Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 2684

March 15, 1907

THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND, plaintiff-appellant,

vs.
WILLIAM A. WILSON, ET AL., defendants-appellees.
Hartigan, Marple, Rohde & Gutierrez for appellant.
F.G. Waite and H.D. Terrell for appellees.
MAPA, J.:
The defendant Wilson was, on the 1st of October, 1902, an employee of the Government of the
Philippine Islands, as disbursing officer of the Bureau of Coast Guard and Transportation. For the
security of the Government the plaintiff company and another company. The American Surety
Company of New York, became sureties on the official bond of Wilson for the sum of $ 15,000,
United State currency. Wilson defaulted in the sum of $ 8,931.80, United States currency, and the
said two surety companies, after demand duly made upon them by the Government, were compelled
to pay and, as a matter of fact, did pay to said Government, in accordance with said bond, the sum
of $ 4,465.90, United States currency, each.
Wilson, who had left the Philippine Islands, was captured in the city of Montreal, Canada, for the
purpose of being tried before the courts of the Philippine Islands for the defalcation of said sum.
When apprehended Wilson had on his person the sum of $ 785 in gold, consisting of the following:
1 bill of $5, No. 333,448, on the Bank of Montreal.
1 United States bill, silver certificate, $10, series of 1891.
3 United States $10 notes, series of 1882.
5 United States $10 notes, series of 1891.
24 United States $10 notes, series of 1880.
45 United States $10 notes, series of 1901.
This sum and amount was turned over to the custody of Mr. Branagan, the Insular Treasurer.
The facts of this case, among others, are the following: On October 17, 1904, the plaintiff filed a
complaint against Wilson and The American Surety Company asking, first, that judgment be
rendered against Wilson for the sum of $4,464.90, that amount having been paid by plaintiff to the
Government under plaintiff's surety bond; second, that there be applied to the payment of said
judgment the said sum of $785 found in possession of Wilson and that said plaintiff be preferred in
its right to the said money and to receive the same; and third, that a depositary be named by the
court for the purpose of caring for and administering said amount during the pendency of the case.

On the same date, October 17, a depositary was named, such depositary taking in charge the said
$785 on that date, the said sum of money being at this time in the possession of said depositary.
On October 26, 1904, H.D. Terrell filed a complaint as intervenor in the case, alleging that on
September 3, of the same year, the defendant Wilson had ceded and transferred to the said Terrell
all of his, the said Wilson's rights in and to the said $785 in payment on account of a larger sum then
owed by said Wilson to the said H.D. Terrell for professional services already rendered and to be
rendered as attorney for said Wilson, under agreement with the same; that Treasurer Branagan was
duly notified on the 17th day of October, 1904, of this transfer, at which time the Treasurer had said
sum in his care, and this before the notifications of the appointment of said depositary in the principal
case. Basing his claim on these facts, Terrell claims the right of ownership in and to the said sum
and asks that the same be delivered to him as the legitimate owner to the exclusion of the other
parties in the case.
In this case of intervention The Fidelity and Deposit Company of Maryland, the plaintiff in the
principal cause, and The American Surety Company of New York together in cooperation and
against the claim of the intervenor Terrell, both of them, alleging on their part, better right that the
intervenor to receive the sum in question, asked that the said sum be delivered to them in equal
shares and portions as part payment and on account of the amounts which they had paid
respectively to the Government as sureties on the bond of Wilson. In this way the first pretension or
claim of preference as alleged by The Fidelity and Deposit Company in its complaint was modified
with respect to and as against The American Surety Company of New York. It is asserted by these
companies, as a basis of their right and claim, that the funds in question are a portion of the money
taken from the Government by Wilson and therefore the property of the said Government and that
they became subrogated to rights of the Government in and to the said sum by reason of the
payment by them as sureties on the bond of Wilson.
Judgment was rendered against Wilson by default, the latter not having answered to the complaint of
Terrell were true, in this way coming into the case in cooperation with said Terrell in his pretension.
After due trial of the cause a judgment was rendered by the court declaring proven, among others,
the facts as stated in the first part of his decision and found as a conclusion of law that the said
intervenor Terrell "became the owner and with the right to the possession of said funds before the
commencement of this action and still has the right to the possession of the same."
In accordance with this conclusion and the facts as set out in the judgment, the following order was
made by the court: "Let judgment be entered in favor of the party plaintiff, The Fidelity and Deposit
Company of Maryland, and against the defendant Wilson, for the sum of $4,465.90, United States
currency, the equivalent of P8,931.80, Philippine currency, together with interest on the same at the
rate of 6 per cent per annum from the 22nd day of October, 1903, and for the costs of this action,
and in favor of the intervenor H.D. Terrell and against all the other parties of this action, plaintiff and
defendant, for the possession of the funds now in the hands of the depositary appointed by this
court, ... amounting in value to the sum of $785, United States currency, and in the event that the
identical money can not be delivered, then its equivalent of the total of the same that is to say,
1,570 pesos, Philippine currency without cost. . . ."

The plaintiff only in the principal suit that is to say, The Fidelity and Deposit Company filed its
exception to the judgment. The American Surety Company of New York failing to appeal, the
judgment with respect to that company became final, hence this court can not decide with regard to
that. The same should be said with regard to that part of the judgment against Wilson for the
payment to The Fidelity and Deposit Company of the sum $4,465.90, no appeal from said judgment
having been made by Wilson.
There was no new trial asked for and the parties in this instance expressly admit, as proven, the
facts as set out in the decision rendered.
The only assignment of error alleged by the appellant in its brief, is in the following terms: "The court
erred" its says, "in rendering judgment in favor of the intervenor H.D. Terrell for the $785 in the hands
of the depositary." Therefore, that part of the judgment of the lower court that refers to this point is
the only thing, in fact, submitted to us for review.
According to our point of view, the only question here is to deduce and determine the true legal
effects of the transfer made by Wilson in favor of Terrell.
This transfer is made literally in the following terms:
MANILA, P.I., September 3, 1904.
To whom it concerns:
For value received, I hereby transfer and cede to Judge H. D. Terrell all my rights, title, and
interest in the following-described property belonging to me and now in the hands of Frank A.
Branagan, Treasurer of the Philippine Archipelago, under the attachment of the court of
Manila. (Here appears the description of the bank bills transferred, hereinabove described.)
(Signed) W.A. WILSON.
As is seen, this transfer was made before the filing of the complaint of the appellant, and in addition
thereto, it is said that the Insular Treasurer, Mr. Branagan, was also notified before the filing of said
complaint. The last does not appear to be clear in the record for the reason that the said notification
served on Branagan was so served on October 17, 1904, precisely the same date upon which the
complaint was filed and appointment of the depositary was made by the court in virtue of the same,
and upon which said date the depositary took possession of the said funds, the subject matter of this
suit. There is no data at hand to show in a precise manner which of the said acts took place before
the other. It is true that the judgment of the lower court states that Terrell became the owner of the
funds before the commencement of the action, but we consider this rather as a conclusion of law
than of fact; that is to say, that fact that the notification of the said transfer had been served on
Treasurer Branagan before the filing of the complaint. However, it may be, this may be admitted as
true and so taken into consideration in this decision.

Terrell claims, and the court below so holds in its judgment, that in virtue of said transfer the
ownership of Wilson in and to the funds was transferred to Terrell in fact and in law. If this had been
the case, the judgment would have been just and legal and would, therefore, be affirmed herein.
But our opinion is contrary to that sustained by the trial court in regard to this point. We are of the
opinion that the transfer by itself, and afterwards the notification of the same of Treasurer Branagan,
did not produce nor could it produce the effect of transfer to Terrell of the ownership of the funds so
transferred and which were then in the possession of the said Treasurer. To have this effect, it would
have been necessary that the delivery of the funds had been made directly Terrell, which fact has
not been proved at any time. There is no question as to this last point. The funds were in the
possession of Branagan and afterwards were transferred to the possession of the depositary
appointed, by the court where such funds now are, and this without their ever having been taken
possession of the intervenor Terrell. It is not alleged, nor it is claimed by Terrell, that the delivery of
the funds was ever made in any manner recognized by the law. He claims the right of ownership
from the mere fact of having derived the same, not from the fact of any delivery, but from the very
fact of the transfer and of his subsequent notification to Treasurer Branagan, it being, in addition,
very clear that such notification does not constitute, in any manner, the fact of delivery as
established by articles 1462, 1463, and 1464 of the Civil Code, all of which cover, in full this subjectmatter.
Therefore, in our Civil Code it is a fundamental principle in all matters of contracts and a well-known
doctrine of law that "non mudis pactis, sed traditione dominia rerum transferuntur." In conformity with
said doctrine as established in paragraph 2 of article 609 of said code, that "the ownership and other
property rights are acquired and transmitted by law, by gift, by testate or intestate succession, and,
in consequence of certain contracts, by tradition." And as the logical application of this disposition
article 1095 prescribes the following: "A creditor has the rights to the fruits of a thing from the time
the obligation to deliver it arises. However, he shall not acquire a real right." (and the ownership is
surely such) "until the property has been delivered to him."
In accordance with such disposition and provisions the delivery of a thing constitutes a necessary
and indispensable requisite for the purpose of acquiring the ownership of the same by virtue for a
contract. As Manresa states in his Commentaries on the Civil Code, volume 10, pages 339 and 340:
"Our law does not admit the doctrine of the transfer of property by mere consent but limits the effect
of the agreement to the due execution of the contract. ... The ownership, the property right, is only
deprived from the delivery of a thing . . . ."
Applying this doctrine concretely to the contract of transfer set up by Terrell as the basis of his
complaint in intervention, the author says, at page 341 of the volume and work above cited: "The
transfer of the ownership in the contract of such transfer, does not produce the effect by the fact of
the mere consent, but is acquired by tradition and in the due observance of general precepts."
Therefore, by reason of the non-delivery Terrell did not acquire the ownership of the property
transferred to him by Wilson. It is only the jus ad rem, and not the jus in re, that was acquired by
Terrell by virtue of the transfer, made by the consent of the transferor and the transferee but not
consummated by the delivery which never came to pass and which delivery was the object of such
transfer.

But if Terrell could not be considered as the owner of said funds in question, it is undeniable that he
had rights with regard to the same as a creditor by virtue of that transfer. The same right, that of a
creditor, and no other is the right of the appellant in that it has not been contradicted that the rights of
the Government, in its judicial relation to Wilson, had not been subrogated to the appellant. The
allegation of the appellant that the bank bills taken from the person of Wilson are the property of the
Government, in order to be taken into consideration, is to conclude that they belong to the appellant
as owner of the same by reason of said subrogation of right, as aforesaid. This has no fundamental
basis for the reason that such bank bills have never been duly identified. Without any proof of
identification it is not possible to know if said bank bills are really a part of the funds of the
Government appropriated by Wilson. The Government under such circumstances could not allege
specifically the right of ownership of said bank bills.
Now, the creditors, the appellant and the appellee are both claiming at the same time the delivery of
the funds in question for the payment of their respective credits and it becomes a question of
preference of creditors, since the sum, the object of the suit, is not sufficient to satisfy the claims of
both parties.
According to our view, neither of the two creditors should enjoy preference with regard to the other.
Preference is determined by the nature of the credit in some cases and by the priority of date in
others. The first, when it deals with privileged credits, which different kinds of privileged credits are
enumerated in articles 1922, 1923, and 1924 of the Civil Code; and the second, when such credits
are without special privilege, but are set forth in a public document or a final judgment. (Par. 3, article
1924.) In neither of these two classes do we find the credit of the appellant or that of the appellee.
The credit of the appellee is only shown in a private document, and the right, or credit, of the
appellant is that derived by reason of the payment made by appellant to the Government as a surety
on the bond of Wilson, and nothing more than this appears in the allegations and admissions of the
parties during the trial of the case. It does not appear by the bill of exceptions in this case that any
document was ever presented in justification of such payment. Neither does the decision refer to any
document as showing, as proven, said payment. These two credits not coming under any of the
articles herein cited, the same pertain to a general class, and therefore do not enjoy any preference,
in accordance with provisions of article 1925 of the Civil Code. This being so, the two creditors
should be paid of pro rata from the funds in question and without consideration of the dates. (Rule 3,
of article 1929.)
The judgment appealed from is, therefore, reversed with respect to the order of the trial court
ordering the delivery of said funds, in their total amount, to the intervenor, H.D. Terrell, and in place
of said order of said trial court we order that the payment and delivery of said funds be made to said
Terrell and to the appellant, The Fidelity and Deposit Company of Maryland, pro rata, with respect to
their respective credits, without special provision as to days from the notification hereof let judgment
be entered in accordance herewith, and ten days thereafter let the case be remanded to the court
from whence it came for proper action. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-10244

February 29, 1916

SANTIAGO CRUZADO, plaintiff-appellant,

vs.
ESTEFANIA BUSTOS and MANUEL ESCALER, defendants-appellees.
Felix Ferrer for appellant.
Augusto Gonzalez for appellees.
TORRES, J.:
This appeal, by bill of exceptions, was taken from the judgment of June 17, 1914, in which the trial
judge absolved defendants from the complaint and plaintiff from the cross-complaint, without
express finding as to costs. Counsel for plaintiff appealed from this judgment and moved for a new
trial. This motion was denied, exception was taken by appellant, and, on the filing of the proper bill of
exceptions, the same was approved, certified, and transmitted to the clerk of this court, together with
a transcript of the evidence introduced at the trial.
Counsel for the plaintiff Santiago Cruzado filed a written complaint on October 8, 1910, amended on
September 25, 1913, in which he alleged that plaintiff was the owner of certain rural property
situated in the barrio of Dolores, formerly San Isidro, of the municipality of Bacolor, Pampanga,
containing an area of 65 balitas and bounded as set forth in the complaint; that Estafania Bustos,
during her lifetime, and now the administrator of her estate, together with the other defendant,
Manuel Escaler, had, since the year 1906 up to the present, been detaining the said parcel of land,
and had refused to deliver the possession thereof to plaintiff and to recognize his ownership of the
same, notwithstanding the repeated demands made upon them; that by such detention, the plaintiff
had suffered losses and damages to the amount of P3,500. He therefore asked for judgment
declaring plaintiff to be the owner of the said parcel of land and ordering defendants to return it to
plaintiff and to pay the latter P3,500 for losses and damages, and the costs.
The demurrer filed by the defendant Bustos having been overruled, in her answer she made a
general denial of each and all of the allegations of the complaint, and of each and all of the
paragraphs thereof, and, as a special defense, alleged that the title to the said land, produced by the
plaintiff, was not a lawful one, for the reason that only a simulated sale of the land was made by the
between herself and the deceased Agapito Geronimo Cruzado, plaintiff's father, and that for more
than thirty years preceding the present time she had been the sole, exclusive, and lawful owner of
the said parcel of land in question; that she had been holding it quietly, peaceably, publicly and in
good faith; that it formed an integral part of another larger parcel of land, both parcels aggregating a
total area of 100 balitas, 9 loanes, and 41 square brazas; that in September, 1891, with plaintiff's
knowledge, the defendant Bustos sold and conveyed all the said property to the other defendant

Manuel Escaler who then acquired the possession and ownership of the said parcel of land, and had
retained such ownership and possession up to the present time; that at no time and on no account
whatever had plaintiff or any other person except defendants acquired possession of the said parcel
of land or any part thereof, nor any right or title therein. She therefore prayed to be absolved from
the complaint, with the costs against plaintiff.
The other defendant, Manuel Escaler, in an amended answer to the aforementioned complaint,
denied each and all of the allegations therein contained and each and all of its clauses, and, as a
special defense, alleged that plaintiff's title to the said land was illegal as only a simulated sale was
made by and between Agapito Geronimo Cruzado, plaintiff's predecessor in interest, and Bernardino
Dizon; that defendants had been in possession of the said parcel of land for more than thirty years;
that the defendant Escaler in good faith purchased the land in question from Estefania Bustos,
widow of Dizon, without ever having had any notice of any defect in the vendor's title; that plaintiff
had knowledge of the contract of sale of the land in question yet did nothing to oppose its purchase
by the defendant Escaler, wherefore the latter, in acquiring the property, did so under the belief that
the plaintiff Santiago Cruzado had no right or interest therein. He therefore prayed that the complaint
be dismissed, with the costs against plaintiff, and that an injunction issue to restrain the latter from
interfering with the defendant Escaler in the enjoyment of his property and rights and from
performing any act prejudicial to his interests.
On the case coming to trial, both parties adduced evidence, among which was included the
deposition of Inocencio Rosete.
Counsel for defendants, in a cross-complaint set forth: that as shown by the evidence, the defendant
Escaler acquired in good faith from Estefania Bustos the land in question at a time when there was
no record whatever in the property registry to show that this land belonged to a third person or any
other than the vendor; that, on entering into possession of the property, Escaler spent P4,000 inimprovements and in the repair of a long dike to prevent the erosion of the land by the frequent
overflows of the adjoining estuary; that of this sum P2,000 was paid by Escaler and the remaining
P2,000 by Estafania Bustos, in her capacity as lessee of the land; and that in case the judgment of
the court should be adverse to defendants, these latter, as owners in good faith, were entitled to be
indemnified by plaintiff for the said expenses. He therefore asked that plaintiff be ordered to
reimburse half of the said P4,000 to each of the defendants in case judgment should be rendered
favorable to plaintiff.
The latter's counsel, in answer to the said cross-complaint, specifically denied each and all of the
allegations thereof and, in special defense, reproduced plaintiff's amended complaint in all its parts
and alleged that the facts set forth in the cross-complaint did not constitute a cause of action. He
therefore prayed that plaintiff be absolved from the cross-complaint and that judgment be rendered
against defendants, in conformity with the prayer of his complaint.
After the evidence was all in, counsel for the defendant Escaler moved that the deposition of the
witness Inocencio Espanol Rosete be admitted into the record, and in support of his motion stated
that with the authorization of the court the said deposition had been taken on November 21, 1913, in
the municipality of Arayat in the presence of plaintiff's attorney; that the said declaration of the
deponent was duly forwarded to the clerk of the court, and there attached to the record, but through

an unintentional oversight of defendant's attorney, it was not presented in evidence at the trial; that
this deposition was very important for the defendants' defense; and that the deponent was and
continued to be unable to appear before the court on account of a threatened attack of brain fever
which might develop during the journey from Arayat to San Fernando.
Plaintiff's counsel asked that the foregoing motion be overruled and that the deposition of the
witness Rosete be stricken from the record, because defendants' motion was made out of time and
was contrary to the rules of procedure, and there was no reason for altering the order of procedure,
as requested by defendants, for, when the period for the reception of the evidence of both parties is
closed, an alteration in the order of procedure such as asked by defendants would be improper and
illegal, counsel citing the decision of this court in the case ofGarcia vs. Reyes.1 He alleged,
moreover, that the said deposition necessarily affected the main issue in controversy and that to
allow the motion would be in contravention of the provisions of section 364 of the Code of Civil
Procedure. He therefore asked that the said motion be overruled. The court, however, ordered that
the deposition of the witness Inocencio Rosete be admitted in evidence, and that plaintiff's exception
be noted. In view of the foregoing, the judgment aforementioned was rendered.
The questions herein submitted for the decision of this court are:
1. Is it or is it not true that the deed of sale, Exhibit A, (p. 40 of the record) of 65 balitas of land
situated in the municipality of Bacolor, Pampanga, executed by Estefania Bustos, with the
assistance of her husband Bernardino Dizon, in favor of Agapito Geronimo Cruzado, for the sum of
P2,200, was simulated, not with intent to defraud any third person, but for the sole purpose of
making it appear that the vendee, Cruzado, then a candidate for the position of procurador on the
date of the said deed, September 7,1875, possessed real estate to the value of P2,200 with which to
guarantee the faithful discharge of the duties of the office of procurador?
2. It is or is it not true that, notwithstanding such apparent alienation of the 65 balitas of land, the
supposed vendee continued in possession thereof, without the supposed purchaser having taken
possession of the property until September 10, 1891, when its owner Bustos sold to Escaler, not
only the said 65 balitas of land, but also all the remainder of a large tract of agricultural land of which
the portion appearing as sold to Agapito G. Cruzado formed and forms a part, and that Escaler was
then and, until the date of plaintiff's claim, continued to be in peaceable, uninterrupted possession of
the said whole tract of land, including the aforementioned portion of 65balitas?
3. Has the right of ownership prescribed which Manuel Escaler is and has been enjoying in the land
which Estefania Bustos had sold to him and which includes the parcel of 65 balitas claimed by
plaintiff, Santiago Cruzado, or has the right of any real or personal action he might exercise by
reason of the sale to Cruzado prescribed on account of the lapse of the respective periods fixed by
law, between the 7th of September, 1875, the date of said sale, and the 8th of October, 1910, that of
the filing of the complaint?
To judge from the evidence adduced in this case, there is ample ground for holding that the said
deed of sale of a parcel of 65 balitas of land was simulated, not to defraud any creditor or other
person interested in the land nor for the purpose of eluding any lawful obligation on the part of its

owner, Estafania Bustos, but for the sole purpose of doing a favor, of rendering a special service to
Agapito Geronimo Cruzado, father of the plaintiff Santiago Cruzado.
During his lifetime Agapito G. Cruzado aspired to hold the office of procurador in the Court of First
Instance of Pampanga, but notwithstanding that he possessed the required ability for the discharge
of the duties of that position, he was unable to give the required bond, an indispensable condition for
his appointment, as he was possessed of no means or real property wherewith to guarantee the
proper discharge of his duties in the manner prescribed by the laws then in force.
In the certified copy of the record of the case tried in the Secretaria de Gobierno of the
abolished Real Audiencia de Manila, issued by the Assistant Executive Secretary and chief of the
division of archives, there appears on page 178 a decree by the presidencia of this latter tribunal,
issued by virtue of the resolution passed by the sala de gobierno on November 24, 1875, whereby it
was ordered that Agapito Geronimo Cruzado should be noticed that within the period of 30 days he
must show proof of having furnished a bond of P700 in cash or of P2,100 in real property as security
for the position of procurador to which he had been appointed, with the understanding that should be
fail to furnish such bond he would not be issued the certificate entitling him to practice the profession
of procurador.
After complying with the requirements of the said court and executing the mortgage deed of the land
purchased by the procurador elect Cruzado from Estefania Bustos, on March 18, 1876, the
mortgage was recorded in the old mortgage registry then kept in the office of the Ayuntamiento of
Manila during the former sovereignty, and thereafter Agapito G. Cruzado received his appointment
and commenced to discharge the duties of his position.
The above-related facts conclusively prove that Estefania Bustos executed the deed of sale Exhibit A
in favor of the deceased Cruzado in order to enable the latter, by showing that he was a property
owner, to hold the office ofprocurador. This position he held for many years, thanks to the liberality of
the pretended vendor, who, notwithstanding the statements contained in the deed of sale, does not
appear to have been paid anything as a result of the sham sale, a sale which was affected, not in
prejudice or fraud of any person, nor those who were entitled to hold Cruzado liable for the proper
discharge of the duties of his office, because, had the need arisen, any liability of his could have
been covered by the value of the land, the sale of which was fictitiously set forth in that deed as
lawfully belonging to Cruzado, and then Estefania Bustos would have had no right either to object to
or escape the consequences of that alienation, although simulated.
The simulation of the said sale was effected by making a pretended contract which bore the
appearance of truth, when really and truly there was no contract, because the contracting parties did
not in fact intend to execute one, but only to formulate a sale in such a manner that, for the particular
purposes sought by Bustos and Cruzado, it would appear to have been celebrated solely that
Cruzado might hold his office of procurador on the strength of the security afforded by the value of
the land feignedly sold.
The record does not show when the procurador Cruzado died, but it is unquestionable that he was
still living during the last months of 1882, judging from the certificate which he himself issued to
Norberto Decena (Exhibit 3). He must have died sometime between the years 1882 and 1890, to

judge from the contents of the letters plaintiff addressed to Natalio Dizon, one of the children of
Estefania Bustos, on July 7, 1891, and July 4, 1896, and from the fact that in the said year 1890
Agapito G. Cruzado was no longer a practicing procurador in the Court of First Instance of
Pampanga..
It is true that even after the death of the aforesaid procurador, any liability he might have incurred in
connection with the exercise of his office could have been, upon presentation of the proper claim,
collected out of the value of the land apparently sold by Estafania Bustos and pledged as security for
the proper discharge of the duties of his office. On October 8, 1910, when his son Santiago Cruzado
filed his complaint, already more than twenty years had elapsed since 1889, if plaintiff's father died in
1889 and not between 1883 and 1889; therefore, any right of action to foreclose the mortgage, or
any personal action with regard to the value of the encumbered land, as the result of any liability
incurred in the performance of his duties as procurador, has more than prescribed. (Art. 1964, Civil
Code, and secs. 38, 39 and 43, Act. No. 190.).
On the termination of the sovereignty of Spain over this Archipelago, the Spanish courts here
established went out of existence on January 31, 1899, the Pampanga court indeed being abolished
about the middle of 1897 as a result of the revolution against the former sovereignty. The personnel
of those courts also ceased to render service as such. It may therefore be affirmed that, if the said
lien on the land in question has not terminated by its no longer having any object, it is at least
undeniable that prescription has already run with respect to any action that might have been brought
against the pledged land to recover for any liability which might have been incurred by
the procurador Cruzado during his lifetime in connection with his office, so that this real estate may
now be considered as free from that hypothecary encumbrance.
At the present time we have only to explain what rights Agapito G. Cruzado transmitted at his death
to his son, the herein plaintiff, by virtue of the deed of sale of the land in litigation, executed by its
owner Estefania Bustos.
It is unquestionable that the contract of sale of the 65 balitas of land was perfect and binding upon
both contracting parties, since they both appear in that instrument to have agreed upon the thing
sold, to wit, the 65balitas of land, and upon the price, P2,200; but it is also undeniable that the said
contract was not consummated, inasmuch as, notwithstanding that the deed of sale Exhibit A was
accomplished and this document was kept by the pretended purchaser, it is positively certain that
the latter did not pay the purchase price of P2,200, and never took possession of the land apparently
sold in the said deed. All that this vendee afterwards did was to pledge the land on March 14,
1876, that is, six months and some days after the 7th of September, 1875, the date when he
purchased it as security for the faithful discharge of the duties of his office of procurador of the
Court of First Instance of Pampanga.
The plaintiff, Santiago Cruzado, a son of the vendee, claiming that the said land was being detained
by the vendor, or by the administrator of the latter's estate or her death after the commencement of
these proceedings, and by the other defendant Manuel Escaler, prayed the court to declare him to
be the owner thereof, to order the defendants to return it to him and to pay him for losses and
damages, and the costs.

The action brought by the plaintiff is evidently one for recovery of possession, founded on the right
transmitted to him by his father at his death, a right arising from the said simulated deed of sale of
the land in question. This action is of course improper, not only because the sale was simulated, but
also because it was not consummated. The price of the land was not paid nor did the vendee take
possession of the property from the 7th of September, 1875, when the said sale was feigned, until
the time of his death; nor did any of his successors, nor the plaintiff himself until the date of his claim,
enter into possession of the land.
It is indeed true that it is not necessary that the thing sold or its price should have been delivered in
order that the contract of purchase and sale be deemed perfect on account of its being consensual,
and from it reciprocal obligations arise mutually to compel the parties to effect its fulfillment; but there
is no transmission of ownership until the thing, as in the case at bar, the land, has been delivered,
and the moment such delivery is made the contract of purchase and sale is regarded as
consummated. Article 1450 of the Civil Code, relied upon in this connection by the appellant, refers
solely to the perfection of the contract and not to its consummation.
The purchaser is also a creditor with respect to the products of the thing sold, and article 1095 of the
Civil Code prescribes as follows:
A creditor has a right to the fruits of a thing from the time the obligation to deliver it arises.
However, he shall not acquire a property right thereto until it has been delivered to him.
The provisions of this article are in agreement with that of the second paragraph of article 609 of the
same Code, which is of the following tenor:
Ownership is acquired by retention.
Ownership and other property rights are required and transmitted by law, by gift, by testate
or intestate succession, and, in consequence of certain contracts, by tradition.
They can also be acquired by prescription.
The provisions of the said article 1095 are also in accord with those of article 1462 which reads:
A thing sold shall be considered as delivered, when it is placed in the hands and possession
of the vendee.
When the sale should be made by means of a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the object of the contract, if in said
instrument the contrary does not appear or may be clearly inferred.
It is true that the deed of sale Exhibit A remained in possession of the vendee Cruzado, but the sale
is not to be considered as consummated by this because the said vendee never entered into
possession of the land and neither did his son the plaintiff. The latter, moreover, was unable to prove
that at any time as owner of the land he collected the fruits harvested thereon, or that any other
person cultivated the said land in the name and representation of his deceased father or of the

plaintiff himself. The fiction created by means of the execution and delivery of a public instrument
produces no effect if the person acquiring it never takes possession of the thing sold or acquired, as
happened in the case at bar.
If, as prescribed by the preinserted article 1095, the creditor, and in the present case the vendee,
does not acquire a property right in the land purchased until the property has been delivered to him
or he has taken possession of it, it is unquestionable that, as neither the plaintiff nor his predecessor
in interest took possession of the land in litigation, neither of them acquired any property right therein
and, consequently, could not and cannot now bring an action for recovery of possession which
arises out of a property right in a thing which belongs to them and not a mere right productive of a
personal obligation. The plaintiff Santiago Cruzado could only, in a proper case, exercise the
personal right of action flowing from the right possessed by his father to compel the vendor to fulfill
the contract made in a public instrument to deliver the land sold or to give him possession of it, in
consequence of the said contract, though simulated and executed for the sole purpose that the
deceased Cruzado in default of P700 in cash might appear to own real estate with which to insure
the proper performance of his duties as procurador, an office he then desired to hold.
The supreme court of Spain in a decision of cassation of June 1, 1990, established the following
doctrine:
That articles 1258 and 1450 of the Civil Code and the decisions of cassation of June 30,
1854, April 13 and December 13, 1861, June 30, 1864, and April 19 and December 15,
1865, do not warrant the conclusion that whoever purchases personal or real property may
exercise with respect thereto all rights of action inherent in its ownership, without it having, in
some way or another, been placed at his disposal. On the contrary, the distinction between
the perfecting and the consummation of a contract marks the diversity of relations of the
contracting parties among themselves and of the owner with respect to what constitutes this
property.
This principle is in harmony with those set up by the same high tribunal in its decision of January 19,
1898, and March 8, 1901.
In this last decision, also rendered on an appeal in cassation, the doctrine enunciated in the excerpt
copied here below was established:
That the contract of purchase and sale, as consensual, is perfected by consent as to the
price and the thing and is consummated by the reciprocal delivery of the one and the other,
the full ownership of the thing sold being conveyed to the vendee, from which moment the
rights of action derived from this right may be exercised.
It is, then, of the utmost importance to examine whether in the said sale the purchase price was paid
and whether the vendee took possession of the land supposed to have been sold.
The record discloses that Cruzado during his lifetime was, before he became a procurador, an
official escribienteor clerk charged with the duty of coursing records and proceedings in the Court of
Pampanga; that his salary was hardly sufficient to maintain him and his family; that on account of the

insufficiency of his monthly stipend, he was frequently obliged to borrow money from his friends,
notwithstanding that he with his family lodged in the house of Bernardino Dizon, the husband of the
vendor Bustos, situated in the municipality of Bacolor, with whom Cruzado maintained intimate
relations of friendship, and on this account the said couple were content to live in a country house
they owned on one of their rice fields. Such was the testimony of several witnesses who lived in that
municipality, and who knew and had considerable dealings with the plaintiff's father for many years.
It was the opinion of these witnesses that the deceased Agapito G. Cruzado was a poor man, for the
reason that his monthly salary scarcely provided for the needs of himself and his family, and they
therefore believed that he could not have furnished the sum of P2,200 to purchase the land in
question, and, furthermore, if the plaintiff's father had possessed this sum, he would have made the
deposit of the sum of P700, the amount of security required by thePresidencia of the former Real
Audiencia de Manila for his appointment as procurador, since, having the means, he would have
preferred to deposit this smaller sum rather than to have used P2,200 in acquiring a piece of land
from which he would derive no benefit whatever, as in fact he never did, as he must have known that
in spite of the simulated sale of the property its owner would continue in its possession and would
cultivate it, as she did do until her death. It is, therefore, unquestionable that the price of the sale
was not paid, an omission which would indicate that it was in effect simulated.
Aside from the fact that the spouses Estafania Bustos and Bernardino Dizon had no need to sell the
said 65balitas of land, or of fencing or separating this parcel from the large tract of land that
belonged to them and of which it formed a part, for the reason that they were rich and at that time
were not in need of money to cultivate their extensive landholdings, it is also to be noted that the
portion of land sold was worth very much more than the P2,200 which, in the said instrument,
purported to be its price.
In addition to the foregoing, the proceedings in the case at bar furnish ample proof that Agapito
Geronimo Cruzado during his lifetime stated to various persons that he succeeded in giving bond for
his appointment as procurador by means of the said instrument of simulated sale, executed in his
favor by the spouses Dizon and Bustos, as he did not have the money to make the deposit required
for his appointment. So close were the relations that then existed between the Cruzado family and
that of Dizon and Bustos, that later on the plaintiff married a daughter of these latter; hence, plaintiff,
in the beginning of his letters Exhibits 8 and 9 addressed to Natalio Dizon, a son of the vendor
Estefania Bustos, calls his correspondent his "dear and esteemed brother-in-law." It is therefore not
stranger that these spouses should have wished to help plaintiff's predecessor in interest by
assisting him to obtain the office of procurador, even to the extent of making a feigned sale.
However, years afterwards, prompted by an intuition of possible future difficulties, Dizon and his wife
Bustos went to the office of Agapito G. Cruzado and required him to cancel the said deed of sale, in
order to avoid any lawsuit after their death. Cruzado promised to look for money wherewith to
substitute the mortgage bond. This demand had to be repeated several times, because Cruzado did
not cancel the deed as he promised.
Furthermore, it is shown that the instrument Exhibit A is merely a second copy obtained by the
plaintiff from the chief of division of archives, without prior summons or notification of the vendor
Estefania Bustos, who was still living, in conformity with the provisions contained in article 18 of the
Notarial Law of February 15, 1889, and without the plaintiff's having explained what became of the

first copy. Besides, the clerk and notary who certified that instrument did not attest therein that in his
presence the vendee Cruzado paid over the sum of P2,200, the price of the land sold, and as the
vendor denied having received this sum, the obligation devolved upon plaintiff to prove that his
deceased father had paid the price stated in that instrument. By this not having done so, his
omission constitutes additional proof that the sale of the land, the recovery of possession of which
plaintiff now seeks, was really simulated.
The supreme court of Spain, in a decision dated February 20, 1899, rendered on an appeal in
cassation, laid down the doctrine that, in accordance with the provisions of article 40 of the Mortgage
Law, in the alienation of real property it is understood that no price has been paid if the notary does
not attest its delivery or the contracting parties do not prove that it was previously paid.
The courts are allowed full latitude to accept the presumption that the purchase price has not been
paid when the notary before whom the instrument was executed does not attest the delivery of the
money, and when, such delivery being denied by one of the contracting parties, the other does not
adduce proof of its payment, especially when such presumption is corroborated by other
circumstantial evidence which, all together, undoubtedly prove that the sale was feigned and
simulated for certain purposes sought to be attained by the parties, though, as in the case at bar, the
simulation was not effected in fraud of creditors.
Besides the failure to pay the purchase price, the record discloses another very important fact, to wit,
that neither the vendee nor his heirs, among these latter, the plaintiff, had at any time taken
possession of the land which in the said instrument Exhibit A appeared to have been sold, for, by the
testimony of seven competent witnesses examined at the trial it is decisively and conclusively
proven that the alleged vendor, Estefania Bustos, and her husband while he was living,
notwithstanding the said alienation, continued to possess the said land supposedly sold to plaintiff's
father, and cultivated it, as she had done long before the sale of September, 1875, and continued to
do so up to the date of the complaint filed by Santiago Cruzado; in the first period, until September
10, 1891, as the owner of the land, and from this date, when the whole of the large tract of land of
which the said portion apparently sold forms a part was sold to the other defendant Manuel Escaler,
the original owner Estefania Bustos continued in the material possession of the land, but now as the
lessee of the new owner, until 1908, when she was substituted by Marcelo Rodriguez as the new
lessee of the property. The plaintiff at no time after his father's death occupied the land in litigation,
notwithstanding his allegation that he has been collecting rentals from Estefania Bustos, his motherin-law, by reason of his having leased the land to her.
The plaintiff endeavored to prove that during the years 1882 and 1883 he personally took charge of
and tilled the disputed land on shares through his tenants named Florentino de los Reyes, Lino
Cortes, Macario de los Reyes and Regino de los Reyes, all of whom corroborated plaintiff's
testimony in this regard. However, six of the defendants' witnesses positively stated that they never
were aware that the said tenants had worked on the land in question during either the said two years
or in any other, for these latter were working on the adjacent lands belonging to other owners. Pablo
Angeles, one of the defendants' witnesses, testified that Regino and Florentino de los Reyes were
his tenants on shares and were employed on his land adjoining that in question. He was positively
certain that they never worked on the disputed land during or about the years aforementioned,
because the carabaos used by his said two tenants belonged to him and he never would have

permitted them to use these animals in working land that did not belong to him. He added that
Regino's children, Macario and Basilio, were at that time so young, being about eight years of age,
that they were not yet able to work in the fields.
The plaintiff must have been well convinced that he had no right whatever in the land supposedly
purchased by his father. The latter never demanded its possession from its owner Estefania Bustos
and never thought of declaring the property as belonging to him, for the purposes of the land tax,
from the time this tax was established in this country, notwithstanding that the plaintiff, knowing his
obligation, filed a sworn declaration relative to a lot he owned in the municipality of Bacolor. This
procedure of plaintiff's proves that he did not believe himself to be the owner of the land he claims
and which its present owner Manuel Escaler has constantly declared for the purpose of assessment.
Moreover, about the middle of the year 1891, the plaintiff Santiago Cruzado begged his brother-inlaw Natalio Dizon to tell the latter's mother, plaintiff's mother-in-law, that Cruzado desired the lease
four balitas of the land in question, and some days afterwards, possibly because he received no
reply from his said brother-in-law, he addressed a letter to Dizon (Exhibit 9, page 152 of the record,
translated on page 154) in which he repeated his request and asked for a reply; but notwithstanding
that his brother-in-law Dizon told him that he could not dispose of any part of the said land for the
reason that his mother Estefania Bustos was negotiating for the sale of all the land she possessed in
the sitio of Sicat to Manuel Escaler, plaintiff went to Dizon's house on an occasion when Paulino de
la Cruz was there. Cruz was a representative of Escaler and had been charged to inform himself of
the situation, condition and quality of the land which Bustos was about to sell to his principal and
was at the said house for the purpose of being shown the land offered for sale. On this occasion
plaintiff learned that negotiations were being made for the sale of all the land owned by Estefania
Bustos of which the 65 balitas in litigation formed a part. Plaintiff did not then or afterwards make any
statement or objection whatever in defense of his rights and interest, if he really believed that he was
entitled to the land shown in the instrument Exhibit A to have been purchased by his father.
Plaintiff made no protest whatsoever, because he well knew that the said sale was simulated and
that his father had acquired no right whatever in the property; he was therefore anxious to lease
four balitas of the same land, a purpose in which he was unsuccessful because a deal was then
already going forward for the sale of the said land to its present owner, Manuel Escaler, who in fact
did but it on September 10, 1891. If plaintiff were convinced that he was the owner of the land, as he
rashly asserted that he was in his complaint for recovery of possession, it is not understood why
about the middle of the year 1891 he wished to lease, not all the 65 balitas, but only four of them, as
stated in his said letter, Exhibit 9.
From that time the new owner Manuel Escaler took possession of all the land sold by Estefania
Bustos, including the 65 balitas in litigation, and continued in its possession as the owner thereof
until October 8, 1910, when plaintiff filed his claim. Thus, more than the ten years required by law for
ordinary prescription had already elapsed, as Escaler purchased the land and was holding it in good
faith under a lawful title and was not disturbed in his continuous and peaceable possession, one that
was adverse to the whole world. It is therefore unquestionable that he has absolutely acquired by
prescription the ownership of the disputed land, and the action brought by plaintiff, founded solely on
a simulated sale executed by the original owner of the land, not to the prejudice, but to the benefit, of
the pretended vendee, cannot prevail against Escaler's rights.

The registration obtained by the plaintiff in the property registry of the second copy of the said
instrument Exhibit A, about two months before filing his action for recovery, to wit, on August 23,
1910, has not improved the deed of sale nor made it more effective, nor could it affect the rights held
by the original owner and the present proprietor of the land in question, inasmuch as their
predecessor in interest, by default of payment of the price of the sale and on account of his never
having taken possession of the land sold, was not the owner thereof, nor did he acquire any property
right whatever therein. Consequently at his death he could not have transmitted to the plaintiff as his
successor any greater right than a personal right to exact the fulfillment of a contract, and as plaintiff
was not the owner of the land, he could not validly register it.
Article 1473 of the Civil Code prescribes:
If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it
should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the
registry.
Should there be no entry, the property shall belong to the person who first took possession of
it in good faith, and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.
On the sale of the land to the defendant Escaler, neither he nor the plaintiff had had it entered in the
property registry, but the said new owner, Escaler, took possession of the land on the date of its
acquisition, September 10,1891, and has retained possession thereof up to the present time. So that
when plaintiff registered the land he was not in possession thereof and no longer had any right
whatever therein, because it already belonged to the defendant Escaler, its lawful owner.
However, even though it were proper for plaintiff to bring the real action for recovery derived, though
we do not admit that it could be, from the simulated sale before mentioned, both this action as well
as the personal action the only one available in a proper case, as before demonstrated, pursuant
to the provisions of article 1095 of the Civil Code have both certainly prescribed, for the reason
that the periods fixed by law for filing such actions have much more than elapsed.
Article 1939 of the Civil Code says:
Prescription, which began to run before the publication of this code, shall be governed by the
prior laws; but if, after this code became operative, all the time required in the same for
prescription has elapsed, it shall be effectual, even if according to said prior laws a longer
period of time may be required.
Personal actions prescribe after ten years; and the same with the writ of execution therein issued,
after twenty years; while real actions prescribe after thirty years: according to Law 5, Title 8, Book 1
of the Novisima Recopilacion, and Law 21, Title 29, Partida 3, which were those in force on the date
of the execution of the deed of sale, Exhibit A.

From September 7, 1875, to October 8, 1910, when the complaint was filed, thirty-five years have
elapsed. Therefore, not only in accordance with the laws aforecited, but also pursuant to the
provisions of articles 1963 and 1964 of the Civil Code, the periods fixed for the prescription of the
personal action which could, in a proper case, have been exercised, as well as for the real action for
recovery of possession brought by the plaintiff without right so to do, have more than prescribed.
For all the foregoing reasons, whereby the errors assigned to the judgment appealed from have
been duly refuted, the said judgment should be, as it is hereby, affirmed, with the costs against the
appellant. So ordered.
Arellano, C. J., Johnson, Carson, Moreland, Trent, and Araullo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-14040

January 31, 1961

SEGUNDA PORNELLOSA and JOSE ANGELES, petitioners,

vs.
THE LAND TENURE ADMINISRATION and HERMINIO GUZMAN, respondents.
Bustos Meneses and Pingol for petitioners.
Arturo M. Tolentino for respondents.
PADILLA, J.:
Petition for certiorari under Rule 46 to review a judgment of the Court of Appeals (C.A.-G.R. No.
13901-R).
An action to compel the Director of Lands to execute a deed of sale of a residential lot in favor of the
petitioners upon payment of the purchase price of P1,505, to declare null and void a deed of sale of
the lot executed by the then Minister of Agriculture and Natural Resources in favor of the respondent
Herminio Guzman, to collect from the defendants the sum of P1,000 as actual and P5,000 as moral
damages, and to secure other just and equitable relief, was brought by the petitioners in the Court of
First Instance of Manila (civil No. 8695). After trial the Court rendered judgment in favor of the
petitioners granting them the relief prayed for except the amount of moral damages which was
reduced to P2,000. The trial court dismissed the defendant's counterclaim. They appealed and the
Court of Appeals rendered judgment reversing that of the Court of First Instance and dismissing the
petitioners' complaint (C.A.-G.R. No. 13901-R). Hence this petition for certiorari to review the
judgment rendered by the Court of Appeals.
The facts as found by the appellate court are:
The lot in controversy is a part of the Santa Clara Estate on which many families have
settled through the consent of its owner. Each paid a rental which, in all likelihood, was fixed
proportionately to the extent of the holding. There is no evidence whether or not an occupant
was given a formal contract for the specific portion he holds.
In May, 1941, the Santa Clara Estate was acquired by the Government under the provisions
of Commonwealth Act No. 539, section 1 of which recites thus:.
The President of the Philippines is authorized to acquire private lands or any interest therein,
through purchase or expropriation, and to subdivide the same into home lots or small farms
for resale at reasonable prices and under such conditions as he may fix to their bona
fide tenants or occupants or to private individuals who will work the lands themselves and
who are qualified to acquire and own lands in the Philippines.
The administration and disposition of the land so acquired was entrusted to an Office known
as the Rural Progress Administration.1 This Office was abolished later on and its functions

were transferred to the Bureau of Lands.2 Recently, such duties were given to the Land
Tenure Administration.3
The evidence tends to show that on April 1, 1941 the plaintiffs acquired by purchase the
rights of occupation of the lot in question on the strength of a document which reads as
follows:.
DAPAT MABATID NG MADLA:
Akong si VICENTA SAN JOSE, may sapat na gulang,walang asawa (balo), na nakatira sa
daang Galicia, Sampaloc,Maynila, ay pinatotohanan kong tinanggap ko ang halagang
ISANG DAAN AT LIMANG PONG PISO ) p150.00) kay Gng. Segunda Pornellosa bilang
kabayaran sa aking bahay na nakatayo sa daang Galicia, bilang 502. Kaya't isinasalin ko sa
kanila ang boong kapangyarihan sa nasabing bahay, ganoon din ang karapatan na sila na
ang makikipag-unawaan sa Pamahalaan sa pag-bili ng nasabing lupa.
Sa katotohanan ay aking inilagda and aking pangalan sakasunduan ito sa harap ng mga
saksi, at ganon and tatak ng aking hinlalaki, ngayon ika 1 ng Abril ng 1941.

(FDO.) VICENTA SAN JOSE

SAKSI:.
MOISES SAN PEDRO"
(Exhibit A).
The vendor, Vicenta San Jose, was an old tenant thereof.After the purchase of the Santa
Clara Estate by the plaintiffs were allowed to make payments on account of the purchase
price of the lot which, as fenced, included two hundred (200) square meters. All the amounts
so paid were duly receipted as shows by Exhs. B, C, D, E, F, G, H and I. Following these
payments the plaintiffs sent a check in the amount of P200.00 but it was not accepted.
Thereafter the plaintiffs found out that the lot, the right of occupancy of which they had
purchased from Vicenta San Jose, had been subdivided into two smaller lots, Nos. 44 and
78, Block 12. Lot No. 44 had been sold to Herminio Guzman. The plaintiffs then filed a
complaint and, as a result, the investigator, Atty. Vizconde, recommended that the lot
vacated by San Jose be restored to them.
The evidence of the defendants is purely documentary. We do not deem it necessary to
dwell thereon.
The appellate court held:.
Our discussion will be confined to the proposition of whether or not the plaintiffs are entitled
to purchase from the Government the lot formerly held by San Jose, allegedly including
about two hundred (200) square meters. The plaintiffs believe they are, relying mainly on the
deed of sale executed by San Jose in their favor (Exh. A). In that document, however, the
area of the lot on which San Jose's house stood had not been specified, nor had the

boundaries thereof been mentioned. Any receipt for the rentals paid San Jose to the old
management of the Santa Clara Estate would have given us an idea of the extent of her
holding on the basis of the amount of the rent paid, but none was presented. The plaintiffs
presented a sketch, Exh. L-1, which allegedly represents the lot they claim. But his piece of
evidence is devoid of persuasive value, considering that the old subdivision plan was not
offered.
Significantly, the plaintiffs cannot show a contract whereby the Rural Progress Administration
has sold or promised to sell them a lot of two hundred square meters. It is true that they hold
receipts (Exhs. B, C, D, E, F, G, H and I) for payments made on account of the purchase
price of a lot, but in none of them are the number of the lot and its area stated. On the
contrary, a note was visible in all the said receipts, except two, which reads: "subject to
further re-adjustment." The plaintiffs claim that a certain Moises San Pedro, Sr., supervisor of
collectors of the Sta. Clara Estate, made them believe that the lot they had purchase was,
more or less, of 200 square meters, as enclosed by a fence at the time San Jose vacated it.
They furthermore claim that San Pedro explained that the note "subject to further readjustment" appearing in their receipts meant that their lot would be increased or decreased
should the proposed extension of the adjoining street (the Lealtad St.)would eventually be
carried out. It suffices to say that it does not appear that San Pedro by his position in the
Government had power to sell any of the lots included in the Santa Clara Estate. It is obvious
that such power resides only in the Chief of the Office in charge of the disposition of lands
acquired by the Government for resale to the needy. It would not be amiss to state further
that receipts of payment issued to other purchasers of lots not adjoining any street invariably
carries the warning: "subject to further re-adjustment.".
Pornellosa, one of the plaintiffs, was given lot No. 78 and she would not agree. She tried to
convince us that lot No. 44 was given to a wrong party, Herminio Guzman, who was not
a bona fide occupant thereof. Guzman might not have been a bona fide occupant, but the
law does not bar him from acquiring the lot, at least, as against the plaintiffs who have not
satisfactorily established their right thereto. The intention of the law in authorizing the
acquisition of the Santa Clara Estate was to give home to the homeless. Jose B. Angeles,
the husband of Segunda Pornellosa and one of the plaintiffs here, presently resides with his
family in a house built on a lot included in the Santa Clara Estafa and which had been sold to
him by the government. The intention of the law, as stated, is to give home to the homeless,
and let that be a reality if we are to lend a contributing to the building of a strong and lawabiding citizenry.
Now, for all the reasons stated above, we believe that the plaintiffs failed to establish their
right to compel the Director of Lands, now the Chairman of the Land Tenure Administration,
to execute a deed of sale conveying to them a residential lot as they claim in this action.
It appearing that the functions of the Bureau of Lands in the administration of lands acquired
through purchase or expropriation by the government for resale have passed to the Land
Tenure Administration, the Director of Lands, as one of the defendants here, is understood
substituted by the Chairman of the Land Tenure Administration, and all the pleadings are
accordingly amended.
The finding of the Court of Appeals that the petitioners have failed to prove that lot 44 is included in
the lot formerly occupied by Vicenta San Jose, their predecessor-in-interest, is binding upon this
Court. A party claiming a right granted or created by law must prove his claim by competent
evidence. A plaintiff is duty bound to prove his allegations in the complaint. He must rely on the
strength of his evidence and not on the weakness of that of his opponent.

In their amended complaint, the petitioners, allege that they and their predecessor Vicenta San Jose,
from whom they bought the residential lot in litigation containing an area of 200 sq. m. more or less,
had been for many years in actual possession thereof, and that following the avowed policy of the
government to sell the lots acquired from the Santa Clara Estate, of which the residential lot in
litigation forms part, only to bona fide occupants or tenants thereof, the defunct Rural Progress
Administration agreed to sell to them the said residential lot (pp.1, 2-3, rec. on app.). Reviewing the
petitioners' evidence, the Court of Appeals found that in Exhibit A, the deed of sale executed by
Vicenta San Jose in favor of Pornellosa, "the area of the lot on which San Jose's house stood had
not been specified, nor had the boudaries thereof been mentioned;" and that there is no showing of
the extent of the alleged vendor's holding or interest. Besides, the petitioners have not presented
any document or evidence showing that the defunct Rural Progress Administration had agreed to
sell to them the residential lot in litigation. Granting that the respondent Herminio Guzman is not
entitled to acquire by purchase the said residential lot, still that fact does not relieve the petitioners
from the duty of proving by competent evidence the allegations of their complaint.
Moreover, the deed of sale (Exhibit A), allegedly executed by Vicenta San Jose in favor of Pornellosa
is a mere private document and does not conclusively establish their right to the parcel of land.
While it is valid and binding upon the parties with respect to the sale of the house erected thereon,
yet it is not sufficient to convey title or any right to the residential lot in litigation. Acts and contracts
which have for their object the creation, transmission, modification or extinguishment of real rights
over immovable property must appear in a public document.4
The petitioners having failed to prove their right to acquire lot 44 under Commonwealth Act No. 539
cannot compel the respondent, the Land Tenure Administration, to convey the lot to them.
The judgment under review is affirmed, with costs against the petitioners.
Paras, C.J., Bengzon, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Gutierrez
David and Paredes, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 77365 April 7, 1992
RITA CALEON, petitioner,
vs.
AGUS DEVELOPMENT CORPORATION and COURT OF APPEALS, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the January 28, 1987 decision of the
Court of Appeals in CA-G.R. SP No. 10990 entitled "Rita Caleon V. Hon. Samilo Barlongay, et al."
dismissing the petition for review of the decision of the Regional Trial Court of Manila, Branch 34,
which affirmed the decision of the Metropolitan Trial Court of Manila, Branch XII, ejecting the
petitioner.
The undisputed facts of the case are as follows:
Private respondent Agus Development Corporation is the owner of a parcel of land denominated as
Lot 39, Block 28, situated at 1611-1619 Lealtad, Sampaloc, Manila, which it leased to petitioner Rita
Caleon for a monthly rental of P180.00. Petitioner constructed on the lot leased a 4-door apartment
building.
Without the consent of the private respondent, the petitioner sub-leased two of the four doors of the
apartment to Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00 each. Upon
learning of the sub-lease, private respondent through counsel demanded in writing that the petitioner
vacate the leased premises (Rollo, Annex "A", p. 20).
For failure of petitioner to comply with the demand, private respondent filed a complaint for
ejectment (Civil Case No. 048908) with the Metropolitan Trial Court of Manila, Branch XII against the
petitioner citing as ground therefor the provisions of Batas Pambansa Blg. 25, Section 5, which is the
unauthorized sub-leasing of part of the leased premises to third persons without securing the
consent of the lessor within the required sixty (60)-day period from the promulgation of the new law
(B.P. 25). (Rollo, Petition, p. 8).
After trial, the court a quo rendered its decision ordering petitioner and all persons claiming
possession under her (a) to vacate the premises alluded to in the complaint; (b) to remove whatever
improvement she introduced on the property; (c) to pay private respondent the amount of P2,000.00
as attorney's fees; and (d) to pay the costs (Rollo, Annex "A", p. 19).

Petitioner appealed the decision to the Regional Trial Court and on November 24, 1980, presiding
judge of the RTC, the Hon. Samilo Barlongay, affirmed in toto the decision of the Metropolitan Trial
Court (Rollo, Annex "A", p. 19).
The decision of the Regional Trial Court was appealed to the Court of Appeals for review. The
respondent Court of Appeals rendered its decision dated January 28, 1987, the dispositive portion of
which reads as follows:
PREMISES CONSIDERED, the petition not being prima facie meritorious, the same
is outright dismissed.
SO ORDERED. (Rollo, Annex "A", p. 21)
Hence, the petition for review on certiorari.
The principal issue in this case is whether or not the lease of an apartment includes a sublease of
the lot on which it is constructed, as would constitute a ground for ejectment under Batas Pambansa
BLg. 25.
Petitioner is of the view that Batas Pambansa Blg. 25 is not applicable because what she leased
was her own apartment house which does not include a sublease of the lot she leased from private
respondent on which the apartment is constructed.
Petitioner's contention is untenable.
This issue has already been laid to rest in the case of Duellome v. Gotico (7 SCRA 841 [1963])
where this Court ruled that the lease of a building naturally includes the lease of the lot, and the
rentals of the building includes those of the lot. Thus:
. . . the lease of a building would naturally include the lease of the lot and that the
rentals of the building include the rentals of the lot.
xxx xxx xxx
Furthermore, under our Civil Code, the occupancy of a building or house not only
suggests but implies the tenancy or possession in fact of the land on which they are
constructed. This is not a new pronouncement. An extensive elaboration of this rule
was discussed by this Court in the case ofBaquiran, et al., v. Baquiran, et al., 53 O.G.
p. 1130.
. . . the Court of Appeals should have found the herein appellees
lessees of the house, and for all legal purposes, of the lot on which it
was built as well.
But petitioner insists that the ruling in the aforecited case is not applicable to the case at bar
because the former is a damage suit while the latter is an ejectment case.

Be that as it may, this Court has categorically answered in the affirmative, the principal question,
common to both cases and on which rests the resolution of the issues involved therein. Under the
above ruling it is beyond dispute that petitioner in leasing her apartment has also subleased the lot
on which it is constructed which lot belongs to private respondent. Consequently, she has violated
the provisions of Section 5, Batas Pambansa Blg. 25 which is a ground for Ejectment.
Section 5 of Batas Pambansa Blg. 25 enumerates the grounds for judicial ejectment, among which is
the subleasing of residential units without the written consent of the owner/lessor, to wit:
Se. 5 Grounds for judicial ejectment. Ejectment shall be allowed on the following
grounds:
a) Subleasing or assignment of lease of residential units in whole or in part, with the
written consent of the owner/lessor: Provided that in the case of subleases or
assignments executed prior to the approval of this Act, the sublessor/assignor shall
have sixty days from the effectivity of this Act within which to obtain the written
approval of the owner/lessor or terminate the sublease or assignment.
Section 2(b) of Batas Pambansa Blg. 25 defines the term residential unit as follows:
Sec. 2. Definition of Terms Unless otherwise indicated wherever in this Act, the
following shall have the following meaning:
xxx xxx xxx
b. A residential unit refers to an apartment, house and/or land on which another's
dwelling is located used for residential purposes and shall include not only buildings,
parts or units thereof used solely as dwelling places, except motels, motel rooms,
hotels, hotel rooms, boarding houses, dormitories, rooms and bedspaces for rent, but
also those used for home industries, retail stores, or other business purposes if the
owner thereof and his family actually live therein and use it principally for dwelling
purposes: . . .
Petitioner argued further that Batas Pambansa Blg. 25 cannot be applied in this case because there
is a perfected contract of lease without any express prohibition on subleasing which had been in
effect between petitioner and private respondent long before the enactment of Batas Pambansa Blg.
25. Therefore, the application of said law to the case at bar is unconstitutional as an impairment of
the obligation of contracts.
It is well settled that all presumptions are indulged in favor of constitutionality; one who attacks a
statute, alleging unconstitutionality must prove its invalidity beyond a reasonable doubt (Victoriano v.
Elizalde Rope Workers' Union, 59 SCRA 54 [1974]). In fact, this Court does not decide questions of
a constitutional nature unless that question is properly raised and presented in appropriate cases
and is necessary to a determination of the case,i.e., the issue of constitutionality must be the very lis
mota presented (Tropical Homes, Inc. v. National Housing Authority, 152 SCRA 540 [1987]).

In any event, it is now beyond question that the constitutional guaranty of non-impairment of
obligations of contract is limited by and subject to the exercise of police power of the state in the
interest of public health, safety, morals and general welfare (Kabiling, et al. v. National Housing
Authority, 156 SCRA 623 [1987]). In spite of the constitutional prohibition, the State continues to
possess authority to safeguard the vital interests of its people. Legislation appropriate to
safeguarding said interest may modify or abrogate contracts already in effect (Victoriano v. Elizalde
Rope Workers' Union, et al., supra). In fact, every contract affecting public interest suffers a
congenital infirmity in that it contains an implied reservation of the police power as a postulate of the
existing legal order. This power can be activated at anytime to change the provisions of the contract,
or even abrogate it entirely, for the promotion or protection of the general welfare. Such an act will
not militate against the impairment clause, which is subject to and limited by the paramount police
power (Villanueva v. Castaeda, 154 SCRA 142 [1987]).
Batas Pambansa Blg. 25, "An Act Regulating Rentals of Dwelling Units or of Land On Which
Another's Dwelling is Located and For Other Purposes" shows that the subject matter of the law is
the regulation of rentals and is intended only for dwelling units with specified monthly rentals
constructed before the law became effective (Baens v. Court of Appeals, 125 SCRA 634 [1983]).
Batas Pambansa Blg. 25 is derived from P.D. No. 20 which has been declared by this Court as a
police power legislation, applicable to leases entered into prior to July 14, 1971 (effectivity date of
RA 6539), so that the applicability thereof to existing contracts cannot be denied (Gutierrez v.
Cantada, 90 SCRA 1 [1979]).
Finally, petitioner invokes, among others, the promotion of social justice policy of the New
Constitution. Like P.D. No. 20, the objective of Batas Pambansa Blg. 25 is to remedy the plight of
lessees, but such objective is not subject to exploitation by the lessees for whose benefit the law
was enacted. Thus, the prohibition provided for in the law against the sublease of the premises
without the consent of the owner. As enunciated by this Court, it must be remembered that social
justice cannot be invoked to trample on the rights of property owners, who under our Constitution
and laws are also entitled to protection. The social justice consecrated in our Constitution was not
intended to take away rights from a person and give them to another who is not entitled thereto
(Salonga v. Farrales, 105 SCRA 360 [1981]).
WHEREFORE, the Petition is Denied for lack of merit and the assailed decision of the Court of
Appeals is Affirmed.
SO ORDERED.

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING

OF PERIOD BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.
Where the time for compliance had expired and there was breach of contract by
non-performance, it was academic for the plaintiff to have first petitioned the court
to fix a period for the performance of the contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF
THE PHILIPPINES. Where the defendant virtually admitted non-performance of the
contract by returning the typewriter that he was obliged to repair in a non-working
condition, with essential parts missing, Article 1197 of the Civil Code of the
Philippines cannot be invoked. The fixing of a period would thus be a mere formality
and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR. Where the defendantappellee contravened the tenor of his obligation because he not only did not repair
the typewriter but returned it "in shambles, he is liable for the cost of the labor or
service expended in the repair of the typewriter, which is in the amount of P58.75,
because the obligation or contract was to repair it. In addition, he is likewise liable
under Art. 1170 of the Code, for the cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES NOT RECOVERABLE;
NOT ALLEGED OR PROVED IN INSTANT CASE. Claims for damages and attorneys
fees must be pleaded, and the existence of the actual basis thereof must be proved.
As no findings of fact were made on the claims for damages and attorneys fees,
there is no factual basis upon which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME

COURT; ONLY QUESTIONS OF LAW REVIEWABLE. Where the appellant directly
appeals from the decision of the trial court to the Supreme Court on questions of
law, he is bound by the judgment of the court a quo on its findings of fact.

DECISION

REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract
and recovery of damages but was unsatisfied with the decision rendered by the
Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him
only P31.10 out of his total claim of P690 00 for actual, temperate and moral
damages and attorneys fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a
typewriter repairer, a portable typewriter for routine cleaning and servicing. The
defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff. The defendant merely gave assurances, but failed to comply
with the same. In October, 1963, the defendant asked from the plaintiff the sum of
P6.00 for the purchase of spare parts, which amount the plaintiff gave to the
defendant. On October 26, 1963, after getting exasperated with the delay of the
repair of the typewriter, the plaintiff went to the house of the defendant and asked
for the return of the typewriter. The defendant delivered the typewriter in a wrapped
package. On reaching home, the plaintiff examined the typewriter returned to him
by the defendant and found out that the same was in shambles, with the interior
cover and some parts and screws missing. On October 29, 1963. the plaintiff sent a
letter to the defendant formally demanding the return of the missing parts, the
interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant
returned to the plaintiff some of the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business
Machines, and the repair job cost him a total of P89.85, including labor and
materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of
Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this court, the defendant
made no denials of the facts narrated above, except the claim of the plaintiff that
the typewriter was delivered to the defendant through a certain Julio Bocalin, which
the defendant denied allegedly because the typewriter was delivered to him
personally by the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total cost
of P89.85 should not, however, be fully chargeable against the defendant. The
repair invoice, Exhibit C, shows that the missing parts had a total value of only
P31.10.
"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves,
is that it awarded only the value of the missing parts of the typewriter, instead of
the whole cost of labor and materials that went into the repair of the machine, as
provided for in Article 1167 of the Civil Code, reading as
follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he
undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is
that he is not liable at all, not even for the sum of P31.10, because his contract with
plaintiff-appellant did not contain a period, so that plaintiff-appellant should have
first filed a petition for the court to fix the period, under Article 1197 of the Civil
Code, within which the defendant appellee was to comply with the contract before
said defendant-appellee could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did
not interpose any appeal, the facts, as found by the trial court, are now conclusive

and non-reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a
portable typewriter for routine cleaning and servicing" ; that the defendant was not
able to finish the job after some time despite repeated reminders made by the
plaintiff" ; that the "defendant merely gave assurances, but failed to comply with
the same" ; and that "after getting exasperated with the delay of the repair of the
typewriter", the plaintiff went to the house of the defendant and asked for its return,
which was done. The inferences derivable from these findings of fact are that the
appellant and the appellee had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to finish it at some future
time although such time was not specified; and that such time had passed without
the work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without
demanding that he should be given more time to finish the job, or compensation for
the work he had already done. The time for compliance having evidently expired,
and there being a breach of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the performance of the
contract before filing his complaint in this case. Defendant cannot invoke Article
1197 of the Civil Code for he virtually admitted non-performance by returning the
typewriter that he was obliged to repair in a non-working condition, with essential
parts missing. The fixing of a period would thus be a mere formality and would
serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his obligation
because he not only did not repair the typewriter but returned it "in shambles",
according to the appealed decision. For such contravention, as appellant contends,
he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing
the obligation in a proper manner. The cost of the execution of the obligation in this
case should be the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75. because the obligation or contract was
to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code,
for the cost of the missing parts, in the amount of P31.10, for in his obligation to
repair the typewriter he was bound, but failed or neglected, to return it in the same
condition it was when he received it.
Appellants claims for moral and temperate damages and attorneys fees were,
however, correctly rejected by the trial court, for these were not alleged in his
complaint (Record on Appeal, pages 1-5). Claims for damages and attorneys fees
must be pleaded, and the existence of the actual basis thereof must be proved. 2
The appealed judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on the claims for

damages and attorneys fees, there is no factual basis upon which to make an
award therefor. Appellant is bound by such judgment of the court, a quo, by reason
of his having resorted directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified,
by ordering the defendant-appellee to pay, as he is hereby ordered to pay, the
plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of
the complaint. Costs in all instances against appellee Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and
Villamor, JJ., concur.
Barredo, J., did not take part.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 117190 January 2, 1997

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND
GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.

BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style
J.M.T. Engineering and General Merchandising proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they agreed on the construction of the
windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and
acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid
petitioner a down payment of P30,000.00 and an installment payment of P15,000.00, leaving a
balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a
complaint to collect the amount. In his Answer before the trial court respondent denied the claim
saying that he had already paid this amount to the San Pedro General Merchandising Inc. (SPGMI)
which constructed the deep well to which the windmill system was to be connected. According to
respondent, since the deep well formed part of the system the payment he tendered to SPGMI
should be credited to his account by petitioner. Moreover, assuming that he owed petitioner a
balance of P15,000.00, this should be offset by the defects in the windmill system which caused the
structure to collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well was included in the agreement to build the
windmill system, for the contract price of P60,000.00 was solely for the windmill assembly and its
installation, exclusive of other incidental materials needed for the project. He also disowned any
obligation to repair or reconstruct the system and insisted that he delivered it in good and working
condition to respondent who accepted the same without protest. Besides, its collapse was
attributable to a typhoon, a force majeure, which relieved him of any liability.

In finding for plaintiff, the trial court held that the construction of the deep well was not part of the
windmill project as evidenced clearly by the letter proposals submitted by petitioner to respondent. 2 It
noted that "[i]f the intention of the parties is to include the construction of the deep well in the project, the
same should be stated in the proposals. In the absence of such an agreement, it could be safely
concluded that the construction of the deep well is not a part of the project undertaken by the
plaintiff." 3 With respect to the repair of the windmill, the trial court found that "there is no clear and
convincing proof that the windmill system fell down due to the defect of the construction." 4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was
included in the agreement of the parties because the term "deep well" was mentioned in both
proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili, the
proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of
constructing the deep well would be deducted from the contract price of P60,000.00. Upon these
premises the appellate court concluded that respondent's payment of P15,000.00 to SPGMI should
be applied to his remaining balance with petitioner thus effectively extinguishing his contractual
obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to
reconstruct the windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks
relief from this Court. He raises two issues: firstly, whether the agreement to construct the windmill
system included the installation of a deep well and, secondly, whether petitioner is under obligation
to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation of a deep
well was not included in the proposals of petitioner to construct a windmill system for respondent.
There were in fact two (2) proposals: one dated 19 May 1987 which pegged the contract price at
P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days
later, i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price
of P60,000.00 (Exh. "A"). The latter proposal was accepted by respondent and the construction
immediately followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced
hereunder
In connection with your Windmill System and Installation, we would like to quote to you as
follows:
One (1) Set Windmill suitable for 2 inches diameter deepwell, 2 HP,
capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet high,
including mechanism which is not advisable to operate during extra-intensity
wind. Excluding cylinder pump.
UNIT CONTRACT PRICE
P87,000.00
The second letter-proposal (Exh. "A") provides as follows:

In connection with your Windmill system, Supply of Labor Materials and Installation, operated
water pump, we would like to quote to you as
follows
One (1) set Windmill assembly for 2 inches or 3 inches deep-well pump, 6
Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with
standard appurtenances up to Cylinder pump, shafting U.S. adjustable
International Metal.
One (1) lot Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve,
cross Tee coupling.
One (1) lot Float valve.
One (1) lot Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely.
Neither is there an itemization or description of the materials to be used in constructing the deep
well. There is absolutely no mention in the two (2) documents that a deep well pump is a component
of the proposed windmill system. The contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words "deep well" and "deep well pump" are
mentioned in both, these do not indicate that a deep well is part of the windmill system. They merely
describe the type of deep well pump for which the proposed windmill would be suitable. As correctly
pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and "suitable for"
were meant only to convey the idea that the proposed windmill would be appropriate for a deep well
pump with a diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in
the agreement to construct a windmill, he would have used instead the conjunctions "and" or "with."
Since the terms of the instruments are clear and leave no doubt as to their meaning they should not
be disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be
accorded primordial consideration 5 and, in case
of doubt, their contemporaneous and subsequent acts shall be principally considered. 6 An examination of
such contemporaneous and subsequent acts of respondent as well as the attendant circumstances does
not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the
installation of a deep well pump. He contends that since petitioner did not have the capacity to install
the pump the latter agreed to have a third party do the work the cost of which was to be deducted
from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that
petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a
deep well pump as "part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7

We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a
letter is unsubstantiated. The alleged letter was never presented in court by private respondent for
reasons known only to him. But granting that this written communication existed, it could not have
simply contained a request for Pili to install a deep well; it would have also mentioned the party who
would pay for the undertaking. It strains credulity that respondent would keep silent on this matter
and leave it all to petitioner Tanguilig to verbally convey to Pili that the deep well was part of the
windmill construction and that its payment would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment for which
would come supposedly from the windmill contract price on the mere representation of petitioner,
whom he had never met before, without a written commitment at least from the former. For if indeed
the deep well were part of the windmill project, the contract for its installation would have been
strictly a matter between petitioner and Pili himself with the former assuming the obligation to pay
the price. That it was respondent Herce Jr. himself who paid for the deep well by handing over to Pili
the amount of P15,000.00 clearly indicates that the contract for the deep well was not part of the
windmill project but a separate agreement between respondent and Pili. Besides, if the price of
P60,000.00 included the deep well, the obligation of respondent was to pay the entire amount to
petitioner without prejudice to any action that Guillermo Pili or SPGMI may take, if any, against the
latter. Significantly, when asked why he tendered payment directly to Pili and not to petitioner,
respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid
the money in his possession." 8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is
clear that "payment shall be made to the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it," 9 it does not appear from the record
that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person." 10 The Civil Code provisions do not apply in the instant case because no creditor-debtor
relationship between petitioner and Guillermo Pili and/or SPGMI has been established regarding the
construction of the deep well. Specifically, witness Pili did not testify that he entered into a contract with
petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner
to construct the deep well, an agreement particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well by
SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal nor
factual basis by which this Court can impose upon petitioner an obligation he did not
expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has consistently held
that in order for a party to claim exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites must
concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforeseeable or unavoidable; (c) the event must be such as to

render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) the debtor
must be free from any participation in or aggravation of the injury to the creditor.

Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event.
Interestingly, the evidence does not disclose that there was actually a typhoon on the day the
windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong wind
in this case cannot be fortuitous unforeseeable nor unavoidable. On the contrary, a strong
wind should be present in places where windmills are constructed, otherwise the windmills
will not turn.
The appellate court correctly observed that "given the newly-constructed windmill system,
the same would not have collapsed had there been no inherent defect in it which could only
be attributable to the appellee."13 It emphasized that respondent had in his favor the
presumption that "things have happened according to the ordinary course of nature and the
ordinary habits of life." 14 This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the payment of
his outstanding balance of P15,000.00 and hence should bear his own loss, is untenable. In
reciprocal obligations, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him. 15 When the windmill
failed to function properly it became incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of
the windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do
something fails to do it, the same shall be executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is
directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest at
the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with the one-year
guaranty" 16 and to complete the same within three (3) months from the finality of this decision.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 95641 September 22, 1994

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,
vs.
COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondentsappellees.
Gutierrez, Cortes & Gonzales for petitioners.
Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.

ROMERO, J.:
On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident
Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same
since company records revealed that petitioner-insured failed to pay his premiums.
On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the
cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were
not remitted by Teofilo M. Malapit, respondent insurance company's branch manager.
These, in brief, are the material facts that gave rise to the action for damages due to breach of
contract instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.
There are two issues for resolution in this case:
(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment
of damages?
(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent
insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may
have to bear, thus absolving it therefrom?

From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer
from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as
Prudential), a personal accident insurance policy covering the one-year period between noon of
November 28, 1984 and noon of November 28, 1985. 1 Under the terms of the statement of account
issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of
P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium
tax of P29.40. 2 At the lower left-hand corner of the statement of account, the following is legibly printed:
This Statement of Account must not be considered a receipt. Official Receipt will be
issued to you upon payment of this account.
If payment is made to our representative, demand for a Provisional Receipt and if our
Official Receipts is (sic) not received by you within 7 days please notify us.
If payment is made to our office, demand for an OFFICIAL RECEIPT.
On December 17, 1984, respondent insurance company issued collector's provisional receipt No.
9300 to petitioner-insured for the amount of P1,609.65 3 On the lower portion of the receipt the
following is written in capital letters:
Note: This collector's provisional receipt will be confirmed by our official receipt. If our
official receipt is not received by you within 7 days, please notify us. 4
On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M.
Malapit, sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium
effective as of inception dated." 5 The same endorsement also credited "a return premium of P1,609.65
plus documentary stamps and premium tax" to the account of the insured.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of
respondent insurance company, and demanded the issuance of an official receipt. Ang told
petitioner-insured that the cancellation of the policy was a mistake but he would personally see to its
rectification. However, petitioner-insured failed to receive any official receipt from Prudential.
Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding
that he be insured under the same terms and conditions as those contained in Policy No. PA-BG20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on
the payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola
also warned that should his demands be unsatisfied, he would sue for damages.
On July 17, 1985, he received a letter from production manager Malapit informing him that the
"partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the
provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola
that should be fail to pay the balance, the company's liability would cease to operate. 7

In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that
the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized
that the official receipt should have been issued seven days from the issuance of the provisional
receipt but because no official receipt had been issued in Areola's name, there was reason to believe
that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's
concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time
that this matter is cleared." 8
On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65
covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984.
Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or
one year from the date when payment was received." Apologizing again for the inconvenience
caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space
provided for in the letter. 9
The letter was personally delivered by Carlito Ang to Areola on
August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a
complaint for breach of contract with damages before the lower court.
In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's
policy was due to the failure of Malapit to turn over the premiums collected, for which reason no
official receipt was issued to him. However, it argued that, by acknowledging the inconvenience
caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled
policy prior to the filing of the complaint, respondent insurance company had complied with its
obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of
action against it. It insists that it cannot be held liable for damages arising from breach of contract,
having demonstrated fully well its fulfillment of its obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering
respondent insurance company to pay the former the following:
a) P1,703.65 as actual damages;
b) P200,000.00 as moral damages; and
c) P50,000.00 as exemplary damages;
2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
3. To pay the costs.
In its decision, the court below declared that respondent insurance company acted in bad faith in
unilaterally cancelling subject insurance policy, having done so only after seven months from the
time that it had taken force and effect and despite the fact of full payment of premiums and other

charges on the issued insurance policy. Cancellation from the date of the policy's inception,
explained the lower court, meant that the protection sought by petitioner-insured from the risks
insured against was never extended by respondent insurance company. Had the insured met an
accident at the time, the insurance company would certainly have disclaimed any liability because
technically, the petitioner could not have been considered insured. Consequently, the trial court held
that there was breach of contract on the part of respondent insurance company, entitling petitionerinsured to an award of the damages prayed for.
This ruling was challenged on appeal by respondent insurance company, denying bad faith on its
part in unilaterally cancelling subject insurance policy.
After consideration of the appeal, the appellate court issued a reversal of the decision of the trial
court, convinced that the latter had erred in finding respondent insurance company in bad faith for
the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent
insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy.
Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e.,
absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith,
said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior
purpose, proof of which must be established convincingly. On the contrary, it further observed, the
following acts indicate that respondent insurance company did not act precipitately or willfully to
inflict a wrong on petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid
the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on
December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period
to December 17, 1985; and (d) respondent insurance company's apologies for the "inconvenience"
caused upon petitioner-insured. The appellate court added that respondent insurance company even
relieved Malapit, its Baguio City manager, of his job by forcing him to resign.
Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals
denied. Hence, this petition for review on certiorari anchored on these arguments:
I
Respondent Court of Appeals is guilty of grave abuse of discretion and committed a
serious and reversible error in not holding Respondent Prudential liable for the
cancellation of the insurance contract which was admittedly caused by the fraudulent
acts and bad faith of its own officers.
II
Respondent Court of Appeals committed serious and reversible error and abused its
discretion in ruling that the defenses of good faith and honest mistake can co-exist
with the admitted fraudulent acts and evident bad faith.
III

Respondent Court of Appeals committed a reversible error in not finding that even
without considering the fraudulent acts of its own officer in misappropriating the
premium payment, the act itself in cancelling the insurance policy was done with bad
faith and/or gross negligence and wanton attitude amounting to bad faith, because
among others, it was
Mr. Malapit the person who committed the fraud who sent and signed the
notice of cancellation.
IV
Respondent Court of Appeals has decided a question of substance contrary to law
and applicable decision of the Supreme Court when it refused to award damages in
favor of herein Petitioner-Appellants.
It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent
insurance company's branch office in Baguio, in misappropriating his premium payments is the
proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that
Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his
personal knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation
of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to
respondent insurance company, an artificial corporate being which can act only through its officers or
employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct
from that of respondent-insurance company, contrary to the view held by the Court of Appeals. It
must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy
caused by the non-remittance by its own employee of the premiums paid. Subsequent
reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance
company from liability, there being an obvious breach of contract. After all, reasoned out petitionerinsured, damage had already been inflicted on him and no amount of rectification could remedy the
same.
Respondent insurance company, on the other hand, argues that where reinstatement, the equitable
relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the
complaint, petitioner-insured is left without a cause of action on which to predicate his claim for
damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights
under the policy. Hence, whatever cause of action there might have been against it, no longer exists
and the consequent award of damages ordered by the lower court in unsustainable.
We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the
premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance
company. A corporation, such as respondent insurance company, acts solely thru its employees. The
latters' acts are considered as its own for which it can be held to account. 11 The facts are clear as to
the relationship between private respondent insurance company and Malapit. As admitted by private
respondent insurance company in its answer, 12 Malapit was the manager of its Baguio branch. It is
beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums
collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by
private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil
Code, is bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. The fact that
private respondent insurance company was itself defrauded due to the anomalies that took place in
its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the
same from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing
the ruling in McIntosh v. Dakota Trust Co.: 14
A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority. A bank holding out its officers and agent as
worthy of confidence will not be permitted to profit by the frauds they may thus be
enabled to perpetrate in the apparent scope of their employment; nor will it be
permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent
third persons where the representation is made in the course of its business by an
agent acting within the general scope of his authority even though, in the particular
case, the agent is secretly abusing his authority and attempting to perpetrate a fraud
upon his principal or some other person, for his own ultimate benefit.
Consequently, respondent insurance company is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy.
Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitionerinsured. Respondent company should be reminded that a contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those which arise from the same
cause and in which each party is both a debtor and a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other. 15
Under the circumstances of instant case, the relationship as creditor and debtor between the parties
arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance
under whose terms, respondent insurance company promised to extend protection to petitionerinsured against the risk insured for a consideration in the form of premiums to be paid by the latter.
Under the law governing reciprocal obligations, particularly the second paragraph of Article
1191, 16 the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission
of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with
what is incumbent upon him. However, said article entitles the injured party to payment of damages,
regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is
reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of
its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no
support in our laws on obligations and contracts.

The nature of damages to be awarded, however, would be in the form of nominal

damages 17 contrary to that granted by the court below. Although the erroneous cancellation of the
insurance policy constituted a breach of contract, private respondent insurance company, within a
reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner.
Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the
insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically
violated and must be vindicated against an invasion that has produced no actual present loss of any kind,
or where there has been a breach of contract and no substantial injury or actual damages whatsoever
have been or can be shown. 18
WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the
Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40,
RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED
subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be
awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction
of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate
of interest computed from date of filing of complaint until final payment thereof.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-12219

March 15, 1918

AMADO PICART, plaintiff-appellant,

vs.
FRANK SMITH, JR., defendant-appellee.
Alejo Mabanag for appellant.
G. E. Campbell for appellee.
STREET, J.:
In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the sum
of P31,000, as damages alleged to have been caused by an automobile driven by the defendant.
From a judgment of the Court of First Instance of the Province of La Union absolving the defendant
from liability the plaintiff has appealed.
The occurrence which gave rise to the institution of this action took place on December 12, 1912, on
the Carlatan Bridge, at San Fernando, La Union. It appears that upon the occasion in question the
plaintiff was riding on his pony over said bridge. Before he had gotten half way across, the defendant
approached from the opposite direction in an automobile, going at the rate of about ten or twelve
miles per hour. As the defendant neared the bridge he saw a horseman on it and blew his horn to
give warning of his approach. He continued his course and after he had taken the bridge he gave
two more successive blasts, as it appeared to him that the man on horseback before him was not
observing the rule of the road.
The plaintiff, it appears, saw the automobile coming and heard the warning signals. However, being
perturbed by the novelty of the apparition or the rapidity of the approach, he pulled the pony closely
up against the railing on the right side of the bridge instead of going to the left. He says that the
reason he did this was that he thought he did not have sufficient time to get over to the other side.
The bridge is shown to have a length of about 75 meters and a width of 4.80 meters. As the
automobile approached, the defendant guided it toward his left, that being the proper side of the
road for the machine. In so doing the defendant assumed that the horseman would move to the
other side. The pony had not as yet exhibited fright, and the rider had made no sign for the
automobile to stop. Seeing that the pony was apparently quiet, the defendant, instead of veering to
the right while yet some distance away or slowing down, continued to approach directly toward the
horse without diminution of speed. When he had gotten quite near, there being then no possibility of
the horse getting across to the other side, the defendant quickly turned his car sufficiently to the right
to escape hitting the horse alongside of the railing where it as then standing; but in so doing the
automobile passed in such close proximity to the animal that it became frightened and turned its
body across the bridge with its head toward the railing. In so doing, it as struck on the hock of the left

hind leg by the flange of the car and the limb was broken. The horse fell and its rider was thrown off
with some violence. From the evidence adduced in the case we believe that when the accident
occurred the free space where the pony stood between the automobile and the railing of the bridge
was probably less than one and one half meters. As a result of its injuries the horse died. The
plaintiff received contusions which caused temporary unconsciousness and required medical
attention for several days.
The question presented for decision is whether or not the defendant in maneuvering his car in the
manner above described was guilty of negligence such as gives rise to a civil obligation to repair the
damage done; and we are of the opinion that he is so liable. As the defendant started across the
bridge, he had the right to assume that the horse and the rider would pass over to the proper side;
but as he moved toward the center of the bridge it was demonstrated to his eyes that this would not
be done; and he must in a moment have perceived that it was too late for the horse to cross with
safety in front of the moving vehicle. In the nature of things this change of situation occurred while
the automobile was yet some distance away; and from this moment it was not longer within the
power of the plaintiff to escape being run down by going to a place of greater safety. The control of
the situation had then passed entirely to the defendant; and it was his duty either to bring his car to
an immediate stop or, seeing that there were no other persons on the bridge, to take the other side
and pass sufficiently far away from the horse to avoid the danger of collision. Instead of doing this,
the defendant ran straight on until he was almost upon the horse. He was, we think, deceived into
doing this by the fact that the horse had not yet exhibited fright. But in view of the known nature of
horses, there was an appreciable risk that, if the animal in question was unacquainted with
automobiles, he might get exited and jump under the conditions which here confronted him. When
the defendant exposed the horse and rider to this danger he was, in our opinion, negligent in the eye
of the law.
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that person would have used in the
same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard
supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law.
The existence of negligence in a given case is not determined by reference to the personal judgment
of the actor in the situation before him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in
the particular case. Abstract speculations cannot here be of much value but this much can be
profitably said: Reasonable men govern their conduct by the circumstances which are before them
or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they
can be expected to take care only when there is something before them to suggest or warn of
danger. Could a prudent man, in the case under consideration, foresee harm as a result of the
course actually pursued? If so, it was the duty of the actor to take precautions to guard against that
harm. Reasonable foresight of harm, followed by ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to exist. Stated in these terms, the proper criterion
for determining the existence of negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to

another was sufficiently probable to warrant his foregoing conduct or guarding against its
consequences.
Applying this test to the conduct of the defendant in the present case we think that negligence is
clearly established. A prudent man, placed in the position of the defendant, would in our opinion,
have recognized that the course which he was pursuing was fraught with risk, and would therefore
have foreseen harm to the horse and the rider as reasonable consequence of that course. Under
these circumstances the law imposed on the defendant the duty to guard against the threatened
harm.
It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent
negligence in planting himself on the wrong side of the road. But as we have already stated, the
defendant was also negligent; and in such case the problem always is to discover which agent is
immediately and directly responsible. It will be noted that the negligent acts of the two parties were
not contemporaneous, since the negligence of the defendant succeeded the negligence of the
plaintiff by an appreciable interval. Under these circumstances the law is that the person who has
the last fair chance to avoid the impending harm and fails to do so is chargeable with the
consequences, without reference to the prior negligence of the other party.
The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7 Phil. Rep., 359) should perhaps
be mentioned in this connection. This Court there held that while contributory negligence on the part
of the person injured did not constitute a bar to recovery, it could be received in evidence to reduce
the damages which would otherwise have been assessed wholly against the other party. The
defendant company had there employed the plaintiff, as a laborer, to assist in transporting iron rails
from a barge in Manila harbor to the company's yards located not far away. The rails were conveyed
upon cars which were hauled along a narrow track. At certain spot near the water's edge the track
gave way by reason of the combined effect of the weight of the car and the insecurity of the road
bed. The car was in consequence upset; the rails slid off; and the plaintiff's leg was caught and
broken. It appeared in evidence that the accident was due to the effects of the typhoon which had
dislodged one of the supports of the track. The court found that the defendant company was
negligent in having failed to repair the bed of the track and also that the plaintiff was, at the moment
of the accident, guilty of contributory negligence in walking at the side of the car instead of being in
front or behind. It was held that while the defendant was liable to the plaintiff by reason of its
negligence in having failed to keep the track in proper repair nevertheless the amount of the
damages should be reduced on account of the contributory negligence in the plaintiff. As will be seen
the defendant's negligence in that case consisted in an omission only. The liability of the company
arose from its responsibility for the dangerous condition of its track. In a case like the one now
before us, where the defendant was actually present and operating the automobile which caused the
damage, we do not feel constrained to attempt to weigh the negligence of the respective parties in
order to apportion the damage according to the degree of their relative fault. It is enough to say that
the negligence of the defendant was in this case the immediate and determining cause of the
accident and that the antecedent negligence of the plaintiff was a more remote factor in the case.
A point of minor importance in the case is indicated in the special defense pleaded in the defendant's
answer, to the effect that the subject matter of the action had been previously adjudicated in the
court of a justice of the peace. In this connection it appears that soon after the accident in question

occurred, the plaintiff caused criminal proceedings to be instituted before a justice of the peace
charging the defendant with the infliction of serious injuries (lesiones graves). At the preliminary
investigation the defendant was discharged by the magistrate and the proceedings were dismissed.
Conceding that the acquittal of the defendant at the trial upon the merits in a criminal prosecution for
the offense mentioned would be res adjudicata upon the question of his civil liability arising from
negligence -- a point upon which it is unnecessary to express an opinion -- the action of the justice of
the peace in dismissing the criminal proceeding upon the preliminary hearing can have no effect.
(See U. S. vs. Banzuela and Banzuela, 31 Phil. Rep., 564.)
From what has been said it results that the judgment of the lower court must be reversed, and
judgment is her rendered that the plaintiff recover of the defendant the sum of two hundred pesos
(P200), with costs of other instances. The sum here awarded is estimated to include the value of the
horse, medical expenses of the plaintiff, the loss or damage occasioned to articles of his apparel,
and lawful interest on the whole to the date of this recovery. The other damages claimed by the
plaintiff are remote or otherwise of such character as not to be recoverable. So ordered.
Arellano, C.J., Torres, Carson, Araullo, Avancea, and Fisher, JJ., concur.
Johnson, J., reserves his vote.