Hongkong flight on 26 February 1991. She was taken by surprise
when Racil immediately cancelled the confirmed bookings even if there was no instruction on her part to do so.
Gemma immediately informed Ruby Lim of the erroneous cancellation and despite all their efforts to reinstate the
original confirmed bookings, the same could not be done.
On 18 June 1996, the court a quo RTC rendered a Decision with the following dispositive portion:
WHEREFORE, judgment is hereby rendered sentencing the defendant Philippine Airlines and third-party defendant
Rainbow Tours and Travel, Inc. to jointly and severally pay unto the plaintiff Francis Lao Lim the sum of SEVENTY-FIVE
THOUSAND PESOS (P75,000.00), in concept of reasonable temperate or moderate damages, and a like or similar sum
to the substituted plaintiff-heirs of the late Henry Go, likewise by way of reasonable temperate or moderate damages
plus the aggregate sum of TWENTY-FIVE THOUSAND PESOS (P25,000.00) as and for attorney's fees.
Costs against defendant Philippine Airlines and third-party defendant Rainbow Tours and Travel Incorporated.
SO ORDERED.
Aggrieved by the court a quo's ruling, plaintiffs and PAL interposed their respective appeals.3
On March 22, 2005, the CA promulgated its Decision, holding that petitioner clearly breached its contract of carriage
with Mr. Lao Lim and Mr. Go. The CA disposed as follows:
WHEREFORE, based on the foregoing premises, the 18 June 1996 Decision of the court a quo is MODIFIED, to wit:
1. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow
Tours and Travel, Inc. are jointly and severally liable to pay plaintiffs-appellants Francisco Lao Lim the sum of PESOS:
Fifty Thousand (P50,000.00) in concept of moral damages and PESOS: Fifty Thousand (P50,000.00) by way of
exemplary damages for breach of contract of carriage;
2. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow
Tours and Travel Inc. are jointly and severally liable to pay the substituted heirs of plaintiff-appellant of the late Henry
Go (sic) the sum of PESOS: Fifty Thousand (P50,000.00) in concept of moral damages and PESOS: Fifty Thousand
(P50,000.00) by way of exemplary damages for breach of contract of carriage;
3. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow
Tours and Travel Inc. are jointly and severally liable to pay each of the plaintiffs-appellants the sum of PESOS: One
Hundred Thousand (P100,000.00) by way of temperate or moderate damages;
4. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendant-appellee Rainbow
Tours and Travel Inc. are jointly and severally liable to pay the aggregate sum of PESOS: Sixty Thousand (P60,000.00)
as and for attorney's fees;
5. Defendant-appellant and third-party plaintiff-appellee Philippine Airlines' claim for contribution, indemnity,
subrogation and other reliefs from third-party defendant-appellee Rainbow Tours and Travel Inc. is DENIED for lack of
merit;
6. Costs against defendant-appellant and third-party plaintiff-appellee Philippine Airlines and third-party defendantappellee Rainbow Tours and Travel Incorporated.
SO ORDERED.4
Petitioner's motion for reconsideration of the CA Decision was denied per Resolution dated July 15, 2005.
Hence, this petition before the Court, with petitioner alleging that:
I
THE MARCH 22, 2005 DECISION AND JULY 15, 2005 RESOLUTION OF THE COURT OF APPEALS DID NOT RESOLVE THE
PETITIONER'S NOVEMBER 3, 1998 MOTION TO SUSPEND PROCEEDINGS ON THE GROUND OF THE LATTER'S
REHABILITATION RECEIVERSHIP.
II
RESPONDENTS FRANCISCO LAO LIM AND THE LATE HENRY GO WERE NOT HOLDING CONFIRMED BOOKINGS OR
RESERVATION ON PAL'S PR300 (MANILA-HONGKONG) ON FEBRUARY 26, 1991 SINCE THE SAME WAS CANCELLED
PURSUANT TO THE CATEGORICAL INSTRUCTION OF GEMMA DINGAL OF RESPONDENT RAINBOW TOURS.
III
THE LATE RESPONDENT HENRY GO OR HIS HEIRS DID NOT TESTIFY IN COURT. HENCE, HE IS NOT ENTITLED TO THE
AWARDS OF P50,000 AS MORAL DAMAGES AND P50,000 AS EXEMPLARY DAMAGES AND ATTORNEY'S FEES.
IV
RESPONDENT MANUEL LIMTONG IS NOT ENTITLED TO P100,000 AS TEMPERATE OR MODERATE DAMAGES AND
ATTORNEY'S FEES BECAUSE HE BOARDED, SANS ANY PROBLEM, PR 300/MANILA-HONG-KONG/FEBRUARY 26, 1991
WHICH WAS THE FLIGHT AND DATE ON WHICH HE HELD A CONFIRMED BOOKING.
V

THE AWARD OF TEMPERATE OR MODERATE DAMAGES OF P100,000 TO EACH OF THE OTHER INDIVIDUALS IS BEREFT
OF FACTUAL AND LEGAL SUPPORT.
VI
RESPONDENT RAINBOW TOURS AND TRAVEL, INC. SHOULD BE MADE LIABLE TO THE INDIVIDUAL RESPONDENTS AND
PETITIONER SHOULD BE ABSOLVED OF ANY LIABILITY. 5
The petition deserves some consideration.
First, the issue of whether proceedings should be suspended on the ground that petitioner is under rehabilitation
receivership, is now moot and academic. Petitioner is no longer under such status effective September 28, 2007,
pursuant to the Order dated September 28, 2007 issued by the Securities and Exchange Commission.6 Therefore, this
can no longer be an obstacle to legal proceedings against petitioner.
Going into the merits of the case, it is best to set it against the backdrop of the basic tenet that "in an action based on
a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or
was negligent. All that he has to prove is the existence of the contract and the fact of its non-performance by the
carrier."7
Petitioner then questions first, whether respondents Francisco Lao Lim and the late Henry Go had confirmed bookings
on petitioner's flight PR300 (Manila-Hongkong) on February 26, 1991. Petitioner insists that respondents Lao Lim's and
Go's bookings were cancelled because of the instructions of Ms. Dingal of the travel agency Rainbow Tours, with whom
respondents were transacting. Petitioner points out supposed inconsistencies in the testimony, affidavits and other
documents of Ms. Dingal, arguing that her testimony, i.e., that the erroneous cancellation of respondents Lao Lim's
and Go's bookings were done by PAL's employee, Racil, without any instruction from her or respondent Lao Lim, should
not be given credence as she appears to be a "coached" witness.
A close examination of the supposed inconsistencies, however, reveals that the same are too inconsequential to give
any serious consideration. Moreover, petitioner presented this matter regarding the alleged inconsistencies in the
statements of witnesses before the trial court, and yet said court still found the witness and her testimony - that there
was no instruction given to cancel respondents' bookings for the PR300 flight on February 26, 1991 - to be worthy of
belief. The Court again emphasizes that "findings of the trial court on the matter of credibility of witnesses are entitled
to the highest degree of respect and will not be disturbed on appeal,"8 because said lower court had the opportunity
to observe, firsthand, how the witnesses testified.9 The trial court ruled that respondents Lao Lim and Henry Go were
indeed holding confirmed tickets for PR300 on February 26, 1991, as they did not have their bookings cancelled. Such
factual finding was upheld by the appellate court. Petitioner should bear in mind that findings of fact of the trial court,
when affirmed by the CA, are binding and conclusive on this Court, as it is not a trier of facts.10 Although there are
accepted exceptions to this general rule, this case does not fall under any such exceptions. Thus, the findings of the
lower courts that respondents Francisco Lao Lim and Henry Go were holding confirmed plane tickets and yet were not
transported by petitioner, are binding on this Court. Having proven the existence of a contract of carriage between
respondents Lao Lim and Go, and the fact of non-performance by petitioner of its obligation as a common carrier, it is
clear that petitioner breached its contract of carriage with respondents Lao Lim and Go.
The next question posed by petitioner is, are the appellate court's awards for damages in favor of respondents proper?
The Court finds some of petitioner's arguments meritorious.
Petitioner assails the award of P50,000.00 as moral damages granted to the heirs of Henry Go despite the fact that
neither Henry Go nor any of his heirs testified on matters that could be the basis for such monetary award. In
Philippine Savings Bank vs. Manalac, Jr.,11 the Court ruled, thus:
x x x The award of moral damages must be anchored on a clear showing that the complainant actually experienced
mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury. There was no better
witness to this experience than complainant himself. Since complainant failed to testify on the witness stand, the trial
court did not have any factual basis to award moral damages to him. x x x Mere allegations do not suffice; they must
be substantiated by clear and convincing proof.12 (Emphasis supplied)
Indeed, in this case, since respondent Henry Go was not able to testify, there is then no evidence on record to prove
that he suffered mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar injury by reason
of petitioner's conduct. Thus, on the award of moral damages in favor of deceased respondent Go, substituted by his
heirs, the Court finds the same improper as it lacks the required factual basis.
However, there was no error committed by the lower courts with regard to the award of temperate or moderate
damages of P100,000.00 to respondents Lao Lim and Go. The New Civil Code provides:
Art. 2224. Temperate or moderate damages, which are more than nominal but less than compensatory damages, may
be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot, from the nature
of the case, be proved, with certainty.
Here, the trial and appellate courts also made the factual findings that the purpose for respondents Lao Lim's, Henry
Go's, and Manuel Limtong's trip to Hongkong was to conduct business negotiations, but respondents Lao Lim and
Henry Go were not able to meet their counterparts as they were not allowed to board the PR300 flight on February 26,
1991. As discussed earlier, said factual finding is deemed conclusive and the circumstances appearing on record
convinced this Court that respondents Lao Lim and Henry Go suffered some pecuniary loss due to their failure to meet
with their business associates. Understandably, it is difficult, if not impossible, to adduce solid proof of the losses
suffered by respondents due to their failure to make it to their business meetings. Certainly, respondents' time and
effort were wasted when they left their businesses in Cebu, all for naught, as the business negotiations they were
supposed to conduct in Hongkong did not push through. One cannot discount the fact that business opportunities were
lost. Thus, it is only just that respondents Lao Lim and Henry Go be awarded temperate or moderate damages.
As to the award of exemplary damages in favor of respondent Go, Gatmaitan vs. Gonzales,13 is instructive, to wit:

x x x Article 2229 of the Civil Code provides that exemplary or corrective damages are imposed in addition to the
moral, temperate, liquidated or compensatory damages. Exemplary damages are not recoverable as a matter of right.
The requirements of an award of exemplary damages are: (1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to them has been established; (2) that they cannot be
recovered as a matter of right, their determination depending upon the amount of compensatory damages that may
be awarded to the claimant; (3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive
or malevolent manner. x x x14 (Emphasis supplied)
Since respondent Go is entitled to temperate damages, then the court may also award exemplary damages in his
favor.15 Indeed, exemplary damages are in order because petitioner and Rainbow Tours, through their respective
employees, acted in bad faith by not informing respondents Lao Lim and Go of the erroneous cancellation of their
bookings on the PR300 flight on February 26, 1991. Both the trial and appellate courts are correct in their
interpretation that Ms. Mancao, petitioner's employee, and Rainbow Tours Ms. Dingal acted in concert in not telling
respondents Lao Lim and Go of the problems regarding their bookings. Ms. Mancao in effect reinforced and agreed to
Ms. Dingal's decision not to tell respondents Lao Lim and Go, by telling Ms. Dingal that "if you tell the passengers, it
might just create further problems."16
However, the Court agrees with petitioner that respondent Manuel Limtong is not entitled to any award for damages
because, as to said respondent, petitioner faithfully complied with their contract of carriage. Respondent Limtong was
able to board PR300 on February 26, 1991, as stated in his confirmed plane ticket. The contract of carriage does not
carry with it an assurance that he will be travelling on the same flight with his chosen companions. Even if petitioner
failed to transport respondents Lao Lim and Go on the same flight as respondent Limtong, there is absolutely no
breach of the contract of carriage between the latter and petitioner. Hence, petitioner should not be made liable for
any damages in favor of respondent Limtong.
Petitioner is also liable for attorney's fees, because records show that respondents demanded payment for damages
from petitioner but it was only after respondents filed a case in court that petitioner offered some form of restitution to
respondents, which the latter found insufficient. Clearly, respondents were forced to obtain services of counsel to
enforce a just claim, for which they should be awarded attorney's fees.
Lastly, the Court finds petitioner's claim that only herein respondent, (third-party defendant before the trial court)
Rainbow Tours and Travel, Inc., should be made liable to respondents Lao Lim and Go, to be untenable. They have
acted together in creating the confusion leading to the erroneous cancellation of aforementioned respondents'
confirmed bookings and the failure to inform respondents of such fact. As such, they have become joint tortfeasors,
and in Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corporation,17 the Court elucidated thus:
x x x Where there are several causes for the resulting damages, a party is not relieved from liability, even partially. It is
sufficient that the negligence of a party is an efficient cause without which the damage would not have resulted. It is
no defense to one of the concurrent tortfeasors that the damage would not have resulted from his negligence alone,
without the negligence or wrongful acts of the other concurrent tortfeasor. As stated in the case of Far Eastern
Shipping v. Court of Appeals,
x x x. Where several causes producing an injury are concurrent and each is an efficient cause without which the injury
would not have happened, the injury may be attributed to all or any of the causes and recovery may be had against
any or all of the responsible persons although under the circumstances of the case, it may appear that one of them
was more culpable, and that the duty owed by them to the injured person was not the same. No actor's negligence
ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each wrongdoer is
responsible for the entire result and is liable as though his acts were the sole cause of the injury.1wphi1
There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total
damage. Where the concurrent or successive negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury and either of them is responsible for the whole injury.
Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors and are
solidarily liable for the resulting damage under Article 2194 of the Civil Code. [Emphasis supplied]18
Thus, petitioner and Rainbow Tours and Travel, Inc. are jointly and solidarily liable for damages awarded to respondents
Lao Lim and Go.
IN VIEW OF THE FOREGOING, the Decision of the Court of Appeals, dated March 22, 2005, is hereby MODIFIED by
DELETING the award for moral damages in favor of the substituted heirs of the late Henry Go, and DELETING the award
of temperate or moderate damages in favor of respondent Manuel Limtong.
SO ORDERED.

Today is Tuesday, January 20, 2015

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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-34767

October 23, 1987

OPERATORS INCORPORATED, petitioner,

vs.
AMERICAN BISCUIT CO., INC., respondent.
No. L-35024

October 23, 1987

ASSOCIATED BISCUIT, INC., petitioner,

vs.
AMERICAN BISCUIT CO., INC., and OPERATORS INCORPORATED, respondents.
No. L-35073

October 23, 1987

AMERICAN BISCUIT CO., INC., petitioner,

vs.
ASSOCIATED BISCUIT CO., INC., and OPERATORS INCORPORATED respondents.

SARMIENTO, J.:
These appeals by certiorari, are the result of a three-cornered controversy involving the American Biscuit Company,
Inc., the Operators Incorporated, and the Associated Biscuit, Inc., in connection with the operation of American
Biscuit's business by Operators and Associated. The trial court dismissed the claimS of the parties against each other.
The Court of Appeals rendered a modified decision condemning Associated to respond with certain damages.
Notwithstanding such a modification, an three parties came to this Court on separate petitions.
We consolidated the three cases and gave due course thereto.
The facts, as found by the Court of Appeals, * are not disputed:
xxx

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xxx

From the evidence adduced by the parties, it appears that plaintiff American Biscuit Company was, before World War II,
a manufacturer of biscuit, candy and bubble gum products. After the liberation, it reopened its candy department.
Financial difficulties and reverses, however, forced it to discontinue its business operations.
To bail itself out of this financial distress, plaintiff, on September 26, 1953, entered into an agreement with defendant
Operators, Inc. Under this agreement, it ceded the entire, total and complete present operation of its business to
defendant Operators, Inc., in consideration for which Operators, Inc. undertook to answer for existing obligations of the
plaintiff to its several creditors and to compensate plaintiff with a percentage of the gross profits realized in the course
of its operations. Insofar as are pertinent to this case, the terms of this agreement, otherwise known as the Operating
Contract, provides as follows:
l.
ABC gives, grants and cedes the entire, total and complete present operation of the ABC unto the OPERATOR
and the OPERATOR in turn agrees and accepts to operate said business of the ABC;
xxx

xxx

xxx

6.
This contract shall remain in full force and effect for a period of ten (10) years extendable to another ten (10)
years at the option of the OPERATOR herein; and any breach of the terms and conditions of this agreement, the
suspension, cancellation, or desistance on the part of the ABC with respect to the continuance of this operating
contract shall render the latter liable for damages unto the OPERATOR in a sum not less than P300,000.00 by way of
liquidated damages, besides other damages that may be demandable and such further sums as by then the
OPERATOR may have disbursed on account of the indebtedness of the ABC recoverable with twelve (12%) per centum
interest per annum;
xxx

xxx

xxx

10.
That as aforesaid the ABC is presently indebted in the sum of P220,000.00 more or less and that the ABC
hereby gives full power and authority unto the OPERATOR to settle said obligations through partial payments and
discounts;
xxx

xxx

xxx

12.
ABC shall receive from the gross profits realized by the OPERATOR an amount equivalent to TWENTY (20%) per
cent, the remaining EIGHTY (80%) per cent to be the property of the OPERATORS;
The 20% herein set aside for the ABC shall however be first used to amortize any and all advances, payments and
disbursements made by the OPERATOR on account of the ABC's obligations as under this contract to be advanced,
paid and disbursed by the OPERATOR, whatever shall be remaining after deducting said amortization shall be delivered
to the ABC;

IT BEING UNDERSTOOD, that the 20% herein reserved for the ABC shall be increased to 30% leaving 70% to the
OPERATOR as soon as the OPERATOR has fully reimbursed itself from the disbursements which it has made in payment
of the indebtedness of the ABC and of other items herein mentioned.
13.
Should any different or disagreement arises between the parties hereto on the meaning or effect of this
contract or any clause thereof, or in respect to the amount of percentage accruing to both parties, such difference or
disagreement shall be referred to a Board of Arbitrators to be composed of one arbitrator appointed by the ABC,
"one by the OPERATOR, and a third to be selected by the two aforementioned arbitrators, the decision of said
arbitrators to be binding among the parties herein in so far as the same is permitted by law. No action shall be
instituted in any court by any party hereto arising out of any such difference or disagreement, unless the same shall
have been submitted to said Board of Arbitrators, and any such action shall be based only upon the award so
obtained." (Operating Contract, Exh. A; Exh. 9-Associated).
On June 12, 1954, or barely 10 months thereafter, plaintiff and Operators, Inc., entered into another agreement, this
time with defendant Associated Biscuit Operators, Inc., with the consent of plaintiff, who was a formal party thereto. In
this agreement, known as the Tripartite Agreement, Associated agreed to engage in the manufacture and marketing of
the biscuit products of American Biscuit Company, Inc., under the terms and conditions of the Operating Contract of
September 26, 1953. This Agreement in turn, among others, contains the following pertinent covenants and
stipulations:
l.

Grant of Right.

The American Biscuit Co., Inc., with full knowledge and consent of the Operators Incorporated, hereby grants unto the
Associated Biscuit Operator's Inc., the exclusive and irrevocable right to manufacture and market the biscuit products
of all kinds and denominations of said American Biscuit Co., and for such quality and quantity and during the period
hereinbelow specified, subject to the same terms and conditions, stipulations and agreements contained in the
contract between the American Biscuit Co., Inc., and the Operators Incorporated of September 26, 1953 and the
further agreements and stipulations hereinbelow stated.
xxx

xxx

xxx

4.

Capitalization.

The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) minimum will be spent by the Associated Biscuit
Operators, Inc. exclusively for the manufacture and marketing of biscuit products, the construction of buildings and
improvements and the purchase of machineries, equipments, appliances, furnitures and fixtures needed and
necessary and required for the biscuit business subject of this contract, the Associated Biscuit Operators Inc.,
representing hereby that it will invest any and all other capital necessary should circumstances so demand;
xxx

xxx

xxx

6.

Machineries and Equipments

All machineries, appliances, equipment, furnitures and fixtures and any all that may be necessary and required for the
business operation provided for under this contract shall be acquired and purchased by the Associated Biscuit
Operators Inc., at their own expenses and for their own account without any charges whatsoever against the American
Biscuit Co., Inc.;
The Associated Biscuit Operators Inc., shall keep said machineries, equipments, appliances, furnitures and fixtures
insured and in the event of their destruction by fire or otherwise, the Associated Biscuit Operators, Inc., shall
immediately replace the same for purposes agreed upon under this Contract;
7.

Operation.

The Associated Biscuit Operators Inc. shall commence operation as agreed upon under this contract and by virtue
hereof within SIX (6) MONTHS after dollar allocations have been granted to the Associated Biscuit Operators Inc.,
and/or the American Biscuit Co., Inc., and the purchase and importation of necessary machineries and equipments;
xxx

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xxx

9.

Allowances.

(A)
Upon signing of this agreement, the Associated Biscuit Operators Inc., shall advance to the American Biscuit
Co., Inc., the sum of ONE THOUSAND FIVE HUNDRED PESOS (Pl,500.00) and every month(s) thereafter during the
existence of this contract, a minimum allowance of FIVE HUNDRED PESOS (P500.00), which may be increased from
time to time as the parties hereto may agree;
(B)
It shall be the obligation of the Associated Biscuit Operators Inc. to share equally with the Operators
Incorporated in the payment of any and all obligations and expenses in connection therewith of the American Biscuit
Co., Inc., existing as of September 26, 1953 and as stipulated in the agreement of the same date, deductible, however,
from the American Biscuit Co., Inc.'s participation as hereinbelow stipulated. (Exh. B; Exh. 10-Associated).
On June 17, 1954, or 5 days after the conclusion of the Tripartite Agreement, the defendants, Operators and
Associated, entered into an agreement in application of their right(s) and obligations acquired under the terms of the
foregoing agreements. The defendants agreed
1.
That the Associated Biscuit Operators Inc., shall be entitled to the same right and privileges acquired by the
Operators Incorporated under the original contract. It is understood and agreed that the Associated Biscuit Operators
Inc., shag have full and exclusive control and supervision over the management of its business affairs.

2.
That as provided for in Paragraph 6 of the original contract, this agreement shall remain in full force and effect
for a period of TEN (10) YEARS extendible for another period of TEN (10) YEARS at the option of the Associated Biscuit
Operators Inc.
3.
That any building or buildings that may be constructed, and any and are machineries, equipments, furnitures
and fixtures that may be installed therein, by the Associated Biscuit Operators, Inc., shall remain the property of said
corporation, subject only to the right of the American Biscuit Co., Inc., to acquire and purchase the same as provided
for in the original and supplementary contracts.
4.
That immediately upon the signing of this agreement, the Associated Biscuit Operators, Inc., shall pay unto the
Operators Inc., FIFTY (50%) PER CENTUM of any and all advances and payments made by the latter for the account of
the American Biscuit Co., Inc., prior to the signing of this contract: and, thereafter, as provided for in the
supplementary contract, the Associated Biscuit Operators, Inc., shall pay and deliver unto the Operators Incorporated
FIFTY (50%) PER CENTUM of the monthly cash advances and payments to be made for the account of the obligations
of the American Biscuit Co., Inc., still remaining unpaid.
5.
That the Associated Biscuit Operators Inc., hereby further agreed with the Operators Incorporated to pay the
latter FIFTY (50%) PER CENTUM of the monthly cash advance of ONE THOUSAND (Pl,000.00) PESOS, Philippine
Currency, payable to the American Biscuit Co., Inc., under paragraph 7, subparagraph 3 of the original contract and
another FIFTY (50%) per centum of the FIVE HUNDRED (P500.00) PESOS monthly cash advance to the American Biscuit
Co., Inc., as provided for in sub-paragraph A of paragraph 9 of the supplementary contract; it being understood that
the remaining FIFTY (50%) PER CENTUM of the aforesaid FIVE HUNDRED (P500.00) PESOS monthly cash advance shall
be paid by the Operators Incorporated to the American Biscuit Co., Inc.
6.
That in the construction of the factory or any other building, the Associated Biscuit Operators Inc. shall leave
unoccupied certain space on the lot, where said factory or building shall be built, for the use and occupation of the
Operators Inc. Such vacant space to be reserved shall be determined by the parties hereto before the start of the
construction of the factory or building.
7.
That the Associated Biscuit Operators, Inc., shall be entitled to the use and occupation of FIFTY (50%) PER
CENTUM of American Biscuit Co., Inc. building at the factory site presently occupied by the Operators Incorporated,
including such furniture, fixtures and rolling equipments owned by the American Biscuit Co., Inc., which are presently
in the possession of, and are being used by, the Operators Incorporated. (Exh. 11-Associated).
Meanwhile, after the conclusion of the original operating contract between ABC and Operators Inc., it appears that
Operators Inc. commenced with its operations in the manufacture of plaintiff's chiclet and bubble gum products,
utilizing for this purpose the plaintiff's site and establishment. In December 1954, Eu C. Leh became the general
manager of Operators Inc. Leh reorganized the Operators Inc., improving the quality of the chewing gum which it was
manufacturing. For this purpose, Operators Inc. took over the machinery used for the manufacture of chewing gum
only, such as gum cutter, mixer, pulverizers and moving fans.
In March 1955 i.e., some eight (8) months after the conclusion of the Tripartite Agreement it appears that
differences had arisen between the two defendants on the utilization of plaintiff's establishment and equipment. A
conference was held in plaintiff's premises in Paranaque, upon the instructions of its president, Mr. Jorge Vargas. In the
said conference, Operators Inc. was represented by Eu C. Leh, Judge Rafael Dinglasan and Go Khe Bing. President for
Associated were Juan Wong Locsin, its president; Yan Won Can, its manager; and Atty. Demetrio Salem. In said
conference the parties agreed to divide the factory building into two portions, the northern-portion having been
assigned to Operators Inc. and the southern-portion to Associated. The parties also divided the ABC's facilities,
equipment and furniture. The Chevrolet truck was assigned to was only for the manufacture of chewing gum, was
assigned to defendant Operators. The arrangement was approved by the plaintiff. Associated Biscuit was allowed the
use of the sugar pulverizer, the water pump and the airconditioning facilities, on condition that it would pay the
expenses of maintenance, before the arrival of its own machinery. After the foregoing division of factory premises,
equipment and furniture, the parties took possession of their respective shares. Operators continued with its
manufacture of chiclet and chewing gum. Associated commenced its manufacture of biscuits with the machinery it had
imported from Hongkong, awaiting meanwhile the arrival of the machinery they undertook to import from their
purpose from the United States thru the dollar allocation secured from them by the American Biscuit.
Meanwhile also, since the two defendants operators and Associated-had both undertaken to pay ABC's obligation,
owing to its various creditors-accounts which had been outstanding before the entry into the agreements and which,
in fact, were the motivating factors for the entry of the plaintiff into the operating agreements arrangements were
made between the parties with the China Banking Corporation whereby the defendants would share fifty-fifty in the
payment by monthly installments of the P110,000.00 unpaid balance of the loan by the bank to plaintiff (Exh. 3-AOperators). This arrangement was religiously complied with by Operators Inc. which paid Pl,500.00 monthly, making a
total payment of more than P100,000.00 including interest. Defendant Associated in turn, failed to make good its
commitments to pay its share of P55,000.00.
As a result of Associated's failure to observe its commitments towards the liquidation of ABC's pending accounts, China
Banking Corporation filed against plaintiff-Civil Case No. 37045 (Exhs. F, F-1, F-2, F-3; Exh. 4 Operators). This case
was again dismissed on joint motion of the parties, upon the undertaking of Operators Inc., to pay the obligations with
the approval of Mr. Jorge Vargas. Operators Inc. thus fully complied with its obligation under the contracts, and then
plaintiff, in October 1963, upon the termination of the operating contracts, entered into a contract of lease (Exh. 14
Operators) with Operators Inc., for the continued use of the premises and the equipment of the plaintiff for another
term of 10 years, renewable for the same period. It also appears that in August 1958 Chua Tee re-filed the original
cases filed in the Court of First Instance of Rizal, i.e., Civil Cases Nos. 5123 and 5124 (Exhs. G and sub-parts and K and
sub-parts) 1
In addition, the Court of Appeals observed:
xxx

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xxx

... It is true that Operators and Associated made periodical payments so as to partially satisfy the claims of the
creditors, but they were not enough; the creditors were not satisfied, that was why on 23 June, 1955, Exh. P American

Biscuit asked Operators and Associated to wake up and warned them of rescission, and Associated, which was the
party that had failed to perform, replied in Exh. 1 Associated that,
we wish to inform you that the settlement of the obligation of the China Banking Corporation is under negotiation with
said bank and we are just waiting for the action of the Board of said Bank on our proposal.
but nothing tangible came out of that, so much so that on 23 August, 1955, a three cornered conference took place in
the office of American Biscuit, from which WW be seen that American Biscuit confessed its plight with China Banking
unto both Associated and Operators, and therefore warned of rescission, see tsn. Exh. Y; ... 2
2nd. Again, under Exh. A in connection with Exh. B, Associated had bound itself to pay to American Biscuit as
monthly advances, the sum of P500.00 a month from July, 1954, par. 9, Exh. B, as well as binding itself solidarity with
Operators to advance the monthly overhead of P1,000.00, par. 7, Exh. A; this was demanded from Associated not only
in the latter, Exh. P of 23 June, 1955, but more emphatically in the conference, the tripartite conference, on 23 August,
1955, Exh- Y, again according to Exh. AA and AA-1 and as admitted by Juan Locsin Wong, Associated's witness,
Associated paid only up to February, 1955 and this only in October, 1955; ... 3
xxx

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... [I]t is not denied that Associated removed a Hudson Sharp Biscuit Cracker Wrapper and a Sandwich Machine on 19
and 24 June, 1957, as well as a cutting machine and a mixer, having sold the Hudson Biscuit Cracker and the Sandwich
Machine to one Kong Nian of Cebu, Exh. 12 and 13 Associated; representing them to be;
"free from all liens and encumbrances," most contrary to par. 6 of Exh. B that had made them partial securities in favor
of American Biscuit ... 4
Amid this setting, American Biscuit filed a complaint against Operators Incorporated and Associated Biscuit for the
cancellation of the Operating Contract and the Tripartite Agreement, with prayers to put Associated Biscuit under
receivership and for damages. The complaint alleged that there was a breach of the aforesaid agreements owing to
the failure of Associated Biscuit to pay its share in American Biscuit's indebtedness to its (American Biscuit's) creditors,
and the failure of Associated Biscuit to pay its share in the monthly overhead expenses of American Biscuit, in addition
to the removal by Associated Biscuit of machineries used in the business. American Biscuit maintained that the
payment of its indebtedness and of its overhead expenses was a joint and solidary obligation of Operators and
Associated Biscuit.
Operators submitted in its answer that the Operating Contract had been novated by the Tripartite Agreement which
allegedly severed its obligation from Associated Biscuit's own liabilities, and since it had fully complied with its
obligations, American Biscuit had no cause of action against it. Operators counterclaimed for damages for alleged
breach by American Biscuit of the arbitration provisions of the Tripartite Agreement by coming to court directly.
For its part, Associated Biscuit averred that it had paid a substantial portion of its obligations under the Tripartite
Agreement and that it stopped payment only because American Biscuit had deprived it of its contractual share in the
latter's dollar allocations. Associated Biscuit likewise submitted a counterclaim on the contention that it was American
Biscuit that breached the Tripartite Agreement. It filed a cross-claim against Operators for the latter's alleged failure to
comply with their agreement affording Associated Biscuit the right to half of American Biscuit's buildings, furniture,
fixtures, and rolling equipment. Associated Biscuit likewise alleged that Operators had connived with American Biscuit
in denying it of its share in the said dollar allocations.
As we said, the trial court dismissed the claims of all the parties against each other.
The Court of Appeals on the other hand, held:
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xxx

... [T]he final result must be that between American Biscuit and Operators, while Operators should be liable solidarity
for breach of Exh. B by Associated, and must therefore together with Associated, pay unto American Biscuit the
liquidated damages of P300.000.00, yet, American Biscuit must also be liable unto Operators for breach of the same
contract in regard to the arbitration clause and be liable therefor for the same amount of P300,000.00, so that these
claims will offset each other, but as to Associated, it having been so clearly shown to be the transgressor, it must
respond unto American Biscuit in the liquidated damages of P300,000.00, but as these liquidated damages due to
American Biscuit from Associated and Operators as solidary debtors are already offset by American Biscuit's liability to
Operators for the same amount of liquidated damages by reason of American Biscuit's own breach of contract as
against Operators, therefore American Biscuit can no longer recover from Operators nor Associated but as of the two
solidary debtors, Associated and Operators, it was Associated that was solely at fault and had given occasion for
American Biscuit to impose the liquidated damages, therefore, Operator should in turn be entitled to shift the
responsibility therefor upon Associated, thus permitting it to recover from Associated the P300,000.00 it had offset
against American Biscuit; and even as between Associated and Operators, as there has not been shown any cause nor
reason for Associated to complain against Operators, once, again under Art. 2208, this Court finds it only just to grant
attorney's fees unto Operators therefor, which it win fix at P5,000.00; 5
and ruled that:
IN VIEW WHEREOF, judgment will have to be as it is hereby modified so that a new one is dictated as follows:
Associated is condemned to pay Operators the sum of P300,000.00 plus attorney's fees in the sum of P5,000.00 plus
costs; and as against Associated, Exh. A and B are declared rescinded; costs of American Biscuit to be paid by
Associated. 6
In G.R. No. L-35024, Associated Biscuit submits the following:
ASSIGNMENT OF ERRORS
I

THE COURT OF APPEALS ERRED IN NOT HOLDING AMERICAN BISCUIT COMPANY, INC., LIABLE FOR BREAKING THE TENYEAR TERM OF THE TRIPARTITE AGREEMENT IN PLACING PETITIONER'S BISCUIT BUSINESS UNDER RECEIVERSHIP
WITHOUT JUST CAUSE.
II
THE COURT OF APPEALS ERRED IN REVERSING THE CONCLUSION OF THE TRIAL COURT THAT PETITIONER'S USE OF THE
PRODUCERS' DOLLAR QUOTA OF RESPONDENT AMERICAN BISCUIT COMPANY, INC. WAS A CONTRACTUAL RIGHT
UNDER THE TRIPARTITE AGREEMENT.
III
THE COURT OF APPEALS ERRED IN REVERSING THE TRIAL COURT'S CONCLUSION THAT RESPONDENTS BROKE
PETITIONER'S CONTRACTUAL RIGHT TO THE DOLLAR QUOTA AND ABSOLVING THEM FROM LIABILITY THEREFROM.
IV
THE COURT OF APPEALS ERRED IN JUSTIFYING RESPONDENTS' BREACH OF PETITIONER'S CONTRACTUAL RIGHT TO THE
DOLLAR QUOTA BY HOLDING THAT PETITIONER HAD FAILED TO SATISFY THE CREDITORS OF AMERICAN BISCUIT
COMPANY, INC. SINCE AUGUST, 1955.
V
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER HAD FULFILLED ITS OBLIGATIONS REGARDING THE
INDEBTEDNESS OF AMERICAN BISCUIT COMPANY, INC.
VI
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER VIOLATED THE TRIPARTITE AGREEMENT BECAUSE CHINA
BANKING CORPORATION, CHUA TEE AND CHUA TEE & CO., FILED SUITS AGAINST AMERICAN BISCUIT COMPANY, INC. IN
AUGUST, 1958, INSTEAD OF CONDEMNING AMERICAN BISCUIT COMPANY, INC. TO PAY MORAL DAMAGES FOR ITS
FRAUDULENT COMPLAINT.
VII
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER'S DISCONTINUANCE OF ITS MONTHLY ALLOWANCE FOR
OVERHEAD EXPENSES TO AMERICAN BISCUIT COMPANY, INC. AFTER FEBRUARY, 1955 WAS A BREACH OF THE
TRIPARTITE AGREEMENT.
VIII
THE COURT OF APPEALS ERRED IN CONSIDERING AS A CONTRACTUAL BREACH PETITIONER'S DISPOSAL OF TWO
PIECES OF EQUIPMENT, ALTHOUGH THE TRIAL COURT HAD NOT RULED ON THAT POINT AND THE LONE ASSIGNMENT
OF ERROR THRUST IN BY AMERICAN BISCUIT COMPANY, INC. WAS ADMITTEDLY GENERAL OR NON-SPECIFIC.
IX
THE COURT OF APPEALS FURTHER ERRED IN NOT DECLARING THE RESCISSION OF THE CONTRACTS AT THE INSTANCE
OF PETITIONER, WITH REIMBURSEMENT OF ITS ADVANCES AND DAMAGES, LIQUIDATED AND MORAL, PLUS LEGAL
INTEREST.
X
THE COURT OF APPEALS ERRED IN DISMISSING PETITIONER'S CROSS-CLAIM AGAINST OPERATORS INCORPORATED AND
CONDEMNING PETITIONER TO PAY IT P300,000.00 INSTEAD.
XI
THE COURT OF APPEALS ERRED IN ENTERTAINING RESPONDENTS' APPEAL OVER PETITIONER'S OBJECTIONS. 7
Operators Incorporated, as the petitioner in G.R. No. L-34767, in turn assigns these errors:
I
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT UNDER THE OPERATING CONTRACT (Exh. A) AND THE
TRIPARTITE AGREEMENT (Exh. B) DEFENDANT-APPELLANT OPERATORS INC. IS NOT ANSWERABLE OR RESPONSIBLE
UNTO PLAINTIFF-APPELLANT AMERICAN BISCUIT CO., INC., IN SOLIDUM WITH DEFENDANT-APPELLANT ASSOCIATED
BISCUIT INC., FOR THE LATTER'S MISFEASANCES
II
THE COURT OF APPEALS ERRED IN HOLDING THAT "DEFENDANT-APPELLANT OPERATORS INC., IS LIABLE FOR THE
LIQUIDATED DAMAGES PRESCRIBED AT P300,000 IN PARAGRAPH 13 OF THE TRIPARTITE AGREEMENT (EXH. B).
III
THE COURT OF APPEALS ERRED IN NOT SENTENCING OR CONDEMNING PLAINTIFF-APPELLEE AMERICAN BISCUIT CO.,
TO PAY DEFENDANT-APPELLANT OPERATORS INC., THE SUM OF P300,000.00 BY WAY OF LlQUIDATED DAMAGES AND
THE SUM OF P20,000 AS ATTORNEY'S FEES, UNDER PARAGRAPH 6 OF THE OPERATING AGREEMENT (EXH. A) 8
And in G.R. No. L-35073, American Biscuit argues that:

I.
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S "ACCUSATION OF BREACH" WAS, PURSUANT TO THE
GOVERNING CONTRACTS, REFERABLE TO ARBITRATION, CONSIDERING THAT THE SAME IS BASED ON THE FAILURE OF
DEFENDANT ASSOCIATED BISCUIT, INC. TO CARRY OUT THEIR TERMS AND CONDITIONS, ESPECIALLY ITS FAILURE TO
SATISFY THE INDEBTEDNESS OF PETITIONER MENTIONED THEREIN, WHICH, UNDER SAID GOVERNING AGREEMENTS,
EXPRESSLY GRANTS PETITIONER THE RIGHT TO FILE, SUIT FOR THE CANCELLATION OR ABROGATION OF THE SAME.
IT IS NOT BASED ON ANY DISAGREEMENT AS TO THE MEANING OR EFFECT OF THE GOVERNING CONTRACTS OR ANY
CLAUSE THEREOF OR IN RESPECT TO THE PERCENTAGE ACCRUING TO THE PARTIES, ANY OF WHICH CASES IS
REFERABLE TO A BOARD OF ARBITRATORS UNDER THE SAME CONTRACTS.
II.
PETITIONER AND DEFENDANT OPERATIONS, INC. HAD NOTHING AT ALL REFERABLE TO ARBITRATION BECAUSE THEY
HAD NO QUARREL WHATSOEVER AS BORNE OUT BY THE EVIDENCE ON RECORD AND AS EXPRESSLY NOTED BY THE
COURT OF APPEALS IN ITS DECISION.
III.
ASSUMING ARGUENDO THAT PETITIONER'S "ACCUSATION OF BREACH" WAS SUBJECT TO ARBITRATION, WHEN
DEFENDANT OPERATORS FILED ITS ANSWER, ENTERED INTO TRIAL AND COMPLETED ITS EVIDENCE WITHOUT EVEN
FILING A MOTION TO STAY THE PROCEEDING PURSUANT TO SEC. 7 OF REPUBLIC ACT 876 (ARBITRATION LAW) FROM
THE FILING OF THE COMPLAINT ON 15 SEPTEMBER 1958 UP TO THE RENDITION OF THE LOWER COURT'S JUDGMENT
ON 14 APRIL 1969, IT UNQUESTIONABLY WAIVED ITS RIGHT TO AVAIL ITSELF OF THE CONTRACTUAL ARBITRATION
CLAUSE.
IV.
IF THE COURT OF APPEALS CONSIDERS THE IMPOSITION OF P300,000.00 IN LIQUIDATED DAMAGES AGAINST
PETITIONER AS FAIR, NOTWITHSTANDING THE FACT THAT OPERATORS, INC. WAIVED ITS RIGHT TO ARBITRATION, THEN
FOR EACH AND EVERY BREACH OF ASSOCIATED BISCUIT, INC. THE COURT OF APPEALS SHOULD HAVE IMPOSED
P300,000.00 LIKEWISE AS LIQUIDATED DAMAGES AGAINST IT AND IN TURN AGAINST OPERATORS, INC., BEING A
SOLIDARITY OBLIGOR. 9
The threshold inquiry is whether or not the appeals (in the Court of Appeals) of American Biscuit and Operators Inc.
should have been dismissed at the outset since they assigned no errors. There is no merit in this contention. In Miguel
vs. Court of Appeals, 10 citing Cabrera vs. Belen, 11 we declared that:
... [A]pellants need not make specific assignment of errors provided they discuss at length and assail in their brief the
correctness of the trial court's findings regarding the matter. Said discussion warrants the appellate court to rule upon
the point because it substantially complies with sec. 7, Rule 51 of the Revised Rules of Court, intended merely to
compel the appellant to specify the questions which he wants to raise and be disposed of in his appeal. A clear
discussion regarding an error allegedly committed by the trial court accomplishes the purpose of a particular
assignment of error.
As correctly noted by the appellate court, "an examination of the briefs of American Biscuit and Operators who show
that while their assignments of error are really general, the bodies of their briefs are specific enough." 12
The fundamental question is whether or not Associated Biscuit violated the terms of the Operating Contract and the
Tripartite Agreement. On this question, both the trial and appellate courts were agreed that Associated Biscuit failed to
comply with its dual contractual commitments of settling the financial obligations of American Biscuits and of paying
its monthly overhead expenses. It is a finding that finds ample support in the evidence. The Court of Appeals pointed
out that (1) on June 23, 1955, American Biscuit had asked Associated Biscuit and Operators, under pain of rescission of
the contract, to satisfy the claims of its creditors, but in spite of assurances by Associated Biscuit, nothing tangible
came about, leading to the tripartite conference of August 13, 1955. As a result, the parties arrived at an arrangement
that obliged Associated and Operators to make a promissory note payable on March 13, 1957. But again, this was not
paid; and (2) in both the letter of June 23, 1955 and the tripartite conference of August 23, 1955, American Biscuit
demanded from Associated Biscuit the payment of the former's monthly overhead expenses but Associated made
payments good only up to February, 1955, and the payment itself was made only in October, 1955. These are factual
findings that bind this Court. 13
We are not convinced with the following arguments of Associated Biscuit:
xxx

xxx

xxx

... Short of execution of judgments and consequent closure of the candy department, there could be no breach of
paragraph 9 of the Operating Contract; and there had been neither judgment nor execution on those cases [filed by
the creditors of American Biscuit against the latter] before American Biscuit Company, Inc., commenced [the instant
case] Civil Case No. 37540 on or about September 12, 1958. 14
The theory then, of Associated Biscuit is that paragraph 9 of the Operating Contract stipulating that:
9.
The OPERATOR hereby agrees, guarantees and represents that it will at all times protect and safeguard the A B
C from lawsuits arising from the claims of its present creditors by and through the payment and satisfaction of the
latter's claims.
is violated only upon an actual execution of any judgment against American Biscuit and a physical takeover of the
company's properties.

Such a stand is not only patently against the clear wordings of the Operating Contract, it is absurd. It should be
observed that Associated Biscuit itself outlined in its brief that American Biscuit had entered into the Operating
Contract at a time when its creditors had already commenced foreclosure proceedings upon its properties and at a
time when its equipment and machineries were already in danger of being sold at public auction.15 That was why
Operators and Associated Biscuit, under paragraph 9 of the Operating Contract, obligated themselves to "protect and
safeguard the ABC from lawsuits ... by and through the payment and satisfaction of the [creditors'] claims." The
"execution of judgments" and the "consequent closure of the candy department" were precisely the consequences
American Biscuit had feared and foreseen, for which Operators and Associated Biscuit were made to assume the
liabilities they now deny. Clearly, when there is insufficient payment, as factually shown in the cases at bar, there is a
violation of the Operating Contract.
For one of the essential ingredients of payment as a mode of extinguishing obligations is integrity, that is, the payment
must be complete or full. Article 1233 of the Civil Code states: "A debt shag not be understood to have been paid
unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case
may be."
Associated Biscuit cannot claim that its share in the dollar quota of American Biscuit is a contractual right. The fact is
that, as found by the appellate court, American Biscuit did not refuse to share the quota with Associated Biscuit.
Furthermore, in its very brief, Associated Biscuit avers:
Honoring the adjustments, American Biscuit Company, Inc. allowed petitioner to use half of its dollar quota as
petitioner prepared to operate the biscuit department in 1955; and petitioner had enjoyed the quota equally with the
Operators Incorporated until June 1957, when the quota was suspended by the Central Bank for failure of American
Biscuit Company, Inc. to file the required production report. 16
As the Court of Appeals correctly noted, after the Operating Contract and the Tripartite Agreement had gone into
effect, American Biscuit went into inactivity, and since Operators and Associated Biscuit had then taken charge of the
business, it was their foremost obligation to see that the production report was duly filed.
We agree with the Court of Appeals that Associated had failed to exercise due diligence with respect to the American
Biscuit's quota allocations. It was a part of its contractual undertaking and its efforts were wanting in that regard.
Moreover, even as Associated Biscuit was actually sharing in the quota allocations until June, 1957, it, as late as March,
1957, had continuously failed to satisfy the of American Biscuit's creditors and to pay the overhead expenses of the
biscuit company. These are hard facts Associated Biscuit cannot now disavow by a torture of the words of the
contracts.
The position of Operators that under the Operating Contract and the Tripartite Agreement it is not answerable for the
misfeasance of Associated, is belied by the very provisions of the Tripartite Agreement, thus:
10.

Incorporating Clauses.

Paragraphs 9, 10, 11, the provisions on Board of Arbitrators, 14, 15, 16 and 17 of the contract of September 26, 1953
between the American Biscuit Co., Inc. and Operators Incorporated are hereby incorporated into this Contract by way
of reference and made an essential part hereof; and the word "OPERATORS" mentioned in said paragraphs is to be
understood as to include the Associated Biscuit Operators Inc., for purposes of this Contract; and both the Operators
Incorporated and the Associated Biscuit Operators Inc., in so far as liabilities and obligations therein contained in said
paragraphs shall be made answerable to the American Biscuit Co., Inc., jointly and severally. 17
There is thus no mistaking the fact that Operators and Associated had assumed, per their agreements, American's
liabilities to its creditors in solidum.
Article 1207 of the new Civil Code states that: "there is a solidary liability when the obligation expressly so states .... "
18
What may have led Operators in denying the solidary character of its obligations was the fact that it was engaged in
the manufacture of candy whereas Associated Biscuit was supposed to manufacture biscuits, and the fact that the two
operators were required to invest different minimum amounts in the venture. But these conditions do not alter the
solidary nature of their obligations as expressly provided. According to Article 1211 of the Civil Code, "solidarity may
exist although the debtors may not be bound in the same manner and by the same periods and conditions." 19
Accordingly, the disparity in their functions under the contracts does not vary the fact that they were bound, in
connection with American's liabilities, jointly and severally.
American Biscuit's own submission, however, that:
The Court of Appeals erred in holding that petitioner's "accusation of breach" was, pursuant to the defendant
Associated Biscuit, Inc. to carry out their terms and conditions, especially its failure to satisfy the indebtedness of
petitioner mentioned therein, which, under said governing agreements, expressly grants petitioner the right to file suit
for the cancellation or abrogation of the same. 20
lacks merit.
A closer scrutiny of the contracts in question will show that, contrary to the contention of American Biscuit, there was,
as between itself and Operators, a disagreement as to the meaning and effect of the governing contracts, a
disagreement referable, indeed, to a Board of Arbitrators pursuant to the arbitration clause. And this was violated by
American Biscuit when it made Operators a co-defendant in the complaint for the cancellation of the aforesaid
agreements.
To be sure, even if the solidary nature of Operators' liability is self-evident, American Biscuit cannot disregard such an
arbitration clause stipulated in the contracts. Solidarity does not make a solidary obligor an indispensable party in a
suit filed by the creditor. Article 1216 of the Civil Code says that the creditor "may proceed against anyone of the
solidary debtors or some or all of them simultaneously. 21

At the very least then, the inclusion of Operators in the case filed below is a dead issue. The dispute between the
parties should have been the subject of arbitration as agreed upon.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby affirmed in toto. No costs.
IT IS SO ORDERED.
Yap, Actg. C.J., (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.