G.R. No.
L-48006 July 8, 1942 awarded damages in favor of the plaintiffs for P2,000
FAUSTO BARREDO, petitioner,
vs.
SEVERINO GARCIA and TIMOTEA
ALMARIO, respondents.
Celedonio P. Gloria and Antonio Barredo for petitioner.
Jose G. Advincula for respondents.
BOCOBO, J.:
This case comes up from the Court of Appeals which
held the petitioner herein, Fausto Barredo, liable in
damages for the death of Faustino Garcia caused by the
negligence of Pedro Fontanilla, a taxi driver employed by
said Fausto Barredo.
At about half past one in the morning of May 3, 1936, on
the road between Malabon and Navotas, Province of
Rizal, there was a head-on collision between a taxi of the
Malate Taxicab driven by Pedro Fontanilla and a
carretela guided by Pedro Dimapalis. The carretela was
overturned, and one of its passengers, 16-year-old boy
Faustino Garcia, suffered injuries from which he died
two days later. A criminal action was filed against
Fontanilla in the Court of First Instance of Rizal, and he
was convicted and sentenced to an indeterminate
sentence of one year and one day to two years of prision
correccional. The court in the criminal case granted the
petition that the right to bring a separate civil action be
reserved. The Court of Appeals affirmed the sentence of
the lower court in the criminal case. Severino Garcia and
Timotea Almario, parents of the deceased on March 7,
1939, brought an action in the Court of First Instance of
Manila against Fausto Barredo as the sole proprietor of
the Malate Taxicab and employer of Pedro Fontanilla. On
July 8, 1939, the Court of First Instance of Manila
plus legal interest from the date of the complaint. This
decision was modified by the Court of Appeals by
reducing the damages to P1,000 with legal interest from
the time the action was instituted. It is undisputed that
Fontanilla 's negligence was the cause of the mishap, as
he was driving on the wrong side of the road, and at
high speed. As to Barredo's responsibility, the Court of
Appeals found:
... It is admitted that defendant is Fontanilla's
employer. There is proof that he exercised the
diligence of a good father of a family to prevent
damage. (See p. 22, appellant's brief.) In fact it is
shown he was careless in employing Fontanilla
who had been caught several times for violation of
the Automobile Law and speeding (Exhibit A)
violation which appeared in the records of the
Bureau of Public Works available to be public and
to himself. Therefore, he must indemnify plaintiffs
under the provisions of article 1903 of the Civil
Code.
The main theory of the defense is that the liability of
Fausto Barredo is governed by the Revised Penal Code;
hence, his liability is only subsidiary, and as there has
been no civil action against Pedro Fontanilla, the person
criminally liable, Barredo cannot be held responsible in
the case. The petitioner's brief states on page 10:
... The Court of Appeals holds that the petitioner is
being sued for his failure to exercise all the
diligence of a good father of a family in the
selection and supervision of Pedro Fontanilla to
 prevent damages suffered by the respondents. In
other words, The Court of Appeals insists on
applying in the case article 1903 of the Civil Code.
Article 1903 of the Civil Code is found in Chapter
II, Title 16, Book IV of the Civil Code. This fact
makes said article to a civil liability arising from a
crime as in the case at bar simply because Chapter
II of Title 16 of Book IV of the Civil Code, in the
precise words of article 1903 of the Civil Code
itself, is applicable only to "those (obligations)
arising from wrongful or negligent acts or
commission not punishable by law.
The gist of the decision of the Court of Appeals is
expressed thus:
... We cannot agree to the defendant's contention.
The liability sought to be imposed upon him in
this action is not a civil obligation arising from a
felony or a misdemeanor (the crime of Pedro
Fontanilla,), but an obligation imposed in article
1903 of the Civil Code by reason of his negligence
in the selection or supervision of his servant or
employee.
The pivotal question in this case is whether the plaintiffs
may bring this separate civil action against Fausto
Barredo, thus making him primarily and directly,
responsible under article 1903 of the Civil Code as an
employer of Pedro Fontanilla. The defendant maintains
that Fontanilla's negligence being punishable by the
Penal Code, his (defendant's) liability as an employer is
only subsidiary, according to said Penal code, but
Fontanilla has not been sued in a civil action and his
property has not been exhausted. To decide the main
issue, we must cut through the tangle that has, in the
minds of many confused and jumbled
together delitos and cuasi delitos, or crimes under the
Penal Code and fault or negligence under articles 1902-
1910 of the Civil Code. This should be done, because
justice may be lost in a labyrinth, unless principles and
remedies are distinctly envisaged. Fortunately, we are
aided in our inquiry by the luminous presentation of the
perplexing subject by renown jurists and we are likewise
guided by the decisions of this Court in previous cases as
well as by the solemn clarity of the consideration in
several sentences of the Supreme Tribunal of Spain.
Authorities support the proposition that a quasi-delict or
"culpa aquiliana " is a separate legal institution under the
Civil Code with a substantivity all its own, and
individuality that is entirely apart and independent from
delict or crime. Upon this principle and on the wording
and spirit article 1903 of the Civil Code, the primary and
direct responsibility of employers may be safely
anchored.
The pertinent provisions of the Civil Code and Revised
Penal Code are as follows:
CIVIL CODE
ART. 1089 Obligations arise from law, from
contracts and quasi-contracts, and from acts and
omissions which are unlawful or in which any
kind of fault or negligence intervenes.
xxx xxx xxx
ART. 1092. Civil obligations arising from felonies
or misdemeanors shall be governed by the
provisions of the Penal Code.
ART. 1093. Those which are derived from acts or
omissions in which fault or negligence, not
punishable by law, intervenes shall be subject to
the provisions of Chapter II, Title XVI of this book.
xxx xxx xxx
ART 1902. Any person who by an act or omission
causes damage to another by his fault or
negligence shall be liable for the damage so done.
ART. 1903. The obligation imposed by the next
preceding article is enforcible, not only for
personal acts and omissions, but also for those of
persons for whom another is responsible.
The father and in, case of his death or incapacity,
the mother, are liable for any damages caused by
the minor children who live with them.
Guardians are liable for damages done by minors
or incapacitated persons subject to their authority
and living with them.
Owners or directors of an establishment or
business are equally liable for any damages caused
by their employees while engaged in the branch of
the service in which employed, or on occasion of
the performance of their duties.
The State is subject to the same liability when it
acts through a special agent, but not if the damage
shall have been caused by the official upon whom
properly devolved the duty of doing the act
performed, in which case the provisions of the
next preceding article shall be applicable.
Finally, teachers or directors of arts trades are
liable for any damages caused by their pupils or
apprentices while they are under their custody.
The liability imposed by this article shall cease in
case the persons mentioned therein prove that
they are exercised all the diligence of a good
father of a family to prevent the damage.
ART. 1904. Any person who pays for damage
caused by his employees may recover from the
latter what he may have paid.
REVISED PENAL CODE
ART. 100. Civil liability of a person guilty of
felony. Every person criminally liable for a
felony is also civilly liable.
ART. 101. Rules regarding civil liability in certain
cases. The exemption from criminal liability
established in subdivisions 1, 2, 3, 5, and 6 of
article 12 and in subdivision 4 of article 11 of this
Code does not include exemption from civil
liability, which shall be enforced to the following
rules:
 First. In cases of subdivision, 1, 2 and 3 of article
12 the civil liability for acts committed by any
imbecile or insane person, and by a person under
nine years of age, or by one over nine but under
fifteen years of age, who has acted without
discernment shall devolve upon those having such
person under their legal authority or control,
unless it appears that there was no fault or
negligence on their part.
Should there be no person having such insane,
imbecile or minor under his authority, legal
guardianship, or control, or if such person be
insolvent, said insane, imbecile, or minor shall
respond with their own property, excepting
property exempt from execution, in accordance
with the civil law.
Second. In cases falling within subdivision 4 of
article 11, the person for whose benefit the harm
has been prevented shall be civilly liable in
proportion to the benefit which they may have
received.
The courts shall determine, in their sound discretion, the
proportionate amount for which each one shall be liable.
When the respective shares can not be equitably
determined, even approximately, or when the liability
also attaches to the Government, or to the majority of the
inhabitants of the town, and, in all events, whenever the
damage has been caused with the consent of the
authorities or their agents, indemnification shall be made
in the manner prescribed by special laws or regulations.
Third. In cases falling within subdivisions 5 and 6 of
article 12, the persons using violence or causing the fear
shall be primarily liable and secondarily, or, if there be
no such persons, those doing the act shall be liable,
saving always to the latter that part of their property
exempt from execution.
ART. 102. Subsidiary civil liability of innkeepers,
tavern keepers and proprietors of establishment.
In default of persons criminally liable,
innkeepers, tavern keepers, and any other persons
or corporation shall be civilly liable for crimes
committed in their establishments, in all cases
where a violation of municipal ordinances or
some general or special police regulation shall
have been committed by them or their employees.
Innkeepers are also subsidiarily liable for the
restitution of goods taken by robbery or theft
within their houses lodging therein, or the person,
or for the payment of the value thereof, provided
that such guests shall have notified in advance the
innkeeper himself, or the person representing
him, of the deposit of such goods within the inn;
and shall furthermore have followed the
directions which such innkeeper or his
representative may have given them with respect
to the care of and vigilance over such goods. No
liability shall attach in case of robbery with
violence against or intimidation against or
intimidation of persons unless committed by the
innkeeper's employees.
 ART. 103. Subsidiary civil liability of other
persons. The subsidiary liability established in
the next preceding article shall also apply to
employers, teachers, persons, and corporations
engaged in any kind of industry for felonies
committed by their servants, pupils, workmen,
apprentices, or employees in the discharge of their
duties.
xxx xxx xxx
ART. 365. Imprudence and negligence. Any
person who, by reckless imprudence, shall commit
any act which, had it been intentional, would
constitute a grave felony, shall suffer the penalty
of arresto mayor in its maximum period to prision
correccional in its minimum period; if it would
have constituted a less grave felony, the penalty of
arresto mayor in its minimum and medium
periods shall be imposed.
Any person who, by simple imprudence or
negligence, shall commit an act which would
otherwise constitute a grave felony, shall suffer
the penalty of arresto mayor in its medium and
maximum periods; if it would have constituted a
less serious felony, the penalty of arresto mayor in
its minimum period shall be imposed."
It will thus be seen that while the terms of articles 1902
of the Civil Code seem to be broad enough to cover the
driver's negligence in the instant case, nevertheless
article 1093 limits cuasi-delitos to acts or omissions "not
punishable by law." But inasmuch as article 365 of the
Revised Penal Code punishes not only reckless but even
simple imprudence or negligence, the fault or negligence
under article 1902 of the Civil Code has apparently been
crowded out. It is this overlapping that makes the
"confusion worse confounded." However, a closer study
shows that such a concurrence of scope in regard to
negligent acts does not destroy the distinction between
the civil liability arising from a crime and the
responsibility for cuasi-delitos or culpa extra-
contractual. The same negligent act causing damages
may produce civil liability arising from a crime under
article 100 of the Revised Penal Code, or create an action
for cuasi-delito or culpa extra-contractual under articles
1902-1910 of the Civil Code.
The individuality of cuasi-delito or culpa extra-
contractual looms clear and unmistakable. This legal
institution is of ancient lineage, one of its early ancestors
being the Lex Aquilia in the Roman Law. In fact, in
Spanish legal terminology, this responsibility is often
referred to as culpa aquiliana. The Partidas also
contributed to the genealogy of the present fault or
negligence under the Civil Code; for instance, Law 6,
Title 15, of Partida 7, says: "Tenudo es de fazer emienda,
porque, como quier que el non fizo a sabiendas en dao
al otro, pero acaescio por su culpa."
The distinctive nature of cuasi-delitos survives in the
Civil Code. According to article 1089, one of the five
sources of obligations is this legal institution of cuasi-
delito or culpa extra-contractual: "los actos . . . en que
intervenga cualquier genero de culpa o negligencia."
Then article 1093 provides that this kind of obligation
shall be governed by Chapter II of Title XVI of Book IV,
meaning articles 1902-0910. This portion of the Civil
Code is exclusively devoted to the legal institution
of culpa aquiliana.
Some of the differences between crimes under the Penal
Code and the culpa aquiliana or cuasi-delito under the
Civil Code are:
1. That crimes affect the public interest, while cuasi-
delitos are only of private concern.
2. That, consequently, the Penal Code punishes or
corrects the criminal act, while the Civil Code, by means
of indemnification, merely repairs the damage.
3. That delicts are not as broad as quasi-delicts, because
the former are punished only if there is a penal law
clearly covering them, while the latter, cuasi-delitos,
include all acts in which "any king of fault or negligence
intervenes." However, it should be noted that not all
violations of the penal law produce civil responsibility,
such as begging in contravention of ordinances, violation
of the game laws, infraction of the rules of traffic when
nobody is hurt. (See Colin and Capitant, "Curso
Elemental de Derecho Civil," Vol. 3, p. 728.)
Let us now ascertain what some jurists say on the
separate existence of quasi-delicts and the employer's
primary and direct liability under article 1903 of the
Civil Code.
Dorado Montero in his essay on "Responsibilidad" in the
"Enciclopedia Juridica Espaola" (Vol. XXVII, p. 414)
says:
El concepto juridico de la responsabilidad
civil abarca diversos aspectos y comprende a
diferentes personas. Asi, existe una
responsabilidad civil propiamente dicha, que en
ningun casl lleva aparejada responsabilidad
criminal alguna, y otra que es consecuencia
indeclinable de la penal que nace de todo delito o
falta."
The juridical concept of civil responsibility has
various aspects and comprises different persons.
Thus, there is a civil responsibility, properly
speaking, which in no case carries with it any
criminal responsibility, and another which is a
necessary consequence of the penal liability as a
result of every felony or misdemeanor."
Maura, an outstanding authority, was consulted on the
following case: There had been a collision between two
trains belonging respectively to the Ferrocarril
Cantabrico and the Ferrocarril del Norte. An employee of
the latter had been prosecuted in a criminal case, in
which the company had been made a party as
subsidiarily responsible in civil damages. The employee
had been acquitted in the criminal case, and the
employer, the Ferrocarril del Norte, had also been
exonerated. The question asked was whether the
Ferrocarril Cantabrico could still bring a civil action for
damages against the Ferrocarril del Norte. Maura's
opinion was in the affirmative, stating in part
(Maura, Dictamenes, Vol. 6, pp. 511-513):
Quedando las cosas asi, a proposito de la realidad
pura y neta de los hechos, todavia menos parece
sostenible que exista cosa juzgada acerca de la
obligacion civil de indemnizar los quebrantos y
menoscabos inferidos por el choque de los trenes.
El titulo en que se funda la accion para demandar
el resarcimiento, no puede confundirse con las
responsabilidades civiles nacidas de delito,
siquiera exista en este, sea el cual sea, una culpa
rodeada de notas agravatorias que motivan
sanciones penales, mas o menos severas. La lesion
causada por delito o falta en los derechos civiles,
requiere restituciones, reparaciones o distribuir a su modo las responsabilidades civiles,
indemnizaciones, que cual la pena misma ataen
al orden publico; por tal motivo vienen
encomendadas, de ordinario, al Ministerio Fiscal;
y claro es que si por esta via se enmiendan los
quebrantos y menoscabos, el agraviado excusa
procurar el ya conseguido desagravio; pero esta
eventual coincidencia de los efectos, no borra la
diversidad originaria de las acciones civiles para
pedir indemnizacion.
Estas, para el caso actual (prescindiendo de
culpas contractuales, que no vendrian a cuento y
que tiene otro regimen), dimanan, segun el
articulo 1902 del Codigo Civil, de toda accion u
omision, causante de daos o perjuicios, en que
intervenga culpa o negligencia. Es trivial que
acciones semejantes son ejercitadas ante los
Tribunales de lo civil cotidianamente, sin que la
Justicia punitiva tenga que mezclarse en los
asuntos. Los articulos 18 al 21 y 121 al 128 del
Codigo Penal, atentos al espiritu y a los fines
sociales y politicos del mismo, desenvuelven y
ordenan la materia de responsabilidades
civiles nacidas de delito, en terminos separados del
regimen por ley comun de la culpa que se
denomina aquiliana, por alusion a precedentes
legislativos del Corpus Juris. Seria intempestivo un
paralelo entre aquellas ordenaciones, y la de la
obligacion de indemnizar a titulo de culpa civil;
pero viene al caso y es necesaria una de las
diferenciaciones que en el tal paralelo se notarian.
Los articulos 20 y 21 del Codigo Penal, despues de
entre los que sean por diversos conceptos
culpables del delito o falta, las hacen extensivas a
las empresas y los establecimientos al servicio de
los cuales estan los delincuentes; pero con caracter
subsidiario, o sea, segun el texto literal, en defecto
de los que sean responsables criminalmente. No
coincide en ello el Codigo Civil, cuyo articulo
1903, dice; La obligacion que impone el articulo
anterior es exigible, no solo por los actos y
omisiones propios, sino por los de aquellas
personas de quienes se debe responder; personas
en la enumeracion de las cuales figuran los
dependientes y empleados de los establecimientos
o empresas, sea por actos del servicio, sea con
ocasion de sus funciones. Por esto acontece, y se
observa en la jurisprudencia, que las empresas,
despues de intervenir en las causas criminales con
el caracter subsidiario de su responsabilidad civil
por razon del delito, son demandadas y
condenadas directa y aisladamente, cuando se
trata de la obligacion, ante los tribunales civiles.
Siendo como se ve, diverso el titulo de esta
obligacion, y formando verdadero postulado de
nuestro regimen judicial la separacion entre
justicia punitiva y tribunales de lo civil, de suerte
que tienen unos y otros normas de fondo en
distintos cuerpos legales, y diferentes modos de
proceder, habiendose, por aadidura, abstenido de
asistir al juicio criminal la Compaia del
Ferrocarril Cantabrico, que se reservo ejercitar sus
acciones, parece innegable que la de
indemnizacion por los daos y perjuicios que le
irrogo el choque, no estuvo sub judice ante el
Tribunal del Jurado, ni fue sentenciada, sino que
permanecio intacta, al pronunciarse el fallo de 21
de marzo. Aun cuando el veredicto no hubiese
sido de inculpabilidad, mostrose mas arriba, que
tal accion quedaba legitimamente reservada para
despues del proceso; pero al declararse que no
existio delito, ni responsabilidad dimanada de
delito, materia unica sobre que tenian jurisdiccion
aquellos juzgadores, se redobla el motivo para la
obligacion civil ex lege, y se patentiza mas y mas
que la accion para pedir su cumplimiento
permanece incolume, extraa a la cosa juzgada.
As things are, apropos of the reality pure and
simple of the facts, it seems less tenable that there
should be res judicata with regard to the civil
obligation for damages on account of the losses
caused by the collision of the trains. The title upon
which the action for reparation is based cannot be
confused with the civil responsibilities born of a
crime, because there exists in the latter, whatever
each nature, a culpa surrounded with aggravating
aspects which give rise to penal measures that are
more or less severe. The injury caused by a felony
or misdemeanor upon civil rights requires
restitutions, reparations, or indemnifications
which, like the penalty itself, affect public order;
for this reason, they are ordinarily entrusted to the
office of the prosecuting attorney; and it is clear
that if by this means the losses and damages are
repaired, the injured party no longer desires to
seek another relief; but this coincidence of effects
does not eliminate the peculiar nature of civil
actions to ask for indemnity.
Such civil actions in the present case (without
referring to contractual faults which are not
pertinent and belong to another scope) are
derived, according to article 1902 of the Civil
Code, from every act or omission causing losses
and damages in which culpa or negligence
intervenes. It is unimportant that such actions are
every day filed before the civil courts without the
criminal courts interfering therewith. Articles 18
to 21 and 121 to 128 of the Penal Code, bearing
in mind the spirit and the social and political
purposes of that Code, develop and regulate the
matter of civil responsibilities arising from a
crime, separately from the regime under common
law, of culpa which is known as aquiliana, in
accordance with legislative precedent of
the Corpus Juris. It would be unwarranted to
make a detailed comparison between the former
provisions and that regarding the obligation to
indemnify on account of civil culpa; but it is
pertinent and necessary to point out to one of such
differences.
Articles 20 and 21 of the Penal Code, after
distriburing in their own way the civil
responsibilities among those who, for different
reasons, are guilty of felony or misdemeanor,
make such civil responsibilities applicable to
enterprises and establishments for which the
guilty parties render service, but with subsidiary
character, that is to say, according to the wording
of the Penal Code, in default of those who are
criminally responsible. In this regard, the Civil
Code does not coincide because article 1903 says:
"The obligation imposed by the next preceding
article is demandable, not only for personal acts
and omissions, but also for those of persons for
whom another is responsible." Among the persons
enumerated are the subordinates and employees
of establishments or enterprises, either for acts
during their service or on the occasion of their
functions. It is for this reason that it happens, and
it is so observed in judicial decisions, that the
companies or enterprises, after taking part in the
criminal cases because of their subsidiary civil
responsibility by reason of the crime, are sued and
sentenced directly and separately with regard to
the obligation, before the civil courts.
Seeing that the title of this obligation is different,
and the separation between punitive justice and
the civil courts being a true postulate of our
judicial system, so that they have different
fundamental norms in different codes, as well as
different modes of procedure, and inasmuch as
the Compaa del Ferrocarril Cantabrico has
abstained from taking part in the criminal case
and has reserved the right to exercise its actions, it
seems undeniable that the action for
indemnification for the losses and damages caused
to it by the collision was not sub judice before
the Tribunal del Jurado, nor was it the subject of a
sentence, but it remained intact when the decision
of March 21 was rendered. Even if the verdict had
not been that of acquittal, it has already been
shown that such action had been legitimately
reserved till after the criminal prosecution; but
because of the declaration of the non-existence of
the felony and the non-existence of the
responsibility arising from the crime, which was
the sole subject matter upon which the Tribunal
del Jurado had jurisdiction, there is greater reason
for the civil obligation ex lege, and it becomes
clearer that the action for its enforcement remain
intact and is not res judicata.
Laurent, a jurist who has written a monumental work on
the French Civil Code, on which the Spanish Civil Code is
largely based and whose provisions on cuasi-
delito or culpa extra-contractual are similar to those of
the Spanish Civil Code, says, referring to article 1384 of
the French Civil Code which corresponds to article 1903,
Spanish Civil Code:
 The action can be brought directly against the
person responsible (for another), without
including the author of the act. The action against
the principal is accessory in the sense that it
implies the existence of a prejudicial act
committed by the employee, but it is not
subsidiary in the sense that it can not be instituted
till after the judgment against the author of the act
or at least, that it is subsidiary to the principal
action; the action for responsibility (of the
employer) is in itself a principal action. (Laurent,
Principles of French Civil Law, Spanish
translation, Vol. 20, pp. 734-735.)
Amandi, in his "Cuestionario del Codigo Civil
Reformado" (Vol. 4, pp. 429, 430), declares that the
responsibility of the employer is principal and not
subsidiary. He writes:
Cuestion 1. La responsabilidad declarada en el
articulo 1903 por las acciones u omisiones de
aquellas personas por las que se debe responder,
es subsidiaria? es principal? Para contestar a esta
pregunta es necesario saber, en primer lugar, en
que se funda el precepto legal. Es que realmente se
impone una responsabilidad por una falta ajena?
Asi parece a primera vista; pero semejante
afirmacion seria contraria a la justicia y a la
maxima universal, segun la que las faltas son
personales, y cada uno responde de aquellas que
le son imputables. La responsabilidad de que
tratamos se impone con ocasion de un delito o
culpa, pero no por causa de ellos, sino por causa
del causi delito, esto es, de la imprudencia o de la
negligencia del padre, del tutor, del dueo o
director del establecimiento, del maestro, etc.
Cuando cualquiera de las personas que enumera
el articulo citado (menores de edad, incapacitados,
dependientes, aprendices) causan un dao, la ley
presume que el padre, el tutor, el maestro, etc.,
han cometido una falta de negligencia para
prevenir o evitar el dao. Esta falta es la que la ley
castiga. No hay, pues, responsabilidad por un
hecho ajeno, sino en la apariencia; en realidad la
responsabilidad se exige por un hecho propio. La
idea de que esa responsabilidad sea subsidiaria es,
por lo tanto, completamente inadmisible.
Question No. 1. Is the responsibility declared in
article 1903 for the acts or omissions of those
persons for who one is responsible, subsidiary or
principal? In order to answer this question it is
necessary to know, in the first place, on what the
legal provision is based. Is it true that there is a
responsibility for the fault of another person? It
seems so at first sight; but such assertion would be
contrary to justice and to the universal maxim
that all faults are personal, and that everyone is
liable for those faults that can be imputed to him.
The responsibility in question is imposed on the
occasion of a crime or fault, but not because of the
same, but because of the cuasi-delito, that is to
say, the imprudence or negligence of the father,
guardian, proprietor or manager of the
establishment, of the teacher, etc. Whenever
anyone of the persons enumerated in the article
referred to (minors, incapacitated persons,
employees, apprentices) causes any damage, the
 law presumes that the father, guardian, teacher,
etc. have committed an act of negligence in not
preventing or avoiding the damage. It is this fault
that is condemned by the law. It is, therefore, only
apparent that there is a responsibility for the act of
another; in reality the responsibility exacted is for
one's own act. The idea that such responsibility is
subsidiary is, therefore, completely inadmissible.
Oyuelos, in his "Digesto: Principios, Doctrina y
Jurisprudencia, Referentes al Codigo Civil Espaol," says
in Vol. VII, p. 743:
Es decir, no responde de hechos ajenos, porque se
responde solo de su propia culpa, doctrina del
articulo 1902; mas por excepcion, se responde de
la ajena respecto de aquellas personas con las que
media algun nexo o vinculo, que motiva o razona
la responsabilidad. Esta responsabilidad, es directa
o es subsidiaria? En el orden penal, el Codigo de
esta clase distingue entre menores e incapacitados
y los demas, declarando directa la primera
(articulo 19) y subsidiaria la segunda (articulos
20 y 21); pero en el orden civil, en el caso del
articulo 1903, ha de entenderse directa, por el
tenor del articulo que impone la responsabilidad
precisamente "por los actos de aquellas personas
de quienes se deba responder."
That is to say, one is not responsible for the acts of
others, because one is liable only for his own
faults, this being the doctrine of article 1902; but,
by exception, one is liable for the acts of those
persons with whom there is a bond or tie which
gives rise to the responsibility. Is this responsibility
direct or subsidiary? In the order of the penal law,
the Penal Code distinguishes between minors and
incapacitated persons on the one hand, and other
persons on the other, declaring that the
responsibility for the former is direct (article 19),
and for the latter, subsidiary (articles 20 and 21);
but in the scheme of the civil law, in the case of
article 1903, the responsibility should be
understood as direct, according to the tenor of
that articles, for precisely it imposes responsibility
"for the acts of those persons for whom one should
be responsible."
Coming now to the sentences of the Supreme Tribunal of
Spain, that court has upheld the principles above set
forth: that a quasi-delict or culpa extra-contractual is a
separate and distinct legal institution, independent from
the civil responsibility arising from criminal liability, and
that an employer is, under article 1903 of the Civil Code,
primarily and directly responsible for the negligent acts
of his employee.
One of the most important of those Spanish decisions is
that of October 21, 1910. In that case, Ramon Lafuente
died as the result of having been run over by a street car
owned by the "compaia Electric Madrilea de
Traccion." The conductor was prosecuted in a criminal
case but he was acquitted. Thereupon, the widow filed a
civil action against the street car company, paying for
damages in the amount of 15,000 pesetas. The lower
court awarded damages; so the company appealed to the
Supreme Tribunal, alleging violation of articles 1902 and
1903 of the Civil Code because by final judgment the
non-existence of fault or negligence had been declared.
The Supreme Court of Spain dismissed the appeal,
saying:
Considerando que el primer motivo del recurso se
funda en el equivocado supuesto de que el
Tribunal a quo, al condonar a la compaia
Electrica Madrilea al pago del dao causado con
la muerte de Ramon La fuente Izquierdo,
desconoce el valor y efectos juridicos de la
sentencia absolutoria deictada en la causa
criminal que se siguio por el mismo hecho,
cuando es lo cierto que de este han conocido las
dos jurisdicciones bajo diferentes as pectos, y
como la de lo criminal declrao dentro de los
limites de su competencia que el hecho de que se
trata no era constitutivo de delito por no haber
mediado descuido o negligencia graves, lo que no
excluye, siendo este el unico fundamento del fallo
absolutorio, el concurso de la culpa o negligencia
no califacadas, fuente de obligaciones civiles
segun el articulo 1902 del Codigo, y que alcanzan,
segun el 1903, netre otras perosnas, a los
Directores de establecimientos o empresas por los
daos causados por sus dependientes en
determinadas condiciones, es manifesto que la de
lo civil, al conocer del mismo hehco baho este
ultimo aspecto y al condenar a la compaia
recurrente a la indemnizacion del dao causado
por uno de sus empleados, lejos de infringer los
mencionados textos, en relacion con el articulo
116 de la Ley de Enjuciamiento Criminal, se ha
atenido estrictamente a ellos, sin invadir
atribuciones ajenas a su jurisdiccion propia, ni
contrariar en lo mas minimo el fallo recaido en la
causa.
Considering that the first ground of the appeal is
based on the mistaken supposition that the trial
court, in sentencing the Compaia Madrilea to
the payment of the damage caused by the death of
Ramon Lafuente Izquierdo, disregards the value
and juridical effects of the sentence of acquittal
rendered in the criminal case instituted on
account of the same act, when it is a fact that the
two jurisdictions had taken cognizance of the
same act in its different aspects, and as the
criminal jurisdiction declared within the limits of
its authority that the act in question did not
constitute a felony because there was no grave
carelessness or negligence, and this being the only
basis of acquittal, it does no exclude the co-
existence of fault or negligence which is not
qualified, and is a source of civil obligations
according to article 1902 of the Civil Code,
affecting, in accordance with article 1903, among
other persons, the managers of establishments or
enterprises by reason of the damages caused by
employees under certain conditions, it is manifest
that the civil jurisdiccion in taking cognizance of
the same act in this latter aspect and in ordering
the company, appellant herein, to pay an
indemnity for the damage caused by one of its
employees, far from violating said legal
provisions, in relation with article 116 of the Law
of Criminal Procedure, strictly followed the same,
without invading attributes which are beyond its
own jurisdiction, and without in any way
 contradicting the decision in that cause. (Emphasis
supplied.)
It will be noted, as to the case just cited:
First. That the conductor was not sued in a civil case,
either separately or with the street car company. This is
precisely what happens in the present case: the driver,
Fontanilla, has not been sued in a civil action, either
alone or with his employer.
Second. That the conductor had been acquitted of grave
criminal negligence, but the Supreme Tribunal of Spain
said that this did not exclude the co-existence of fault or
negligence, which is not qualified, on the part of the
conductor, under article 1902 of the Civil Code. In the
present case, the taxi driver was found guilty of criminal
negligence, so that if he had even sued for his civil
responsibility arising from the crime, he would have
been held primarily liable for civil damages, and Barredo
would have been held subsidiarily liable for the same.
But the plaintiffs are directly suing Barredo, on his
primary responsibility because of his own presumed
negligence which he did not overcome under
article 1903. Thus, there were two liabilities of Barredo:
first, the subsidiary one because of the civil liability of
the taxi driver arising from the latter's criminal
negligence; and, second, Barredo's primary liability as an
employer under article 1903. The plaintiffs were free to
choose which course to take, and they preferred the
second remedy. In so doing, they were acting within
their rights. It might be observed in passing, that the
plaintiff choose the more expeditious and effective
method of relief, because Fontanilla was either in prison,
or had just been released, and besides, he was probably
without property which might be seized in enforcing any
judgment against him for damages.
Third. That inasmuch as in the above sentence of
October 21, 1910, the employer was held liable civilly,
notwithstanding the acquittal of the employee (the
conductor) in a previous criminal case, with greater
reason should Barredo, the employer in the case at bar,
be held liable for damages in a civil suit filed against him
because his taxi driver had been convicted. The degree of
negligence of the conductor in the Spanish case cited was
less than that of the taxi driver, Fontanilla, because the
former was acquitted in the previous criminal case while
the latter was found guilty of criminal negligence and
was sentenced to an indeterminate sentence of one year
and one day to two years of prision correccional.
(See also Sentence of February 19, 1902, which is similar
to the one above quoted.)
In the Sentence of the Supreme Court of Spain, dated
February 14, 1919, an action was brought against a
railroad company for damages because the station agent,
employed by the company, had unjustly
and fraudulently, refused to deliver certain articles
consigned to the plaintiff. The Supreme Court of Spain
held that this action was properly under article 1902 of
the Civil Code, the court saying:
Considerando que la sentencia discutida reconoce,
en virtud de los hechos que consigna con relacion
a las pruebas del pleito: 1., que las expediciones
facturadas por la compaia ferroviaria a la
consignacion del actor de las vasijas vacias que en
su demanda relacionan tenian como fin el que este
las devolviera a sus remitentes con vinos y
alcoholes; 2., que llegadas a su destino tales
mercanias no se quisieron entregar a dicho
consignatario por el jefe de la estacion sin motivo
justificado y con intencion dolosa, y 3., que la
falta de entrega de estas expediciones al tiempo de
reclamarlas el demandante le originaron daos y
perjuicios en cantidad de bastante importancia
como expendedor al por mayor que era de vinos y
alcoholes por las ganancias que dejo de obtener al
verse privado de servir los pedidos que se le
habian hecho por los remitentes en los envases:
Considerando que sobre esta base hay necesidad
de estimar los cuatro motivos que integran este
recurso, porque la demanda inicial del pleito a
que se contrae no contiene accion que nazca del
incumplimiento del contrato de transporte, toda
vez que no se funda en el retraso de la llegada de
las mercancias ni de ningun otro vinculo
contractual entre las partes contendientes,
careciendo, por tanto, de aplicacion el articulo
371 del Codigo de Comercio, en que
principalmente descansa el fallo recurrido, sino
que se limita a pedir la reparaction de los daos y
perjuicios producidos en el patrimonio del actor
por la injustificada y dolosa negativa del porteador
a la entrega de las mercancias a su nombre
consignadas, segun lo reconoce la sentencia, y
cuya responsabilidad esta claramente sancionada
en el articulo 1902 del Codigo Civil, que obliga
por el siguiente a la Compaia demandada como
ligada con el causante de aquellos por relaciones
de caracter economico y de jurarquia
administrativa.
Considering that the sentence, in question
recognizes, in virtue of the facts which it declares,
in relation to the evidence in the case: (1) that the
invoice issued by the railroad company in favor of
the plaintiff contemplated that the empty
receptacles referred to in the complaint should be
returned to the consignors with wines and liquors;
(2) that when the said merchandise reached their
destination, their delivery to the consignee was
refused by the station agent without justification
and with fraudulent intent, and (3) that the lack
of delivery of these goods when they were
demanded by the plaintiff caused him losses and
damages of considerable importance, as he was a
wholesale vendor of wines and liquors and he
failed to realize the profits when he was unable to
fill the orders sent to him by the consignors of the
receptacles:
Considering that upon this basis there is need of
upholding the four assignments of error, as the
original complaint did not contain any cause of
action arising from non-fulfillment of a contract
of transportation, because the action was not
based on the delay of the goods nor on any
contractual relation between the parties litigant
and, therefore, article 371 of the Code of
Commerce, on which the decision appealed from
is based, is not applicable; but it limits to asking
for reparation for losses and damages produced
 on the patrimony of the plaintiff on account of the
unjustified and fraudulent refusal of the carrier to
deliver the goods consigned to the plaintiff as
stated by the sentence, and the carrier's
responsibility is clearly laid down in article 1902
of the Civil Code which binds, in virtue of the next
article, the defendant company, because the latter
is connected with the person who caused the
damage by relations of economic character and by
administrative hierarchy. (Emphasis supplied.)
The above case is pertinent because it shows that the
same act may come under both the Penal Code and the
Civil Code. In that case, the action of the agent was
unjustified and fraudulent and therefore could have been
the subject of a criminal action. And yet, it was held to be
also a proper subject of a civil action under article 1902
of the Civil Code. It is also to be noted that it was the
employer and not the employee who was being sued.
Let us now examine the cases previously decided by this
Court.
In the leading case of Rakes vs. Atlantic Gulf and Pacific
Co. (7 Phil., 359, 362-365 [year 1907]), the trial court
awarded damages to the plaintiff, a laborer of the
defendant, because the latter had negligently failed to
repair a tramway in consequence of which the rails slid
off while iron was being transported, and caught the
plaintiff whose leg was broken. This Court held:
It is contended by the defendant, as its first
defense to the action that the necessary conclusion
from these collated laws is that the remedy for
injuries through negligence lies only in a criminal
action in which the official criminally responsible
must be made primarily liable and his employer
held only subsidiarily to him. According to this
theory the plaintiff should have procured the
arrest of the representative of the company
accountable for not repairing the track, and on his
prosecution a suitable fine should have been
imposed, payable primarily by him and
secondarily by his employer.
This reasoning misconceived the plan of the
Spanish codes upon this subject. Article 1093 of
the Civil Code makes obligations arising from
faults or negligence not punished by the law,
subject to the provisions of Chapter II of Title XVI.
Section 1902 of that chapter reads:
"A person who by an act or omission causes
damage to another when there is fault or
negligence shall be obliged to repair the
damage so done.
"SEC. 1903. The obligation imposed by the
preceeding article is demandable, not only
for personal acts and omissions, but also for
those of the persons for whom they should
be responsible.
"The father, and on his death or incapacity,
the mother, is liable for the damages caused
by the minors who live with them.
xxx xxx xxx
 "Owners or directors of an establishment or
enterprise are equally liable for the
damages caused by their employees in the
service of the branches in which the latter
may be employed or in the performance of
their duties.
xxx xxx xxx
"The liability referred to in this article shall
cease when the persons mentioned therein
prove that they employed all the diligence
of a good father of a family to avoid the
damage."
As an answer to the argument urged in this
particular action it may be sufficient to point out
that nowhere in our general statutes is the
employer penalized for failure to provide or
maintain safe appliances for his workmen. His
obligation therefore is one 'not punished by the
laws' and falls under civil rather than criminal
jurisprudence. But the answer may be a broader
one. We should be reluctant, under any
conditions, to adopt a forced construction of these
scientific codes, such as is proposed by the
defendant, that would rob some of these articles of
effect, would shut out litigants against their will
from the civil courts, would make the assertion of
their rights dependent upon the selection for
prosecution of the proper criminal offender, and
render recovery doubtful by reason of the strict
rules of proof prevailing in criminal actions. Even
if these articles had always stood alone, such a
construction would be unnecessary, but clear light
is thrown upon their meaning by the provisions of
the Law of Criminal Procedure of Spain (Ley de
Enjuiciamiento Criminal), which, though never in
actual force in these Islands, was formerly given a
suppletory or explanatory effect. Under article
111 of this law, both classes of action, civil and
criminal, might be prosecuted jointly or
separately, but while the penal action was
pending the civil was suspended. According to
article 112, the penal action once started, the civil
remedy should be sought therewith, unless it had
been waived by the party injured or been
expressly reserved by him for civil proceedings for
the future. If the civil action alone was prosecuted,
arising out of a crime that could be enforced only
on private complaint, the penal action thereunder
should be extinguished. These provisions are in
harmony with those of articles 23 and 133 of our
Penal Code on the same subject.
An examination of this topic might be carried
much further, but the citation of these articles
suffices to show that the civil liability was not
intended to be merged in the criminal nor even to
be suspended thereby, except as expressly
provided in the law. Where an individual is civilly
liable for a negligent act or omission, it is not
required that the injured party should seek out a
third person criminally liable whose prosecution
must be a condition precedent to the enforcement
of the civil right.
Under article 20 of the Penal Code the
responsibility of an employer may be regarded as
subsidiary in respect of criminal actions against
his employees only while they are in process of
prosecution, or in so far as they determine the
existence of the criminal act from which liability
arises, and his obligation under the civil law and
its enforcement in the civil courts is not barred
thereby unless by the election of the injured
person. Inasmuch as no criminal proceeding had
been instituted, growing our of the accident in
question, the provisions of the Penal Code can not
affect this action. This construction renders it
unnecessary to finally determine here whether
this subsidiary civil liability in penal actions has
survived the laws that fully regulated it or has
been abrogated by the American civil and
criminal procedure now in force in the
Philippines.
The difficulty in construing the articles of the code
above cited in this case appears from the briefs
before us to have arisen from the interpretation of
the words of article 1093, "fault or negligence not
punished by law," as applied to the comprehensive
definition of offenses in articles 568 and 590 of
the Penal Code. It has been shown that the liability
of an employer arising out of his relation to his
employee who is the offender is not to be regarded
as derived from negligence punished by the law,
within the meaning of articles 1902 and 1093.
More than this, however, it cannot be said to fall
within the class of acts unpunished by the law, the
consequence of which are regulated by articles
1902 and 1903 of the Civil Code. The acts to
which these articles are applicable are understood
to be those not growing out of pre-existing duties
of the parties to one another. But where relations
already formed give rise to duties, whether
springing from contract or quasi contract, then
breaches of those duties are subject to articles
1101, 1103, and 1104 of the same code. A typical
application of this distinction may be found in the
consequences of a railway accident due to
defective machinery supplied by the employer. His
liability to his employee would arise out of the
contract of employment, that to the passengers out
of the contract for passage, while that to the
injured bystander would originate in the negligent
act itself.
In Manzanares vs. Moreta, 38 Phil., 821 (year 1918), the
mother of the 8 of 9-year-old child Salvador Bona
brought a civil action against Moreta to recover damages
resulting from the death of the child, who had been run
over by an automobile driven and managed by the
defendant. The trial court rendered judgment requiring
the defendant to pay the plaintiff the sum of P1,000 as
indemnity: This Court in affirming the judgment, said in
part:
If it were true that the defendant, in coming from
the southern part of Solana Street, had to stop his
auto before crossing Real Street, because he had
met vehicles which were going along the latter
street or were coming from the opposite direction
along Solana Street, it is to be believed that, when
he again started to run his auto across said Real
 Street and to continue its way along Solana Street
northward, he should have adjusted the speed of
the auto which he was operating until he had fully
crossed Real Street and had completely reached a
clear way on Solana Street. But, as the child was
run over by the auto precisely at the entrance of
Solana Street, this accident could not have
occurred if the auto had been running at a slow
speed, aside from the fact that the defendant, at
the moment of crossing Real Street and entering
Solana Street, in a northward direction, could
have seen the child in the act of crossing the latter
street from the sidewalk on the right to that on the
left, and if the accident had occurred in such a
way that after the automobile had run over the
body of the child, and the child's body had already
been stretched out on the ground, the automobile
still moved along a distance of about 2 meters, this
circumstance shows the fact that the automobile
entered Solana Street from Real Street, at a high
speed without the defendant having blown the
horn. If these precautions had been taken by the
defendant, the deplorable accident which caused
the death of the child would not have occurred.
It will be noticed that the defendant in the above case
could have been prosecuted in a criminal case because
his negligence causing the death of the child was
punishable by the Penal Code. Here is therefore a clear
instance of the same act of negligence being a proper
subject-matter either of a criminal action with its
consequent civil liability arising from a crime or of an
entirely separate and independent civil action for fault or
negligence under article 1902 of the Civil Code. Thus, in
this jurisdiction, the separate individually of a cuasi-
delito or culpa aquiliana under the Civil Code has been
fully and clearly recognized, even with regard to a
negligent act for which the wrongdoer could have been
prosecuted and convicted in a criminal case and for
which, after such a conviction, he could have been sued
for this civil liability arising from his crime.
Years later (in 1930) this Court had another occasion to
apply the same doctrine. In Bernal and Enverso vs. House
and Tacloban Electric & Ice Plant, Ltd., 54 Phil., 327, the
parents of the five-year-old child, Purificacion Bernal,
brought a civil action to recover damages for the child's
death as a result of burns caused by the fault and
negligence of the defendants. On the evening of April 10,
1925, the Good Friday procession was held in Tacloban,
Leyte. Fortunata Enverso with her daughter Purificacion
Bernal had come from another municipality to attend the
same. After the procession the mother and the daughter
with two others were passing along Gran Capitan Street
in front of the offices of the Tacloban Electric & Ice Plant,
Ltd., owned by defendants J. V. House, when an
automobile appeared from the opposite direction. The
little girl, who was slightly ahead of the rest, was so
frightened by the automobile that she turned to run, but
unfortunately she fell into the street gutter where hot
water from the electric plant was flowing. The child died
that same night from the burns. The trial courts
dismissed the action because of the contributory
negligence of the plaintiffs. But this Court held, on
appeal, that there was no contributory negligence, and
allowed the parents P1,000 in damages from J. V. House
who at the time of the tragic occurrence was the holder
of the franchise for the electric plant. This Court said in
part:
Although the trial judge made the findings of fact
hereinbefore outlined, he nevertheless was led to
order the dismissal of the action because of the
contributory negligence of the plaintiffs. It is from
this point that a majority of the court depart from
the stand taken by the trial judge. The mother and
her child had a perfect right to be on the principal
street of Tacloban, Leyte, on the evening when the
religious procession was held. There was nothing
abnormal in allowing the child to run along a few
paces in advance of the mother. No one could
foresee the coincidence of an automobile
appearing and of a frightened child running and
falling into a ditch filled with hot water. The
doctrine announced in the much debated case of
Rakes vs. Atlantic Gulf and Pacific Co. ([1907]), 7
Phil., 359), still rule. Article 1902 of the Civil
Code must again be enforced. The contributory
negligence of the child and her mother, if any,
does not operate as a bar to recovery, but in its
strictest sense could only result in reduction of the
damages.
It is most significant that in the case just cited, this Court
specifically applied article 1902 of the Civil Code. It is
thus that although J. V. House could have been
criminally prosecuted for reckless or simple negligence
and not only punished but also made civilly liable
because of his criminal negligence, nevertheless this
Court awarded damages in an independent civil action
for fault or negligence under article 1902 of the Civil
Code.
In Bahia vs. Litonjua and Leynes (30 Phil., 624 [year
1915), the action was for damages for the death of the
plaintiff's daughter alleged to have been caused by the
negligence of the servant in driving an automobile over
the child. It appeared that the cause of the mishap was a
defect in the steering gear. The defendant Leynes had
rented the automobile from the International Garage of
Manila, to be used by him in carrying passengers during
the fiesta of Tuy, Batangas. Leynes was ordered by the
lower court to pay P1,000 as damages to the plaintiff. On
appeal this Court reversed the judgment as to Leynes on
the ground that he had shown that the exercised the care
of a good father of a family, thus overcoming the
presumption of negligence under article 1903. This
Court said:
As to selection, the defendant has clearly shown
that he exercised the care and diligence of a good
father of a family. He obtained the machine from a
reputable garage and it was, so far as appeared, in
good condition. The workmen were likewise
selected from a standard garage, were duly
licensed by the Government in their particular
calling, and apparently thoroughly competent.
The machine had been used but a few hours when
the accident occurred and it is clear from the
evidence that the defendant had no notice, either
actual or constructive, of the defective condition
of the steering gear.
The legal aspect of the case was discussed by this Court
thus:
Article 1903 of the Civil Code not only establishes
liability in cases of negligence, but also provides
when the liability shall cease. It says:
"The liability referred to in this article shall
cease when the persons mentioned therein
prove that they employed all the diligence
of a good father of a family to avoid the
damage."
From this article two things are apparent: (1) That
when an injury is caused by the negligence of a
servant or employee there instantly arises a
presumption of law that there was negligence on
the part of the matter or employer either in the
selection of the servant or employee, or in
supervision over him after the selection, or both;
and (2) that presumption is juris tantum and
not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer
shows to the satisfaction of the court that in
selection and supervision he has exercised the
care and diligence of a good father of a family, the
presumption is overcome and he is relieve from
liability.
This theory bases the responsibility of the master
ultimately on his own negligence and not on that
of his servant.
The doctrine of the case just cited was followed by this
Court in Cerf vs. Medel (33 Phil., 37 [year 1915]). In the
latter case, the complaint alleged that the defendant's
servant had so negligently driven an automobile, which
was operated by defendant as a public vehicle, that said
automobile struck and damaged the plaintiff's
motorcycle. This Court, applying article 1903 and
following the rule in Bahia vs. Litonjua and Leynes, said
in part (p. 41) that:
The master is liable for the negligent acts of his
servant where he is the owner or director of a
business or enterprise and the negligent acts are
committed while the servant is engaged in his
master's employment as such owner.
Another case which followed the decision in Bahia vs.
Litonjua and Leynes was Cuison vs. Norton & Harrison
Co., 55 Phil., 18 (year 1930). The latter case was an
action for damages brought by Cuison for the death of
his seven-year-old son Moises. The little boy was on his
way to school with his sister Marciana. Some large pieces
of lumber fell from a truck and pinned the boy
underneath, instantly killing him. Two youths, Telesforo
Binoya and Francisco Bautista, who were working for
Ora, an employee of defendant Norton & Harrison Co.,
pleaded guilty to the crime of homicide through reckless
negligence and were sentenced accordingly. This Court,
applying articles 1902 and 1903, held:
The basis of civil law liability is not respondent
superior but the relationship of pater familias.
This theory bases the liability of the master
ultimately on his own negligence and not on that
 of his servant. (Bahia vs.Litonjua and Leynes
[1915], 30 Phil., 624; Cangco vs. Manila Railroad
Co. [1918], 38 Phil., 768.)
In Walter A. Smith & Co. vs. Cadwallader Gibson Lumber
Co., 55 Phil., 517 (year 1930) the plaintiff brought an
action for damages for the demolition of its wharf, which
had been struck by the steamer Helen C belonging to the
defendant. This Court held (p. 526):
The evidence shows that Captain Lasa at the time
the plaintiff's wharf collapsed was a duly licensed
captain, authorized to navigate and direct a vessel
of any tonnage, and that the appellee contracted
his services because of his reputation as a captain,
according to F. C. Cadwallader. This being so, we
are of the opinion that the presumption of liability
against the defendant has been overcome by the
exercise of the care and diligence of a good father
of a family in selecting Captain Lasa, in
accordance with the doctrines laid down by this
court in the cases cited above, and the defendant is
therefore absolved from all liability.
It is, therefore, seen that the defendant's theory about his
secondary liability is negatived by the six cases above set
forth. He is, on the authority of these cases, primarily and
directly responsible in damages under article 1903, in
relation to article 1902, of the Civil Code.
Let us now take up the Philippine decisions relied upon
by the defendant. We study first, City of Manila vs.
Manila Electric Co., 52 Phil., 586 (year 1928). A
collision between a truck of the City of Manila and a
street car of the Manila Electric Co. took place on June 8,
1925. The truck was damaged in the amount of
P1,788.27. Sixto Eustaquio, the motorman, was
prosecuted for the crime of damage to property and
slight injuries through reckless imprudence. He was
found guilty and sentenced to pay a fine of P900, to
indemnify the City of Manila for P1,788.27, with
subsidiary imprisonment in case of insolvency. Unable to
collect the indemnity from Eustaquio, the City of Manila
filed an action against the Manila Electric Company to
obtain payment, claiming that the defendant was
subsidiarily liable. The main defense was that the
defendant had exercised the diligence of a good father of
a family to prevent the damage. The lower court
rendered judgment in favor of the plaintiff. This Court
held, in part, that this case was governed by the Penal
Code, saying:
With this preliminary point out of the way, there
is no escaping the conclusion that the provisions
of the Penal Code govern. The Penal Code in easily
understandable language authorizes the
determination of subsidiary liability. The Civil
Code negatives its application by providing that
civil obligations arising from crimes or
misdemeanors shall be governed by the provisions
of the Penal Code. The conviction of the
motorman was a misdemeanor falling under
article 604 of the Penal Code. The act of the
motorman was not a wrongful or negligent act or
omission not punishable by law. Accordingly, the
civil obligation connected up with the Penal Code
and not with article 1903 of the Civil Code. In
other words, the Penal Code affirms its
 jurisdiction while the Civil Code negatives its
jurisdiction. This is a case of criminal negligence
out of which civil liability arises and not a case of
civil negligence.
xxx xxx xxx
Our deduction, therefore, is that the case relates to
the Penal Code and not to the Civil Code. Indeed,
as pointed out by the trial judge, any different
ruling would permit the master to escape scot-free
by simply alleging and proving that the master
had exercised all diligence in the selection and
training of its servants to prevent the damage.
That would be a good defense to a strictly civil
action, but might or might not be to a civil action
either as a part of or predicated on conviction for
a crime or misdemeanor. (By way of parenthesis,
it may be said further that the statements here
made are offered to meet the argument advanced
during our deliberations to the effect that article
0902 of the Civil Code should be disregarded and
codal articles 1093 and 1903 applied.)
It is not clear how the above case could support the
defendant's proposition, because the Court of Appeals
based its decision in the present case on the defendant's
primary responsibility under article 1903 of the Civil
Code and not on his subsidiary liability arising from
Fontanilla's criminal negligence. In other words, the case
of City of Manila vs. Manila Electric Co., supra, is
predicated on an entirely different theory, which is the
subsidiary liability of an employer arising from a
criminal act of his employee, whereas the foundation of
the decision of the Court of Appeals in the present case is
the employer's primary liability under article 1903 of the
Civil Code. We have already seen that this is a proper
and independent remedy.
Arambulo vs. Manila Electric Co. (55 Phil., 75), is
another case invoked by the defendant. A motorman in
the employ of the Manila Electric Company had been
convicted o homicide by simple negligence and
sentenced, among other things, to pay the heirs of the
deceased the sum of P1,000. An action was then brought
to enforce the subsidiary liability of the defendant as
employer under the Penal Code. The defendant attempted
to show that it had exercised the diligence of a good
father of a family in selecting the motorman, and
therefore claimed exemption from civil liability. But this
Court held:
In view of the foregoing considerations, we are of
opinion and so hold, (1) that the exemption from
civil liability established in article 1903 of the
Civil Code for all who have acted with the
diligence of a good father of a family, is not
applicable to the subsidiary civil liability provided
in article 20 of the Penal Code.
The above case is also extraneous to the theory of the
defendant in the instant case, because the action there
had for its purpose the enforcement of the defendant's
subsidiary liability under the Penal Code, while in the
case at bar, the plaintiff's cause of action is based on the
defendant's primary and direct responsibility under
article 1903 of the Civil Code. In fact, the above case
destroys the defendant's contention because that decision
illustrates the principle that the employer's primary
responsibility under article 1903 of the Civil Code is
different in character from his subsidiary liability under
the Penal Code.
In trying to apply the two cases just referred to, counsel
for the defendant has failed to recognize the distinction
between civil liability arising from a crime, which is
governed by the Penal Code, and the responsibility
for cuasi-delito or culpa aquiliana under the Civil Code,
and has likewise failed to give the importance to the
latter type of civil action.
The defendant-petitioner also cites Francisco vs.
Onrubia (46 Phil., 327). That case need not be set forth.
Suffice it to say that the question involved was also civil
liability arising from a crime. Hence, it is as inapplicable
as the two cases above discussed.
The foregoing authorities clearly demonstrate the
separate individuality of cuasi-delitos or culpa
aquiliana under the Civil Code. Specifically they show
that there is a distinction between civil liability arising
from criminal negligence (governed by the Penal Code)
and responsibility for fault or negligence under articles
1902 to 1910 of the Civil Code, and that the same
negligent act may produce either a civil liability arising
from a crime under the Penal Code, or a separate
responsibility for fault or negligence under articles 1902
to 1910 of the Civil Code. Still more concretely, the
authorities above cited render it inescapable to conclude
that the employer in this case the defendant-petitioner
is primarily and directly liable under article 1903 of
the Civil Code.
The legal provisions, authors, and cases already invoked
should ordinarily be sufficient to dispose of this case. But
inasmuch as we are announcing doctrines that have been
little understood in the past, it might not be
inappropriate to indicate their foundations.
Firstly, the Revised Penal Code in article 365 punishes
not only reckless but also simple negligence. If we were
to hold that articles 1902 to 1910 of the Civil Code refer
only to fault or negligence not punished by law,
according to the literal import of article 1093 of the Civil
Code, the legal institution of culpa aquiliana would have
very little scope and application in actual life. Death or
injury to persons and damage to property through any
degree of negligence even the slightest would have
to be indemnified only through the principle of civil
liability arising from a crime. In such a state of affairs,
what sphere would remain for cuasi-delito or culpa
aquiliana? We are loath to impute to the lawmaker any
intention to bring about a situation so absurd and
anomalous. Nor are we, in the interpretation of the laws,
disposed to uphold the letter that killeth rather than the
spirit that giveth life. We will not use the literal meaning
of the law to smother and render almost lifeless a
principle of such ancient origin and such full-grown
development as culpa aquiliana or cuasi-delito, which is
conserved and made enduring in articles 1902 to 1910
of the Spanish Civil Code.
Secondly, to find the accused guilty in a criminal case,
proof of guilt beyond reasonable doubt is required, while
in a civil case, preponderance of evidence is sufficient to
make the defendant pay in damages. There are numerous
cases of criminal negligence which can not be shown
beyond reasonable doubt, but can be proved by a
preponderance of evidence. In such cases, the defendant
can and should be made responsible in a civil action
under articles 1902 to 1910 of the Civil Code.
Otherwise, there would be many instances of
unvindicated civil wrongs. Ubi jus ibi remedium.
Thirdly, to hold that there is only one way to make
defendant's liability effective, and that is, to sue the
driver and exhaust his (the latter's) property first, would
be tantamount to compelling the plaintiff to follow a
devious and cumbersome method of obtaining relief.
True, there is such a remedy under our laws, but there is
also a more expeditious way, which is based on the
primary and direct responsibility of the defendant under
article 1903 of the Civil Code. Our view of the law is
more likely to facilitate remedy for civil wrongs, because
the procedure indicated by the defendant is wasteful and
productive of delay, it being a matter of common
knowledge that professional drivers of taxis and similar
public conveyance usually do not have sufficient means
with which to pay damages. Why, then, should the
plaintiff be required in all cases to go through this
roundabout, unnecessary, and probably useless
procedure? In construing the laws, courts have
endeavored to shorten and facilitate the pathways of
right and justice.
At this juncture, it should be said that the primary and
direct responsibility of employers and their presumed
negligence are principles calculated to protect society.
Workmen and employees should be carefully chosen and
supervised in order to avoid injury to the public. It is the
masters or employers who principally reap the profits
resulting from the services of these servants and
employees. It is but right that they should guarantee the
latter's careful conduct for the personnel and patrimonial
safety of others. As Theilhard has said, "they should
reproach themselves, at least, some for their weakness,
others for their poor selection and all for their
negligence." And according to Manresa, "It is much more
equitable and just that such responsibility should fall
upon the principal or director who could have chosen a
careful and prudent employee, and not upon the injured
person who could not exercise such selection and who
used such employee because of his confidence in the
principal or director." (Vol. 12, p. 622, 2nd Ed.) Many
jurists also base this primary responsibility of the
employer on the principle of representation of the
principal by the agent. Thus, Oyuelos says in the work
already cited (Vol. 7, p. 747) that before third persons
the employer and employee "vienen a ser como una sola
personalidad, por refundicion de la del dependiente en la
de quien le emplea y utiliza." ("become as one personality
by the merging of the person of the employee in that of
him who employs and utilizes him.") All these
observations acquire a peculiar force and significance
when it comes to motor accidents, and there is need of
stressing and accentuating the responsibility of owners of
motor vehicles.
Fourthly, because of the broad sweep of the provisions of
both the Penal Code and the Civil Code on this subject,
which has given rise to the overlapping or concurrence
of spheres already discussed, and for lack of
understanding of the character and efficacy of the action
for culpa aquiliana, there has grown up a common
practice to seek damages only by virtue of the civil
responsibility arising from a crime, forgetting that there
is another remedy, which is by invoking articles 1902-
1910 of the Civil Code. Although this habitual method is
allowed by our laws, it has nevertheless rendered
practically useless and nugatory the more expeditious
and effective remedy based on culpa aquiliana or culpa
extra-contractual. In the present case, we are asked to
help perpetuate this usual course. But we believe it is
high time we pointed out to the harm done by such
practice and to restore the principle of responsibility for
fault or negligence under articles 1902 et seq. of the
Civil Code to its full rigor. It is high time we caused the
stream of quasi-delict or culpa aquiliana to flow on its
own natural channel, so that its waters may no longer be
diverted into that of a crime under the Penal Code. This
will, it is believed, make for the better safeguarding of
private rights because it re-establishes an ancient and
additional remedy, and for the further reason that an
independent civil action, not depending on the issues,
limitations and results of a criminal prosecution, and
entirely directed by the party wronged or his counsel, is
more likely to secure adequate and efficacious redress.
In view of the foregoing, the judgment of the Court of
Appeals should be and is hereby affirmed, with costs
against the defendant-petitioner.
Yulo, C.J., Moran, Ozaeta and Paras, JJ., concur.
Digest:
Torts and Damages Civil Liability from Quasi Delicts vs
Civil Liability from Crimes
At about 1:30am on May 3, 1936, Fontanillas taxi
collided with a kalesa thereby killing the 16 year old
Faustino Garcia. Faustinos parents filed a criminal suit
against Fontanilla and reserved their right to file a
separate civil suit. Fontanilla was eventually convicted.
After the criminal suit, Garcia filed a civil suit against
Barredo the owner of the taxi (employer of Fontanilla).
The suit was based on Article 1903 of the civil code
(negligence of employers in the selection of their
employees). Barredo assailed the suit arguing that his
liability is only subsidiary and that the separate civil suit
should have been filed against Fontanilla primarily and
not him.
ISSUE: Whether or not Barredo is just subsidiarily liable.
HELD: No. He is primarily liable under Article 1903
which is a separate civil action against negligent
employers. Garcia is well within his rights in suing
Barredo. He reserved his right to file a separate civil
action and this is more expeditious because by the time
of the SC judgment Fontanilla is already serving his
sentence and has no property. It was also proven that
Barredo is negligent in hiring his employees because it
was shown that Fontanilla had had multiple traffic
infractions already before he hired him something he
failed to overcome during hearing. Had Garcia not
reserved his right to file a separate civil action, Barredo
would have only been subsidiarily liable. Further,
Barredo is not being sued for damages arising from a
criminal act (his drivers negligence) but rather for his
own negligence in selecting his employee (Article 1903).
G.R. No. L-4811 July 31, 1953
CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.
Taada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and
appellant.
LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a
written agreement, Exhibit A, with the defendant, the
most important provisions of which are (1) that they
shall organize a partnership for the bottling and
distribution of Mision soft drinks, plaintiff to act as
industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2)
that the defendant was to decide matters of general
policy regarding the business, while the plaintiff was to
attend to the operation and development of the bottling
plant; (3) that the plaintiff was to secure the Mission Soft
Drinks franchise for and in behalf of the proposed
partnership; and (4) that the plaintiff was to receive 30
per cent of the net profits of the business. The above
agreement was arrived at after various conferences and
consultations by and between them, with the assistance
of their respective attorneys. Prior to entering into this
agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, U.S.A.,
manufacturers of the bases and ingridients of the
beverages bearing its name, that he had interested a
prominent financier (defendant herein) in the business,
who was willing to invest half a million dollars in the
bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him,
that the right to bottle and distribute be granted him for
a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant for
this request, plaintiff was given "a thirty-days" option on
exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations between
plaintiff and defendant began at a meeting on November
27, 1947, at the Manila Hotel, with their lawyers
attending. Before this meeting plaintiff's lawyer had
prepared the draft of the agreement, Exhibit II or OO,
but this was not satisfactory because a partnership,
instead of a corporation, was desired. Defendant's lawyer
prepared after the meeting his own draft, Exhibit HH.
This last draft appears to be the main basis of the
agreement, Exhibit A.
The contract was finally signed by plaintiff on December
3, 1947. Plaintiff did not like to go to the United States
without the agreement being not first signed. On that day
plaintiff and defendant went to the United States, and on
December 10, 1947, a franchise agreement (Exhibit V)
was entered into the Mission Dry Corporation and
Fortunato F. Halili and/or Charles F. Woodhouse,
granted defendant the exclusive right, license, and
authority to produce, bottle, distribute, and sell Mision
beverages in the Philippines. The plaintiff and the
defendant thereafter returned to the Philippines. Plaintiff
reported for duty in January, 1948, but operations were
not begun until the first week of February, 1948. In
January plaintiff was given as advance, on account of
profits, the sum of P2,000, besides the use of a car; in
February, 1948, also P2,000, and in March only P1,000.
The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already on operation,
plaintiff demanded of defendant that the partnership
papers be executed. At first defendant executed himself,
saying there was no hurry. Then he promised to do so
after the sales of the product had been increased to
P50,000. As nothing definite was forthcoming, after this
condition was attained, and as defendant refused to give
further allowances to plaintiff, the latter caused his
attorneys to take up the matter with the defendant with a
view to a possible settlement. as none could be arrived at,
the present action was instituted.
In his complaint plaintiff asks for the execution of the
contract of partnership, an accounting of the profits, and
a share thereof of 30 per cent, as well as damages in the
amount of P200,000. In his answer defendant alleges by
way of defense (1) that defendant's consent to the
agreement, Exhibit A, was secured by the representation
of plaintiff that he was the owner, or was about to
become owner of an exclusive bottling franchise, which
representation was false, and plaintiff did not secure the
franchise, but was given to defendant himself; (2) that
defendant did not fail to carry out his undertakings, but
that it was plaintiff who failed; (3) that plaintiff agreed to
contribute the exclusive franchise to the partnership, but
plaintiff failed to do so. He also presented a counter-
claim for P200,000 as damages. On these issues the
parties went to trial, and thereafter the Court of First
Instance rendered judgment ordering defendant to
render an accounting of the profits of the bottling and
distribution business, subject of the action, and to pay
plaintiff 15 percent thereof. it held that the execution of
the contract of partnership could not be enforced upon
the parties, but it also held that the defense of fraud was
not proved. Against this judgment both parties have
appealed.
The most important question of fact to be determined is
whether defendant had falsely represented that he had
an exclusive franchise to bottle Mission beverages, and
whether this false representation or fraud, if it existed,
annuls the agreement to form the partnership. The trial
court found that it is improbable that defendant was
never shown the letter, Exhibit J, granting plaintiff had;
that the drafts of the contract prior to the final one can
not be considered for the purpose of determining the
issue, as they are presumed to have been already
integrated into the final agreement; that fraud is never
presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto
got the worse part of the bargain, this fact alone would
not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent
to the defendant that he had an exclusive franchise,
when as a matter of fact, at the time of its execution, he
no longer had it as the same had expired, and that,
therefore, the consent of the defendant to the contract
was vitiated by fraud and it is, consequently, null and
void.
Our study of the record and a consideration of all the
surrounding circumstances lead us to believe that
defendant's contention is not without merit. Plaintiff's
attorney, Mr. Laurea, testified that Woodhouse presented
himself as being the exclusive grantee of a franchise,
thus:
 A. I don't recall any discussion about that matter. I
took along with me the file of the office with
regards to this matter. I notice from the first draft
of the document which I prepared which calls for
the organization of a corporation, that the
manager, that is, Mr. Woodhouse, is represented
as being the exclusive grantee of a franchise from
the Mission Dry Corporation. . . . (t.s.n., p.518)
As a matter of fact, the first draft that Mr. Laurea
prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that
plaintiff had the exclusive franchise. Thus, the first
paragraph states:
Whereas, the manager is the exclusive grantee of
a franchise from the Mission Dry Corporation San
Francisco, California, for the bottling of Mission
products and their sale to the public throughout
the Philippines; . . . .
3. The manager, upon the organization of the said
corporation, shall forthwith transfer to the said
corporation his exclusive right to bottle Mission
products and to sell them throughout the
Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle
of integration of jural acts. We find that the principle
invoked is inapplicable, since the purpose of considering
the prior draft is not to vary, alter, or modify the
agreement, but to discover the intent of the parties
thereto and the circumstances surrounding the execution
of the contract. The issue of fact is: Did plaintiff represent
to defendant that he had an exclusive franchise?
Certainly, his acts or statements prior to the agreement
are essential and relevant to the determination of said
issue. The act or statement of the plaintiff was not sought
to be introduced to change or alter the terms of the
agreement, but to prove how he induced the defendant to
enter into it to prove the representations or
inducements, or fraud, with which or by which he
secured the other party's consent thereto. These are
expressly excluded from the parol evidence rule. (Bough
and Bough vs. Cantiveros and Hanopol, 40 Phil., 209;
port Banga Lumber Co. vs. Export & Import Lumber Co.,
26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and
false representation are an incident to the creation of a
jural act, not to its integration, and are not governed by
the rules on integration. Were parties prohibited from
proving said representations or inducements, on the
ground that the agreement had already been entered
into, it would be impossible to prove misrepresentation
or fraud. Furthermore, the parol evidence rule expressly
allows the evidence to be introduced when the validity of
an instrument is put in issue by the pleadings (section
22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be
easily gleaned from his own letters and his own
testimony. In his letter to Mission Dry Corporation,
Exhibit H, he said:.
. . . He told me to come back to him when I was
able to speak with authority so that we could
come to terms as far as he and I were concerned.
 That is the reason why the cable was sent.
Without this authority, I am in a poor bargaining
position. . .
I would propose that you grant me the exclusive
bottling and distributing rights for a limited
period of time, during which I may consummate
my plants. . . .
By virtue of this letter the option on exclusive bottling
was given to the plaintiff on October 14, 1947. (See
Exhibit J.) If this option for an exclusive franchise was
intended by plaintiff as an instrument with which to
bargain with defendant and close the deal with him, he
must have used his said option for the above-indicated
purpose, especially as it appears that he was able to
secure, through its use, what he wanted.
Plaintiff's own version of the preliminary conversation he
had with defendant is to the effect that when plaintiff
called on the latter, the latter answered, "Well, come
back to me when you have the authority to operate. I am
definitely interested in the bottling business." (t. s. n., pp.
60-61.) When after the elections of 1949 plaintiff went
to see the defendant (and at that time he had already the
option), he must have exultantly told defendant that he
had the authority already. It is improbable and incredible
for him to have disclosed the fact that he had only an
option to the exclusive franchise, which was to last thirty
days only, and still more improbable for him to have
disclosed that, at the time of the signing of the formal
agreement, his option had already expired. Had he done
so, he would have destroyed all his bargaining power
and authority, and in all probability lost the deal itself.
The trial court reasoned, and the plaintiff on this appeal
argues, that plaintiff only undertook in the agreement "to
secure the Mission Dry franchise for and in behalf of the
proposed partnership." The existence of this provision in
the final agreement does not militate against plaintiff
having represented that he had the exclusive franchise; it
rather strengthens belief that he did actually make the
representation. How could plaintiff assure defendant that
he would get the franchise for the latter if he had not
actually obtained it for himself? Defendant would not
have gone into the business unless the franchise was
raised in his name, or at least in the name of the
partnership. Plaintiff assured defendant he could get the
franchise. Thus, in the draft prepared by defendant's
attorney, Exhibit HH, the above provision is inserted,
with the difference that instead of securing the franchise
for the defendant, plaintiff was to secure it for the
partnership. To show that the insertion of the above
provision does not eliminate the probability of plaintiff
representing himself as the exclusive grantee of the
franchise, the final agreement contains in its third
paragraph the following:
. . . and the manager is ready and willing to allow
the capitalists to use the exclusive franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of
the partnership, . . . the franchise from Mission
Dry Corporation shall be reassigned to
the manager.
These statements confirm the conclusion that defendant
believed, or was made to believe, that plaintiff was the
grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred
to the name of the partnership, and that, upon its
dissolution or termination, the same shall be reassigned
to the plaintiff.
Again, the immediate reaction of defendant, when in
California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified,
plaintiff's participation in the net profits to one half of
that agreed upon. He could not have had such a feeling
had not plaintiff actually made him believe that he
(plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the
assistance of counsel in the making of the contract made
fraud improbable. Not necessarily, because the alleged
representation took place before the conferences were
had, in other words, plaintiff had already represented to
defendant, and the latter had already believed in, the
existence of plaintiff's exclusive franchise before the
formal negotiations, and they were assisted by their
lawyers only when said formal negotiations actually took
place. Furthermore, plaintiff's attorney testified that
plaintiff had said that he had the exclusive franchise; and
defendant's lawyer testified that plaintiff explained to
him, upon being asked for the franchise, that he had left
the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did
actually represent to defendant that he was the holder of
the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the
exclusive franchise. Defendant would not perhaps have
gone to California and incurred expenses for the trip,
unless he believed that plaintiff did have that exclusive
privilege, and that the latter would be able to get the
same from the Mission Dry Corporation itself. Plaintiff
knew what defendant believed about his (plaintiff's)
exclusive franchise, as he induced him to that belief, and
he may not be allowed to deny that defendant was
induced by that belief. (IX Wigmore, sec. 2423; Sec. 65,
Rule 123, Rules of Court.)
We now come to the legal aspect of the false
representation. Does it amount to a fraud that would
vitiate the contract? It must be noted that fraud is
manifested in illimitable number of degrees or
gradations, from the innocent praises of a salesman
about the excellence of his wares to those malicious
machinations and representations that the law punishes
as a crime. In consequence, article 1270 of the Spanish
Civil Code distinguishes two kinds of (civil) fraud, the
causal fraud, which may be a ground for the annulment
of a contract, and the incidental deceit, which only
renders the party who employs it liable for damages. This
Court had held that in order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely
the incidental (dolo causante), inducement to the making
of the contract. (Article 1270, Spanish Civil Code; Hill vs.
Veloso, 31 Phil. 160.) The record abounds with
circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to
enter into the partnership agreement with plaintiff, was
the ability of plaintiff to get the exclusive franchise to
bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant's
counsel was to the effect that plaintiff obligated himself
to secure a franchise for the defendant. Correction
appears in this same original draft, but the change is
made not as to the said obligation but as to the grantee.
In the corrected draft the word "capitalist"(grantee) is
changed to "partnership." The contract in its final form
retains the substituted term "partnership." The defendant
was, therefore, led to the belief that plaintiff had the
exclusive franchise, but that the same was to be secured
for or transferred to the partnership. The plaintiff no
longer had the exclusive franchise, or the option thereto,
at the time the contract was perfected. But while he had
already lost his option thereto (when the contract was
entered into), the principal obligation that he assumed or
undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission
Dry Corporation. We declare, therefore, that if he was
guilty of a false representation, this was not the causal
consideration, or the principal inducement, that led
plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an
exclusive franchise was actually the consideration or
price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the partnership
business. Defendant agreed to give plaintiff 30 per cent
share in the net profits because he was transferring his
exclusive franchise to the partnership. Thus, in the draft
prepared by plaintiff's lawyer, Exhibit II, the following
provision exists:
3. That the MANAGER, upon the organization of
the said corporation, shall forthwith transfer to
the said corporation his exclusive right to bottle
Mission products and to sell them throughout the
Philippines. As a consideration for such transfer,
the CAPITALIST shall transfer to the Manager fully
paid non assessable shares of the said corporation
. . . twenty-five per centum of the capital stock of
the said corporation. (Par. 3, Exhibit II; emphasis
ours.)
Plaintiff had never been a bottler or a chemist; he never
had experience in the production or distribution of
beverages. As a matter of fact, when the bottling plant
being built, all that he suggested was about the toilet
facilities for the laborers.
We conclude from the above that while the
representation that plaintiff had the exclusive franchise
did not vitiate defendant's consent to the contract, it was
used by plaintiff to get from defendant a share of 30 per
cent of the net profits; in other words, by pretending that
he had the exclusive franchise and promising to transfer
it to defendant, he obtained the consent of the latter to
give him (plaintiff) a big slice in the net profits. This is
the dolo incidente defined in article 1270 of the Spanish
Civil Code, because it was used to get the other party's
consent to a big share in the profits, an incidental matter
in the agreement.
El dolo incidental no es el que puede producirse
en el cumplimiento del contrato sino que significa
aqui, el que concurriendoen el consentimiento, o
precediendolo, no influyo para arrancar porsi solo
el consentimiento ni en la totalidad de la
obligacion, sinoen algun extremo o accidente de
 esta, dando lugar tan solo a una accion para
reclamar indemnizacion de perjuicios. (8 Manresa
602.)
Having arrived at the conclusion that the agreement may
not be declared null and void, the question that next
comes before us is, May the agreement be carried out or
executed? We find no merit in the claim of plaintiff that
the partnership was already a fait accompli from the
time of the operation of the plant, as it is evident from
the very language of the agreement that the parties
intended that the execution of the agreement to form a
partnership was to be carried out at a later date. They
expressly agreed that they shall form a partnership. (Par.
No. 1, Exhibit A.) As a matter of fact, from the time that
the franchise from the Mission Dry Corporation was
obtained in California, plaintiff himself had been
demanding that defendant comply with the agreement.
And plaintiff's present action seeks the enforcement of
this agreement. Plaintiff's claim, therefore, is both
inconsistent with their intention and incompatible with
his own conduct and suit.
As the trial court correctly concluded, the defendant may
not be compelled against his will to carry out the
agreement nor execute the partnership papers. Under
the Spanish Civil Code, the defendant has an
obligation to do, not to give. The law recognizes the
individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls
within what Spanish commentators call a very
personal act (acto personalismo), of which courts may
not compel compliance, as it is considered an act of
violence to do so.
Efectos de las obligaciones consistentes en hechos
personalismo.Tratamos de la ejecucion de las
obligaciones de hacer en el solocaso de su
incumplimiento por parte del deudor, ya sean los
hechos personalisimos, ya se hallen en la facultad
de un tercero; porque el complimiento espontaneo
de las mismas esta regido por los preceptos
relativos al pago, y en nada les afectan las
disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto
consiste en resolver si el deudor puede ser
precisado a realizar el hecho y porque medios.
Se tiene por corriente entre los autores, y se
traslada generalmente sin observacion el principio
romano nemo potest precise cogi ad factum. Nadie
puede ser obligado violentamente a haceruna
cosa. Los que perciben la posibilidad de la
destruccion deeste principio, aaden que, aun
cuando se pudiera obligar al deudor, no deberia
hacerse, porque esto constituiria una violencia, y
noes la violenciamodo propio de cumplir las
obligaciones (Bigot, Rolland, etc.). El maestro
Antonio Gomez opinaba lo mismo cuandodecia
que obligar por la violencia seria infrigir la
libertad eimponer una especie de esclavitud.
xxx xxx xxx
En efecto; las obligaciones contractuales no se
acomodan biencon el empleo de la fuerza fisica,
no ya precisamente porque seconstituya de este
modo una especie de esclavitud, segun el dichode
 Antonio Gomez, sino porque se supone que el
acreedor tuvo encuenta el caracter personalisimo
del hecho ofrecido, y calculo sobre laposibilidad
de que por alguna razon no se realizase.
Repugna,ademas, a la conciencia social el empleo
de la fuerza publica, mediante coaccion sobre las
personas, en las relaciones puramente
particulares; porque la evolucion de las ideas ha
ido poniendo masde relieve cada dia el respeto a la
personalidad humana, y nose admite bien la
violencia sobre el individuo la cual tiene caracter
visiblemente penal, sino por motivos que interesen
a la colectividad de ciudadanos. Es, pues, posible y
licita esta violencia cuando setrata de las
obligaciones que hemos llamado ex lege, que
afectanal orden social y a la entidad de Estado, y
aparecen impuestas sinconsideracion a las
conveniencias particulares, y sin que por
estemotivo puedan tampoco ser modificadas; pero
no debe serlo cuandola obligacion reviste un
interes puramente particular, como sucedeen las
contractuales, y cuando, por consecuencia,
paraceria salirseel Estado de su esfera propia,
entrado a dirimir, con apoyo dela fuerza colectiva,
las diferencias producidas entre los ciudadanos.
(19 Scaevola 428, 431-432.)
The last question for us to decide is that of
damages,damages that plaintiff is entitled to receive
because of defendant's refusal to form the partnership,
and damages that defendant is also entitled to collect
because of the falsity of plaintiff's representation. (Article
1101, Spanish Civil Code.) Under article 1106 of the
Spanish Civil Code the measure of damages is the actual
loss suffered and the profits reasonably expected to be
received, embraced in the terms dao
emergente and lucro cesante. Plaintiff is entitled under
the terms of the agreement to 30 per cent of the net
profits of the business. Against this amount of damages,
we must set off the damage defendant suffered by
plaintiff's misrepresentation that he had obtained a very
high percentage of share in the profits. We can do no
better than follow the appraisal that the parties
themselves had adopted.
When defendant learned in Los Angeles that plaintiff did
not have the exclusive franchise which he pretended he
had and which he had agreed to transfer to the
partnership, his spontaneous reaction was to reduce
plaintiff's share form 30 per cent to 15 per cent only, to
which reduction defendant appears to have readily given
his assent. It was under this understanding, which
amounts to a virtual modification of the contract, that the
bottling plant was established and plaintiff worked as
Manager for the first three months. If the contract may
not be considered modified as to plaintiff's share in the
profits, by the decision of defendant to reduce the same
to one-half and the assent thereto of plaintiff, then we
may consider the said amount as a fair estimate of the
damages plaintiff is entitled to under the principle
enunciated in the case of Varadero de Manila vs. Insular
Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to
an admission on the part of each of the reasonableness of
this amount as plaintiff's share. This same amount was
fixed by the trial court. The agreement contains the
stipulation that upon the termination of the partnership,
defendant was to convey the franchise back to plaintiff
(Par. 11, Exhibit A). The judgment of the trial court does
not fix the period within which these damages shall be
paid to plaintiff. In view of paragraph 11 of Exhibit A,
we declare that plaintiff's share of 15 per cent of the net
profits shall continue to be paid while defendant uses the
franchise from the Mission Dry Corporation.
With the modification above indicated, the judgment
appealed from is hereby affirmed. Without costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes,
Jugo and Bautista Angelo, JJ., concur.
Doctrine: Fraud
FACTS
On November 29, 1947, plaintiff Woodhouse entered
into a written agreement with defendant Halili stating
among others that: 1) that they shall organize a
partnership for the bottling and distribution of
Missionsoft drinks, plaintiff to act as industrial partner or
manager, and the defendant as a capitalist, furnishing
the capital necessary therefore; 2) that plaintiff was to
secure the Mission Soft Drinks franchise for and in
behalf of the proposed partnership and 3) that the
plaintiff was to receive 30 per cent of the net profits of
the business.
Prior to entering into this agreement, plaintiff had
informed the Mission Dry Corporation of Los Angeles,
California, that he had interested a prominent financier
(defendant herein) in the business, who was willing to
invest half a milliondollars in the bottling and
distribution of the said beverages, and requested, in
order that he may close the deal with him, that the right
to bottle and distribute be granted him for a limited time
under the condition that it will finally be transferred to
the corporation. Pursuant to this request, plaintiff was
given a thirty days option on exclusive bottling and
distribution rights for the Philippines. The contract was
finally signed by plaintiff on December 3, 1947.
When the bottling plant was already in operation,
plaintiff demanded of defendant that the partnership
papers be executed. Defendant Halili gave excuses and
would not execute said agreement, thus the complaint by
the plaintiff.
Plaintiff prays for the : 1.execution of the contract of
partnership; 2) accounting of profits and 3)share
thereof of 30 percent with 4) damages in the amount of
P200,000. The Defendant on the other hand claims that:
1) the defendants consent to the agreement, was secured
by the representation of plaintiff that he was the owner,
or was about to become owner of an exclusive bottling
franchise, which representation was false, and that
plaintiff did not secure the franchise but was given to
defendant himself 2) that defendant did not fail to carry
out his undertakings, but that it was plaintiff who failed
and 3)that plaintiff agreed to contribute to the exclusive
franchise to the partnership, but plaintiff failed to do so
with a 4) counterclaim for P200,00 as damages.
The CFI ruling: 1) accounting of profits and to pay
plaintiff 15 % of the profits and that the 2) execution of
contract cannot be enforced upon parties. Lastly, the 3)
fraud wasnt proved
ISSUES:
1. WON plaintiff falsely represented that he had an
exclusive franchise to bottle Mission beverages
2. WON false representation, if it existed, annuls the
agreement to form the partnership
Ruling:
1. Yes. Plaintiff did make false representations and this
can be seen through his letters to Mission Dry
Corporation asking for the latter to grant him temporary
franchise so that he could settle the agreement with
defendant. The trial court reasoned, and the plaintiff on
this appeal argues, that plaintiff only undertook in the
agreement to secure the Mission Dry franchise for and
in behalf of the proposed partnership. The existence of
this provision in the final agreement does not militate
against plaintiff having represented that he had the
exclusive franchise; it rather strengthens belief that he
did actually make the representation. The defendant
believed, or was made to believe, that plaintiff was the
grantee of an exclusive franchise. Thus it is that it was
also agreed upon that the franchise was to be transferred
to the name of the partnership, and that, upon its
dissolution or termination, the same shall be reassigned
to the plaintiff.
Again, the immediate reaction of defendant, when in
California he learned that plaintiff did not have the
exclusive franchise, was to reduce, as he himself testified,
plaintiffs participation in the net profits to one half of
that agreed upon. He could not have had such a feeling
had not plaintiff actually made him believe that
he(plaintiff) was the exclusive grantee of the franchise.
2. No. In consequence, article 1270 of the Spanish Civil
Code distinguishes two kinds of (civil) fraud, the causal
fraud, which may be ground for the annulment of a
contract, and the incidental deceit, which only renders
the party who employs it liable for damages only. The
Supreme Court has held that in order that fraud may
vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente) inducement to the
making of the contract.
The record abounds with circumstances indicative of the
fact that the principal consideration, the main cause that
induced defendant to enter into the partnership
agreement with plaintiff, was the ability of plaintiff to get
the exclusive franchise to bottle and distribute for the
defendant or for the partnership. The original draft
prepared by defendants counsel was to the effect that
plaintiff obligated himself to secure a franchise for the
defendant. But if plaintiff was guilty of a false
representation, this was not the causal consideration, or
the principal inducement, that led plaintiff to enter into
the partnership agreement. On the other hand, this
supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in
exchange for the share of 30 per cent granted him in the
net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits
because he was transferring his exclusive franchise to
the partnership.
Having arrived at the conclusion that the contract cannot
be declared null and void, may the agreement be carried
out or executed? The SC finds no merit in the claim of
plaintiff that the partnership was already a fait accompli
from the time of the operation of the plant, as it is
evident from the very language of the agreement that the
parties intended that the execution of the agreement to
form a partnership was to be carried out at a later date. ,
The defendant may not be compelled against his will to
carry out the agreement nor execute the partnership
papers. The law recognizes the individuals freedom or
liberty to do an act he has promised to do, or not to do it,
as he pleases.

Dispostive Postion: With modification above indicated,

the judgment appealed from is hereby affirmed.
G.R. No. L-48930 February 23, 1944
ANTONIO VAZQUEZ, petitioner,
vs.
FRANCISCO DE BORJA, respondent.
x--------------------------------------------------------
-x
G.R. No. L-48931 February 23, 1944
FRANCISCO DE BORJA, petitioner,
vs.
ANTONIO VAZQUEZ, respondent.
OZAETA, J.:
This action was commenced in the Court of First Instance
of Manila by Francisco de Borja against Antonio Vazquez
and Fernando Busuego to recover from them jointly and
severally the total sum of P4,702.70 upon three alleged
causes of action, to wit: First, that in or about the month
of January, 1932, the defendants jointly and severally
obligated themselves to sell to the plaintiff 4,000 cavans
of palay at P2.10 per cavan, to be delivered during the
month of February, 1932, the said defendants having
subsequently received from the plaintiff in virtue of said
agreement the sum of P8,400; that the defendants
delivered to the plaintiff during the months of February,
March, and April, 1932, only 2,488 cavans of palay of
the value of P5,224.80 and refused to deliver the balance
of 1,512 cavans of the value of P3,175.20
notwithstanding repeated demands. Second, that because
of defendants' refusal to deliver to the plaintiff the said
1,512 cavans of palay within the period above
mentioned, the plaintiff suffered damages in the sum of
P1,000. And, third, that on account of the agreement
above mentioned the plaintiff delivered to the defendants
4,000 empty sacks, of which they returned to the
plaintiff only 2,490 and refused to deliver to the plaintiff
the balance of 1,510 sacks or to pay their value
amounting to P377.50; and that on account of such
refusal the plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint,
denying having entered into the contract mentioned in
the first cause of action in his own individual and
personal capacity, either solely or together with his
codefendant Fernando Busuego, and alleging that the
agreement for the purchase of 4,000 cavans of palay and
the payment of the price of P8,400 were made by the
plaintiff with and to the Natividad-Vasquez Sabani
Development Co., Inc., a corporation organized and
existing under the laws of the Philippines, of which the
defendant Antonio Vazquez was the acting manager at
the time the transaction took place. By way of
counterclaim, the said defendant alleged that he suffered
damages in the sum of P1,000 on account of the filing of
this action against him by the plaintiff with full
knowledge that the said defendant had nothing to do
whatever with any and all of the transactions mentioned
in the complaint in his own individual and personal
capacity.
The trial court rendered judgment ordering the
defendant Antonio Vazquez to pay to the plaintiff the
sum of P3,175.20 plus the sum of P377.50, with legal
interest on both sums, and absolving the defendant
Fernando Busuego (treasurer of the corporation) from
the complaint and the plaintiff from the defendant
Antonio Vazquez' counterclaim. Upon appeal to the
Court of Appeals, the latter modified that judgment by
reducing it to the total sum of P3,314.78, with legal
interest thereon and the costs. But by a subsequent
resolution upon the defendant's motion for
reconsideration, the Court of Appeals set aside its
judgment and ordered that the case be remanded to the
court of origin for further proceedings. The defendant
Vazquez, not being agreeable to that result, filed the
present petition for certiorari (G.R. No. 48930) to review
and reverse the judgment of the Court of Appeals; and
the plaintiff Francisco de Borja, excepting to the
resolution of the Court of Appeals whereby its original
judgment was set aside and the case was ordered
remanded to the court of origin for further proceedings,
filed a cross-petition for certiorari (G.R. No. 48931) to
maintain the original judgment of the Court of Appeals.
The original decision of the Court of Appeals and its
subsequent resolutions on reconsideration read as
follows:
Es hecho no controvertido que el 25 de Febrero de
1932, el demandado-apelante vendio al
demandante 4,000 cavanes de palay al precio de
P2.10 el cavan, de los cuales, dicho demandante
solamente recibio 2,583 cavanes; y que asimismo
recibio para su envase 4,000 sacos vacios. Esta
provbado que de dichos 4,000 sacos vacios
solamente se entregaron, 2,583 quedando en
poder del demandado el resto, y cuyo valor es el
de P0.24 cada uno. Presentada la demanda contra
los demandados Antonio Vazquez y Fernando
Busuego para el pago de la cantidad de P4,702.70,
con sus intereses legales desde el 1.o de marzo de
1932 hasta su completo pago y las costas, el
Juzgado de Primera Instancia de Manila el asunto
condenando a Antonio Vazquez a pagar al
demandante la cantidad de P3,175.20, mas la
cantidad de P377.50, con sus intereses legales,
absolviendo al demandado Fernando Busuego de
la demanda y al demandante de la reconvencion
de los demandados, sin especial pronunciamiento
en cuanto a las costas. De dicha decision apelo el
demandado Antonio Vazquez, apuntado como
principal error el de que el habia sido condenado
personalmente, y no la corporacion por el
representada.
Segun la preponderancia de las pruebas, la venta
hecha por Antonio Vazquez a favor de Francisco
de Borja de los 4,000 cavanes de palay fue en su
capacidad de Presidente interino y Manager de la
corporacion Natividad-Vazquez Sabani
Development Co., Inc. Asi resulta del Exh. 1, que
es la copia al carbon del recibo otorgado por el
demandado Vazquez, y cuyo original lo habia
perdido el demandante, segun el. Asi tambien
consta en los libros de la corporacion arriba
mencionada, puesto que en los mismos se ha
asentado tanto la entrada de los P8,400, precio del
palay, como su envio al gobierno en pago de los
alquileres de la Hacienda Sabani. Asi mismo lo
admitio Francisco de Borja al abogado Sr. Jacinto
Tomacruz, posterior presidente de la corporacion
sucesora en el arrendamiento de la Sabani Estate,
cuando el solicito sus buenos oficios para el cobro
del precio del palay no entregado. Asi igualmente
lo declaro el que hizo entrega de parte del palay a
Borja, Felipe Veneracion, cuyo testimonio no ha
sido refutado. Y asi se deduce de la misma
demanda, cuando se incluyo en ella a Fernando
Busuego, tesorero de la Natividad-Vazquez Sabani
Development Co., Inc.
Siendo esto asi, la principal responsable debe ser
la Natividad-Vazquez Sabani Development Co.,
Inc., que quedo insolvente y dejo de existir. El Juez
sentenciador declaro, sin embargo, al demandado
Vazquez responsable del pago de la cantidad
reclamada por su negligencia al vender los
referidos 4,000 cavanes de palay sin averiguar
antes si o no dicha cantidad existia en las bodegas
de la corporacion.
Resulta del Exh. 8 que despues de la venta de los
4,000 cavanes de palay a Francisco de Borja, el
mismo demandado vendio a Kwong Ah Phoy
1,500 cavanes al precio de P2.00 el cavan, y
decimos 'despues' porque esta ultima venta
aparece asentada despues de la primera. Segun
esto, el apelante no solamente obro con
negligencia, sino interviniendo culpa de su parte,
por lo que de acuerdo con los arts. 1102, 1103 y
1902 del Codigo Civil, el debe ser responsable
subsidiariamente del pago de la cantidad objecto
de la demanda.
En meritos de todo lo expuesto, se confirma la
decision apelada con la modificacion de que el
apelante debe pagar al apelado la suma de
P2,295.70 como valor de los 1,417 cavanes de
palay que dejo de entregar al demandante, mas la
suma de P339.08 como importe de los 1,417 sacos
vacios, que dejo de devolver, a razon de P0.24 el
saco, total P3,314.78, con sus intereses legales
desde la interposicion de la demanda y las costas
de ambas instancias.
Vista la mocion de reconsideracion de nuestra
decision de fecha 13 de Octubre de 1942, y
alegandose en la misma que cuando el apelante
vendio los 1,500 cavanes de palay a Ah Phoy, la
corporacion todavia tenia bastante existencia de
dicho grano, y no estando dicho extremo
suficientemente discutido y probado, y pudiendo
variar el resultado del asunto, dejamos sin efecto
nuestra citada decision, y ordenamos la
devolucion de la causa al Juzgado de origen para
que reciba pruebas al efecto y dicte despues la
decision correspondiente.
Upon consideration of the motion of the attorney
for the plaintiff-appellee in case CA-G.R. No.
8676, Francisco de Borja vs. Antonio Vasquez et
al., praying, for the reasons therein given, that the
resolution of December 22, 1942, be
reconsidered: Considering that said resolution
remanding the case to the lower court is for the
benefit of the plaintiff-appellee to afford him
opportunity to refute the contention of the
defendant-appellant Antonio Vazquez, motion
denied.
The action is on a contract, and the only issue pleaded
and tried is whether the plaintiff entered into the
contract with the defendant Antonio Vazquez in his
personal capacity or as manager of the Natividad-
Vazquez Sabani Development Co., Inc. The Court of
Appeals found that according to the preponderance of
the evidence "the sale made by Antonio Vazquez in favor
of Francisco de Borja of 4,000 cavans of palay was in his
capacity as acting president and manager of the
corporation Natividad-Vazquez Sabani Development Co.,
Inc." That finding of fact is final and, it resolving the only
issue involved, should be determinative of the result.
The Court of Appeals doubly erred in ordering that the
cause be remanded to the court of origin for further trial
to determine whether the corporation had sufficient
stock of palay at the time appellant sold, 1500 cavans of
palay to Kwong Ah Phoy. First, if that point was material
to the issue, it should have been proven during the trial;
and the statement of the court that it had not been
sufficiently discussed and proven was no justification for
ordering a new trial, which, by the way, neither party
had solicited but against which, on the contrary, both
parties now vehemently protest. Second, the point is, in
any event, beside the issue, and this we shall now discuss
in connection with the original judgment of the Court of
Appeals which the plaintiff cross-petitioner seeks to
maintain.
The action being on a contract, and it appearing from the
preponderance of the evidence that the party liable on
the contract is the Natividad-Vazquez Sabani
Development Co., Inc. which is not a party herein, the
complaint should have been dismissed. Counsel for the
plaintiff, in his brief as respondent, argues that altho by
the preponderance of the evidence the trial court and the
Court of Appeals found that Vazquez celebrated the
contract in his capacity as acting president of the
corporation and altho it was the latter, thru Vazquez,
with which the plaintiff had contracted and which, thru
Vazquez, had received the sum of P8,400 from Borja,
and altho that was true from the point of view of a legal
fiction, "ello no impede que tambien sea verdad lo
alegado en la demanda de que la misma persona de
Vasquez fue la que contrato con Borja y que la misma
persona de Vasquez fue quien recibio la suma de
P8,400." But such argument is invalid and insufficient to
show that the president of the corporation is personally
liable on the contract duly and lawfully entered into by
him in its behalf.
It is well known that a corporation is an artificial being
invested by law with a personality of its own, separate
and distinct from that of its stockholders and from that of
its officers who manage and run its affairs. The mere fact
that its personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the
latter personally liable on a contract duly entered into, or
for an act lawfully performed, by them for an in its
behalf. The legal fiction by which the personality of a
corporation is created is a practical reality and necessity.
Without it no corporate entities may exists and no
corporate business may be transacted. Such legal fiction
may be disregarded only when an attempt is made to use
it as a cloak to hide an unlawful or fraudulent purpose.
No such thing has been alleged or proven in this case. It
has not been alleged nor even intimated that Vazquez
personally benefited by the contract of sale in question
and that he is merely invoking the legal fiction to avoid
personal liability. Neither is it contended that he entered
into said contract for the corporation in bad faith and
with intent to defraud the plaintiff. We find no legal and
factual basis upon which to hold him liable on the
contract either principally or subsidiarily.
The trial court found him guilty of negligence in the
performance of the contract and held him personally
liable on that account. On the other hand, the Court of
Appeals found that he "no solamente obro con
negligencia, sino interveniendo culpa de su parte, por lo
que de acuerdo con los arts. 1102, 1103 y 1902 del
Codigo Civil, el debe ser responsable subsidiariamente
del pago de la cantidad objeto de la demanda." We think
both the trial court and the Court of Appeals erred in law
in so holding. They have manifestly failed to distinguish a
contractual from an extracontractual obligation, or an
obligation arising from contract from an obligation
arising from culpa aquiliana. The fault and negligence
referred to in articles 1101-1104 of the Civil Code are
those incidental to the fulfillment or nonfullfillment of a
contractual obligation; while the fault or negligence
referred to in article 1902 is the culpa aquiliana of the
civil law, homologous but not identical to tort of the
common law, which gives rise to an obligation
independently of any contract. (Cf. Manila R.R.
Co. vs. Cia. Trasatlantica, 38 Phil., 875, 887-890;
Cangco vs. Manila R.R. Co., 38 Phil. 768.) The fact that
the corporation, acting thru Vazquez as its manager, was
guilty of negligence in the fulfillment of the contract, did
not make Vazquez principally or even subsidiarily liable
for such negligence. Since it was the corporation's
contract, its nonfulfillment, whether due to negligence or
fault or to any other cause, made the corporation and not
its agent liable.
On the other hand if independently of the contract
Vazquez by his fault or negligence cause damaged to the
plaintiff, he would be liable to the latter under article
1902 of the Civil Code. But then the plaintiff's cause of
action should be based on culpa aquiliana and not on the
contract alleged in his complaint herein; and Vazquez'
liability would be principal and not merely subsidiary, as
the Court of Appeals has erroneously held. No such cause
of action was alleged in the complaint or tried by express
or implied consent of the parties by virtue of section 4 of
Rule 17. Hence the trial court had no jurisdiction over
the issue and could not adjudicate upon it
(Reyes vs. Diaz, G.R. No. 48754.) Consequently it was
error for the Court of Appeals to remand the case to the
trial court to try and decide such issue.
It only remains for us to consider petitioner's second
assignment of error referring to the lower courts' refusal
to entertain his counterclaim for damages against the
respondent Borja arising from the bringing of this action.
The lower courts having sustained plaintiff's action. The
finding of the Court of Appeals that according to the
preponderance of the evidence the defendant Vazquez
celebrated the contract not in his personal capacity but
as acting president and manager of the corporation, does
not warrant his contention that the suit against him is
malicious and tortious; and since we have to decide
defendant's counterclaim upon the facts found by the
Court of Appeals, we find no sufficient basis upon which
to sustain said counterclaim. Indeed, we feel that a a
matter of moral justice we ought to state here that the
indignant attitude adopted by the defendant towards the
plaintiff for having brought this action against him is in
our estimation not wholly right. Altho from the legal
point of view he was not personally liable for the
fulfillment of the contract entered into by him on behalf
of the corporation of which he was the acting president
and manager, we think it was his moral duty towards the
party with whom he contracted in said capacity to see to
it that the corporation represented by him fulfilled the
contract by delivering the palay it had sold, the price of
which it had already received. Recreant to such duty as a
moral person, he has no legitimate cause for indignation.
We feel that under the circumstances he not only has no
cause of action against the plaintiff for damages but is
not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the
complaint is hereby dismissed, without any finding as to
costs.
Yulo, C.J., Moran, Horrilleno and Bocobo, JJ., concur.
Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly
admitted in the majority opinion, the plaintiff is entitled
to a judgment against the defendant. The latter, as acting
president and manager of Natividad-Vazquez Sabani
Development Co., Inc., and with full knowledge of the
then insolvent status of his company, agreed to sell to the
plaintiff 4,000 cavans of palay. Notwithstanding the
receipt from the plaintiff of the full purchase price, the
defendant delivered only 2,488 cavans and failed and
refused to deliver the remaining 1,512 cavans and failed
and refused to deliver the remaining 1,512 cavans and a
quantity of empty sacks, or their value. Such failure
resulted, according to the Court of First Instance of
Manila and the Court of Appeals, from his fault or
negligence.
It is true that the cause of action made out by the
complaint is technically based on a contract between the
plaintiff and Natividad-Vazquez Sabani Development
Co., Inc. which is not a party to this case. Nevertheless,
inasmuch as it was proven at the trial that the defendant
was guilty of fault in that he prevented the performance
of the plaintiff's contract and also of negligence
bordering on fraud which cause damage to the plaintiff,
the error of procedure should not be a hindrance to the
rendition of a decision in accordance with the evidence
actually introduced by the parties, especially when in
such a situation we may order the necessary amendment
of the pleadings, or even consider them correspondingly
amended.
As already stated, the corporation of which the defendant
was acting president and manager was, at the time he
made the sale of the plaintiff, known to him to be
insolvent. As a matter of fact, said corporation was soon
thereafter dissolved. There is admitted damage on the
part of the plaintiff, proven to have been inflicted by
reason of the fault or negligence of the defendant. In the
interest of simple justice and to avoid multiplicity of suits
I am therefore impelled to consider the present action as
one based on fault or negligence and to sentence the
defendant accordingly. Otherwise, he would be allowed
to profit by his own wrong under the protective cover of
the corporate existence of the company he represented. It
cannot be pretended that any advantage under the sale
inured to the benefit of Natividad-Vazquez Sabani
Development Co., Inc. and not of the defendant
personally, since the latter undoubtedly owned a corporations contract, its non fulfillment, whether due
considerable part of its capital. to negligence or fault or to any other cause, made the
corporation and not its agent liable.
Digest: 74 Phil 560 Civil Law Torts and Damages JUSTICE PARAS Dissenting :
Distinction of Liability of Employers Under Article 2180
and Their Liability for Breach of Contract Vasquez as president of NVSD is liable for damages.
Vasquez, as acting president and manager of NVSD, and
In January 1932, Francisco De Borja entered into a with full knowledge of the then insolvent status of his
contract of sale with the NVSD (Natividad-Vasquez company, agreed to sell to De Borja 4,000 cavans of
Sabani Development Co., Inc.). The subject of the sale palay. Further, NVSD was soon thereafter dissolved.
was 4,000 cavans of rice valued at Php2.10 per cavan.
On behalf of the company, the contract was executed by
Antonio Vasquez as the companys acting president.
NVSD. only delivered 2,488 cavans and failed and
refused despite demand to deliver the rest hence De Borja
incurred damages (apparently, NVSD was insolvent). He
then sue Vasquez for payment of damages.
ISSUE: Whether or not Vasquez is liable for damages.
HELD: No. Vasquez is not party to the contract as it was
NVSD which De Borja contracted with. It is well known
that a corporation is an artificial being invested by law
with a personality of its own, separate and distinct from
that of its stockholders and from that of its officers who
manage and run its affairs. The mere fact that its
personality is owing to a legal fiction and that it
necessarily has to act thru its agents, does not make the
latter personally liable on a contract duly entered into, or
for an act lawfully performed, by them for an in its
behalf.
The fact that the corporation, acting thru Vazquez as its
manager, was guilty of negligence in the fulfillment of
the contract did not make Vazquez principally or even
subsidiarily liable for such negligence. Since it was the
 This is a petition for review on certiorari of the decision
dated January 30, 1987 of the Court of Appeals in CA-
GR Nos. SP-07945-50 entitled, "Cetus Development, Inc.,
Petitioner vs. Hon. Conrado T. Limcaoco, Presiding Judge,
G.R. No. 77648 August 7, 1989 Regional Trial Court of Manila, Branch Ederlina Navalta,
CETUS DEVELOPMENT, INC., petitioner, et. al., respondents.
vs.
COURT OF APPEALS and ONG TENG, respondents. The following facts appear in the records:
G.R. No. 77647 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner, The private respondents, Ederlina Navalta, Ong Teng,
vs. Jose Liwanag, Leandro Canlas, Victoria Sudario, and
COURT OF APPEALS and EDERLINA Flora Nagbuya were the lessees of the premises located at
NAVALTA, respondents. No. 512 Quezon Boulevard, Quiapo, Manila, originally
G.R. No. 77649 August 7, 1989 owned by the Susana Realty. These individual verbal
CETUS DEVELOPMENT, INC., petitioner, leases were on a month-to month basis at the following
vs. rates: Ederlina Navalta at the rate of P80.50; Ong Teng at
COURT OF APPEALS and JOSE LIWANAG, respondents. the rate of P96.10; Jose Liwanag at the rate of P40.35;
G.R. No. 77650 August 7, 1989 Leandro Canlas at the rate of P80.55; Victoria Sudario at
CETUS DEVELOPMENT, INC., petitioner, the rate of P50.45 and Flora Nagbuya at the rate of
vs. P80.55. The payments of the rentals were paid by the
COURT OF APPEALS and LEANDRO lessees to a collector of the Susana Realty who went to the
CANLAS, respondents. premises monthly.
G.R. No. 77651 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner, Sometime in March, 1984, the Susana Realty sold the
vs. leased premises to the petitioner, Cetus Development,
COURT OF APPEALS and VICTORIA Inc., a corporation duly organized and existing under the
SUDARIO respondents. laws of the Philippines. From April to June, 1984, the
G.R. No.77652 August 7, 1989 private respondents continued to pay their monthly
CETUS DEVELOPMENT, INC., petitioner, rentals to a collector sent by the petitioner. In the
vs. succeeding months of July, August and September 1984,
COURT OF APPEALS and FLORA NAGBUYA respondents. the respondents failed to pay their monthly individual
rentals as no collector came.
MEDIALDEA, J.:
On October 9, 1984, the petitioner sent a letter to each
of the private respondents demanding that they vacate
the subject premises and to pay the back rentals for the
months of July, August and September, 1984, within
fifteen (15) days from the receipt thereof. Immediately
upon the receipt of the said demand letters on October
10, 1984, the private respondents paid their respective
arrearages in rent which were accepted by the petitioner
subject to the unilateral condition that the acceptance
was without prejudice to the filing of an ejectment suit.
Subsequent monthly rental payments were likewise
accepted by the petitioner under the same condition.
For failure of the private respondents to vacate the
premises as demanded in the letter dated October 9,
1984, the petitioner filed with the Metropolitan Trial
Court of Manila complaints for ejectment against the
manner, as follows: (1) 105972-CV, against Ederlina
Navalta (2) 105973-CV, against Jose Liwanag; (3)
105974-CV, against Flora Nagbuya; (4) 105975-CV,
against Leandro Canlas; (5) 105976-CV, against Victoria
Sudario and (6) 105977-CV, against Ong Teng.
In their respective answers, the six (6) private
respondents interposed a common defense. They claimed
that since the occupancy of the premises they paid their
monthly rental regularly through a collector of the
lessor; that their non-payment of the rentals for the
months of July, August and September, 1984, was due to
the failure of the petitioner (as the new owner) to send
its collector; that they were at a loss as to where they
should pay their rentals; that sometime later, one of the
respondents called the office of the petitioner to inquire
as to where they would make such payments and he was
told that a collector would be sent to receive the same;
that no collector was ever sent by the petitioner; and that
instead they received a uniform demand letter dated
October 9, 1984.
The private respondents, thru counsel, later filed a
motion for consolidation of the six cases and as a result
thereof, the said cases were consolidated in the
Metropolitan Trial Court of Manila, Branch XII, presided
over by Judge Eduardo S. Quintos, Jr. On June 4, 1985,
the trial court rendered its decision dismissing the six
cases, a pertinent portion of which reads, as follows:
The records of this case show that at the
time of the filing of this complaint, the
rentals had all been paid. Hence, the
plaintiff cannot eject the defendants from
the leased premises, because at the time
these cases were instituted, there are no
rentals in arrears.
The acceptance of the back rental by the
plaintiff before the filing of the complaint,
as in these case, the alleged rental
arrearages were paid immediately after
receipt of the demand letter, removes its
cause of action in an unlawful detainer
case, even if the acceptance was without
prejudice.
x x x.
Furthermore, the court has observed that
the account involved which constitutes the
 rentals of the tenants are relatively small to Aggrieved by the decision of the Court of Appeals,
which the ejectment may not lie on petitioner now comes to Us in this petition, assigning the
grounds of equity and for humanitarian following errors:
reasons.
ASSIGNMENT OF ERRORS
Defendants' counterclaim for litigation
expenses has no legal and factual basis for I
assessing the same against plaintiff.
RESPONDENT COURT OF APPEALS
WHEREFORE, judgment is hereby rendered COMMITTED A GRAVE ABUSE OF
dismissing these cases, without DISCRETION, AMOUNTING TO LACK OF
pronouncement as to costs. JURISDICTION, WHEN IT ERRED IN
HOLDING THAT THE CAUSE OF ACTION
Defendants' counterclaim is likewise FOR UNLAWFUL DETAINER IN THESE
dismissed. CASES DID NOT EXIST WHEN THE
COMPLAINTS WERE FILED BECAUSE
SO ORDERED. (pp. 32-33, Rollo, G.R. No. PRIVATE RESPONDENTS TENDERED, AND
77647) PETITIONER ACCEPTED, THE PAYMENT OF
THE THREE (3) MONTHS RENTAL IN
Not satisfied with the decision of the Metropolitan Trial ARREARS WITHIN THE FIFTEEN (15) DAY
Court, the petitioner appealed to the Regional Trial Court PERIOD FROM PRIVATE RESPONDENTS'
of Manila and the same was assigned to Branch IX RECEIPT OF PETITIONER'S DEMAND
thereof presided over by Judge Conrado T. Limcaoco LETTERS TO VACATE THE SUBJECT
(now Associate Justice of the Court of PREMISES AND TO PAY THE RENTALS IN
Appeals).lwph1.t In its decision dated November 19, ARREARS.
1985, the Regional Trial Court dismissed the appeal for
lack of merit. II

In due time, a petition for review of the decision of the RESPONDENT COURT OF APPEALS
Regional Trial Court was filed by the petitioner with the COMMITTED A GRAVEABUSE OF
Court of Appeals. Said petition was dismissed on January DISCRETION, AMOUNTING TO LACK OF
30, 1987, for lack of merit. JURISDICTION COMMITTED A GRAVE
WHEN IT ERRED IN AFFIRMING THE
DISMISSAL OF THE COMPLAINTS IN
 THESE CASES NOTWITHSTANDING THE
EXISTENCE OF VALID GROUNDS FOR THE
JUDICIAL EJECTMENT OF PRIVATE
RESPONDENT.
III
RESPONDENT COURT OF APPEALS
COMMITTED A GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF
JURISDICTION, WHEN IT ERRED IN
HOLDING THAT THESE CASES ARE
CLASSIC EXAMPLES TO CIRCUMVENT THE
RENT CONTROL LAW. (pp. 164-
165, Rollo, G.R. No. 77647)
The Court of Appeals defined the basic issue in this case
as follows: whether or not there exists a cause of action
when the complaints for unlawful detainer were filed
considering the fact that upon demand by petitioner
from private respondents for payment of their back
rentals, the latter immediately tendered payment which
was accepted by petitioner.
In holding that there was no cause of action, the
respondent Court relied on Section 2, Rule 70 of the
Rules of Court, which provides:
Sec. 2. Landlord to proceed against tenant
only after demand. No landlord or his
legal representative or assign, shall be such
action against a tenant for failure to pay
rent due or to comply with the conditions
of his lease, unless the tenant shall have
failed to pay such rent or comply with such
conditions for a period of fifteen (15) days
or five (5) days in case of building, after
demand therefor, made upon qqqm
personally, or by serving written notice of
such demand upon the person found on the
premises, or by posting such notice on the
premises if no persons be found thereon.
It interpreted the said provision as follows:
.....the right to bring an action of ejectment
or unlawful detainer must be counted from
the time the defendants failed to pay rent
after the demand therefor. It is not the
failure per se to pay rent as agreed in the
contract, but the failure to pay the rent
after a demand therefor is made, that
entitles the lessor to bring an action for
unlawful detainer. In other words, the
demand contemplated by the above-quoted
provision is not a demand to vacate, but a
demand made by the landlord upon his
tenant for the latter to pay the rent due if
the tenant fails to comply with the said
demand with the period provided, his
possession becomes unlawful and the
landlord may then bring the action for
ejectment. (p. 28, , G.R. No. 77647)
We hold that the demand required and contemplated in
Section 2, aforequoted, is a jurisdictional requirement for
the purpose of bringing an unlawful detainer suit for
failure to pay rent or comply with the conditions of lease.
It partakes of an extrajudicial remedy that must be
pursued before resorting for judicial action so much so
that when there is full compliance with the demand,
there arises no necessity for court action.
As to whether this demand is merely a demand to pay
rent or comply with the conditions of the lease or also a
demand to vacate, the answer can be gleaned from said
Section 2. This section presupposes the existence of a
cause of action for unlawful detainer as it speaks of
"failure to pay rent due or comply with the conditions of
the lease." The existence of said cause of action gives the
lessor the right under Article 1659 of the New Civil Code
to ask for the rescission of the contract of lease and
indemnification for damages, or only the latter, allowing
the contract to remain in force. Accordingly, if the option
chosen is for specific performance, then the demand
referred to is obviously to pay rent or to comply with the
conditions of the lease violated. However, if rescission is
the option chosen, the demand must be for the lessee to
pay rents or to comply with the conditions of the lease
and to vacate. Accordingly, the rule that has been
followed in our jurisprudence where rescission is clearly
the option taken, is that both demands to pay rent and to
vacate are necessary to make a lessee a deforciant in
order that an ejectment suit may be filed (Casilan et al.
vs. Tomassi, L-16574, February 28,1964, 10 SCRA 261;
Rickards vs. Gonzales, 109 Phil. 423, Dikit vs. Icasiano,
89 Phil. 44).lwph1.t
Thus, for the purpose of bringing an ejectment suit, two
requisites must concur, namely: (1) there must be failure
to pay rent or comply with the conditions of the lease
and (2) there must be demand both to pay or to comply
and vacate within the periods specified in Section 2, Rule
70, namely 15 days in case of lands and 5 days in case of
buildings. The first requisite refers to the existence of the
cause of action for unlawful detainer while the second
refers to the jurisdictional requirement of demand in
order that said cause of action may be pursued.
It is very clear that in the case at bar, no cause of action
for ejectment has accrued. There was no failure yet on
the part of private respondents to pay rents for three
consecutive months. As the terms of the individual verbal
leases which were on a month-to-month basis were not
alleged and proved, the general rule on necessity of
demand applies, to wit: there is default in the fulfillment
of an obligation when the creditor demands payment at
the maturity of the obligation or at anytime thereafter.
This is explicit in Article 1169, New Civil Code which
provides that "(t)hose obliged to deliver or to do
something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation." Petitioner has not shown
that its case falls on any of the following exceptions
where demand is not required: (a) when the obligation
or the law so declares; (b) when from the nature and
circumstances of the obligation it can be inferred that
time is of the essence of the contract; and (c) when
demand would be useless, as when the obligor has
rendered it beyond his power to perform.
The demand required in Article 1169 of the Civil Code
may be in any form, provided that it can be proved. The
proof of this demand lies upon the creditor. Without
such demand, oral or written, the effects of default do
not arise. This demand is different from the demand
required under Section 2, Rule 70, which is merely a
jurisdictional requirement before an existing cause of
action may be pursued.
The facts on record fail to show proof that petitioner
demanded the payment of the rentals when the
obligation matured. Coupled with the fact that no
collector was sent as previously done in the past, the
private respondents cannot be held guilty of mora
solvendi or delay in the payment of rentals. Thus, when
petitioner first demanded the payment of the 3-month
arrearages and private respondents lost no time in
making tender and payment, which petitioner accepted,
no cause of action for ejectment accrued. Hence, its
demand to vacate was premature as it was an exercise of
a non-existing right to rescind.
In contradistinction, where the right of rescission exists,
payment of the arrearages in rental after the demand to
pay and to vacate under Section 2, Rule 70 does not
extinguish the cause of action for ejectment as the lessor
is not only entitled to recover the unpaid rents but also to
eject the lessee.
Petitioner correctly argues that acceptance of tendered
payment does not constitute a waiver of the cause of
action for ejectment especially when accepted with the
written condition that it was "without prejudice to the
filing of an ejectment suit". Indeed, it is illogical or
ridiculous not to accept the tender of payment of rentals
merely to preserve the right to file an action for unlawful
detainer. However, this line of argument presupposes
that a cause of action for ejectment has already accrued,
which is not true in the instant case.
Petitioner likewise claims that its failure to send a
collector to collect the rentals cannot be considered a
valid defense for the reason that sending a collector is
not one of the obligations of the lessor under Article
1654. While it is true that a lessor is not obligated to
send a collector, it has been duly established that it has
been customary for private respondents to pay the
rentals through a collector. Besides Article 1257, New
Civil Code provides that where no agreement has been
designated for the payment of the rentals, the place of
payment is at the domicile of the defendants. Hence, it
could not be said that they were in default in the
payment of their rentals as the delay in paying the same
was not imputable to them. Rather, it was attributable to
petitioner's omission or neglect to collect.
Petitioner also argues that neither is its refused to accept
the rentals a defense for non-payment as Article 1256
provides that "[i]f the creditor to whom the tender of
payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility
by the consignation of the thing due." It bears emphasis
that in this case there was no unjustified refusal on the
part of petitioner or non-acceptance without reason that
would constitute mora accipiendi and warrant
consignation. There was simply lack of demand for
payment of the rentals.
In sum, We hold that respondent Court of Appeals did
not commit grave abuse of discretion amounting to lack
of jurisdiction in its conclusion affirming the trial court's
decision dismissing petitioner's complaint for lack of
cause of action. We do not agree, however, with the
reasons relied upon.
ACCORDINGLY, the petition for review on certiorari is
hereby DENIED for lack of merit and the decision dated
January 30, 1987 of respondent Court of Appeals is
hereby AFFIRMED.
SO ORDERED.
Narvasa, Cruz, Gancayco and Gri;o-Aquino JJ., concur.
Digest:
Article 1169 of the Civil Code
FACTS: Private respondents were the lessees of the
premises originally owned by Susana Realty. The
payments of the rentals were paid by them to a collector
of the Susana Realty who went the premises
monthly. Susana Realty, however, sold the property to
petitioner Cetus Development, Inc. The private
respondents then continued to pay their monthly rentals
to a collector sent by the petitioner. In succeeding
months, for three months, the private respondents failed
to pay their rentals because no collector came. They then
contacted the petitioner over the telephone as to where
they should pay their rentals. The petitioner then told
them that they would send a collector to collect the
rentals. Private respondents waited but no collector
came. Petitioner then sent a letter to each of the private
respondents demanding that they vacate the subject
premises and to pay their arrearages within 15 days
from the receipt thereof. With this, private respondents
immediately upon the receipt of such demand, tendered
their payments which were accepted by the petitioner
with the condition that the acceptance was without
prejudice to the filing of ejectment suit. For failure of the
private respondents to vacate the premises as demanded,
petitioner filed an ejectment suit against them.
ISSUE:
Whether or not there was a delay of payment
by the private respondents to the petitioner considering
that upon receipt of the demand letter, they immediately
tendered their payments.
HELD:
No. There was no failure yet on the part of the
private respondents to pay rents for three consecutive
months. It has been duly established that it has been
customary for private respondents to pay their rentals
through a collector sent by the lessor.
Article 1169 of the Civil Code provides that
those obliged to deliver or to do something incur in delay
from the time the oblige judicially or extrajudicially
demands from them the fulfillment of their obligation.
The moment the petitioner extrajudicially
demand the payment of the rentals, private respondents
immediately answered their obligation by paying their
arrearages of rentals to the petitioner.

[G.R. No. 137909. December 11, 2003]
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,
vs. Spouses BERNARDINO NAGUIAT and MARIA
PAULINA GERONA-NAGUIAT, respondents.
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price
stipulated in a deed of sale does not ipso facto grant the
seller the right to rescind the agreement.Unless otherwise
stipulated by the parties, rescission is allowed only when
the breach of the contract is substantial and fundamental
to the fulfillment of the obligation.
The Case
Before us is a Petition for Review[1] under Rule 45 of
the Rules of Court, seeking to nullify the October 31,
1997 Decision[2] and the February 23,
1999 Resolution[3] of the Court of Appeals (CA) in CA-GR
CV No. 51067. The assailed Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision
of the Regional Trial Court is hereby AFFIRMED.[4]
The assailed Resolution denied petitioners Motion for
Reconsideration.
The Facts
The facts of the case are summarized by the CA as
follows:
Eulalio Mistica, predecessor-in-interest of herein
[petitioner], is the owner of a parcel of land located at
Malhacan, Meycauayan, Bulacan. A portion thereof was
leased to [Respondent Bernardino Naguiat] sometime in
1970.
On 5 April 1979, Eulalio Mistica entered into a contract
to sell with [Respondent Bernardino Naguiat] over a
portion of the aforementioned lot containing an area of
200 square meters. This agreement was reduced to
writing in a document entitled Kasulatan sa Pagbibilihan
which reads as follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at
naghahawak ng isang lagay na lupa na nasa Nayon ng
Malhacan, Bayan ng Meycauayan, Lalawigan ng
Bulacan, na ang kabuuan sukat at mga kahangga
nito gaya ng sumusunod:
xxxxxxxxx
Na alang-alang sa halagang DALAWANG PUNG LIBONG
PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay
nakipagkasundo ng kanyang ipagbibili ang isang bahagi
o sukat na DALAWANG DAAN (200) METROS
PARISUKAT, sa lupang nabanggit sa itaas, na ang mga
kahangga nito ay gaya ng sumusunod:
xxxxxxxxx
Na magbibigay ng paunang bayad ang BUMIBILI SA
NAGBIBILI na halagang DALAWANG LIBONG PISO
(P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang
kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG
PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng
BUM[I]BILI sa loob ng Sampung (10) taon, na
magsisimula sa araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng
panahon pinagkasunduan, an[g] BUMIBILI ay
magbabayad ng pakinabang o interes ng 12% isang taon,
sa taon nilakaran hanggang sa itoy mabayaran tuluyan
ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang
Panig ang kasulatang ito, ngayon ika 5 ng Abril, 1979, sa
Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed) (signed)
BERNARDINO NAGUIAT EULALIO
MISTICA
Bumibili Nagbibili
Pursuant to said agreement, [Respondent Bernardino
Naguiat] gave a downpayment of P2,000.00. He made
another partial payment of P1,000.00 on 7 February
1980. He failed to make any payments thereafter. Eulalio
Mistica died sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for
rescission alleging inter alia: that the failure and refusal
of [respondents] to pay the balance of the purchase price
constitutes a violation of the contract which entitles her
to rescind the same; that [respondents] have been in
possession of the subject portion and they should be
ordered to vacate and surrender possession of the same
to [petitioner] ; that the reasonable amount of rental for
the subject land is P200.00 a month; that on account of
the unjustified actuations of [respondents], [petitioner]
has been constrained to litigate where she incurred
expenses for attorneys fees and litigation expenses in the
sum of P20,000.00.
In their answer and amended answer, [respondents]
contended that the contract cannot be rescinded on the
ground that it clearly stipulates that in case of failure to
pay the balance as stipulated, a yearly interest of 12% is
to be paid. [Respondent Bernardino Naguiat] likewise
alleged that sometime in October 1986, during the wake
of the late Eulalio Mistica, he offered to pay the
remaining balance to [petitioner] but the latter refused
and hence, there is no breach or violation committed by
them and no damages could yet be incurred by the late
Eulalio Mistica, his heirs or assigns pursuant to the said
document; that he is presently the owner in fee simple of
the subject lot having acquired the same by virtue of a
Free Patent Title duly awarded to him by the Bureau of
Lands; and that his title and ownership had already
become indefeasible and incontrovertible. As
counterclaim, [respondents] pray for moral damages in
the amount of P50,000.00; exemplary damages in the
amount of P30,000.00; attorneys fees in the amount
of P10,000.00 and other litigation expenses.
On 8 July 1992, [respondents] also filed a motion to
dismiss which was denied by the court on 29 July
1992. The motion for reconsideration was likewise
denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27
January 1995 rendered the now assailed judgment, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered:
1. Dismissing the complaint and ordering the [petitioner]
to pay the [respondents] attorneys fee in the amount
of P10,000.00 and costs of the suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of
Eulalio Mistica the balance of the
purchase price in the amount
of P17,000.00, with interest thereon
at the rate of 12% per annum
computed from April 5, 1989 until
full payment is made, subject to the
application of the consigned amount
to such payment;
b. To return to [petitioner] and the heirs
of Eulalio Mistica the extra area of
58 square meters from the land
covered by OCT No. 4917 (M), the
corresponding price therefor based
on the prevailing market price
thereof.[5] (Citations omitted)
CAs Decision
Disallowing rescission, the CA held that respondents
did not breach the Contract of Sale. It explained that the
conclusion of the ten-year period was not a resolutory
term, because the Contract had stipulated that payment -
- with interest of 12 percent -- could still be made if
respondents failed to pay within the period. According to
the appellate court, petitioner did not disprove the
allegation of respondents that they had tendered
payment of the balance of the purchase price during her
husbands funeral, which was well within the ten-year
period.
Moreover, rescission would be unjust to respondents,
because they had already transferred the land title to
their names. The proper recourse, the CA held, was to
order them to pay the balance of the purchase price, with
12 percent interest.
As to the matter of the extra 58 square meters, the
CA held that its reconveyance was no longer feasible,
because it had been included in the title issued to
them. The appellate court ruled that the only remedy
available was to order them to pay petitioner the fair
market value of the usurped portion.
Hence, this Petition.[6]
Issues
In her Memorandum,[7] petitioner raises the
following issues:
1. Whether or not the Honorable Court of
Appeals erred in the application of Art.
1191 of the New Civil Code, as it ruled that
there is no breach of obligation inspite of
the lapse of the stipulated period and the
failure of the private respondents to pay.
2. Whether or not the Honorable Court of
Appeals [e]rred in ruling that rescission of
the contract is no longer feasible
considering that a certificate of title had
been issued in favor of the private
respondents.
3. Whether or not the Honorable Court of
Appeals erred in ruling that since the 58 sq.
m. portion in question is covered by a
certificate of title in the names of private
respondents reconveyance is no longer
feasible and proper.[8]
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the
Contract under Article 1191 of the Civil Code, because
respondents committed a substantial breach when they
did not pay the balance of the purchase price within the
ten-year period. She further avers that the proviso on the
payment of interest did not extend the period to pay. To
interpret it in that way would make the obligation purely
potestative and, thus, void under Article 1182 of the Civil
Code.
We disagree. The transaction between Eulalio Mistica
and respondents, as evidenced by the Kasulatan, was
clearly a Contract of Sale. A deed of sale is considered
absolute in nature when there is neither a stipulation in
the deed that title to the property sold is reserved to the
seller until the full payment of the price; nor a stipulation
giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed
period.[9]
In a contract of sale, the remedy of an unpaid seller
is either specific performance or rescission.[10] Under
Article 1191 of the Civil Code, the right to rescind an
obligation is predicated on the violation of the reciprocity
between parties, brought about by a breach of faith by
one of them.[11]Rescission, however, is allowed only
where the breach is substantial and fundamental to the
fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay
the balance of the purchase price within ten years from
the execution of the Deed did not amount to a substantial
breach. In the Kasulatan, it was stipulated that payment
could be made even after ten years from the execution of
the Contract, provided the vendee paid 12 percent
interest. The stipulations of the contract constitute the
law between the parties; thus, courts have no alternative
but to enforce them as agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year
period, petitioner and her deceased husband never made
any demand for the balance of the purchase
price. Petitioner even refused the payment tendered by
respondents during her husbands funeral, thus showing
that she was not exactly blameless for the lapse of the
ten-year period. Had she accepted the tender, payment
would have been made well within the agreed period.
If petitioner would like to impress upon this Court
that the parties intended otherwise, she has to show
competent proof to support her contention.Instead, she
argues that the period cannot be extended beyond ten
years, because to do so would convert the buyers
obligation to a purely potestative obligation that would
annul the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code
prohibits purely potestative, suspensive, conditional
obligations that depend on the whims of the debtor,
because such obligations are usually not meant to be
fulfilled.[14] Indeed, to allow the fulfillment of
conditions to depend exclusively on the debtors will
would be to sanction illusory
obligations. [15] The Kasulatan does not allow such
thing. First, nowhere is it stated in the Deed that
payment of the purchase price is dependent upon
whether respondents want to pay it or not. Second, the
fact that they already made partial payment thereof only
shows that the parties intended to be bound by
the Kasulatan.
Both the trial and the appellate courts arrived at this
finding. Well-settled is the rule that findings of fact by
the CA are generally binding upon this Court and will
not be disturbed on appeal, especially when they are the
same as those of the trial court.[16] Petitioner has not
given us sufficient reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case
would be unjust to respondents, because a certificate of
title had already been issued in their names. Petitioner
nonetheless argues that the Court is still empowered to
order rescission.
We clarify. The issuance of a certificate of title in
favor of respondents does not determine whether
petitioner is entitled to rescission. It is a fundamental
principle in land registration that such title serves merely
as an evidence of an indefeasible and incontrovertible
title to the property in favor of the person whose name
appears therein.[17]
While a review of the decree of registration is no
longer possible after the expiration of the one-year
period from entry, an equitable remedy is still available
to those wrongfully deprived of their property.[18] A
certificate of title cannot be subject to collateral attack husband, because such action is tantamount to allowing
and can only be altered, modified or canceled in direct a collateral attack on the title.
proceedings in accordance with law.[19] Hence, the CA
It appears that an action for cancellation/annulment
correctly held that the propriety of the issuance of title in
the name of respondents was an issue that was not of patent and title and for reversion was already filed by
the State in favor of petitioner and the heirs of her
determinable in these proceedings.
husband.[24] Hence, there is no need in this case to pass
upon the right of respondents to the registration of the
subject land under their names. For the same reason,
Third Issue: there is no necessity to order them to pay petitioner the
Reconveyance of the Portion Importunately Included fair market value of the extra 58-square meter lot
importunately included in the title.
Petitioner argues that it would be reasonable for WHEREFORE, the assailed Decision and Resolution
respondents to pay her the value of the lot, because the are AFFIRMED with the MODIFICATION that the
CA erred in ruling that the reconveyance of the extra 58- payment for the extra 58-square meter lot included in
square meter lot, which had been included in the respondents title is DELETED.
certificate of title issued to them, was no longer feasible.
SO ORDERED.
In principle, we agree with petitioner. Registration
has never been a mode of acquiring ownership over Davide, Jr., C.J., (Chairman), Ynares-Santiago,
immovable property, because it does not create or vest Carpio, and Azcuna, JJ., concur.
title, but merely confirms one already created or
vested.[20] Registration does not give holders any better
title than what they actually have.[21] Land erroneously
included in the certificate of title of another must be
reconveyed in favor of its true and actual owner.[22]
Section 48 of Presidential Decree 1529, however,
provides that the certificate of title shall not be subject to
collateral attack, alteration, modification, or cancellation
except in a direct proceeding.[23] The cancellation or
removal of the extra portion from the title of respondents
is not permissible in an action for rescission of the
contract of sale between them and petitioners late
 Vda. De Mistica vs. Naguiat Civil Code prohibits purely potestative, suspensive,
418 SCRA 73 conditional obligation that depend on the whims of the
Art. 1182. Potestative Condition debtor. Nowhere in the deed that payment of purchase
price is dependent whether respondents want to pay it or
Issue/Scope not, the fact that they already made partial payment
Potestative Condition under Art. 1182 in relation to Art. shows that parties intended to be bound by the Kasulatan
1191 of Civil Code

Facts
Predecessor-in-interest of Petitioner and herein
Defendants entered into a contract to sell in which the
latter prayed the initial payment and undertake to pay
the remaining by installment within 10 years subject to
12% interest per annum
Petitioner filed a complaint for rescission alleging failure
and refusal of Defendants to pay the balance constitutes
a violation of the contract which entitles her to rescind
the same
Petitioner argues that period for performance of
obligation cannot be extended to 10 years because to do
so would convert the obligation to purely potestative

Held
Under Art. 1191 of Civil Code, the right to rescind an
obligation is predicated on violation between parties
brought about by breach of faith by one of them.
Rescission, however, is allowed only when the breach is
substantial and fundamental to the fulfillment of the
obligation
In this case, no substantial breach in the Kasulatan, it
was stipulated that payment could be made even after 10
years from execution of contract, provided they will pay
the 12% interest
G.R. No. 147950 December 11, 2003
CALIFORNIA BUS LINES, INC., petitioner,
vs.
STATE INVESTMENT HOUSE, INC., respondent.
DECISION
QUISUMBING, J.:
In this petition for review, California Bus Lines, Inc.,
assails the decision,1 dated April 17, 2001, of the Court
of Appeals in CA-G.R. CV No. 52667, reversing the
judgment2 , dated June 3, 1993, of the Regional Trial
Court of Manila, Branch 13, in Civil Case No. 84-28505
entitled State Investment House, Inc. v. California Bus
Lines, Inc., for collection of a sum of money. The Court of
Appeals held petitioner California Bus Lines, Inc., liable
for the value of five promissory notes assigned to
respondent State Investment House, Inc.
The facts, as culled from the records, are as follows:
Sometime in 1979, Delta Motors CorporationM.A.N.
Division (Delta) applied for financial assistance from
respondent State Investment House, Inc. (hereafter SIHI),
a domestic corporation engaged in the business of quasi-
banking. SIHI agreed to extend a credit line to Delta for
25,000,000.00 in three separate credit agreements
dated May 11, June 19, and August 22, 1979.3 On
several occasions, Delta availed of the credit line by
discounting with SIHI some of its receivables, which
evidence actual sales of Deltas vehicles. Delta eventually
became indebted to SIHI to the tune of 24,010,269.32.4
Meanwhile, from April 1979 to May 1980, petitioner
California Bus Lines, Inc. (hereafter CBLI), purchased on
installment basis 35 units of M.A.N. Diesel Buses and two
(2) units of M.A.N. Diesel Conversion Engines from
Delta. To secure the payment of the purchase price of the
35 buses, CBLI and its president, Mr. Dionisio O. Llamas,
executed sixteen (16) promissory notes in favor of Delta
on January 23 and April 25, 1980.5 In each promissory
note, CBLI promised to pay Delta or order, 2,314,000
payable in 60 monthly installments starting August 31,
1980, with interest at 14% per annum. CBLI further
promised to pay the holder of the said notes 25% of the
amount due on the same as attorneys fees and expenses
of collection, whether actually incurred or not, in case of
judicial proceedings to enforce collection. In addition to
the notes, CBLI executed chattel mortgages over the 35
buses in Deltas favor.
When CBLI defaulted on all payments due, it entered into
a restructuring agreement with Delta on October 7,
1981, to cover its overdue obligations under the
promissory notes.6 The restructuring agreement provided
for a new schedule of payments of CBLIs past due
installments, extending the period to pay, and stipulating
daily remittance instead of the previously agreed
monthly remittance of payments. In case of default, Delta
would have the authority to take over the management
and operations of CBLI until CBLI and/or its president,
Mr. Dionisio Llamas, remitted and/or updated CBLIs
past due account. CBLI and Delta also increased the
interest rate to 16% p.a. and added a documentation fee
of 2% p.a. and a 4% p.a. restructuring fee.
On December 23, 1981, Delta executed a Continuing
Deed of Assignment of Receivables7 in favor of SIHI as
security for the payment of its obligations to SIHI per the
credit agreements. In view of Deltas failure to pay, the
loan agreements were restructured under a
Memorandum of Agreement dated March 31,
1982.8 Delta obligated itself to pay a fixed monthly
amortization of 400,000 to SIHI and to discount with
SIHI 8,000,000 worth of receivables with the
understanding that SIHI shall apply the proceeds against
Deltas overdue accounts.
CBLI continued having trouble meeting its obligations to
Delta. This prompted Delta to threaten CBLI with the
enforcement of the management takeover clause. To pre-
empt the take-over, CBLI filed on May 3, 1982, a
complaint for injunction9 , docketed as Civil Case No.
0023-P, with the Court of First Instance of Rizal, Pasay
City, (now Regional Trial Court of Pasay City). In due
time, Delta filed its amended answer with applications
for the issuance of a writ of preliminary mandatory
injunction to enforce the management takeover clause
and a writ of preliminary attachment over the buses it
sold to CBLI.10 On December 27, 1982,11 the trial court
granted Deltas prayer for issuance of a writ of
preliminary mandatory injunction and preliminary
attachment on account of the fraudulent disposition by
CBLI of its assets.
On September 15, 1983, pursuant to the Memorandum
of Agreement, Delta executed a Deed of Sale12 assigning
to SIHI five (5) of the sixteen (16) promissory
notes13 from California Bus Lines, Inc. At the time of
assignment, these five promissory notes, identified and
numbered as 80-53, 80-54, 80-55, 80-56, and 80-57,
had a total value of 16,152,819.80 inclusive of interest
at 14% per annum.
SIHI subsequently sent a demand letter dated December
13, 1983,14 to CBLI requiring CBLI to remit the payments
due on the five promissory notes directly to it. CBLI
replied informing SIHI of Civil Case No. 0023-P and of
the fact that Delta had taken over its management and
operations.15
As regards Deltas remaining obligation to SIHI, Delta
offered its available bus units, valued at
27,067,162.22, as payment in kind.16 On December
29, 1983, SIHI accepted Deltas offer, and Delta
transferred the ownership of its available buses to SIHI,
which in turn acknowledged full payment of Deltas
remaining obligation.17 When SIHI was unable to take
possession of the buses, SIHI filed a petition for recovery
of possession with prayer for issuance of a writ of
replevin before the RTC of Manila, Branch 6, docketed as
Civil Case No. 84-23019. The Manila RTC issued a writ
of replevin and SIHI was able to take possession of 17 bus
units belonging to Delta. SIHI applied the proceeds from
the sale of the said 17 buses amounting to
12,870,526.98 to Deltas outstanding obligation.
Deltas obligation to SIHI was thus reduced to
20,061,898.97. On December 5, 1984, Branch 6 of the
RTC of Manila rendered judgment in Civil Case No. 84-
23019 ordering Delta to pay SIHI this amount.
Thereafter, Delta and CBLI entered into a compromise
agreement on July 24, 1984,18 in Civil Case No. 0023-P,
the injunction case before the RTC of Pasay. CBLI agreed
that Delta would exercise its right to extrajudicially
foreclose on the chattel mortgages over the 35 bus units.
The RTC of Pasay approved this compromise agreement
the following day, July 25, 1984.19 Following this, CBLI
vehemently refused to pay SIHI the value of the five
promissory notes, contending that the compromise
agreement was in full settlement of all its obligations to
Delta including its obligations under the promissory
notes.
On December 26, 1984, SIHI filed a complaint, docketed
as Civil Case No. 84-28505, against CBLI in the Regional
Trial Court of Manila, Branch 34, to collect on the five
(5) promissory notes with interest at 14% p.a. SIHI also
prayed for the issuance of a writ of preliminary
attachment against the properties of CBLI.20
On December 28, 1984, Delta filed a petition for
extrajudicial foreclosure of chattel mortgages pursuant
to its compromise agreement with CBLI. On January 2,
1985, Delta filed in the RTC of Pasay a motion for
execution of the judgment based on the compromise
agreement.21 The RTC of Pasay granted this motion the
following day.22
In view of Deltas petition and motion for execution per
the judgment of compromise, the RTC of Manila granted
in Civil Case No. 84-28505 SIHIs application for
preliminary attachment on January 4,
1985.23 Consequently, SIHI was able to attach and
physically take possession of thirty-two (32) buses
belonging to CBLI.24 However, acting on CBLIs motion to
quash the writ of preliminary attachment, the same court
resolved on January 15, 1986,25 to discharge the writ of
preliminary attachment. SIHI assailed the discharge of
the writ before the Intermediate Appellate Court (now
Court of Appeals) in a petition for certiorari and
prohibition, docketed as CA-G.R. SP No. 08378. On July
31, 1987, the Court of Appeals granted SIHIs petition in
CA-GR SP No. 08378 and ruled that the writ of
preliminary attachment issued by Branch 34 of the RTC
Manila in Civil Case No. 84-28505 should stay.26 The
decision of the Court of Appeals attained finality on
August 22, 1987.27
Meanwhile, pursuant to the January 3, 1985 Order of
the RTC of Pasay, the sheriff of Pasay City conducted a
public auction and issued a certificate of sheriffs sale to
Delta on April 2, 1987, attesting to the fact that Delta
bought 14 of the 35 buses for 3,920,000.28 On April 7,
1987, the sheriff of Manila, by virtue of the writ of
execution dated March 27, 1987, issued by Branch 6 of
the RTC of Manila in Civil Case No. 84-23019, sold the
same 14 buses at public auction in partial satisfaction of
the judgment SIHI obtained against Delta in Civil Case
No. 84-23019.
Sometime in May 1987, Civil Case No. 84-28505 was
raffled to Branch 13 of the RTC of Manila in view of the
retirement of the presiding judge of Branch 34.
Subsequently, SIHI moved to sell the sixteen (16) buses of
CBLI which had previously been attached by the sheriff
in Civil Case No. 84-28505 pursuant to the January 4,
1985, Order of the RTC of Manila.29 SIHIs motion was
granted on December 16, 1987.30 On November 29,
1988, however, SIHI filed an urgent ex-parte motion to
amend this order claiming that through inadvertence
and excusable negligence of its new counsel, it made a
mistake in the list of buses in the Motion to Sell Attached
Properties it had earlier filed.31 SIHI explained that 14 of
the buses listed had already been sold to Delta on April 2,
1987, by virtue of the January 3, 1985 Order of the RTC
of Pasay, and that two of the buses listed had been
released to third party, claimant Pilipinas Bank, by Order
dated September 16, 198732 of Branch 13 of the RTC of
Manila.
CBLI opposed SIHIs motion to allow the sale of the 16
buses. On May 3, 1989,33 Branch 13 of the RTC of
Manila denied SIHIs urgent motion to allow the sale of
the 16 buses listed in its motion to amend. The trial court
ruled that the best interest of the parties might be better
served by denying further sales of the buses and to go
direct to the trial of the case on the merits.34
After trial, judgment was rendered in Civil Case No. 84-
28505 on June 3, 1993, discharging CBLI from liability
on the five promissory notes. The trial court likewise
favorably ruled on CBLIs compulsory counterclaim. The
trial court directed SIHI to return the 16 buses or to pay
CBLI 4,000,000 representing the value of the seized
buses, with interest at 12% p.a. to begin from January 11,
1985, the date SIHI seized the buses, until payment is
made. In ruling against SIHI, the trial court held that the
restructuring agreement dated October 7, 1981, between
Delta and CBLI novated the five promissory notes; hence,
at the time Delta assigned the five promissory notes to
SIHI, the notes were already merged in the restructuring
agreement and cannot be enforced against CBLI.
SIHI appealed the decision to the Court of Appeals. The
case was docketed as CA-G.R. CV No. 52667. On April
17, 2001, the Court of Appeals decided CA-G.R. CV No.
52667 in this manner:
WHEREFORE, based on the foregoing premises and
finding the appeal to be meritorious, We find defendant-
appellee CBLI liable for the value of the five (5)
promissory notes subject of the complaint a quo less the
proceeds from the attached sixteen (16) buses. The
award of attorneys fees and costs is eliminated. The
appealed decision is hereby REVERSED. No costs.
SO ORDERED.35
Hence, this appeal where CBLI contends that
I. THE COURT OF APPEALS ERRED IN DECLARING
THAT THE RESTRUCTURING AGREEMENT
BETWEEN DELTA AND THE PETITIONER DID
NOT SUBSTANTIALLY NOVATE THE TERMS OF
THE FIVE PROMISSORY NOTES.
II. THE COURT OF APPEALS ERRED IN HOLDING
THAT THE COMPROMISE AGREEMENT BETWEEN
DELTA AND THE PETITIONER IN THE PASAY CITY
CASE DID NOT SUPERSEDE AND DISCHARGE THE
PROMISSORY NOTES.
 III. THE COURT OF APPEALS ERRED IN
UPHOLDING THE CONTINUING VALIDITY OF
THE PRELIMINARY ATTACHMENT AND
EXONERATING THE RESPONDENT OF
MALEFACTIONS IN PRESERVING AND ASSERTING
ITS RIGHTS THEREUNDER.36
Essentially, the issues are (1) whether the Restructuring
Agreement dated October 7, 1981, between petitioner
CBLI and Delta Motors, Corp. novated the five
promissory notes Delta Motors, Corp. assigned to
respondent SIHI, and (2) whether the compromise
agreement in Civil Case No. 0023-P superseded and/or
discharged the subject five promissory notes. The issues
being interrelated, they shall be jointly discussed.
CBLI first contends that the Restructuring Agreement did
not merely change the incidental elements of the
obligation under all sixteen (16) promissory notes, but it
also increased the obligations of CBLI with the addition
of new obligations that were incompatible with the old
obligations in the said notes.37 CBLI adds that even if the
restructuring agreement did not totally extinguish the
obligations under the sixteen (16) promissory notes, the
July 24, 1984, compromise agreement executed in Civil
Case No. 0023-P did.38 CBLI cites paragraph 5 of the
compromise agreement which states that the agreement
between it and CBLI was in "full and final settlement,
adjudication and termination of all their rights and
obligations as of the date of (the) agreement, and of the
issues in (the) case." According to CBLI, inasmuch as the
five promissory notes were subject matters of the Civil
Case No. 0023-P, the decision approving the
compromise agreement operated as res judicata in the
present case.39
Novation has been defined as the extinguishment of an
obligation by the substitution or change of the obligation
by a subsequent one which terminates the first, either by
changing the object or principal conditions, or by
substituting the person of the debtor, or subrogating a
third person in the rights of the creditor.40
Novation, in its broad concept, may either be extinctive
or modificatory.41 It is extinctive when an old obligation
is terminated by the creation of a new obligation that
takes the place of the former; it is merely modificatory
when the old obligation subsists to the extent it remains
compatible with the amendatory agreement.42 An
extinctive novation results either by changing the object
or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a
third person in the rights of the creditor (subjective or
personal).43 Novation has two functions: one to
extinguish an existing obligation, the other to substitute a
new one in its place.44 For novation to take place, four
essential requisites have to be met, namely, (1) a
previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new
obligation.45
Novation is never presumed,46 and the animus
novandi, whether totally or partially, must appear by
express agreement of the parties, or by their acts that are
too clear and unequivocal to be mistaken.47
The extinguishment of the old obligation by the new one
is a necessary element of novation which may be effected
either expressly or impliedly.48 The term "expressly"
means that the contracting parties incontrovertibly
disclose that their object in executing the new contract is
to extinguish the old one.49 Upon the other hand, no
specific form is required for an implied novation, and all
that is prescribed by law would be an incompatibility
between the two contracts.50 While there is really no
hard and fast rule to determine what might constitute to
be a sufficient change that can bring about novation, the
touchstone for contrariety, however, would be an
irreconcilable incompatibility between the old and the
new obligations.
There are two ways which could indicate, in fine, the
presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes
the same. The first is when novation has been explicitly
stated and declared in unequivocal terms. The second is
when the old and the new obligations are incompatible
on every point. The test of incompatibility is whether the
two obligations can stand together, each one having its
independent existence.51 If they cannot, they are
incompatible and the latter obligation novates the
first.52 Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental.
The incompatibility must take place in any of the
essential elements of the obligation, such as its object,
cause or principal conditions thereof; otherwise, the
change would be merely modificatory in nature and
insufficient to extinguish the original obligation.53
The necessity to prove the foregoing by clear and
convincing evidence is accentuated where the obligation
of the debtor invoking the defense of novation has
already matured.54
With respect to obligations to pay a sum of money, this
Court has consistently applied the well-settled rule that
the obligation is not novated by an instrument that
expressly recognizes the old, changes only the terms of
payment, and adds other obligations not incompatible
with the old ones, or where the new contract merely
supplements the old one.55
In Inchausti & Co. v. Yulo56 this Court held that an
obligation to pay a sum of money is not novated in a new
instrument wherein the old is ratified, by changing only
the term of payment and adding other obligations not
incompatible with the old one. In Tible v. Aquino57 and
Pascual v. Lacsamana58 this Court declared that it is well
settled that a mere extension of payment and the addition
of another obligation not incompatible with the old one
is not a novation thereof.
In this case, the attendant facts do not make out a case of
novation. The restructuring agreement between Delta
and CBLI executed on October 7, 1981, shows that the
parties did not expressly stipulate that the restructuring
agreement novated the promissory notes. Absent an
unequivocal declaration of extinguishment of the pre-
existing obligation, only a showing of complete
incompatibility between the old and the new obligation
would sustain a finding of novation by
implication.59 However, our review of its terms yields no
incompatibility between the promissory notes and the
restructuring agreement.
The five promissory notes, which Delta assigned to SIHI
on September 13, 1983, contained the following
common stipulations:
1. They were payable in 60 monthly installments
up to July 31, 1985;
2. Interest: 14% per annum;
3. Failure to pay any of the installments would
render the entire remaining balance due and
payable at the option of the holder of the notes;
4. In case of judicial collection on the notes, the
maker (CBLI) and co-maker (its president, Mr.
Dionisio O. Llamas, Jr) were solidarily liable of
attorneys fees and expenses of 25% of the amount
due in addition to the costs of suit.
The restructuring agreement, for its part, had the
following provisions:
WHEREAS, CBL and LLAMAS admit their past due
installment on the following promissory notes:
a. PN Nos. 16 to 26 (11 units)
Past Due as of September 30, 1981
1,411,434.00
b. PN Nos. 52 to 57 (24 units)
Past Due as of September 30, 1981
1,105,353.00
WHEREAS, the parties agreed to restructure the above-
mentioned past due installments under the following
terms and conditions:
a. PN Nos. 16 to 26 (11 units) 37 months
PN Nos. 52 to 57 (24 units) 46 months
b. Interest Rate: 16% per annum
c. Documentation Fee: 2% per annum
d. Penalty previously incurred and Restructuring
fee: 4% p.a.
e. Mode of Payment: Daily Remittance
NOW, THEREFORE, for and in consideration of the
foregoing premises, the parties hereby agree and
covenant as follows:
1. That the past due installment referred to above plus
the current and/or falling due amortization as of
October 1, 1981 for Promissory Notes Nos. 16 to 26 and
52 to 57 shall be paid by CBL and/or LLAMAS in
accordance with the following schedule of payments:
Daily payments of 11,000.00 from<>October 1
to December 31, 1981
 Daily payments of 12,000.00 from<>January 1,
1982 to March 31, 1982
Daily payments of 13,000.00 from<>April 1,
1982 to June 30, 1982
Daily payments of 14,000.00 from<>July 1,
1982 to September 30, 1982
Daily payments of 15,000.00 from<>October 1,
1982 to December 31, 1982
Daily payments of 16,000.00 from<>January 1,
1983 to June 30, 1983
Daily payments of 17,000.00 from<>July 1,
1983
2. CBL or LLAMAS shall remit to DMC on or before
11:00 a.m. everyday the daily cash payments due to
DMC in accordance with the schedule in paragraph 1.
DMC may send a collector to receive the amount due at
CBLs premises. All delayed remittances shall be charged
additional 2% penalty interest per month.
3. All payments shall be applied to amortizations and
penalties due in accordance with paragraph of the
restructured past due installments above mentioned and
PN Nos. 16 to 26 and 52 to 57.
4. DMC may at anytime assign and/or send its
representatives to monitor the operations of CBL
pertaining to the financial and field operations and
service and maintenance matters of M.A.N. units.
Records needed by the DMC representatives in
monitoring said operations shall be made available by
CBL and LLAMAS.
5. Within thirty (30) days after the end of the terms of
the PN Nos. 16 to 26 and 52 to 57, CBL or LLAMAS shall
remit in lump sum whatever balance is left after
deducting all payments made from what is due and
payable to DMC in accordance with paragraph 1 of this
agreement and PN Nos. 16 to 26 and 52 to 57.
6. In the event that CBL and LLAMAS fail to remit the
daily remittance agreed upon and the total accumulated
unremitted amount has reached and (sic) equivalent of
Sixty (60) days, DMC and Silverio shall exercise any or
all of the following options:
(a) The whole sum remaining then unpaid plus
2% penalty per month and 16% interest per
annum on total past due installments will
immediately become due and payable. In the event
of judicial proceedings to enforce collection, CBL
and LLAMAS will pay to DMC an additional sum
equivalent to 25% of the amount due for
attorneys fees and expenses of collection, whether
actually incurred or not, in addition to the cost of
suit;
(b) To enforce in accordance with law, their rights
under the Chattel Mortgage over various M.A.N.
Diesel bus with Nos. CU 80-39, 80-40, 80-41,
80-42, 80-43, 80-44 and 80-15, and/or
 (c) To take over management and operations of
CBL until such time that CBL and/or LLAMAS
have remitted and/or updated their past due
account with DMC.
7. DMC and SILVERIO shall insure to CBL continuous
supply of spare parts for the M.A.N. Diesel Buses and
shall make available to CBL at the price prevailing at the
time of purchase, an inventory of spare parts consisting
of at least ninety (90%) percent of the needs of CBL based
on a moving 6-month requirement to be prepared and
submitted by CBL, and acceptable to DMC, within the
first week of each month.
8. Except as otherwise modified in this Agreement, the
terms and conditions stipulated in PN Nos. 16 to 26 and
52 to 57 shall continue to govern the relationship
between the parties and that the Chattel Mortgage over
various M.A.N. Diesel Buses with Nos. CM No. 80-39,
80-40, 80-41, 80-42, 80-43, 80-44 and CM No. 80-15
as well as the Deed of Pledge executed by Mr. Llamas
shall continue to secure the obligation until full payment.
9. DMC and SILVERIO undertake to recall or withdraw
its previous request to Notary Public Alberto G. Doller
and to instruct him not to proceed with the public
auction sale of the shares of stock of CBL subject-matter
of the Deed of Pledge of Shares. LLAMAS, on the other
hand, undertakes to move for the immediate dismissal of
Civil Case No. 9460-P entitled "Dionisio O. Llamas vs.
Alberto G. Doller, et al.", Court of First Instance of Pasay,
Branch XXIX.60
It is clear from the foregoing that the restructuring
agreement, instead of containing provisions "absolutely
incompatible" with the obligations of the judgment,
expressly ratifies such obligations in paragraph 8 and
contains provisions for satisfying them. There was no
change in the object of the prior obligations. The
restructuring agreement merely provided for a new
schedule of payments and additional security in
paragraph 6 (c) giving Delta authority to take over the
management and operations of CBLI in case CBLI fails to
pay installments equivalent to 60 days. Where the parties
to the new obligation expressly recognize the continuing
existence and validity of the old one, there can be no
novation.61 Moreover, this Court has ruled that an
agreement subsequently executed between a seller and a
buyer that provided for a different schedule and manner
of payment, to restructure the mode of payments by the
buyer so that it could settle its outstanding obligation in
spite of its delinquency in payment, is not tantamount to
novation. 62
The addition of other obligations likewise did not
extinguish the promissory notes. In Young v. CA63 , this
Court ruled that a change in the incidental elements of,
or an addition of such element to, an obligation, unless
otherwise expressed by the parties will not result in its
extinguishment.
In fine, the restructuring agreement can stand together
with the promissory notes.
Neither is there merit in CBLIs argument that the
compromise agreement dated July 24, 1984, in Civil
Case No. 0023-P superseded and/or discharged the five
promissory notes. Both Delta and CBLI cannot deny that
the five promissory notes were no longer subject of Civil
Case No. 0023-P when they entered into the compromise
agreement on July 24, 1984.
Having previously assigned the five promissory notes to
SIHI, Delta had no more right to compromise the same.
Deltas limited authority to collect for SIHI stipulated in
the September 13, 1985, Deed of Sale cannot be
construed to include the power to compromise CBLIs
obligations in the said promissory notes. An authority to
compromise, by express provision of Article 187864 of
the Civil Code, requires a special power of attorney,
which is not present in this case. Incidentally, Deltas
authority to collect in behalf of SIHI was, by express
provision of the Continuing Deed of
Assignment,65 automatically revoked when SIHI opted to
collect directly from CBLI.
As regards CBLI, SIHIs demand letter dated December
13, 1983, requiring CBLI to remit the payments directly
to SIHI effectively revoked Deltas limited right to collect
in behalf of SIHI. This should have dispelled CBLIs
erroneous notion that Delta was acting in behalf of SIHI,
with authority to compromise the five promissory notes.
But more importantly, the compromise agreement itself
provided that it covered the rights and obligations only of
Delta and CBLI and that it did not refer to, nor cover the
rights of, SIHI as the new creditor of CBLI in the subject
promissory notes. CBLI and Delta stipulated in paragraph
5 of the agreement that:
5. This COMPROMISE AGREEMENT constitutes the entire
understanding by and between the plaintiffs and the
defendants as well as their lawyers, and operates as full
and final settlement, adjudication and termination of all
their rights and obligations as of the date of this
agreement, and of the issues in this case.66
Even in the absence of such a provision, the compromise
agreement still cannot bind SIHI under the settled rule
that a compromise agreement determines the rights and
obligations of only the parties to it.67 Therefore, we hold
that the compromise agreement covered the rights and
obligations only of Delta and CBLI and only with respect
to the eleven (11) other promissory notes that remained
with Delta.
CBLI next maintains that SIHI is estopped from
questioning the compromise agreement because SIHI
failed to intervene in Civil Case No. 0023-P after CBLI
informed it of the takeover by Delta of CBLIs
management and operations and the resultant
impossibility for CBLI to comply with its obligations in
the subject promissory notes. CBLI also adds that SIHIs
failure to intervene in Civil Case No. 0023-P is proof that
Delta continued to act in SIHIs behalf in effecting
collection under the notes.
The contention is untenable. As a result of the
assignment, Delta relinquished all its rights to the subject
promissory notes in favor of SIHI. This had the effect of
separating the five promissory notes from the 16
promissory notes subject of Civil Case No. 0023-P. From
that time, CBLIs obligations to SIHI embodied in the five
promissory notes became separate and distinct from
CBLIs obligations in eleven (11) other promissory notes
that remained with Delta. Thus, any breach of these
independent obligations gives rise to a separate cause of
action in favor of SIHI against CBLI. Considering that
Deltas assignment to SIHI of these five promissory notes
had the effect of removing the said notes from Civil Case
No. 0023-P, there was no reason for SIHI to intervene in
the said case. SIHI did not have any interest to protect in
Civil Case No. 0023-P.
Moreover, intervention is not mandatory, but only
optional and permissive.68 Notably, Section 2,69 Rule 12
of the then 1988 Revised Rules of Procedure uses the
word may in defining the right to intervene. The
present rules maintain the permissive nature of
intervention in Section 1, Rule 19 of the 1997 Rules of
Civil Procedure, which provides as follows:
SEC. 1. Who may intervene.A person who has a legal
interest in the matter in litigation, or in the success of
either of the parties, or an interest against both, or is so
situated as to be adversely affected by a distribution or
other disposition of property in the custody of the court
or of an officer thereof may, with leave of court, be
allowed to intervene in the action. The court shall
consider whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the
original parties, and whether or not the intervenor's
rights may be fully protected in a separate proceeding.70
Also, recall that Delta transferred the five promissory
notes to SIHI on September 13, 1983 while Civil Case No.
0023-P was pending. Then as now, the rule in case of
transfer of interest pendente lite is that the action may be
continued by or against the original party unless the
court, upon motion, directs the person to whom the
interest is transferred to be substituted in the action or
joined with the original party.71 The non-inclusion of a
necessary party does not prevent the court from
proceeding in the action, and the judgment rendered
therein shall be without prejudice to the rights of such
necessary party.72
In light of the foregoing, SIHIs refusal to intervene in
Civil Case No. 0023-P in another court does not amount
to an estoppel that may prevent SIHI from instituting a
separate and independent action of its own.73 This is
especially so since it does not appear that a separate
proceeding would be inadequate to protect fully SIHIs
rights.74 Indeed, SIHIs refusal to intervene is precisely
because it considered that its rights would be better
protected in a separate and independent suit.
The judgment on compromise in Civil Case No. 0023-P
did not operate as res judicata to prevent SIHI from
prosecuting its claims in the present case. As previously
discussed, the compromise agreement and the judgment
on compromise in Civil Case No. 0023-P covered only
Delta and CBLI and their respective rights under the 11
promissory notes not assigned to SIHI. In contrast, the
instant case involves SIHI and CBLI and the five
promissory notes. There being no identity of parties and
subject matter, there is no res judicata.
CBLI maintains, however, that in any event, recovery
under the subject promissory notes is no longer allowed
by Article 1484(3)75 of the Civil Code, which prohibits a
creditor from suing for the deficiency after it has
foreclosed on the chattel mortgages. SIHI, being the
successor-in-interest of Delta, is no longer allowed to
recover on the promissory notes given as security for the
purchase price of the 35 buses because Delta had already
extrajudicially foreclosed on the chattel mortgages over
the said buses on April 2, 1987.
This claim is likewise untenable.
Article 1484(3) finds no application in the present case.
The extrajudicial foreclosure of the chattel mortgages
Delta effected cannot prejudice SIHIs rights. As stated
earlier, the assignment of the five notes operated to
create a separate and independent obligation on the part
of CBLI to SIHI, distinct and separate from CBLIs
obligations to Delta. And since there was a previous
revocation of Deltas authority to collect for SIHI, Delta
was no longer SIHIs collecting agent. CBLI, in turn,
knew of the assignment and Deltas lack of authority to
compromise the subject notes, yet it readily agreed to the
foreclosure. To sanction CBLIs argument and to apply
Article 1484 (3) to this case would work injustice to SIHI
by depriving it of its right to collect against CBLI who has
not paid its obligations.
That SIHI later on levied on execution and acquired in
the ensuing public sale in Civil Case No. 84-23019 the
buses Delta earlier extrajudicially foreclosed on April 2,
1987, in Civil Case No. 0023-P, did not operate to render
the compromise agreement and the foreclosure binding
on SIHI. At the time SIHI effected the levy on execution to
satisfy its judgment credit against Delta in Civil Case No.
84-23019, the said buses already pertained to Delta by
virtue of the April 2, 1987 auction sale. CBLI no longer
had any interest in the said buses.1wphi1 Under the
circumstances, we cannot see how SIHIs belated
acquisition of the foreclosed buses operates to hold the
compromise agreementand consequently Article
1484(3)applicable to SIHI as CBLI contends. CBLIs last
contention must, therefore, fail. We hold that the writ of
execution to enforce the judgment of compromise in
Civil Case No. 0023-P and the foreclosure sale of April 2,
1987, done pursuant to the said writ of execution
affected only the eleven (11) other promissory notes
covered by the compromise agreement and the judgment
on compromise in Civil Case No. 0023-P.
In support of its third assignment of error, CBLI
maintains that there was no basis for SIHIs application
for a writ of preliminary attachment.76 According to
CBLI, it committed no fraud in contracting its obligation
under the five promissory notes because it was
financially sound when it issued the said notes on April
25, 1980.77 CBLI also asserts that at no time did it falsely
represent to SIHI that it would be able to pay its
obligations under the five promissory notes.78 According
to CBLI, it was not guilty of fraudulent concealment,
removal, or disposal, or of fraudulent intent to conceal,
remove, or dispose of its properties to defraud its
creditors;79 and that SIHIs bare allegations on this matter
were insufficient for the preliminary attachment of
CBLIs properties.80
The question whether the attachment of the sixteen (16)
buses was valid and in accordance with law, however,
has already been resolved with finality by the Court of
Appeals in CA-G.R. SP No. 08376. In its July 31, 1987,
decision, the Court of Appeals upheld the legality of the
writ of preliminary attachment SIHI obtained and ruled
that the trial court judge acted with grave abuse of
discretion in discharging the writ of attachment despite
the clear presence of a determined scheme on the part of
CBLI to dispose of its property. Considering that the said
Court of Appeals decision has already attained finality on
August 22, 1987, there exists no reason to resolve this
question anew. Reasons of public policy, judicial
orderliness, economy and judicial time and the interests
of litigants as well as the peace and order of society, all
require that stability be accorded the solemn and final
judgments of courts or tribunals of competent
jurisdiction.81
Finally, in the light of the justness of SIHIs claim against
CBLI, we cannot sustain CBLIs contention that the Court
of Appeals erred in dismissing its counterclaim for lost
income and the value of the 16 buses over which SIHI
obtained a writ of preliminary attachment. Where the
party who requested the attachment acted in good faith
and without malice, the claim for damages resulting
from the attachment of property cannot be sustained.82
WHEREFORE, the decision dated April 17, 2001, of the
Court of Appeals in CA-G.R. CV No. 52667 is AFFIRMED.
Petitioner California Bus Lines, Inc., is ORDERED to pay
respondent State Investment House, Inc., the value of the
five (5) promissory notes subject of the complaint in Civil
Case No. 84-28505 less the proceeds from the sale of the
attached sixteen (16) buses. No pronouncement as to
costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and
Tinga, JJ., concur.
CALIFORNIA BUS LINES INC. vs STATE INVESTMENT
HOUSE, INC. G.R. No. 147950. December 11, 2003
QUISUMBING, J:
Facts: Delta Motors Corporation applied for financial
assistance from respondent State Investment House, Inc.,
a domestic corporation engaged in the business of quasi-
banking. SIHI agreed to extend a credit line to Delta
which eventually became indebted to SIHI. Meanwhile,
petitioner purchased on installment basis several buses to
Delta. To secure the payment of the obligation petitioner
executed promissory notes in favor of Delta. When
petitioner defaulted on the payments of the debts, it
entered into an agreement with delta to cover its due
obligations. However, petitioner still had trouble meeting
its obligations with delta. Pursuant to the memorandum
of agreement delta executed a deed of sale assigning to
respondent, the promissory notes from petitioner.
Respondent subsequently sent a demand letter to
petitioner requiring remitting payments due on the
promissory notes. Petitioner replied informing
respondent of the fact that delta had taken over its
management and operations.

Issue:
Whether the Restructuring Agreement dated October 7,
1981, between petitioner CBLI and Delta Motors, Corp.
novated the five promissory notes Delta Motors, Corp.
assigned to respondent SIHI,

Held:
The attendant facts do not make out a case of novation.
The restructuring agreement between Delta and CBLI
executed on October 7, 1981, shows that the parties did
not expressly stipulate that the restructuring agreement
novated the promissory notes. Absent an unequivocal
declaration of extinguishment of the pre-existing
obligation, only a showing of complete incompatibility
between the old and the new obligation would sustain a
finding of novation by implication. 59 However, our
review of its terms yields no incompatibility between the
promissory notes and the restructuring agreement.

G.R. No. 96405 June 26, 1996
BALDOMERO INCIONG, JR., petitioner,
vs.
COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
ROMERO, J.:p
This is a petition for review on certiorari of the decision
of the Court of Appeals affirming that of the Regional
Trial Court of Misamis Oriental, Branch 18,1 which
disposed of Civil Case No. 10507 for collection of a sum
of money and damages, as follows:
WHEREFORE, defendant BALDOMERO L.
INCIONG, JR. is adjudged solidarily liable
and ordered to pay to the plaintiff
Philippine Bank of Communications,
Cagayan de Oro City, the amount of FIFTY
THOUSAND PESOS (P50,000.00), with
interest thereon from May 5, 1983 at
16% per annum until fully paid; and
6% per annum on the total amount due, as
liquidated damages or penalty from May 5,
1983 until fully paid; plus 10% of the total
amount due for expenses of litigation and
attorney's fees; and to pay the costs.
The counterclaim, as well as the cross
claim, are dismissed for lack of merit.
SO ORDERED.
Petitioner's liability resulted from the promissory note in
the amount of P50,000.00 which he signed with Rene C.
Naybe and Gregorio D. Pantanosas on February 3, 1983,
holding themselves jointly and severally liable to private
respondent Philippine Bank of Communications,
Cagayan de Oro City branch. The promissory note was
due on May 5, 1983.
Said due date expired without the promissors having
paid their obligation. Consequently, on November 14,
1983 and on June 8, 1984, private respondent sent
petitioner telegrams demanding payment thereof.2 On
December 11, 1984 private respondent also sent by
registered mail a final letter of demand to Rene C. Naybe.
Since both obligors did not respond to the demands
made, private respondent filed on January 24, 1986 a
complaint for collection of the sum of P50,000.00
against the three obligors.
On November 25, 1986, the complaint was dismissed for
failure of the plaintiff to prosecute the case. However, on
January 9, 1987, the lower court reconsidered the
dismissal order and required the sheriff to serve the
summonses. On January 27, 1987, the lower court
dismissed the case against defendant Pantanosas as
prayed for by the private respondent herein. Meanwhile,
only the summons addressed to petitioner was served as
the sheriff learned that defendant Naybe had gone to
Saudi Arabia.
In his answer, petitioner alleged that sometime in
January 1983, he was approached by his friend, Rudy
Campos, who told him that he was a partner of Pio Tio,
the branch manager of private respondent in Cagayan de
Oro City, in the falcata logs operation business. Campos
also intimated to him that Rene C. Naybe was interested
in the business and would contribute a chainsaw to the
venture. He added that, although Naybe had no money to
buy the equipment, Pio Tio had assured Naybe of the
approval of a loan he would make with private
respondent. Campos then persuaded petitioner to act as a
"co-maker" in the said loan. Petitioner allegedly acceded
but with the understanding that he would only be a co-
maker for the loan of P50,000.00.
Petitioner alleged further that five (5) copies of a blank
promissory note were brought to him by Campos at his
office. He affixed his signature thereto but in one copy,
he indicated that he bound himself only for the amount
of P5,000.00. Thus, it was by trickery, fraud and
misrepresentation that he was made liable for the
amount of P50,000.00.
In the aforementioned decision of the lower court, it
noted that the typewritten figure "-- 50,000 --" clearly
appears directly below the admitted signature of the
petitioner in the promissory note. 3 Hence, the latter's
uncorroborated testimony on his limited liability cannot
prevail over the presumed regularity and fairness of the
transaction, under Sec. 5 (q) of Rule 131. The lower
court added that it was "rather odd" for petitioner to have
indicated in a copy and not in the original, of the
promissory note, his supposed obligation in the amount
of P5,000.00 only. Finally, the lower court held that,
even granting that said limited amount had actually been
agreed upon, the same would have been merely
collateral between him and Naybe and, therefore, not
binding upon the private respondent as creditor-bank.
The lower court also noted that petitioner was a holder of
a Bachelor of Laws degree and a labor consultant who
was supposed to take due care of his concerns, and that,
on the witness stand, Pio Tio denied having participated
in the alleged business venture although he knew for a
fact that the falcata logs operation was encouraged by
the bank for its export potential.
Petitioner appealed the said decision to the Court of
Appeals which, in its decision of August 31, 1990,
affirmed that of the lower court. His motion for
reconsideration of the said decision having been denied,
he filed the instant petition for review on certiorari.
On February 6, 1991, the Court denied the petition for
failure of petitioner to comply with the Rules of Court
and paragraph 2 of Circular
No. 1-88, and to sufficiently show that respondent court
had committed any reversible error in its questioned
decision.4 His motion for the reconsideration of the
denial of his petition was likewise denied with finality in
the Resolution of April 24, 1991.5 Thereafter, petitioner
filed a motion for leave to file a second motion for
reconsideration which, in the Resolution of May 27,
1991, the Court denied. In the same Resolution, the
Court ordered the entry of judgment in this case.6
Unfazed, petitioner filed a notion for leave to file a
motion for clarification. In the latter motion, he asserted
that he had attached Registry Receipt No. 3268 to page
14 of the petition in compliance with Circular No. 1-88.
Thus, on August 7, 1991, the Court granted his prayer
that his petition be given due course and reinstated the
same.7
Nonetheless, we find the petition unmeritorious.
Annexed to the petition is a copy of an affidavit executed
on May 3, 1988, or after the rendition of the decision of
the lower court, by Gregorio Pantanosas, Jr., an MTCC
judge and petitioner's co-maker in the promissory note. It
supports petitioner's allegation that they were induced to
sign the promissory note on the belief that it was only for
P5,000.00, adding that it was Campos who caused the
amount of the loan to be increased to P50,000.00.
The affidavit is clearly intended to buttress petitioner's
contention in the instant petition that the Court of
Appeals should have declared the promissory note null
and void on the following grounds: (a) the promissory
note was signed in the office of Judge Pantanosas, outside
the premises of the bank; (b) the loan was incurred for
the purpose of buying a second-hand chainsaw which
cost only P5,000.00; (c) even a new chainsaw would cost
only P27,500.00; (d) the loan was not approved by the
board or credit committee which was the practice, as it
exceeded P5,000.00; (e) the loan had no collateral; (f)
petitioner and Judge Pantanosas were not present at the
time the loan was released in contravention of the bank
practice, and (g) notices of default are sent
simultaneously and separately but no notice was validly
sent to him.8 Finally, petitioner contends that in signing
the promissory note, his consent was vitiated by fraud as,
contrary to their agreement that the loan was only for
the amount of P5,000.00, the promissory note stated the
amount of P50,000.00.
The above-stated points are clearly factual. Petitioner is
to be reminded of the basic rule that this Court is not a
trier of facts. Having lost the chance to fully ventilate his
factual claims below, petitioner may no longer be
accorded the same opportunity in the absence of grave
abuse of discretion on the part of the court below. Had
he presented Judge Pantanosas affidavit before the lower
court, it would have strengthened his claim that the
promissory note did not reflect the correct amount of the
loan.
Nor is there merit in petitioner's assertion that since the
promissory note "is not a public deed with the formalities
prescribed by law but . . . a mere commercial paper
which does not bear the signature of . . . attesting
witnesses," parol evidence may "overcome" the contents
of the promissory note.9 The first paragraph of the parol
evidence rule 10 states:
When the terms of an agreement have been
reduced to writing, it is considered as
containing all the terms agreed upon and
there can be, between the parties and their
successors in interest, no evidence of such
terms other than the contents of the written
agreement.
Clearly, the rule does not specify that the written
agreement be a public document.
What is required is that the agreement be in writing as
the rule is in fact founded on "long experience that
written evidence is so much more certain and accurate
than that which rests in fleeting memory only, that it
would be unsafe, when parties have expressed the terms
of their contract in writing, to admit weaker evidence to
control and vary the stronger and to show that the
parties intended a different contract from that expressed
in the writing signed by them." 11 Thus, for the parol
evidence rule to apply, a written contract need not be in
any particular form, or be signed by both parties. 12 As a
general rule, bills, notes and other instruments of a
similar nature are not subject to be varied or
contradicted by parol or extrinsic evidence. 13
By alleging fraud in his answer, 14 petitioner was actually
in the right direction towards proving that he and his co-
makers agreed to a loan of P5,000.00 only considering
that, where a parol contemporaneous agreement was the
inducing and moving cause of the written contract, it
may be shown by parol evidence. 15 However, fraud must
be established by clear and convincing evidence, mere
preponderance of evidence, not even being
adequate. 16Petitioner's attempt to prove fraud must,
therefore, fail as it was evidenced only by his own
uncorroborated and, expectedly, self-serving testimony.
Petitioner also argues that the dismissal of the complaint
against Naybe, the principal debtor, and against
Pantanosas, his co-maker, constituted a release of his
obligation, especially because the dismissal of the case
against Pantanosas was upon the motion of private
respondent itself. He cites as basis for his argument,
Article 2080 of the Civil Code which provides that:
The guarantors, even though they be
solidary, are released from their obligation
whenever by some act of the creditor, they
cannot be subrogated to the rights,
mortgages, and preferences of the latter.
It is to be noted, however, that petitioner signed the
promissory note as a solidary co-maker and not as a
guarantor. This is patent even from the first sentence of
the promissory note which states as follows:
Ninety one (91) days after date, for value
received, I/we, JOINTLY and SEVERALLY
promise to pay to the PHILIPPINE BANK OF
COMMUNICATIONS at its office in the City
of Cagayan de Oro, Philippines the sum of
FIFTY THOUSAND ONLY (P50,000.00)
Pesos, Philippine Currency, together with
interest . . . at the rate of SIXTEEN (16) per
cent per annum until fully paid.
A solidary or joint and several obligation is one in which
each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. 17 on
the other hand, Article 2047 of the Civil Code states:
By guaranty a person, called the guarantor,
binds himself to the creditor to fulfill the
obligation of the principal debtor in case
the latter should fail to do so.
If a person binds himself solidarily with the
principal debtor, the provisions of Section
4, Chapter 3, Title I of this Book shall be
 observed. In such a case the contract is
called a suretyship. (Emphasis supplied.)
While a guarantor may bind himself solidarily
with the principal debtor, the liability of a
guarantor is different from that of a solidary
debtor. Thus, Tolentino explains:
A guarantor who binds himself in
solidum with the principal debtor under
the provisions of the second paragraph
does not become a solidary co-debtor to all
intents and purposes. There is a difference
between a solidary co-debtor and a fiador
in solidum (surety). The latter, outside of
the liability he assumes to pay the debt
before the property of the principal debtor
has been exhausted, retains all the other
rights, actions and benefits which pertain
to him by reason of the fiansa; while a
solidary co-debtor has no other rights than
those bestowed upon him in Section 4,
Chapter 3, Title I, Book IV of the Civil
Code. 18
Section 4, Chapter 3, Title I, Book IV of the Civil Code
states the law on joint and several obligations. Under Art.
1207 thereof, when there are two or more debtors in one
and the same obligation, the presumption is that the
obligation is joint so that each of the debtors is liable only
for a proportionate part of the debt. There is a solidary
liability only when the obligation expressly so states,
when the law so provides or when the nature of the
obligation so requires. 19
Because the promissory note involved in this case
expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of
them may be proceeded against for the entire
obligation. 20 The choice is left to the solidary creditor to
determine against whom he will enforce
collection. Consequently, the dismissal of the case
21
against Judge Pontanosas may not be deemed as having
discharged petitioner from liability as well. As regards
Naybe, suffice it to say that the court never acquired
jurisdiction over him. Petitioner, therefore, may only
have recourse against his co-makers, as provided by law.
WHEREFORE, the instant petition for review
on certiorari is hereby DENIED and the questioned
decision of the Court of Appeals is AFFIRMED. Costs
against petitioner.
SO ORDERED.
Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.
257 SCRA 578 Mercantile Law Negotiable
Instruments in General Signature of Makers
Guaranty
In February 1983, Rene Naybe took out a loan from
Philippine Bank of Communications (PBC) in the amount
of P50k. For that he executed a promissory note in the
same amount. Naybe was able to convince Baldomero
Inciong, Jr. and Gregorio Pantanosas to co-sign with him
as co-makers. The promissory note went due and it was
left unpaid. PBC demanded payment from the three but
still no payment was made. PBC then sue the three but collection. Consequently, the dismissal of the case
PBC later released Pantanosas from its obligations. Naybe against Pontanosas may not be deemed as having
left for Saudi Arabia hence cant be issued summons and discharged Inciong from liability as well. As regards
the complaint against him was subsequently dropped. Naybe, suffice it to say that the court never acquired
Inciong was left to face the suit. He argued that that since jurisdiction over him. Inciong, therefore, may only have
the complaint against Naybe was dropped, and that recourse against his co-makers, as provided by law.
Pantanosas was released from his obligations, he too
should have been released.
ISSUE: Whether or not Inciong should be held liable.
HELD: Yes. Inciong is considering himself as a guarantor
in the promissory note. And he was basing his argument
based on Article 2080 of the Civil Code which provides
that guarantors are released from their obligations if the
creditors shall release their debtors. It is to be noted
however that Inciong did not sign the promissory note as
a guarantor. He signed it as a solidary co-maker.
A guarantor who binds himself in solidum with the
principal debtor does not become a solidary co-debtor to
all intents and purposes. There is a difference between a
solidary co-debtor and a fiador in solidum (surety). The
latter, outside of the liability he assumes to pay the debt
before the property of the principal debtor has been
exhausted, retains all the other rights, actions and
benefits which pertain to him by reason of the fiansa;
while a solidary co-debtor has no other rights than those
bestowed upon him.
Because the promissory note involved in this case
expressly states that the three signatories therein
are jointly and severally liable, any one, some or all of
them may be proceeded against for the entire
obligation. The choice is left to the solidary creditor
(PBC) to determine against whom he will enforce