AMADO PICART, plaintiff-appellant,

vs.
FRANK SMITH, JR., defendant-appellee.

Alejo Mabanag for appellant.

G. E. Campbell for appellee.

STREET, J.:

In this action the plaintiff, Amado Picart, seeks to recover of the defendant, Frank Smith, jr., the sum of
P31,000, as damages alleged to have been caused by an automobile driven by the defendant. From a judgment
of the Court of First Instance of the Province of La Union absolving the defendant from liability the plaintiff has
appealed.

The occurrence which gave rise to the institution of this action took place on December 12, 1912, on the
Carlatan Bridge, at San Fernando, La Union. It appears that upon the occasion in question the plaintiff was
riding on his pony over said bridge. Before he had gotten half way across, the defendant approached from the
opposite direction in an automobile, going at the rate of about ten or twelve miles per hour. As the defendant
neared the bridge he saw a horseman on it and blew his horn to give warning of his approach. He continued his
course and after he had taken the bridge he gave two more successive blasts, as it appeared to him that the man
on horseback before him was not observing the rule of the road.

The plaintiff, it appears, saw the automobile coming and heard the warning signals. However, being perturbed
by the novelty of the apparition or the rapidity of the approach, he pulled the pony closely up against the railing
on the right side of the bridge instead of going to the left. He says that the reason he did this was that he thought
he did not have sufficient time to get over to the other side. The bridge is shown to have a length of about 75
meters and a width of 4.80 meters. As the automobile approached, the defendant guided it toward his left, that
being the proper side of the road for the machine. In so doing the defendant assumed that the horseman would
move to the other side. The pony had not as yet exhibited fright, and the rider had made no sign for the
automobile to stop. Seeing that the pony was apparently quiet, the defendant, instead of veering to the right
while yet some distance away or slowing down, continued to approach directly toward the horse without
diminution of speed. When he had gotten quite near, there being then no possibility of the horse getting across to
the other side, the defendant quickly turned his car sufficiently to the right to escape hitting the horse alongside
of the railing where it as then standing; but in so doing the automobile passed in such close proximity to the
animal that it became frightened and turned its body across the bridge with its head toward the railing. In so
doing, it as struck on the hock of the left hind leg by the flange of the car and the limb was broken. The horse
fell and its rider was thrown off with some violence. From the evidence adduced in the case we believe that
when the accident occurred the free space where the pony stood between the automobile and the railing of the
bridge was probably less than one and one half meters. As a result of its injuries the horse died. The plaintiff
received contusions which caused temporary unconsciousness and required medical attention for several days.

The question presented for decision is whether or not the defendant in maneuvering his car in the manner above
described was guilty of negligence such as gives rise to a civil obligation to repair the damage done; and we are
of the opinion that he is so liable. As the defendant started across the bridge, he had the right to assume that the
horse and the rider would pass over to the proper side; but as he moved toward the center of the bridge it was
demonstrated to his eyes that this would not be done; and he must in a moment have perceived that it was too
late for the horse to cross with safety in front of the moving vehicle. In the nature of things this change of
situation occurred while the automobile was yet some distance away; and from this moment it was not longer
within the power of the plaintiff to escape being run down by going to a place of greater safety. The control of
the situation had then passed entirely to the defendant; and it was his duty either to bring his car to an immediate
stop or, seeing that there were no other persons on the bridge, to take the other side and pass sufficiently far
away from the horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he
was almost upon the horse. He was, we think, deceived into doing this by the fact that the horse had not yet
exhibited fright. But in view of the known nature of horses, there was an appreciable risk that, if the animal in
question was unacquainted with automobiles, he might get exited and jump under the conditions which here
confronted him. When the defendant exposed the horse and rider to this danger he was, in our opinion, negligent
in the eye of the law.
The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use that person would have used in the same situation? If not, then
he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is not
determined by reference to the personal judgment of the actor in the situation before him. The law considers
what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and
determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be
always determined in the light of human experience and in view of the facts involved in the particular case.
Abstract speculations cannot here be of much value but this much can be profitably said: Reasonable men
govern their conduct by the circumstances which are before them or known to them. They are not, and are not
supposed to be, omniscient of the future. Hence they can be expected to take care only when there is something
before them to suggest or warn of danger. Could a prudent man, in the case under consideration, foresee harm as
a result of the course actually pursued? If so, it was the duty of the actor to take precautions to guard against that
harm. Reasonable foresight of harm, followed by ignoring of the suggestion born of this prevision, is always
necessary before negligence can be held to exist. Stated in these terms, the proper criterion for determining the
existence of negligence in a given case is this: Conduct is said to be negligent when a prudent man in the
position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable to
warrant his foregoing conduct or guarding against its consequences.

Applying this test to the conduct of the defendant in the present case we think that negligence is clearly
established. A prudent man, placed in the position of the defendant, would in our opinion, have recognized that
the course which he was pursuing was fraught with risk, and would therefore have foreseen harm to the horse
and the rider as reasonable consequence of that course. Under these circumstances the law imposed on the
defendant the duty to guard against the threatened harm.

It goes without saying that the plaintiff himself was not free from fault, for he was guilty of antecedent
negligence in planting himself on the wrong side of the road. But as we have already stated, the defendant was
also negligent; and in such case the problem always is to discover which agent is immediately and directly
responsible. It will be noted that the negligent acts of the two parties were not contemporaneous, since the
negligence of the defendant succeeded the negligence of the plaintiff by an appreciable interval. Under these
circumstances the law is that the person who has the last fair chance to avoid the impending harm and fails to do
so is chargeable with the consequences, without reference to the prior negligence of the other party.

The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7 Phil. Rep., 359) should perhaps be
mentioned in this connection. This Court there held that while contributory negligence on the part of the person
injured did not constitute a bar to recovery, it could be received in evidence to reduce the damages which would
otherwise have been assessed wholly against the other party. The defendant company had there employed the
plaintiff, as a laborer, to assist in transporting iron rails from a barge in Manila harbor to the company's yards
located not far away. The rails were conveyed upon cars which were hauled along a narrow track. At certain
spot near the water's edge the track gave way by reason of the combined effect of the weight of the car and the
insecurity of the road bed. The car was in consequence upset; the rails slid off; and the plaintiff's leg was caught
and broken. It appeared in evidence that the accident was due to the effects of the typhoon which had dislodged
one of the supports of the track. The court found that the defendant company was negligent in having failed to
repair the bed of the track and also that the plaintiff was, at the moment of the accident, guilty of contributory
negligence in walking at the side of the car instead of being in front or behind. It was held that while the
defendant was liable to the plaintiff by reason of its negligence in having failed to keep the track in proper repair
nevertheless the amount of the damages should be reduced on account of the contributory negligence in the
plaintiff. As will be seen the defendant's negligence in that case consisted in an omission only. The liability of
the company arose from its responsibility for the dangerous condition of its track. In a case like the one now
before us, where the defendant was actually present and operating the automobile which caused the damage, we
do not feel constrained to attempt to weigh the negligence of the respective parties in order to apportion the
damage according to the degree of their relative fault. It is enough to say that the negligence of the defendant
was in this case the immediate and determining cause of the accident and that the antecedent negligence of the
plaintiff was a more remote factor in the case.

A point of minor importance in the case is indicated in the special defense pleaded in the defendant's answer, to
the effect that the subject matter of the action had been previously adjudicated in the court of a justice of the
peace. In this connection it appears that soon after the accident in question occurred, the plaintiff caused
criminal proceedings to be instituted before a justice of the peace charging the defendant with the infliction of
serious injuries (lesiones graves). At the preliminary investigation the defendant was discharged by the
magistrate and the proceedings were dismissed. Conceding that the acquittal of the defendant at the trial upon
the merits in a criminal prosecution for the offense mentioned would be res adjudicata upon the question of his
civil liability arising from negligence -- a point upon which it is unnecessary to express an opinion -- the action
of the justice of the peace in dismissing the criminal proceeding upon the preliminary hearing can have no
effect. (See U. S. vs. Banzuela and Banzuela, 31 Phil. Rep., 564.)

From what has been said it results that the judgment of the lower court must be reversed, and judgment is her
rendered that the plaintiff recover of the defendant the sum of two hundred pesos (P200), with costs of other
instances. The sum here awarded is estimated to include the value of the horse, medical expenses of the plaintiff,
the loss or damage occasioned to articles of his apparel, and lawful interest on the whole to the date of this
recovery. The other damages claimed by the plaintiff are remote or otherwise of such character as not to be
recoverable. So ordered.
GEO. W. DAYWALT, plaintiff-appellant,
vs.
LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees.

C. C. Cohn and Thos. D. Aitken for appellant.

Crossfield & O'Brien for appellee.

STREET, J.:

In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a
contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of
Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be
executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration
and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree recognizing
the right of Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was not
issued until later. The parties, however, met immediately upon the entering of this decree and made a new
contract with a view to carrying their original agreement into effect. This new contract was executed in the form
of a deed of conveyance and bears date of August 16, 1906. The stipulated price was fixed at P4,000, and the
area of the land enclosed in the boundaries defined in the contract was stated to be 452 hectares and a fraction.

The second contract was not immediately carried into effect for the reason that the Torrens certificate was not
yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the
contract had expired. Accordingly, upon October 3, 1908, the parties entered into still another agreement,
superseding the old, by which Teodorica Endencia agreed upon receiving the Torrens title to the land in
question, to deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker
National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of
P3,100.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative to
the registration of the land, it was found by official survey that the area of the tract inclosed in the boundaries
stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view of this
development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser, asserting that she
never intended to sell so large an amount of land and that she had been misinformed as to its area.

This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in
obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of
land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and
effect. This decree appears to have become finally effective in the early part of the year 1914. 1

The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in the city
of Manila. Said corporation was formerly the owner of a large tract of land, known as the San Jose Estate, on the
island of Mindoro, which was sold to the Government of the Philippine Islands in the year 1909. The same
corporation was at this time also the owner of another estate on the same island immediately adjacent to the land
which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had
maintained large herds of cattle on the farms referred to. Their representative, charged with management of
these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long been well
acquainted with Teodorica Endencia and exerted over her an influence and ascendency due to his religious
character as well as to the personal friendship which existed between them. Teodorica appears to be a woman of
little personal force, easily subject to influence, and upon all the important matters of business was accustomed
to seek, and was given, the advice of father Sanz and other members of his order with whom she came in
contact.

Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia agreed to sell
her land to the plaintiff as well as of the later important developments connected with the history of that contract
and the contract substituted successively for it; and in particular Father Sanz, as well as other members of the
defendant corporation, knew of the existence of the contract of October 3, 1908, which, as we have already seen
finally fixed the rights of the parties to the property in question. When the Torrens certificate was finally issued
in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant corporation, and it was
then taken to Manila where it remained in the custody and under the control of P. Juan Labarga the procurador
and chief official of the defendant corporation, until the deliver thereof to the plaintiff was made compulsory by
reason of the decree of the Supreme Court in 1914.

When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that
property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation
immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As Teodorica
still retained possession of said property Father Sanz entered into an arrangement with her whereby large
numbers of cattle belonging to the defendant corporation were pastured upon said land during a period
extending from June 1, 1909, to May 1, 1914.

Under the first cause stated in the complaint in the present action the plaintiff seeks to recover from the
defendant corporation the sum of P24,000, as damages for the use and occupation of the land in question by
reason of the pasturing of cattle thereon during the period stated. The trial court came to the conclusion that the
defendant corporation was liable for damages by reason of the use and occupation of the premises in the manner
stated; and fixed the amount to be recovered at P2,497. The plaintiff appealed and has assigned error to this part
of the judgment of the court below, insisting that damages should have been awarded in a much larger sum and
at least to the full extent of P24,000, the amount claimed in the complaint.

As the defendant did not appeal, the property of allowing damages for the use and occupation of the land to the
extent o P2,497, the amount awarded, is not now in question an the only thing here to be considered, in
connection with this branch of the case, is whether the damages allowed under this head should be increased.
The trial court rightly ignored the fact that the defendant corporation had paid Teodorica Endencia of ruse and
occupation of the same land during the period in question at the rate of P425 per annum, inasmuch as the final
decree of this court in the action for specific performance is conclusive against her right, and as the defendant
corporation had notice of the rights of the plaintiff under this contract of purchase, it can not be permitted that
the corporation should escape liability in this action by proving payment of rent to a person other than the true
owner.

With reference to the rate of which compensation should be estimated the trial court came to the following
conclusion:

As to the rate of the compensation, the plaintiff contends that the defendant corporation maintained at
leas one thousand head of cattle on the land and that the pasturage was of the value of forty centavos
per head monthly, or P4,800 annually, for the whole tract. The court can not accept this view. It is
rather improbable that 1,248 hectares of wild Mindoro land would furnish sufficient pasturage for one
thousand head of cattle during the entire year, and, considering the locality, the rate of forty centavos
per head monthly seems too high. The evidence shows that after having recovered possession of the
land the plaintiff rented it to the defendant corporation for fifty centavos per hectares annually, the
tenant to pay the taxes on the land, and this appears to be a reasonable rent. There is no reason to
suppose that the land was worth more for grazing purposes during the period from 1909 to 1913, than it
was at the later period. Upon this basis the plaintiff is entitled to damages in the sum of p2,497, and is
under no obligation to reimburse the defendants for the land taxes paid by either of them during the
period the land was occupied by the defendant corporation. It may be mentioned in this connection that
the Lontok tract adjoining the land in question and containing over three thousand hectares appears to
have been leased for only P1,000 a year, plus the taxes.

From this it will be seen that the trial court estimated the rental value of the land for grazing purposes at 50
centavos per hectare per annum, and roughly adopted the period of four years as the time for which
compensation at that rate should be made. As the court had already found that the defendant was liable for these
damages from June, 1, 1909, to May 1, 1914, or a period of four years and eleven months, there seems some
ground for the contention made in the appellant's first assignment of error that the court's computation was
erroneous, even accepting the rule upon which the damages were assessed, as it is manifest that at the rate of 50
centavos per hectare per annum, the damages for four years and eleven months would be P3,090.

Notwithstanding this circumstance, we are of the opinion that the damages assessed are sufficient to compensate
the plaintiff for the use and occupation of the land during the whole time it was used. There is evidence in the
record strongly tending to show that the wrongful use of the land by the defendant was not continuous
throughout the year but was confined mostly to the reason when the forage obtainable on the land of the
defendant corporation was not sufficient to maintain its cattle, for which reason it became necessary to allow
them to go over to pasture on the land in question; and it is not clear that the whole of the land was used for
pasturage at any time. Considerations of this character probably led the trial court to adopt four years as roughly
being the period during which compensation should be allowed. But whether this was advertently done or not,
we see no sufficient reason, in the uncertainty of the record with reference to the number of the cattle grazed and
the period when the land was used, for substituting our guess for the estimate made by the trial court.

In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant
corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish purposes,
unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale of the land
in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and without
reasonable cause, maintained her in her defense to the action of specific performance which was finally decided
in favor of the plaintiff in this court. The cause of action here stated is based on liability derived from the
wrongful interference of the defendant in the performance of the contract between the plaintiff and Teodorica
Endencia; and the large damages laid in the complaint were, according to the proof submitted by the plaintiff,
incurred as a result of a combination of circumstances of the following nature: In 1911, it appears, the plaintiff,
as the owner of the land which he had bought from Teodorica Endencia entered into a contract (Exhibit C) with
S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing and milling
enterprise, the successful launching of which depended on the ability of Daywalt to get possession of the land
and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the Philippine
Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the registered title
for delivery in compliance with said agreement with Wakefield. Teodorica Endencia seems to have yielded her
consent to the consummation of her contract, but the Torrens title was then in the possession of Padre Juan
Labarga in Manila, who refused to deliver the document. Teodorica also was in the end contract with the
plaintiff, with the result that the plaintiff was kept out of possession until the Wakefield project for the
establishment of a large sugar growing and milling enterprise fell through. In the light of what has happened in
recent years in the sugar industry, we feel justified in saying that the project above referred to, if carried into
effect, must inevitably have proved a great success.

The determination of the issue presented in this second cause of action requires a consideration of two points.
The first is whether a person who is not a party to a contract for the sale of land makes himself liable for
damages to the vendee, beyond the value of the use and occupation, by colluding with the vendor and
maintaining him in the effort to resist an action for specific performance. The second is whether the damages
which the plaintiff seeks to recover under this head are too remote and speculative to be the subject of recovery.

As preliminary to a consideration of the first of these questions, we deem it well it dispose of the contention that
the members of the defendants corporation, in advising and prompting Teodorica Endencia not to comply with
the contract of sale, were actuated by improper and malicious motives. The trial court found that this contention
was not sustained, observing that while it was true that the circumstances pointed to an entire sympathy on the
part of the defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim to the
land, the fact that its officials may have advised her not to carry the contract into effect would not constitute
actionable interference with such contract. It may be added that when one considers the hardship that the
ultimate performance of that contract entailed on the vendor, and the doubt in which the issue was involved
to the extent that the decision of the Court of the First Instance was unfavorable to the plaintiff and the Supreme
Court itself was divided the attitude of the defendant corporation, as exhibited in the conduct of
its procurador, Juan Labarga, and other members of the order of the Recollect Fathers, is not difficult to
understand. To our mind a fair conclusion on this feature of the case is that father Juan Labarga and his
associates believed in good faith that the contract cold not be enforced and that Teodorica would be wronged if
it should be carried into effect. Any advice or assistance which they may have given was, therefore, prompted
by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would have surrendered
the documents of title and given possession of the land but for the influence and promptings of members of the
defendants corporation. But we do not credit the idea that they were in any degree influenced to the giving of
such advice by the desire to secure to themselves the paltry privilege of grazing their cattle upon the land in
question to the prejudice of the just rights of the plaintiff.

The attorney for the plaintiff maintains that, by interfering in the performance of the contract in question and
obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the defendant corporation made
itself a co-participant with Teodorica Endencia in the breach of said contract; and inasmuch as father Juan
Labarga, at the time of said unlawful intervention between the contracting parties, was fully aware of the
existence of the contract (Exhibit C) which the plaintiff had made with S. B. Wakefield, of San Francisco, it is
insisted that the defendant corporation is liable for the loss consequent upon the failure of the project outlined in
said contract.

In this connection reliance is placed by the plaintiff upon certain American and English decisions in which it is
held that a person who is a stranger to contract may, by an unjustifiable interference in the performance thereof,
render himself liable for the damages consequent upon non-performance. It is said that the doctrine of these
cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been earnestly
pressed to extend the rule there enunciated to the situation here presente.

Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to permit an
action for damages to be maintained against a stranger to a contract wrongfully interfering in its performance.
The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that the plaintiff,
as manager of a theatre, had entered into a contract with Miss Johanna Wagner, an opera singer,, whereby she
bound herself for a period to sing in the plaintiff's theatre and nowhere else. The defendant, knowing of the
existence of this contract, and, as the declaration alleged, "maliciously intending to injure the plaintiff," enticed
and produced Miss Wagner to leave the plaintiff's employment. It was held that the plaintiff was entitled to
recover damages. The right which was here recognized had its origin in a rule, long familiar to the courts of the
common law, to the effect that any person who entices a servant from his employment is liable in damages to
the master. The master's interest in the service rendered by his employee is here considered as a distinct subject
of juridical right. It being thus accepted that it is a legal wrong to break up a relation of personal service, the
question now arose whether it is illegal for one person to interfere with any contract relation subsisting between
others. Prior to the decision of Lumley vs. Gye [supra] it had been supposed that the liability here under
consideration was limited to the cases of the enticement of menial servants, apprentices, and others to whom the
English Statutes of Laborers were applicable. But in the case cited the majority of the judges concurred in the
opinion that the principle extended to all cases of hiring. This doctrine was followed by the Court of Appeal in
Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Temperton vs.Russell ([1893], Q. B., 715), it was held that
the right of action for maliciously procuring a breach of contract is not confined to contracts for personal
services, but extends to contracts in general. In that case the contract which the defendant had procured to be
breached was a contract for the supply of building material.

Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract
relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the
contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his
spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential.

Upon the question as to what constitutes legal justification, a good illustration was put in the leading case. If a
party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third
person, with a bona fide purpose of benefiting the one who is under contract to go, dissuades him from the step,
no action will lie. But if the advice is not disinterested and the persuasion is used for "the indirect purpose of
benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and the
contract broken.

The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated relations of
modern industry, as a means of restraining the activities of labor unions and industrial societies when
improperly engaged in the promotion of strikes. An illustration of the application of the doctrine in question in a
case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It
there appeared that certain miners employed in the plaintiff's collieries, acting under the order of the executive
council of the defendant federation, violated their contract with the plaintiff by abstaining from work on certain
days. The federation and council acted without any actual malice or ill-will towards the plaintiff, and the only
object of the order in question was that the price of coal might thereby be kept up, a factor which affected the
miner's wage scale. It was held that no sufficient justification was shown and that the federation was liable.

In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is
commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be held liable
upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the situation where the
contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers & Marshall vs. Baldwin 91
Ky., 121; Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co., 138
Mo., 439.)
It should be observed in this connection that, according to the English and American authorities, no question can
be made as to the liability to one who interferes with a contract existing between others by means which, under
known legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by force,
intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the person using
such unlawful means is, under all the authorities, liable for the damage which ensues. And in jurisdictions where
the doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome and malicious
interference with a contract relation unless some such unlawful means as those just indicated are used. (See
cases last above cited.)

This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared
that one Cuddy, the owner of a cinematographic film, let it under a rental contract to the plaintiff Gilchrist for a
specified period of time. In violation of the terms of this agreement, Cuddy proceeded to turn over the film also
under a rental contract, to the defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of
First Instance and produced an injunction restraining the defendants from exhibiting the film in question in their
theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to this court it was in
effect held that the injunction was not improperly granted, although the defendants did not, at the time their
contract was made, know the identity of the plaintiff as the person holding the prior contract but did know of the
existence of a contract in favor of someone. It was also said arguendo, that the defendants would have been
liable in damages under article 1902 of the Civil Code, if the action had been brought by the plaintiff to recover
damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in the concurring
opinion, where it is said that the question of breach of contract by inducement was not really involved in the
case. Taking the decision upon the point which was rally decided, it is authority for the proposition that one who
buys something which he knows has been sold to some other person can be restrained from using that thing to
the prejudice of the person having the prior and better right.

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542),
indicates that the defendant corporation, having notice of the sale of the land in question to Daywalt, might have
been enjoined by the latter from using the property for grazing its cattle thereon. That the defendant corporation
is also liable in this action for the damage resulting to the plaintiff from the wrongful use and occupation of the
property has also been already determined. But it will be observed that in order to sustain this liability it is not
necessary to resort to any subtle exegesis relative to the liability of a stranger to a contract for unlawful
interference in the performance thereof. It is enough that defendant use the property with notice that the plaintiff
had a prior and better right.

Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault or
negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of this article as
relates to liability for negligence, we take the rule to be that a person is liable for damage done to another by any
culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted legal
standards. The idea thus expressed is undoubtedly broad enough to include any rational conception of liability
for the tortious acts likely to be developed in any society. Thus considered, it cannot be said that the doctrine of
Lumley vs. Gye [supra] and related cases is repugnant to the principles of the civil law.

Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat
uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach thereof.
Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In
conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of
the contract except in the case especially contemplated in the second paragraph of the same article. (Uy Tam and
Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. vs. Compaia
Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into between certain
parties, determines not only the character and extent of the liability of the contracting parties but also the person
or entity by whom the obligation is exigible. The same idea should apparently be applicable with respect to the
person against whom the obligation of the contract may be enforced; for it is evident that there must be a certain
mutuality in the obligation, and if the stranger to a contract is not permitted to sue to enforce it, he cannot
consistently be held liable upon it.

If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the
process must be accomplished by distinguishing clearly between the right of action arising from the improper
interference with the contract by a stranger thereto, considered as an independent act generate of civil liability,
and the right of action ex contractu against a party to the contract resulting from the breach thereof. However,
we do not propose here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are of
the opinion that neither the doctrine of Lumley vs. Gye [supra] nor the application made of it by this court in
Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages which the plaintiff is
supposed to have suffered by reason of his inability to comply with the terms of the Wakefield contract.

Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting
one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the
stranger cannot become more extensively liable in damages for the nonperformance of the contract than the
party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could be
recovered against the immediate party to the contract would lead to results at once grotesque and unjust. In the
case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the liability of
the defendant corporation, even admitting that it has made itself coparticipant in the breach of the contract, can
in no even exceed hers. This leads us to consider at this point the extent of the liability of Teodorica Endencia to
the plaintiff by reason of her failure to surrender the certificate of title and to place the plaintiff in possession.

It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the
breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance
which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this
court, but without obtaining any special adjudication with reference to damages. Indemnification for damages
resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the
obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to
enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore, it
should be considered that the right of action to recover damages for the breach of the contract in question was
exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res judicata in
her behalf; and as the defendant corporation was not a party to that action, and such defense could not in any
event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia for
damages without refernce to this point.

The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a
contract for the sale of certain land and resisted to the last an action for specific performance in court. The result
was that the plaintiff was prevented during a period of several years from exerting that control over the property
which he was entitled to exert and was meanwhile unable to dispose of the property advantageously. Now, what
is the measure of damages for the wrongful detention of real property by the vender after the time has come for
him to place the purchaser in possession?

The damages ordinarily and normally recoverable against a vendor for failure to deliver land which he has
contracted to deliver is the value of the use and occupation of the land for the time during which it is wrongfully
withheld. And of course where the purchaser has not paid the purchaser money, a deduction may be made in
respect to the interest on the money which constitutes the purchase price. Substantially the same rule holds with
respect to the liability of a landlord who fails to put his tenant in possession pursuant to contract of lease. The
measure of damages is the value of the leasehold interest, or use and occupation, less the stipulated rent, where
this has not been paid. The rule that the measure of damages for the wrongful detention of land is normally to be
found in the value of use and occupation is, we believe, one of the things that may be considered certain in the
law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.) almost as wellsettled,
indeed, as the rule that the measure of damages for the wrongful detention of money is to be found in the
interest.

We recognize the possibility that more extensive damages may be recovered where, at the time of the creation of
the contractual obligation, the vendor, or lessor, is aware of the use to which the purchaser or lessee desires to
put the property which is the subject of the contract, and the contract is made with the eyes of the vendor or
lessor open to the possibility of the damage which may result to the other party from his own failure to give
possession. The case before us is not this character, inasmuch as at the time when the rights of the parties under
the contract were determined, nothing was known to any to them about the San Francisco capitalist who would
be willing to back the project portrayed in Exhibit C.

The extent of the liability for the breach of a contract must be determined in the light of the situation in
existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to
such as might be reasonable are in all events limited to such as might be reasonably foreseen in the light of the
facts then known to the contracting parties. Where the purchaser desires to protect himself, in the contingency of
the failure of the vendor promptly to give possession, from the possibility of incurring other damages than such
as the incident to the normal value of the use and occupation, he should cause to be inserted in the contract a
clause providing for stipulated amount to the paid upon failure of the vendor to give possession; and not case
has been called to our attention where, in the absence of such a stipulation, damages have been held to be
recoverable by the purchaser in excess of the normal value of use and occupation. On the contrary, the most
fundamental conceptions of the law relative to the assessment of damages are inconsistent with such idea.

The principles governing this branch of the law were profoundly considered in the case Hadley vs. Baxendale (9
Exch., 341), decided in the English Court of Exchequer in 1854; and a few words relative to the principles
governing will here be found instructive. The decision in that case is considered a leading authority in the
jurisprudence of the common law. The plaintiffs in that case were proprietors of a mill in Gloucester, which was
propelled by steam, and which was engaged in grinding and supplying meal and flour to customers. The shaft of
the engine got broken, and it became necessarily that the broken shaft be sent to an engineer or foundry man at
Greenwich, to serve as a model for casting or manufacturing another that would fit into the machinery. The
broken shaft could be delivered at Greenwich on the second day after its receipts by the carrier it. It was
delivered to the defendants, who were common carriers engaged in that business between these points, and who
had told plaintiffs it would be delivered at Greenwich on the second day after its delivery to them, if delivered at
a given hour. The carriers were informed that the mill was stopped, but were not informed of the special purpose
for which the broken shaft was desired to forwarded, They were not told the mill would remain idle until the
new shaft would be returned, or that the new shaft could not be manufactured at Greenwich until the broken one
arrived to serve as a model. There was delay beyond the two days in delivering the broken shaft at Greenwich,
and a corresponding delay in starting the mill. No explanation of the delay was offered by the carriers. The suit
was brought to recover damages for the lost profits of the mill, cause by the delay in delivering the broken shaft.
It was held that the plaintiff could not recover.

The discussion contained in the opinion of the court in that case leads to the conclusion that the damages
recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense
necessary damage; and (2) special damages.

Ordinary damages is found in all breaches of contract where the are no special circumstances to distinguish the
case specially from other contracts. The consideration paid for an unperformed promise is an instance of this
sort of damage. In all such cases the damages recoverable are such as naturally and generally would result from
such a breach, "according to the usual course of things." In case involving only ordinary damage no discussion
is ever indulged as to whether that damage was contemplated or not. This is conclusively presumed from the
immediateness and inevitableness of the damage, and the recovery of such damage follows as a necessary legal
consequence of the breach. Ordinary damage is assumed as a matter of law to be within the contemplation of the
parties.

Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is
only found in case where some external condition, apart from the actual terms to the contract exists or
intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without actual
notice of that external condition, could not reasonably be expected to foresee. Concerning this sort of damage,
Hadley vs.Baxendale (1854) [supra] lays down the definite and just rule that before such damage can be
recovered the plaintiff must show that the particular condition which made the damage a possible and likely
consequence of the breach was known to the defendant at the time the contract was made.

The statement that special damages may be recovered where the likelihood of such damages flowing from the
breach of the contract is contemplated and foreseen by the parties needs to be supplemented by a proposition
which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from subsequent cases. This is
that where the damage which a plaintiff seeks to recover as special damage is so far speculative as to be in
contemplation of law remote, notification of the special conditions which make that damage possible cannot
render the defendant liable therefor. To bring damages which would ordinarily be treated as remote within the
category of recoverable special damages, it is necessary that the condition should be made the subject of
contract in such sense as to become an express or implied term of the engagement. Horne vs. Midland R. Co. (L.
R., 8 C. P., 131) is a case where the damage which was sought to be recovered as special damage was really
remote, and some of the judges rightly places the disallowance of the damage on the ground that to make such
damage recoverable, it must so far have been within the contemplation of the parties as to form at least an
implied term of the contract. But others proceeded on the idea that the notice given to the defendant was not
sufficiently full and definite. The result was the same in either view. The facts in that case were as follows: The
plaintiffs, shoe manufacturers at K, were under contract to supply by a certain day shoes to a firm in London for
the French government. They delivered the shoes to a carrier in sufficient time for the goods to reach London at
the time stipulated in the contract and informed the railroad agent that the shoes would be thrown back upon
their hands if they did not reach the destination in time. The defendants negligently failed to forward the good in
due season. The sale was therefore lost, and the market having fallen, the plaintiffs had to sell at a loss.

In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica Endencia; and
what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of action
in the complaint could not be recovered from her, first, because the damages laid under the second cause of
action in the complaint could not be recovered from her, first, because the damages in question are special
damages which were not within contemplation of the parties when the contract was made, and secondly,
because said damages are too remote to be the subject of recovery. This conclusion is also necessarily fatal to
the right of the plaintiff to recover such damages from the defendant corporation, for, as already suggested, by
advising Teodorica not to perform the contract, said corporation could in no event render itself more extensively
liable than the principle in the contract.

Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against
the appellant.

Arellano, C.J., Torres, Carson, Araullo, Malc

EN BANC

G.R. No. L-21438 September 28, 1966

AIR FRANCE, petitioner,

vs.
RAFAEL CARRASCOSO and the HONORABLE COURT OF APPEALS, respondents.

Lichauco, Picazo and Agcaoili for petitioner.

Bengzon Villegas and Zarraga for respondent R. Carrascoso.

SANCHEZ, J.:

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent Rafael Carrascoso P25,000.00 by
way of moral damages; P10,000.00 as exemplary damages; P393.20 representing the difference in fare between
first class and tourist class for the portion of the trip Bangkok-Rome, these various amounts with interest at the
legal rate, from the date of the filing of the complaint until paid; plus P3,000.00 for attorneys' fees; and the costs
of suit.

On appeal,2 the Court of Appeals slightly reduced the amount of refund on Carrascoso's plane ticket from
P393.20 to P383.10, and voted to affirm the appealed decision "in all other respects", with costs against
petitioner.

The case is now before us for review on certiorari.

The facts declared by the Court of Appeals as " fully supported by the evidence of record", are:

Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila for Lourdes
on March 30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine Air Lines, Inc.,
issued to plaintiff a "first class" round trip airplane ticket from Manila to Rome. From Manila to
Bangkok, plaintiff travelled in "first class", but at Bangkok, the Manager of the defendant airline forced
plaintiff to vacate the "first class" seat that he was occupying because, in the words of the witness
Ernesto G. Cuento, there was a "white man", who, the Manager alleged, had a "better right" to the seat.
When asked to vacate his "first class" seat, the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his dead body; a commotion ensued, and,
according to said Ernesto G. Cuento, "many of the Filipino passengers got nervous in the tourist class;
when they found out that Mr. Carrascoso was having a hot discussion with the white man [manager],
they came all across to Mr. Carrascoso and pacified Mr. Carrascoso to give his seat to the white man"
(Transcript, p. 12, Hearing of May 26, 1959); and plaintiff reluctantly gave his "first class" seat in the
plane.3

1. The trust of the relief petitioner now seeks is that we review "all the findings" 4 of respondent Court of
Appeals. Petitioner charges that respondent court failed to make complete findings of fact on all the issues
properly laid before it. We are asked to consider facts favorable to petitioner, and then, to overturn the appellate
court's decision.

Coming into focus is the constitutional mandate that "No decision shall be rendered by any court of record
without expressing therein clearly and distinctly the facts and the law on which it is based". 5 This is echoed in
the statutory demand that a judgment determining the merits of the case shall state "clearly and distinctly the
facts and the law on which it is based"; 6 and that "Every decision of the Court of Appeals shall contain complete
findings of fact on all issues properly raised before it". 7
A decision with absolutely nothing to support it is a nullity. It is open to direct attack. 8 The law, however, solely
insists that a decision state the "essential ultimate facts" upon which the court's conclusion is drawn. 9 A court of
justice is not hidebound to write in its decision every bit and piece of evidence 10 presented by one party and the
other upon the issues raised. Neither is it to be burdened with the obligation "to specify in the sentence the
facts" which a party "considered as proved". 11 This is but a part of the mental process from which the Court
draws the essential ultimate facts. A decision is not to be so clogged with details such that prolixity, if not
confusion, may result. So long as the decision of the Court of Appeals contains the necessary facts to warrant its
conclusions, it is no error for said court to withhold therefrom "any specific finding of facts with respect to the
evidence for the defense". Because as this Court well observed, "There is no law that so requires". 12 Indeed,
"the mere failure to specify (in the decision) the contentions of the appellant and the reasons for refusing to
believe them is not sufficient to hold the same contrary to the requirements of the provisions of law and the
Constitution". It is in this setting that in Manigque, it was held that the mere fact that the findings "were based
entirely on the evidence for the prosecution without taking into consideration or even mentioning the appellant's
side in the controversy as shown by his own testimony", would not vitiate the judgment. 13 If the court did not
recite in the decision the testimony of each witness for, or each item of evidence presented by, the defeated
party, it does not mean that the court has overlooked such testimony or such item of evidence. 14 At any rate, the
legal presumptions are that official duty has been regularly performed, and that all the matters within an issue in
a case were laid before the court and passed upon by it. 15

Findings of fact, which the Court of Appeals is required to make, maybe defined as "the written statement of the
ultimate facts as found by the court ... and essential to support the decision and judgment rendered
thereon". 16They consist of the court's "conclusions" with respect to the determinative facts in issue". 17 A
question of law, upon the other hand, has been declared as "one which does not call for an examination of the
probative value of the evidence presented by the parties." 18

2. By statute, "only questions of law may be raised" in an appeal by certiorari from a judgment of the Court of
Appeals. 19 That judgment is conclusive as to the facts. It is not appropriately the business of this Court to alter
the facts or to review the questions of fact. 20

With these guideposts, we now face the problem of whether the findings of fact of the Court of Appeals support
its judgment.

3. Was Carrascoso entitled to the first class seat he claims?

It is conceded in all quarters that on March 28, 1958 he paid to and received from petitioner a first class ticket.
But petitioner asserts that said ticket did not represent the true and complete intent and agreement of the parties;
that said respondent knew that he did not have confirmed reservations for first class on any specific flight,
although he had tourist class protection; that, accordingly, the issuance of a first class ticket was no guarantee
that he would have a first class ride, but that such would depend upon the availability of first class seats.

These are matters which petitioner has thoroughly presented and discussed in its brief before the Court of
Appeals under its third assignment of error, which reads: "The trial court erred in finding that plaintiff had
confirmed reservations for, and a right to, first class seats on the "definite" segments of his journey, particularly
that from Saigon to Beirut". 21

And, the Court of Appeals disposed of this contention thus:

Defendant seems to capitalize on the argument that the issuance of a first-class ticket was no guarantee
that the passenger to whom the same had been issued, would be accommodated in the first-class
compartment, for as in the case of plaintiff he had yet to make arrangements upon arrival at every
station for the necessary first-class reservation. We are not impressed by such a reasoning. We cannot
understand how a reputable firm like defendant airplane company could have the indiscretion to give
out tickets it never meant to honor at all. It received the corresponding amount in payment of first-class
tickets and yet it allowed the passenger to be at the mercy of its employees. It is more in keeping with
the ordinary course of business that the company should know whether or riot the tickets it issues are to
be honored or not.22

Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's contention, thus:
On the fact that plaintiff paid for, and was issued a "First class" ticket, there can be no question. Apart from his
testimony, see plaintiff's Exhibits "A", "A-1", "B", "B-1," "B-2", "C" and "C-1", and defendant's own witness,
Rafael Altonaga, confirmed plaintiff's testimony and testified as follows:

Q. In these tickets there are marks "O.K." From what you know, what does this OK mean?

A. That the space is confirmed.

Q. Confirmed for first class?

A. Yes, "first class". (Transcript, p. 169)

xxx xxx xxx

Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and Rafael Altonaga that although
plaintiff paid for, and was issued a "first class" airplane ticket, the ticket was subject to confirmation in
Hongkong. The court cannot give credit to the testimony of said witnesses. Oral evidence cannot prevail over
written evidence, and plaintiff's Exhibits "A", "A-l", "B", "B-l", "C" and "C-1" belie the testimony of said
witnesses, and clearly show that the plaintiff was issued, and paid for, a first class ticket without any reservation
whatever.

Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga testified that the reservation for a
"first class" accommodation for the plaintiff was confirmed. The court cannot believe that after such
confirmation defendant had a verbal understanding with plaintiff that the "first class" ticket issued to him by
defendant would be subject to confirmation in Hongkong. 23

We have heretofore adverted to the fact that except for a slight difference of a few pesos in the amount refunded
on Carrascoso's ticket, the decision of the Court of First Instance was affirmed by the Court of Appeals in all
other respects. We hold the view that such a judgment of affirmance has merged the judgment of the lower
court. 24Implicit in that affirmance is a determination by the Court of Appeals that the proceeding in the Court of
First Instance was free from prejudicial error and "all questions raised by the assignments of error and all
questions that might have been raised are to be regarded as finally adjudicated against the appellant". So also,
the judgment affirmed "must be regarded as free from all error". 25 We reached this policy construction because
nothing in the decision of the Court of Appeals on this point would suggest that its findings of fact are in any
way at war with those of the trial court. Nor was said affirmance by the Court of Appeals upon a ground or
grounds different from those which were made the basis of the conclusions of the trial court. 26

If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class seat, notwithstanding the fact
that seat availability in specific flights is therein confirmed, then an air passenger is placed in the hollow of the
hands of an airline. What security then can a passenger have? It will always be an easy matter for an airline
aided by its employees, to strike out the very stipulations in the ticket, and say that there was a verbal agreement
to the contrary. What if the passenger had a schedule to fulfill? We have long learned that, as a rule, a written
document speaks a uniform language; that spoken word could be notoriously unreliable. If only to achieve
stability in the relations between passenger and air carrier, adherence to the ticket so issued is desirable. Such is
the case here. The lower courts refused to believe the oral evidence intended to defeat the covenants in the
ticket.

The foregoing are the considerations which point to the conclusion that there are facts upon which the Court of
Appeals predicated the finding that respondent Carrascoso had a first class ticket and was entitled to a first class
seat at Bangkok, which is a stopover in the Saigon to Beirut leg of the flight. 27 We perceive no "welter of
distortions by the Court of Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do
we subscribe to petitioner's accusation that respondent Carrascoso "surreptitiously took a first class seat to
provoke an issue". 29And this because, as petitioner states, Carrascoso went to see the Manager at his office in
Bangkok "to confirm my seat and because from Saigon I was told again to see the Manager". 30 Why, then, was
he allowed to take a first class seat in the plane at Bangkok, if he had no seat? Or, if another had a better right to
the seat?
4. Petitioner assails respondent court's award of moral damages. Petitioner's trenchant claim is that Carrascoso's
action is planted upon breach of contract; that to authorize an award for moral damages there must be an
averment of fraud or bad faith;31 and that the decision of the Court of Appeals fails to make a finding of bad
faith. The pivotal allegations in the complaint bearing on this issue are:

3. That ... plaintiff entered into a contract of air carriage with the Philippine Air Lines for a valuable
consideration, the latter acting as general agents for and in behalf of the defendant, under which said
contract, plaintiff was entitled to, as defendant agreed to furnish plaintiff, First Class passage on
defendant's plane during the entire duration of plaintiff's tour of Europe with Hongkong as starting
point up to and until plaintiff's return trip to Manila, ... .

4. That, during the first two legs of the trip from Hongkong to Saigon and from Saigon to Bangkok,
defendant furnished to the plaintiff First Class accommodation but only after protestations, arguments
and/or insistence were made by the plaintiff with defendant's employees.

5. That finally, defendant failed to provide First Class passage, but instead furnished plaintiff
only Tourist Class accommodations from Bangkok to Teheran and/or Casablanca, ... the plaintiff has
been compelled by defendant's employees to leave the First Class accommodation berths at
Bangkok after he was already seated.

6. That consequently, the plaintiff, desiring no repetition of the inconvenience and embarrassments
brought by defendant's breach of contract was forced to take a Pan American World Airways plane on
his return trip from Madrid to Manila.32

xxx xxx xxx

2. That likewise, as a result of defendant's failure to furnish First Class accommodations aforesaid, plaintiff
suffered inconveniences, embarrassments, and humiliations, thereby causing plaintiff mental anguish, serious
anxiety, wounded feelings, social humiliation, and the like injury, resulting in moral damages in the amount of
P30,000.00. 33

xxx xxx xxx

The foregoing, in our opinion, substantially aver: First, That there was a contract to furnish plaintiff a first class
passage covering, amongst others, the Bangkok-Teheran leg; Second, That said contract was breached when
petitioner failed to furnish first class transportation at Bangkok; and Third, that there was bad faith when
petitioner's employee compelled Carrascoso to leave his first class accommodation berth "after he was already,
seated" and to take a seat in the tourist class, by reason of which he suffered inconvenience, embarrassments and
humiliations, thereby causing him mental anguish, serious anxiety, wounded feelings and social humiliation,
resulting in moral damages. It is true that there is no specific mention of the term bad faith in the complaint.
But, the inference of bad faith is there, it may be drawn from the facts and circumstances set forth therein. 34 The
contract was averred to establish the relation between the parties. But the stress of the action is put on wrongful
expulsion.

Quite apart from the foregoing is that (a) right the start of the trial, respondent's counsel placed petitioner on
guard on what Carrascoso intended to prove: That while sitting in the plane in Bangkok, Carrascoso
was ousted by petitioner's manager who gave his seat to a white man; 35 and (b) evidence of bad faith in the
fulfillment of the contract was presented without objection on the part of the petitioner. It is, therefore,
unnecessary to inquire as to whether or not there is sufficient averment in the complaint to justify an award for
moral damages. Deficiency in the complaint, if any, was cured by the evidence. An amendment thereof to
conform to the evidence is not even required. 36 On the question of bad faith, the Court of Appeals declared:

That the plaintiff was forced out of his seat in the first class compartment of the plane belonging to the
defendant Air France while at Bangkok, and was transferred to the tourist class not only without his
consent but against his will, has been sufficiently established by plaintiff in his testimony before the
court, corroborated by the corresponding entry made by the purser of the plane in his notebook which
notation reads as follows:
 "First-class passenger was forced to go to the tourist class against his will, and that the captain
refused to intervene",

and by the testimony of an eye-witness, Ernesto G. Cuento, who was a co-passenger. The captain of the
plane who was asked by the manager of defendant company at Bangkok to intervene even refused to do
so. It is noteworthy that no one on behalf of defendant ever contradicted or denied this evidence for the
plaintiff. It could have been easy for defendant to present its manager at Bangkok to testify at the trial
of the case, or yet to secure his disposition; but defendant did neither. 37

The Court of appeals further stated

Neither is there evidence as to whether or not a prior reservation was made by the white man. Hence, if
the employees of the defendant at Bangkok sold a first-class ticket to him when all the seats had
already been taken, surely the plaintiff should not have been picked out as the one to suffer the
consequences and to be subjected to the humiliation and indignity of being ejected from his seat in the
presence of others. Instead of explaining to the white man the improvidence committed by defendant's
employees, the manager adopted the more drastic step of ousting the plaintiff who was then safely
ensconsced in his rightful seat. We are strengthened in our belief that this probably was what happened
there, by the testimony of defendant's witness Rafael Altonaga who, when asked to explain the
meaning of the letters "O.K." appearing on the tickets of plaintiff, said "that the space is confirmed for
first class. Likewise, Zenaida Faustino, another witness for defendant, who was the chief of the
Reservation Office of defendant, testified as follows:

"Q How does the person in the ticket-issuing office know what reservation the passenger has
arranged with you?

A They call us up by phone and ask for the confirmation." (t.s.n., p. 247, June 19, 1959)

In this connection, we quote with approval what the trial Judge has said on this point:

Why did the, using the words of witness Ernesto G. Cuento, "white man" have a "better right"
to the seat occupied by Mr. Carrascoso? The record is silent. The defendant airline did not
prove "any better", nay, any right on the part of the "white man" to the "First class" seat that
the plaintiff was occupying and for which he paid and was issued a corresponding "first class"
ticket.

If there was a justified reason for the action of the defendant's Manager in Bangkok, the
defendant could have easily proven it by having taken the testimony of the said Manager by
deposition, but defendant did not do so; the presumption is that evidence willfully suppressed
would be adverse if produced [Sec. 69, par (e), Rules of Court]; and, under the circumstances,
the Court is constrained to find, as it does find, that the Manager of the defendant airline in
Bangkok not merely asked but threatened the plaintiff to throw him out of the plane if he did
not give up his "first class" seat because the said Manager wanted to accommodate, using the
words of the witness Ernesto G. Cuento, the "white man". 38

It is really correct to say that the Court of Appeals in the quoted portion first transcribed did not use the
term "bad faith". But can it be doubted that the recital of facts therein points to bad faith? The manager
not only prevented Carrascoso from enjoying his right to a first class seat; worse, he imposed his
arbitrary will; he forcibly ejected him from his seat, made him suffer the humiliation of having to go to
the tourist class compartment - just to give way to another passenger whose right thereto has not been
established. Certainly, this is bad faith. Unless, of course, bad faith has assumed a meaning different
from what is understood in law. For, "bad faith" contemplates a "state of mind affirmatively operating
with furtive design or with some motive of self-interest or will or for ulterior purpose." 39

And if the foregoing were not yet sufficient, there is the express finding of bad faith in the judgment of
the Court of First Instance, thus:
 The evidence shows that the defendant violated its contract of transportation with plaintiff in
bad faith, with the aggravating circumstances that defendant's Manager in Bangkok went to
the extent of threatening the plaintiff in the presence of many passengers to have him thrown
out of the airplane to give the "first class" seat that he was occupying to, again using the words
of the witness Ernesto G. Cuento, a "white man" whom he (defendant's Manager) wished to
accommodate, and the defendant has not proven that this "white man" had any "better right" to
occupy the "first class" seat that the plaintiff was occupying, duly paid for, and for which the
corresponding "first class" ticket was issued by the defendant to him. 40

5. The responsibility of an employer for the tortious act of its employees need not be essayed. It is well settled in
law. 41 For the willful malevolent act of petitioner's manager, petitioner, his employer, must answer. Article 21
of the Civil Code says:

ART. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.

In parallel circumstances, we applied the foregoing legal precept; and, we held that upon the provisions of
Article 2219 (10), Civil Code, moral damages are recoverable. 42

6. A contract to transport passengers is quite different in kind and degree from any other contractual
relation. 43 And this, because of the relation which an air-carrier sustains with the public. Its business is mainly
with the travelling public. It invites people to avail of the comforts and advantages it offers. The contract of air
carriage, therefore, generates a relation attended with a public duty. Neglect or malfeasance of the carrier's
employees, naturally, could give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's employees
with kindness, respect, courtesy and due consideration. They are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such employees. So it is, that any rule or
discourteous conduct on the part of employees towards a passenger gives the latter an action for damages
against the carrier. 44

Thus, "Where a steamship company 45 had accepted a passenger's check, it was a breach of contract and a tort,
giving a right of action for its agent in the presence of third persons to falsely notify her that the check was
worthless and demand payment under threat of ejection, though the language used was not insulting and she was
not ejected." 46 And this, because, although the relation of passenger and carrier is "contractual both in origin
and nature" nevertheless "the act that breaks the contract may be also a tort". 47 And in another case, "Where a
passenger on a railroad train, when the conductor came to collect his fare tendered him the cash fare to a point
where the train was scheduled not to stop, and told him that as soon as the train reached such point he would pay
the cash fare from that point to destination, there was nothing in the conduct of the passenger which justified the
conductor in using insulting language to him, as by calling him a lunatic," 48 and the Supreme Court of South
Carolina there held the carrier liable for the mental suffering of said passenger.1awphl.nt

Petitioner's contract with Carrascoso is one attended with public duty. The stress of Carrascoso's action as we
have said, is placed upon his wrongful expulsion. This is a violation of public duty by the petitioner air carrier
a case of quasi-delict. Damages are proper.

7. Petitioner draws our attention to respondent Carrascoso's testimony, thus

Q You mentioned about an attendant. Who is that attendant and purser?

A When we left already that was already in the trip I could not help it. So one of the flight
attendants approached me and requested from me my ticket and I said, What for? and she said, "We
will note that you transferred to the tourist class". I said, "Nothing of that kind. That is tantamount to
accepting my transfer." And I also said, "You are not going to note anything there because I am
protesting to this transfer".

Q Was she able to note it?

 A No, because I did not give my ticket.

Q About that purser?

A Well, the seats there are so close that you feel uncomfortable and you don't have enough leg room, I
stood up and I went to the pantry that was next to me and the purser was there. He told me, "I have
recorded the incident in my notebook." He read it and translated it to me because it was recorded in
French "First class passenger was forced to go to the tourist class against his will, and that the
captain refused to intervene."

Mr. VALTE

I move to strike out the last part of the testimony of the witness because the best evidence would be the
notes. Your Honor.

COURT

I will allow that as part of his testimony. 49

Petitioner charges that the finding of the Court of Appeals that the purser made an entry in his notebook reading
"First class passenger was forced to go to the tourist class against his will, and that the captain refused to
intervene" is predicated upon evidence [Carrascoso's testimony above] which is incompetent. We do not think
so. The subject of inquiry is not the entry, but the ouster incident. Testimony on the entry does not come within
the proscription of the best evidence rule. Such testimony is admissible. 49a

Besides, from a reading of the transcript just quoted, when the dialogue happened, the impact of the startling
occurrence was still fresh and continued to be felt. The excitement had not as yet died down. Statements then, in
this environment, are admissible as part of the res gestae. 50 For, they grow "out of the nervous excitement and
mental and physical condition of the declarant". 51 The utterance of the purser regarding his entry in the
notebook was spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness has been
guaranteed. 52 It thus escapes the operation of the hearsay rule. It forms part of the res gestae.

At all events, the entry was made outside the Philippines. And, by an employee of petitioner. It would have been
an easy matter for petitioner to have contradicted Carrascoso's testimony. If it were really true that no such entry
was made, the deposition of the purser could have cleared up the matter.

We, therefore, hold that the transcribed testimony of Carrascoso is admissible in evidence.

8. Exemplary damages are well awarded. The Civil Code gives the court ample power to grant exemplary
damages in contracts and quasi- contracts. The only condition is that defendant should have "acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner." 53 The manner of ejectment of respondent
Carrascoso from his first class seat fits into this legal precept. And this, in addition to moral damages. 54

9. The right to attorney's fees is fully established. The grant of exemplary damages justifies a similar judgment
for attorneys' fees. The least that can be said is that the courts below felt that it is but just and equitable that
attorneys' fees be given. 55 We do not intend to break faith with the tradition that discretion well exercised as
it was here should not be disturbed.

10. Questioned as excessive are the amounts decreed by both the trial court and the Court of Appeals, thus:
P25,000.00 as moral damages; P10,000.00, by way of exemplary damages, and P3,000.00 as attorneys' fees. The
task of fixing these amounts is primarily with the trial court. 56 The Court of Appeals did not interfere with the
same. The dictates of good sense suggest that we give our imprimatur thereto. Because, the facts and
circumstances point to the reasonableness thereof.57

On balance, we say that the judgment of the Court of Appeals does not suffer from reversible error. We
accordingly vote to affirm the same. Costs against petitioner. So ordered.
C. S. GILCHRIST, plaintiff-appellee,
vs.
E. A. CUDDY, ET AL., defendants.
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.

C. Lozano for appellants.

Bruce, Lawrence, Ross and Block for appellee.

TRENT, J.:

An appeal by the defendants, Jose Fernandez Espejo and Mariano Zaldarriaga, from a judgment of the Court of
First Instance of Iloilo, dismissing their cross-complaint upon the merits for damages against the plaintiff for the
alleged wrongful issuance of a mandatory and a preliminary injunction.

Upon the application of the appellee an ex parte mandatory injunction was issued on the 22d of May, 1913,
directing the defendant, E. A. Cuddy, to send to the appellee a certain cinematograph film called "Zigomar" in
compliance with an alleged contract which had been entered into between these two parties, and at the time
an ex partepreliminary injunction was issued restraining the appellants from receiving and exhibiting in their
theater the Zigomar until further orders of the court. On the 26th of that month the appellants appeared and
moved the court to dissolve the preliminary injunction. When the case was called for trial on August 6, the
appellee moved for the dismissal of the complaint "for the reason that there is no further necessity for the
maintenance of the injunction." The motion was granted without objection as to Cuddy and denied as to the
appellants in order to give them an opportunity to prove that the injunction were wrongfully issued and the
amount of damages suffered by reason thereof.

The pertinent part of the trial court's findings of fact in this case is as follows:

It appears in this case that Cuddy was the owner of the film Zigomar and that on the 24th of April he
rented it to C. S. Gilchrist for a week for P125, and it was to be delivered on the 26th of May, the week
beginning that day. A few days prior to this Cuddy sent the money back to Gilchrist, which he had
forwarded to him in Manila, saying that he had made other arrangements with his film. The other
arrangements was the rental to these defendants Espejo and his partner for P350 for the week and the
injunction was asked by Gilchrist against these parties from showing it for the week beginning the 26th
of May.

It appears from the testimony in this case, conclusively, that Cuddy willfully violated his contract, he
being the owner of the picture, with Gilchrist because the defendants had offered him more for the
same period. Mr. Espejo at the trial on the permanent injunction on the 26th of May admitted that he
knew that Cuddy was the owner of the film. He was trying to get it through his agents Pathe Brothers in
Manila. He is the agent of the same concern in Iloilo. There is in evidence in this case on the trial today
as well as on the 26th of May, letters showing that the Pathe Brothers in Manila advised this man on
two different occasions not to contend for this film Zigomar because the rental price was prohibitive
and assured him also that he could not get the film for about six weeks. The last of these letters was
written on the 26th of April, which showed conclusively that he knew they had to get this film from
Cuddy and from this letter that the agent in Manila could not get it, but he made Cuddy an offer himself
and Cuddy accepted it because he was paying about three times as much as he had contracted with
Gilchrist for. Therefore, in the opinion of this court, the defendants failed signally to show the
injunction against the defendant was wrongfully procured.

The appellants duly excepted to the order of the court denying their motion for new trial on the ground that the
evidence was insufficient to justify the decision rendered. There is lacking from the record before us the
deposition of the defendant Cuddy, which apparently throws light upon a contract entered into between him and
the plaintiff Gilchrist. The contents of this deposition are discussed at length in the brief of the appellants and an
endeavor is made to show that no such contract was entered into. The trial court, which had this deposition
before it, found that there was a contract between Cuddy and Gilchrist. Not having the deposition in question
before us, it is impossible to say how strongly it militates against this findings of fact. By a series of decisions
we have construed section 143 and 497 (2) of the Code of Civil Procedure to require the production of all the
evidence in this court. This is the duty of the appellant and, upon his failure to perform it, we decline to proceed
with a review of the evidence. In such cases we rely entirely upon the pleadings and the findings of fact of the
trial court and examine only such assigned errors as raise questions of law. (Ferrer vs. Neri Abejuela, 9 Phil.
Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell
& Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen & Co. vs. Matson, Lord & Belser Co., 19
Phil. Rep., 102; Blum vs. Barretto, 19 Phil. Rep., 161; Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves,
20 Phil. Rep., 147; Mans vs. Garry, 20 Phil. Rep., 134.) It is true that some of the more recent of these cases
make exceptions to the general rule. Thus, in Olsen & Co. vs.Matson, Lord & Belser Co., (19 Phil. Rep., 102),
that portion of the evidence before us tended to show that grave injustice might result from a strict reliance upon
the findings of fact contained in the judgment appealed from. We, therefore, gave the appellant an opportunity
to explain the omission. But we required that such explanation must show a satisfactory reason for the omission,
and that the missing portion of the evidence must be submitted within sixty days or cause shown for failing to
do so. The other cases making exceptions to the rule are based upon peculiar circumstances which will seldom
arise in practice and need not here be set forth, for the reason that they are wholly inapplicable to the present
case. The appellants would be entitled to indulgence only under the doctrine of the Olsen case. But from that
portion of the record before us, we are not inclined to believe that the missing deposition would be sufficient to
justify us in reversing the findings of fact of the trial court that the contract in question had been made. There is
in the record not only the positive and detailed testimony of Gilchrist to this effect, but there is also a letter of
apology from Cuddy to Gilchrist in which the former enters into a lengthy explanation of his reasons for leasing
the film to another party. The latter could only have been called forth by a broken contract with Gilchrist to
lease the film to him. We, therefore, fail to find any reason for overlooking the omission of the defendants to
bring up the missing portion of the evidence and, adhering to the general rule above referred to, proceed to
examine the questions of law raised by the appellants.

From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila, was the owner of the
"Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in accordance with the terms
of the contract entered into between Cuddy and Gilchrist the former leased to the latter the "Zigomar" for
exhibition in his (Gilchrist's) theater for the week beginning May 26, 1913; and that Cuddy willfully violate his
contract in order that he might accept the appellant's offer of P350 for the film for the same period. Did the
appellants know that they were inducing Cuddy to violate his contract with a third party when they induced him
to accept the P350? Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter
from his agents in Manila dated April 26, assuring him that he could not get the film for about six weeks. The
arrangement between Cuddy and the appellants for the exhibition of the film by the latter on the 26th of May
were perfected after April 26, so that the six weeks would include and extend beyond May 26. The appellants
must necessarily have known at the time they made their offer to Cuddy that the latter had booked or contracted
the film for six weeks from April 26. Therefore, the inevitable conclusion is that the appellants knowingly
induced Cuddy to violate his contract with another person. But there is no specific finding that the appellants
knew the identity of the other party. So we must assume that they did not know that Gilchrist was the person
who had contracted for the film.

The appellants take the position that if the preliminary injunction had not been issued against them they could
have exhibited the film in their theater for a number of days beginning May 26, and could have also subleased it
to other theater owners in the nearby towns and, by so doing, could have cleared, during the life of their contract
with Cuddy, the amount claimed as damages. Taking this view of the case, it will be unnecessary for us to
inquire whether the mandatory injunction against Cuddy was properly issued or not. No question is raised with
reference to the issuance of that injunction.

The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film must be fully
recognized and admitted by all. That Cuddy was liable in an action for damages for the breach of that contract,
there can be no doubt. Were the appellants likewise liable for interfering with the contract between Gilchrist and
Cuddy, they not knowing at the time the identity of one of the contracting parties? The appellants claim that
they had a right to do what they did. The ground upon which the appellants base this contention is, that there
was no valid and binding contract between Cuddy and Gilchrist and that, therefore, they had a right to compete
with Gilchrist for the lease of the film, the right to compete being a justification for their acts. If there had been
no contract between Cuddy and Gilchrist this defense would be tenable, but the mere right to compete could not
justify the appellants in intentionally inducing Cuddy to take away the appellee's contractual rights.

Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a right to enjoy the fruits and
advantages of his own enterprise, industry, skill and credit. He has no right to be free from malicious and
wanton interference, disturbance or annoyance. If disturbance or loss come as a result of competition, or the
exercise of like rights by others, it is damnum absque injuria, unless some superior right by contract or
otherwise is interfered with."

In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), Darling, J., said: "I think the
plaintiff has a cause of action against the defendants, unless the court is satisfied that, when they interfered with
the contractual rights of plaintiff, the defendants had a sufficient justification for their interference; . . . for it is
not a justification that `they acted bona fide in the best interests of the society of masons,' i. e., in their own
interests. Nor is it enough that `they were not actuated by improper motives.' I think their sufficient justification
for interference with plaintiff's right must be an equal or superior right in themselves, and that no one can legally
excuse himself to a man, of whose contract he has procured the breach, on the ground that he acted on a wrong
understanding of his own rights, or without malice, or bona fide, or in the best interests of himself, or even that
he acted as an altruist, seeking only good of another and careless of his own advantage." (Quoted with approval
in Beekman vs. Marsters, 195 Mass., 205.)

It is said that the ground on which the liability of a third party for interfering with a contract between others
rests, is that the interference was malicious. The contrary view, however, is taken by the Supreme Court of the
United States in the case of Angle vs. Railway Co. (151 U. S., 1). The only motive for interference by the third
party in that case was the desire to make a profit to the injury of one of the parties of the contract. There was no
malice in the case beyond the desire to make an unlawful gain to the detriment of one of the contracting parties.

In the case at bar the only motive for the interference with the Gilchrist Cuddy contract on the part of the
appellants was a desire to make a profit by exhibiting the film in their theater. There was no malice beyond this
desire; but this fact does not relieve them of the legal liability for interfering with that contract and causing its
breach. It is, therefore, clear, under the above authorities, that they were liable to Gilchrist for the damages
caused by their acts, unless they are relieved from such liability by reason of the fact that they did not know at
the time the identity of the original lessee (Gilchrist) of the film.

The liability of the appellants arises from unlawful acts and not from contractual obligations, as they were under
no such obligations to induce Cuddy to violate his contract with Gilchrist. So that if the action of Gilchrist had
been one for damages, it would be governed by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that
code provides that a person who, by act or omission, causes damages to another when there is fault or
negligence, shall be obliged to repair the damage do done. There is nothing in this article which requires as a
condition precedent to the liability of a tort-feasor that he must know the identity of a person to whom he causes
damages. In fact, the chapter wherein this article is found clearly shows that no such knowledge is required in
order that the injured party may recover for the damage suffered.

But the fact that the appellants' interference with the Gilchrist contract was actionable did not of itself entitle
Gilchrist to sue out an injunction against them. The allowance of this remedy must be justified under section 164
of the Code of Civil Procedure, which specifies the circumstance under which an injunction may issue. Upon the
general doctrine of injunction we said in Devesa vs. Arbes (13 Phil. Rep., 273):

An injunction is a "special remedy" adopted in that code (Act No. 190) from American practice, and
originally borrowed from English legal procedure, which was there issued by the authority and under
the seal of a court of equity, and limited, as in order cases where equitable relief is sought, to cases
where there is no "plain, adequate, and complete remedy at law," which "will not be granted while the
rights between the parties are undetermined, except in extraordinary cases where material and
irreparable injury will be done," which cannot be compensated in damages, and where there will be no
adequate remedy, and which will not, as a rule, be granted, to take property out of the possession of
one party and put it into that of another whose title has not been established by law.

We subsequently affirmed the doctrine of the Devesa case in Palafox vs. Madamba (19 Phil., Rep., 444), and we
take this occasion of again affirming it, believing, as we do, that the indiscriminate use of injunctions should be
discouraged.

Does the fact that the appellants did not know at the time the identity of the original lessee of the film militate
against Gilchrist's right to a preliminary injunction, although the appellant's incurred civil liability for damages
for such interference? In the examination of the adjudicated cases, where in injunctions have been issued to
restrain wrongful interference with contracts by strangers to such contracts, we have been unable to find any
case where this precise question was involved, as in all of those cases which we have examined, the identity of
both of the contracting parties was known to the tort-feasors. We might say, however, that this fact does not
seem to have a controlling feature in those cases. There is nothing in section 164 of the Code of Civil Procedure
which indicates, even remotely, that before an injunction may issue restraining the wrongful interference with
contrast by strangers, the strangers must know the identity of both parties. It would seem that this is not
essential, as injunctions frequently issue against municipal corporations, public service corporations, public
officers, and others to restrain the commission of acts which would tend to injuriously affect the rights of person
whose identity the respondents could not possibly have known beforehand. This court has held that in a proper
case injunction will issue at the instance of a private citizen to restrain ultra vires acts of public officials.
(Severino vs. Governor-General, 16 Phil. Rep., 366.) So we proceed to the determination of the main question of
whether or not the preliminary injunction ought to have been issued in this case.

As a rule, injunctions are denied to those who have an adequate remedy at law. Where the choice is between the
ordinary and the extraordinary processes of law, and the former are sufficient, the rule will not permit the use of
the latter. (In re Debs, 158 U. S., 564.) If the injury is irreparable, the ordinary process is inadequate. In
Wahle vs.Reinbach (76 Ill., 322), the supreme court of Illinois approved a definition of the term "irreparable
injury" in the following language: "By `irreparable injury' is not meant such injury as is beyond the possibility
of repair, or beyond possible compensation in damages, nor necessarily great injury or great damage, but that
species of injury, whether great or small, that ought not to be submitted to on the one hand or inflicted on the
other; and, because it is so large on the one hand, or so small on the other, is of such constant and frequent
recurrence that no fair or reasonable redress can be had therefor in a court of law." (Quoted with approval in
Nashville R. R. Co. vs. McConnell, 82 Fed., 65.)

The case at bar is somewhat novel, as the only contract which was broken was that between Cuddy and
Gilchrist, and the profits of the appellee depended upon the patronage of the public, for which it is conceded the
appellants were at liberty to complete by all fair does not deter the application of remarked in the case of the
"ticket scalpers" (82 Fed., 65), the novelty of the facts does not deter the application of equitable principles. This
court takes judicial notice of the general character of a cinematograph or motion-picture theater. It is a quite
modern form of the play house, wherein, by means of an apparatus known as a cinematograph or
cinematograph, a series of views representing closely successive phases of a moving object, are exhibited in
rapid sequence, giving a picture which, owing to the persistence of vision, appears to the observer to be in
continuous motion. (The Encyclopedia Britanica, vol. 6, p. 374.) The subjects which have lent themselves to the
art of the photographer in this manner have increased enormously in recent years, as well as have the places
where such exhibition are given. The attendance, and, consequently, the receipts, at one of these cinematograph
or motion-picture theaters depends in no small degree upon the excellence of the photographs, and it is quite
common for the proprietor of the theater to secure an especially attractive exhibit as his "feature film" and
advertise it as such in order to attract the public. This feature film is depended upon to secure a larger attendance
that if its place on the program were filled by other films of mediocre quality. It is evident that the failure to
exhibit the feature film will reduce the receipts of the theater.

Hence, Gilchrist was facing the immediate prospect of diminished profits by reason of the fact that the
appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as his feature film. It is quite
apparent that to estimate with any decree of accuracy the damages which Gilchrist would likely suffer from such
an event would be quite difficult if not impossible. If he allowed the appellants to exhibit the film in Iloilo, it
would be useless for him to exhibit it again, as the desire of the public to witness the production would have
been already satisfied. In this extremity, the appellee applied for and was granted, as we have indicated, a
mandatory injunction against Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary
injunction against the appellants restraining them from exhibiting that film in their theater during the weeks he
(Gilchrist) had a right to exhibit it. These injunction saved the plaintiff harmless from damages due to the
unwarranted interference of the defendants, as well as the difficult task which would have been set for the court
of estimating them in case the appellants had been allowed to carry out their illegal plans. As to whether or not
the mandatory injunction should have been issued, we are not, as we have said, called upon to determine. So far
as the preliminary injunction issued against the appellants is concerned, which prohibited them from exhibiting
the Zigomar during the week which Gilchrist desired to exhibit it, we are of the opinion that the circumstances
justified the issuance of that injunction in the discretion of the court.

We are not lacking in authority to support our conclusion that the court was justified in issuing the preliminary
injunction against the appellants. Upon the precise question as to whether injunction will issue to restrain
wrongful interference with contracts by strangers to such contracts, it may be said that courts in the United
States have usually granted such relief where the profits of the injured person are derived from his contractual
relations with a large and indefinite number of individuals, thus reducing him to the necessity of proving in an
action against the tort-feasor that the latter was responsible in each case for the broken contract, or else obliging
him to institute individual suits against each contracting party and so exposing him to a multiplicity of suits.
Sperry & Hutchinson Co. vs.Mechanics' Clothing Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis
Weber & Co. (161 Fed., 219); Sperry & Hutchinson Co. vs. Pommer (199 Fed., 309); were all cases wherein the
respondents were inducing retail merchants to break their contracts with the company for the sale of the latters'
trading stamps. Injunction issued in each case restraining the respondents from interfering with such contracts.

In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court, among other things, said: "One
who wrongfully interferes in a contract between others, and, for the purpose of gain to himself induces one of
the parties to break it, is liable to the party injured thereby; and his continued interference may be ground for an
injunction where the injuries resulting will be irreparable."

In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears that the respondents were
interfering in a contract for prison labor, and the result would be, if they were successful, the shutting down of
the petitioner's plant for an indefinite time. The court held that although there was no contention that the
respondents were insolvent, the trial court did not abuse its discretion in granting a preliminary injunction
against the respondents.

In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the Jamestown Hotel Corporation,
conducting a hotel within the grounds of the Jamestown Exposition, a contract whereby he was made their
exclusive agent for the New England States to solicit patronage for the hotel. The defendant induced the hotel
corporation to break their contract with the plaintiff in order to allow him to act also as their agent in the New
England States. The court held that an action for damages would not have afforded the plaintiff adequate relief,
and that an injunction was proper compelling the defendant to desist from further interference with the plaintiff's
exclusive contract with the hotel company.

In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co. (171 Fed., 553), the court,
while admitting that there are some authorities to the contrary, held that the current authority in the United
States and England is that:

The violation of a legal right committed knowingly is a cause of action, and that it is a violation of a
legal right to interfere with contractual relations recognized by law, if there be no sufficient
justification for the interference. (Quinn vs. Leatham, supra, 510; Angle vs. Chicago, etc., Ry. Co., 151
U. S., 1; 14 Sup. Ct., 240; 38 L. Ed., 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840;
Rice vs. Manley, 66 N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N. R. R. Co., 207 U. S., 205; 28
Sup. Ct., 91; 52 L. Ed., 171; Beekman vs. Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N. S.]
201; 122 Am. St. Rep., 232; South Wales Miners' Fed. vs.Glamorgan Coal Co., Appeal Cases, 1905, p.
239.)

See also Nims on Unfair Business Competition, pp. 351- 371.

In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper remedy to prevent a wrongful
interference with contract by strangers to such contracts where the legal remedy is insufficient and the resulting
injury is irreparable. And where there is a malicious interference with lawful and valid contracts a permanent
injunction will ordinarily issue without proof of express malice. So, an injunction may be issued where the
complainant to break their contracts with him by agreeing to indemnify who breaks his contracts of employment
may be adjoined from including other employees to break their contracts and enter into new contracts with a
new employer of the servant who first broke his contract. But the remedy by injunction cannot be used to
restrain a legitimate competition, though such competition would involve the violation of a contract. Nor will
equity ordinarily enjoin employees who have quit the service of their employer from attempting by proper
argument to persuade others from taking their places so long as they do not resort to force or intimidations on
obstruct the public thoroughfares."

Beekman vs. Marster, supra, is practically on all fours with the case at bar in that there was only one contract in
question and the profits of the injured person depended upon the patronage of the public. Hamby &
Toomer vs.Georgia Iron & Coal Co., supra, is also similar to the case at bar in that there was only one contract,
the interference of which was stopped by injunction.
G.R. No. L-18805 August 14, 1967

THE BOARD OF LIQUIDATORS1 representing THE GOVERNMENT OF THE REPUBLIC OF THE

PHILIPPINES,plaintiff-appellant,
vs.
HEIRS OF MAXIMO M. KALAW,2 JUAN BOCAR, ESTATE OF THE DECEASED CASIMIRO
GARCIA,3 and LEONOR MOLL, defendants-appellees.

Simeon M. Gopengco and Solicitor General for plaintiff-appellant.

L. H. Hernandez, Emma Quisumbing, Fernando and Quisumbing, Jr.; Ponce Enrile, Siguion Reyna, Montecillo
and Belo for defendants-appellees.

SANCHEZ, J.:

The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit governmental
organization on May 7, 1940 by Commonwealth Act 518 avowedly for the protection, preservation and
development of the coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended
[Republic Act 5] to grant that corporation the express power "to buy, sell, barter, export, and in any other
manner deal in, coconut, copra, and dessicated coconut, as well as their by-products, and to act as agent, broker
or commission merchant of the producers, dealers or merchants" thereof. The charter amendment was enacted to
stabilize copra prices, to serve coconut producers by securing advantageous prices for them, to cut down to a
minimum, if not altogether eliminate, the margin of middlemen, mostly aliens. 4

General manager and board chairman was Maximo M. Kalaw; defendants Juan Bocar and Casimiro Garcia were
members of the Board; defendant Leonor Moll became director only on December 22, 1947.

NACOCO, after the passage of Republic Act 5, embarked on copra trading activities. Amongst the scores of
contracts executed by general manager Kalaw are the disputed contracts, for the delivery of copra, viz:

(a) July 30, 1947: Alexander Adamson & Co., for 2,000 long tons, $167.00: per ton, f. o. b., delivery:
August and September, 1947. This contract was later assigned to Louis Dreyfus & Co. (Overseas) Ltd.

(b) August 14, 1947: Alexander Adamson & Co., for 2,000 long tons $145.00 per long ton, f.o.b.,
Philippine ports, to be shipped: September-October, 1947. This contract was also assigned to Louis
Dreyfus & Co. (Overseas) Ltd.

(c) August 22, 1947: Pacific Vegetable Co., for 3,000 tons, $137.50 per ton, delivery: September, 1947.

(d) September 5, 1947: Spencer Kellog & Sons, for 1,000 long tons, $160.00 per ton, c.i.f., Los
Angeles, California, delivery: November, 1947.

(e) September 9, 1947: Franklin Baker Division of General Foods Corporation, for 1,500 long tons,
$164,00 per ton, c.i.f., New York, to be shipped in November, 1947.

(f) September 12, 1947: Louis Dreyfus & Co. (Overseas) Ltd., for 3,000 long tons, $154.00 per ton,
f.o.b., 3 Philippine ports, delivery: November, 1947.

(g) September 13, 1947: Juan Cojuangco, for 2,000 tons, $175.00 per ton, delivery: November and
December, 1947. This contract was assigned to Pacific Vegetable Co.

(h) October 27, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports,
delivery: December, 1947 and January, 1948. This contract was assigned to Pacific Vegetable Co.

(i) October 28, 1947: Fairwood & Co., for 1,000 tons, $210.00 per short ton, c.i.f., Pacific ports,
delivery: January, 1948. This contract was assigned to Pacific Vegetable Co.
An unhappy chain of events conspired to deter NACOCO from fulfilling these contracts. Nature supervened.
Four devastating typhoons visited the Philippines: the first in October, the second and third in November, and
the fourth in December, 1947. Coconut trees throughout the country suffered extensive damage. Copra
production decreased. Prices spiralled. Warehouses were destroyed. Cash requirements doubled. Deprivation of
export facilities increased the time necessary to accumulate shiploads of copra. Quick turnovers became
impossible, financing a problem.

When it became clear that the contracts would be unprofitable, Kalaw submitted them to the board for approval.
It was not until December 22, 1947 when the membership was completed. Defendant Moll took her oath on that
date. A meeting was then held. Kalaw made a full disclosure of the situation, apprised the board of the
impending heavy losses. No action was taken on the contracts. Neither did the board vote thereon at the meeting
of January 7, 1948 following. Then, on January 11, 1948, President Roxas made a statement that the NACOCO
head did his best to avert the losses, emphasized that government concerns faced the same risks that confronted
private companies, that NACOCO was recouping its losses, and that Kalaw was to remain in his post. Not long
thereafter, that is, on January 30, 1948, the board met again with Kalaw, Bocar, Garcia and Moll in attendance.
They unanimously approved the contracts hereinbefore enumerated.

As was to be expected, NACOCO but partially performed the contracts, as follows:

Buyers Tons Delivered Undelivered

Pacific Vegetable Oil 2,386.45 4,613.55

Spencer Kellog None 1,000

Franklin Baker 1,000 500

Louis Dreyfus 800 2,200

Louis Dreyfus (Adamson contract of July 30, 1947) 1,150 850

Louis Dreyfus (Adamson Contract of August 14, 1947) 1,755 245

TOTALS 7,091.45 9,408.55

The buyers threatened damage suits. Some of the claims were settled, viz: Pacific Vegetable Oil Co., in copra
delivered by NACOCO, P539,000.00; Franklin Baker Corporation, P78,210.00; Spencer Kellog & Sons,
P159,040.00.

But one buyer, Louis Dreyfus & Go. (Overseas) Ltd., did in fact sue before the Court of First Instance of
Manila, upon claims as follows: For the undelivered copra under the July 30 contract (Civil Case 4459);
P287,028.00; for the balance on the August 14 contract (Civil Case 4398), P75,098.63; for that per the
September 12 contract reduced to judgment (Civil Case 4322, appealed to this Court in L-2829), P447,908.40.
These cases culminated in an out-of-court amicable settlement when the Kalaw management was already out.
The corporation thereunder paid Dreyfus P567,024.52 representing 70% of the total claims. With particular
reference to the Dreyfus claims, NACOCO put up the defenses that: (1) the contracts were void because Louis
Dreyfus & Co. (Overseas) Ltd. did not have license to do business here; and (2) failure to deliver was due
to force majeure, the typhoons. To project the utter unreasonableness of this compromise, we reproduce in haec
verba this finding below:

x x x However, in similar cases brought by the same claimant [Louis Dreyfus & Co. (Overseas) Ltd.]
against Santiago Syjuco for non-delivery of copra also involving a claim of P345,654.68 wherein
defendant set up same defenses as above, plaintiff accepted a promise of P5,000.00 only (Exhs. 31 &
32 Heirs.) Following the same proportion, the claim of Dreyfus against NACOCO should have been
compromised for only P10,000.00, if at all. Now, why should defendants be held liable for the large
sum paid as compromise by the Board of Liquidators? This is just a sample to show how unjust it
would be to hold defendants liable for the readiness with which the Board of Liquidators disposed of
 the NACOCO funds, although there was much possibility of successfully resisting the claims, or at least
settlement for nominal sums like what happened in the Syjuco case.5

All the settlements sum up to P1,343,274.52.

In this suit started in February, 1949, NACOCO seeks to recover the above sum of P1,343,274.52 from general
manager and board chairman Maximo M. Kalaw, and directors Juan Bocar, Casimiro Garcia and Leonor Moll.
It charges Kalaw with negligence under Article 1902 of the old Civil Code (now Article 2176, new Civil Code);
and defendant board members, including Kalaw, with bad faith and/or breach of trust for having approved the
contracts. The fifth amended complaint, on which this case was tried, was filed on July 2, 1959. Defendants
resisted the action upon defenses hereinafter in this opinion to be discussed.

The lower court came out with a judgment dismissing the complaint without costs as well as defendants'
counterclaims, except that plaintiff was ordered to pay the heirs of Maximo Kalaw the sum of P2,601.94 for
unpaid salaries and cash deposit due the deceased Kalaw from NACOCO.

Plaintiff appealed direct to this Court.

Plaintiff's brief did not, question the judgment on Kalaw's counterclaim for the sum of P2,601.94.

Right at the outset, two preliminary questions raised before, but adversely decided by, the court below, arrest
our attention. On appeal, defendants renew their bid. And this, upon established jurisprudence that an appellate
court may base its decision of affirmance of the judgment below on a point or points ignored by the trial court or
in which said court was in error.6

1. First of the threshold questions is that advanced by defendants that plaintiff Board of Liquidators has lost its
legal personality to continue with this suit.

Accepted in this jurisdiction are three methods by which a corporation may wind up its affairs: (1) under Section
3, Rule 104, of the Rules of Court [which superseded Section 66 of the Corporation Law] 7 whereby, upon
voluntary dissolution of a corporation, the court may direct "such disposition of its assets as justice requires, and
may appoint a receiver to collect such assets and pay the debts of the corporation;" (2) under Section 77 of the
Corporation Law, whereby a corporation whose corporate existence is terminated, "shall nevertheless be
continued as a body corporate for three years after the time when it would have been so dissolved, for the
purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its
affairs, to dispose of and convey its property and to divide its capital stock, but not for the purpose of continuing
the business for which it was established;" and (3) under Section 78 of the Corporation Law, by virtue of which
the corporation, within the three year period just mentioned, "is authorized and empowered to convey all of its
property to trustees for the benefit of members, stockholders, creditors, and others interested." 8

It is defendants' pose that their case comes within the coverage of the second method. They reason out that suit
was commenced in February, 1949; that by Executive Order 372, dated November 24, 1950, NACOCO,
together with other government-owned corporations, was abolished, and the Board of Liquidators was entrusted
with the function of settling and closing its affairs; and that, since the three year period has elapsed, the Board of
Liquidators may not now continue with, and prosecute, the present case to its conclusion, because Executive
Order 372 provides in Section 1 thereof that

Sec.1. The National Abaca and Other Fibers Corporation, the National Coconut Corporation, the
National Tobacco Corporation, the National Food Producer Corporation and the former enemy-owned
or controlled corporations or associations, . . . are hereby abolished. The said corporations shall be
liquidated in accordance with law, the provisions of this Order, and/or in such manner as the President
of the Philippines may direct; Provided, however, That each of the said corporations shall nevertheless
be continued as a body corporate for a period of three (3) years from the effective date of this
Executive Order for the purpose of prosecuting and defending suits by or against it and of enabling the
Board of Liquidators gradually to settle and close its affairs, to dispose of and, convey its property in
the manner hereinafter provided.
Citing Mr. Justice Fisher, defendants proceed to argue that even where it may be found impossible within the 3
year period to reduce disputed claims to judgment, nonetheless, "suits by or against a corporation abate when it
ceases to be an entity capable of suing or being sued" (Fisher, The Philippine Law of Stock Corporations, pp.
390-391). Corpus Juris Secundum likewise is authority for the statement that "[t]he dissolution of a corporation
ends its existence so that there must be statutory authority for prolongation of its life even for purposes of
pending litigation"9and that suit "cannot be continued or revived; nor can a valid judgment be rendered therein,
and a judgment, if rendered, is not only erroneous, but void and subject to collateral attack." 10 So it is, that
abatement of pending actions follows as a matter of course upon the expiration of the legal period for
liquidation, 11 unless the statute merely requires a commencement of suit within the added time. 12 For, the court
cannot extend the time alloted by statute. 13

We, however, express the view that the executive order abolishing NACOCO and creating the Board of
Liquidators should be examined in context. The proviso in Section 1 of Executive Order 372, whereby the
corporate existence of NACOCO was continued for a period of three years from the effectivity of the order for
"the purpose of prosecuting and defending suits by or against it and of enabling the Board of Liquidators
gradually to settle and close its affairs, to dispose of and convey its property in the manner hereinafter
provided", is to be read not as an isolated provision but in conjunction with the whole. So reading, it will be
readily observed that no time limit has been tacked to the existence of the Board of Liquidators and its function
of closing the affairs of the various government owned corporations, including NACOCO.

By Section 2 of the executive order, while the boards of directors of the various corporations were abolished,
their powers and functions and duties under existing laws were to be assumed and exercised by the Board of
Liquidators. The President thought it best to do away with the boards of directors of the defunct corporations; at
the same time, however, the President had chosen to see to it that the Board of Liquidators step into the vacuum.
And nowhere in the executive order was there any mention of the lifespan of the Board of Liquidators. A glance
at the other provisions of the executive order buttresses our conclusion. Thus, liquidation by the Board of
Liquidators may, under section 1, proceed in accordance with law, the provisions of the executive order, "and/or
in such manner as the President of the Philippines may direct." By Section 4, when any property, fund, or
project is transferred to any governmental instrumentality "for administration or continuance of any project," the
necessary funds therefor shall be taken from the corresponding special fund created in Section 5. Section 5, in
turn, talks of special funds established from the "net proceeds of the liquidation" of the various corporations
abolished. And by Section, 7, fifty per centum of the fees collected from the copra standardization and
inspection service shall accrue "to the special fund created in section 5 hereof for the rehabilitation and
development of the coconut industry." Implicit in all these, is that the term of life of the Board of Liquidators is
without time limit. Contemporary history gives us the fact that the Board of Liquidators still exists as an office
with officials and numerous employees continuing the job of liquidation and prosecution of several court
actions.

Not that our views on the power of the Board of Liquidators to proceed to the final determination of the present
case is without jurisprudential support. The first judicial test before this Court is National Abaca and Other
Fibers Corporation vs. Pore, L-16779, August 16, 1961. In that case, the corporation, already dissolved,
commenced suit within the three-year extended period for liquidation. That suit was for recovery of money
advanced to defendant for the purchase of hemp in behalf of the corporation. She failed to account for that
money. Defendant moved to dismiss, questioned the corporation's capacity to sue. The lower court ordered
plaintiff to include as co-party plaintiff, The Board of Liquidators, to which the corporation's liquidation was
entrusted by Executive Order 372. Plaintiff failed to effect inclusion. The lower court dismissed the suit.
Plaintiff moved to reconsider. Ground: excusable negligence, in that its counsel prepared the amended
complaint, as directed, and instructed the board's incoming and outgoing correspondence clerk, Mrs. Receda
Vda. de Ocampo, to mail the original thereof to the court and a copy of the same to defendant's counsel. She
mailed the copy to the latter but failed to send the original to the court. This motion was rejected below. Plaintiff
came to this Court on appeal. We there said that "the rule appears to be well settled that, in the absence of
statutory provision to the contrary, pending actions by or against a corporation are abated upon expiration of the
period allowed by law for the liquidation of its affairs." We there said that "[o]ur Corporation Law contains no
provision authorizing a corporation, after three (3) years from the expiration of its lifetime, to continue in its
corporate name actions instituted by it within said period of three (3) years." 14 However, these precepts
notwithstanding, we, in effect, held in that case that the Board of Liquidators escapes from the operation thereof
for the reason that "[o]bviously, the complete loss of plaintiff's corporate existence after the expiration of the
period of three (3) years for the settlement of its affairs is what impelled the President to create a Board of
Liquidators, to continue the management of such matters as may then be pending." 15 We accordingly directed
the record of said case to be returned to the lower court, with instructions to admit plaintiff's amended complaint
to include, as party plaintiff, the Board of Liquidators.

Defendants' position is vulnerable to attack from another direction.

By Executive Order 372, the government, the sole stockholder, abolished NACOCO, and placed its assets in the
hands of the Board of Liquidators. The Board of Liquidators thus became the trustee on behalf of the
government. It was an express trust. The legal interest became vested in the trustee the Board of Liquidators.
The beneficial interest remained with the sole stockholder the government. At no time had the government
withdrawn the property, or the authority to continue the present suit, from the Board of Liquidators. If for this
reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting this case to its final
conclusion. 16 The provisions of Section 78 of the Corporation Law the third method of winding up corporate
affairs find application.

We, accordingly, rule that the Board of Liquidators has personality to proceed as: party-plaintiff in this case.

2. Defendants' second poser is that the action is unenforceable against the heirs of Kalaw.

Appellee heirs of Kalaw raised in their motion to dismiss, 17 which was overruled, and in their nineteenth special
defense, that plaintiff's action is personal to the deceased Maximo M. Kalaw, and may not be deemed to have
survived after his death.18 They say that the controlling statute is Section 5, Rule 87, of the 1940 Rules of
Court.19which provides that "[a]ll claims for money against the decedent, arising from contract, express or
implied", must be filed in the estate proceedings of the deceased. We disagree.

The suit here revolves around the alleged negligent acts of Kalaw for having entered into the questioned
contracts without prior approval of the board of directors, to the damage and prejudice of plaintiff; and is against
Kalaw and the other directors for having subsequently approved the said contracts in bad faith and/or breach of
trust." Clearly then, the present case is not a mere action for the recovery of money nor a claim for money
arising from contract. The suit involves alleged tortious acts. And the action is embraced in suits filed "to
recover damages for an injury to person or property, real or personal", which survive. 20

The leading expositor of the law on this point is Aguas vs. Llemos, L-18107, August 30, 1962. There, plaintiffs
sought to recover damages from defendant Llemos. The complaint averred that Llemos had served plaintiff by
registered mail with a copy of a petition for a writ of possession in Civil Case 4824 of the Court of First Instance
at Catbalogan, Samar, with notice that the same would be submitted to the Samar court on February 23, 1960 at
8:00 a.m.; that in view of the copy and notice served, plaintiffs proceeded to the said court of Samar from their
residence in Manila accompanied by their lawyers, only to discover that no such petition had been filed; and that
defendant Llemos maliciously failed to appear in court, so that plaintiffs' expenditure and trouble turned out to
be in vain, causing them mental anguish and undue embarrassment. Defendant died before he could answer the
complaint. Upon leave of court, plaintiffs amended their complaint to include the heirs of the deceased. The
heirs moved to dismiss. The court dismissed the complaint on the ground that the legal representative, and not
the heirs, should have been made the party defendant; and that, anyway, the action being for recovery of money,
testate or intestate proceedings should be initiated and the claim filed therein. This Court, thru Mr. Justice Jose
B. L. Reyes, there declared:

Plaintiffs argue with considerable cogency that contrasting the correlated provisions of the Rules of
Court, those concerning claims that are barred if not filed in the estate settlement proceedings (Rule 87,
sec. 5) and those defining actions that survive and may be prosecuted against the executor or
administrator (Rule 88, sec. 1), it is apparent that actions for damages caused by tortious conduct of a
defendant (as in the case at bar) survive the death of the latter. Under Rule 87, section 5, the actions
that are abated by death are: (1) claims for funeral expenses and those for the last sickness of the
decedent; (2) judgments for money; and (3) "all claims for money against the decedent, arising from
contract express or implied." None of these includes that of the plaintiffs-appellants; for it is not
enough that the claim against the deceased party be for money, but it must arise from "contract express
or implied", and these words (also used by the Rules in connection with attachments and derived from
the common law) were construed in Leung Ben vs. O'Brien, 38 Phil. 182, 189-194,
 "to include all purely personal obligations other than those which have their source
in delict or tort."

Upon the other hand, Rule 88, section 1, enumerates actions that survive against a decedent's executors
or administrators, and they are: (1) actions to recover real and personal property from the estate; (2)
actions to enforce a lien thereon; and (3) actions to recover damages for an injury to person or property.
The present suit is one for damages under the last class, it having been held that "injury to property" is
not limited to injuries to specific property, but extends to other wrongs by which personal estate is
injured or diminished (Baker vs. Crandall, 47 Am. Rep. 126; also 171 A.L.R., 1395). To maliciously
cause a party to incur unnecessary expenses, as charged in this case, is certainly injury to that party's
property (Javier vs. Araneta, L-4369, Aug. 31, 1953).

The ruling in the preceding case was hammered out of facts comparable to those of the present. No cogent
reason exists why we should break away from the views just expressed. And, the conclusion remains: Action
against the Kalaw heirs and, for the matter, against the Estate of Casimiro Garcia survives.

The preliminaries out of the way, we now go to the core of the controversy.

3. Plaintiff levelled a major attack on the lower court's holding that Kalaw justifiedly entered into the
controverted contracts without the prior approval of the corporation's directorate. Plaintiff leans heavily on
NACOCO's corporate by-laws. Article IV (b), Chapter III thereof, recites, as amongst the duties of the general
manager, the obligation: "(b) To perform or execute on behalf of the Corporation upon prior approval of the
Board, all contracts necessary and essential to the proper accomplishment for which the Corporation was
organized."

Not of de minimis importance in a proper approach to the problem at hand, is the nature of a general manager's
position in the corporate structure. A rule that has gained acceptance through the years is that a corporate officer
"intrusted with the general management and control of its business, has implied authority to make any contract
or do any other act which is necessary or appropriate to the conduct of the ordinary business of the
corporation. 21 As such officer, "he may, without any special authority from the Board of Directors perform all
acts of an ordinary nature, which by usage or necessity are incident to his office, and may bind the corporation
by contracts in matters arising in the usual course of business. 22

The problem, therefore, is whether the case at bar is to be taken out of the general concept of the powers of a
general manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval of
NACOCO contracts.

The peculiar nature of copra trading, at this point, deserves express articulation. Ordinary in this enterprise are
copra sales for future delivery. The movement of the market requires that sales agreements be entered into, even
though the goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is
concededly the practice of the trade. A certain amount of speculation is inherent in the undertaking. NACOCO
was much more conservative than the exporters with big capital. This short-selling was inevitable at the time in
the light of other factors such as availability of vessels, the quantity required before being accepted for loading,
the labor needed to prepare and sack the copra for market. To NACOCO, forward sales were a necessity. Copra
could not stay long in its hands; it would lose weight, its value decrease. Above all, NACOCO's limited funds
necessitated a quick turnover. Copra contracts then had to be executed on short notice at times within twenty-
four hours. To be appreciated then is the difficulty of calling a formal meeting of the board.

Such were the environmental circumstances when Kalaw went into copra trading.

Long before the disputed contracts came into being, Kalaw contracted by himself alone as general manager
for forward sales of copra. For the fiscal year ending June 30, 1947, Kalaw signed some 60 such contracts
for the sale of copra to divers parties. During that period, from those copra sales, NACOCO reaped a gross
profit of P3,631,181.48. So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's
absence, it voted to grant him a special bonus "in recognition of the signal achievement rendered by him in
putting the Corporation's business on a self-sufficient basis within a few months after assuming office, despite
numerous handicaps and difficulties."
These previous contract it should be stressed, were signed by Kalaw without prior authority from the board.
Said contracts were known all along to the board members. Nothing was said by them. The aforesaid contracts
stand to prove one thing: Obviously, NACOCO board met the difficulties attendant to forward sales by leaving
the adoption of means to end, to the sound discretion of NACOCO's general manager Maximo M. Kalaw.

Liberally spread on the record are instances of contracts executed by NACOCO's general manager and
submitted to the board after their consummation, not before. These agreements were not Kalaw's alone. One at
least was executed by a predecessor way back in 1940, soon after NACOCO was chartered. It was a contract of
lease executed on November 16, 1940 by the then general manager and board chairman, Maximo Rodriguez,
and A. Soriano y Cia., for the lease of a space in Soriano Building On November 14, 1946, NACOCO, thru its
general manager Kalaw, sold 3,000 tons of copra to the Food Ministry, London, thru Sebastian Palanca. On
December 22, 1947, when the controversy over the present contract cropped up, the board voted to approve a
lease contract previously executed between Kalaw and Fidel Isberto and Ulpiana Isberto covering a warehouse
of the latter. On the same date, the board gave its nod to a contract for renewal of the services of Dr. Manuel L.
Roxas. In fact, also on that date, the board requested Kalaw to report for action all copra contracts signed by
him "at the meeting immediately following the signing of the contracts." This practice was observed in a later
instance when, on January 7, 1948, the board approved two previous contracts for the sale of 1,000 tons of copra
each to a certain "SCAP" and a certain "GNAPO".

And more. On December 19, 1946, the board resolved to ratify the brokerage commission of 2% of Smith, Bell
and Co., Ltd., in the sale of 4,300 long tons of copra to the French Government. Such ratification was necessary
because, as stated by Kalaw in that same meeting, "under an existing resolution he is authorized to give a
brokerage fee of only 1% on sales of copra made through brokers." On January 15, 1947, the brokerage fee
agreements of 1-1/2% on three export contracts, and 2% on three others, for the sale of copra were approved by
the board with a proviso authorizing the general manager to pay a commission up to the amount of 1-1/2%
"without further action by the Board." On February 5, 1947, the brokerage fee of 2% of J. Cojuangco & Co. on
the sale of 2,000 tons of copra was favorably acted upon by the board. On March 19, 1947, a 2% brokerage
commission was similarly approved by the board for Pacific Trading Corporation on the sale of 2,000 tons of
copra.

It is to be noted in the foregoing cases that only the brokerage fee agreements were passed upon by the
board, not the sales contracts themselves. And even those fee agreements were submitted only when the
commission exceeded the ceiling fixed by the board.

Knowledge by the board is also discernible from other recorded instances.1wph1.t

When the board met on May 10, 1947, the directors discussed the copra situation: There was a slow downward
trend but belief was entertained that the nadir might have already been reached and an improvement in prices
was expected. In view thereof, Kalaw informed the board that "he intends to wait until he has signed contracts
to sell before starting to buy copra."23

In the board meeting of July 29, 1947, Kalaw reported on the copra price conditions then current: The copra
market appeared to have become fairly steady; it was not expected that copra prices would again rise very high
as in the unprecedented boom during January-April, 1947; the prices seemed to oscillate between $140 to $150
per ton; a radical rise or decrease was not indicated by the trends. Kalaw continued to say that "the Corporation
has been closing contracts for the sale of copra generally with a margin of P5.00 to P7.00 per hundred kilos." 24

We now lift the following excerpts from the minutes of that same board meeting of July 29, 1947:

521. In connection with the buying and selling of copra the Board inquired whether it is the practice of
the management to close contracts of sale first before buying. The General Manager replied that this
practice is generally followed but that it is not always possible to do so for two reasons:

(1) The role of the Nacoco to stabilize the prices of copra requires that it should not cease buying even
when it does not have actual contracts of sale since the suspension of buying by the Nacoco will result
in middlemen taking advantage of the temporary inactivity of the Corporation to lower the prices to the
detriment of the producers.
 (2) The movement of the market is such that it may not be practical always to wait for the
consummation of contracts of sale before beginning to buy copra.

The General Manager explained that in this connection a certain amount of speculation is unavoidable.
However, he said that the Nacoco is much more conservative than the other big exporters in this
respect.25

Settled jurisprudence has it that where similar acts have been approved by the directors as a matter of general
practice, custom, and policy, the general manager may bind the company without formal authorization of the
board of directors. 26 In varying language, existence of such authority is established, by proof of the course of
business, the usage and practices of the company and by the knowledge which the board of directors has, or
must bepresumed to have, of acts and doings of its subordinates in and about the affairs of the corporation. 27 So
also,

x x x authority to act for and bind a corporation may be presumed from acts of recognition in other
instances where the power was in fact exercised. 28

x x x Thus, when, in the usual course of business of a corporation, an officer has been allowed in his
official capacity to manage its affairs, his authority to represent the corporation may be implied from
the manner in which he has been permitted by the directors to manage its business.29

In the case at bar, the practice of the corporation has been to allow its general manager to negotiate and execute
contracts in its copra trading activities for and in NACOCO's behalf without prior board approval. If the by-laws
were to be literally followed, the board should give its stamp of prior approval on all corporate contracts. But
that board itself, by its acts and through acquiescence, practically laid aside the by-law requirement of prior
approval.

Under the given circumstances, the Kalaw contracts are valid corporate acts.

4. But if more were required, we need but turn to the board's ratification of the contracts in dispute on January
30, 1948, though it is our (and the lower court's) belief that ratification here is nothing more than a mere
formality.

Authorities, great in number, are one in the idea that "ratification by a corporation of an unauthorized act or
contract by its officers or others relates back to the time of the act or contract ratified, and is equivalent to
original authority;" and that " [t]he corporation and the other party to the transaction are in precisely the same
position as if the act or contract had been authorized at the time." 30 The language of one case is expressive:
"The adoption or ratification of a contract by a corporation is nothing more or less than the making of an
original contract. The theory of corporate ratification is predicated on the right of a corporation to contract, and
any ratification or adoption is equivalent to a grant of prior authority." 31

Indeed, our law pronounces that "[r]atification cleanses the contract from all its defects from the moment it was
constituted." 32 By corporate confirmation, the contracts executed by Kalaw are thus purged of whatever vice or
defect they may have. 33

In sum, a case is here presented whereunder, even in the face of an express by-law requirement of prior
approval, the law on corporations is not to be held so rigid and inflexible as to fail to recognize equitable
considerations. And, the conclusion inevitably is that the embattled contracts remain valid.

5. It would be difficult, even with hostile eyes, to read the record in terms of "bad faith and/or breach of trust" in
the board's ratification of the contracts without prior approval of the board. For, in reality, all that we have on
the government's side of the scale is that the board knew that the contracts so confirmed would cause heavy
losses.

As we have earlier expressed, Kalaw had authority to execute the contracts without need of prior approval.
Everybody, including Kalaw himself, thought so, and for a long time. Doubts were first thrown on the way only
when the contracts turned out to be unprofitable for NACOCO.
Rightfully had it been said that bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of wrong; it means breach of a known duty thru
some motive or interest or ill will; it partakes of the nature of fraud. 34 Applying this precept to the given facts
herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious doing of
wrong," or "breach of a known duty," or "Some motive or interest or ill will" that "partakes of the nature of
fraud."

Nor was it even intimated here that the NACOCO directors acted for personal reasons, or to serve their own
private interests, or to pocket money at the expense of the corporation. 35 We have had occasion to affirm that
bad faith contemplates a "state of mind affirmatively operating with furtive design or with some motive of self-
interest or ill will or for ulterior purposes." 36 Briggs vs. Spaulding, 141 U.S. 132, 148-149, 35 L. ed. 662, 669,
quotes with approval from Judge Sharswood (in Spering's App., 71 Pa. 11), the following: "Upon a close
examination of all the reported cases, although there are many dicta not easily reconcilable, yet I have found no
judgment or decree which has held directors to account, except when they have themselves been personally
guilty of some fraud on the corporation, or have known and connived at some fraud in others, or where such
fraud might have been prevented had they given ordinary attention to their duties. . . ." Plaintiff did not even
dare charge its defendant-directors with any of these malevolent acts.

Obviously, the board thought that to jettison Kalaw's contracts would contravene basic dictates of fairness. They
did not think of raising their voice in protest against past contracts which brought in enormous profits to the
corporation. By the same token, fair dealing disagrees with the idea that similar contracts, when unprofitable,
should not merit the same treatment. Profit or loss resulting from business ventures is no justification for turning
one's back on contracts entered into. The truth, then, of the matter is that in the words of the trial court the
ratification of the contracts was "an act of simple justice and fairness to the general manager and the best
interest of the corporation whose prestige would have been seriously impaired by a rejection by the board of
those contracts which proved disadvantageous." 37

The directors are not liable." 38

6. To what then may we trace the damage suffered by NACOCO.

The facts yield the answer. Four typhoons wreaked havoc then on our copra-producing regions. Result: Copra
production was impaired, prices spiralled, warehouses destroyed. Quick turnovers could not be expected.
NACOCO was not alone in this misfortune. The record discloses that private traders, old, experienced, with
bigger facilities, were not spared; also suffered tremendous losses. Roughly estimated, eleven principal trading
concerns did run losses to about P10,300,000.00. Plaintiff's witness Sisenando Barretto, head of the copra
marketing department of NACOCO, observed that from late 1947 to early 1948 "there were many who lost
money in the trade." 39 NACOCO was not immune from such usual business risk.

The typhoons were known to plaintiff. In fact, NACOCO resisted the suits filed by Louis Dreyfus & Co. by
pleading in its answers force majeure as an affirmative defense and there vehemently asserted that "as a result of
the said typhoons, extensive damage was caused to the coconut trees in the copra producing regions of the
Philippines and according to estimates of competent authorities, it will take about one year until the coconut
producing regions will be able to produce their normal coconut yield and it will take some time until the price of
copra will reach normal levels;" and that "it had never been the intention of the contracting parties in entering
into the contract in question that, in the event of a sharp rise in the price of copra in the Philippine market
produce by force majeure or by caused beyond defendant's control, the defendant should buy the copra
contracted for at exorbitant prices far beyond the buying price of the plaintiff under the contract." 40

A high regard for formal judicial admissions made in court pleadings would suffice to deter us from permitting
plaintiff to stray away therefrom, to charge now that the damage suffered was because of Kalaw's negligence, or
for that matter, by reason of the board's ratification of the contracts. 41

Indeed, were it not for the typhoons, 42 NACOCO could have, with ease, met its contractual obligations. Stock
accessibility was no problem. NACOCO had 90 buying agencies spread throughout the islands. It could
purchase 2,000 tons of copra a day. The various contracts involved delivery of but 16,500 tons over a five-
month period. Despite the typhoons, NACOCO was still able to deliver a little short of 50% of the tonnage
required under the contracts.
As the trial court correctly observed, this is a case of damnum absque injuria. Conjunction of damage and
wrong is here absent. There cannot be an actionable wrong if either one or the other is wanting. 43

7. On top of all these, is that no assertion is made and no proof is presented which would link Kalaw's acts
ratified by the board to a matrix for defraudation of the government. Kalaw is clear of the stigma of bad faith.
Plaintiff's corporate counsel 44 concedes that Kalaw all along thought that he had authority to enter into the
contracts, that he did so in the best interests of the corporation; that he entered into the contracts in pursuance of
an overall policy to stabilize prices, to free the producers from the clutches of the middlemen. The prices for
which NACOCO contracted in the disputed agreements, were at a level calculated to produce profits and higher
than those prevailing in the local market. Plaintiff's witness, Barretto, categorically stated that "it would be
foolish to think that one would sign (a) contract when you are going to lose money" and that no contract was
executed "at a price unsafe for the Nacoco." 45 Really, on the basis of prices then prevailing, NACOCO
envisioned a profit of around P752,440.00. 46

Kalaw's acts were not the result of haphazard decisions either. Kalaw invariably consulted with NACOCO's
Chief Buyer, Sisenando Barretto, or the Assistant General Manager. The dailies and quotations from abroad
were guideposts to him.

Of course, Kalaw could not have been an insurer of profits. He could not be expected to predict the coming of
unpredictable typhoons. And even as typhoons supervened Kalaw was not remissed in his duty. He exerted
efforts to stave off losses. He asked the Philippine National Bank to implement its commitment to extend a
P400,000.00 loan. The bank did not release the loan, not even the sum of P200,000.00, which, in October, 1947,
was approved by the bank's board of directors. In frustration, on December 12, 1947, Kalaw turned to the
President, complained about the bank's short-sighted policy. In the end, nothing came out of the negotiations
with the bank. NACOCO eventually faltered in its contractual obligations.

That Kalaw cannot be tagged with crassa negligentia or as much as simple negligence, would seem to be
supported by the fact that even as the contracts were being questioned in Congress and in the NACOCO board
itself, President Roxas defended the actuations of Kalaw. On December 27, 1947, President Roxas expressed his
desire "that the Board of Directors should reelect Hon. Maximo M. Kalaw as General Manager of the National
Coconut Corporation." 47 And, on January 7, 1948, at a time when the contracts had already been openly
disputed, the board, at its regular meeting, appointed Maximo M. Kalaw as acting general manager of the
corporation.

Well may we profit from the following passage from Montelibano vs. Bacolod-Murcia Milling Co., Inc., L-
15092, May 18, 1962:

"They (the directors) hold such office charged with the duty to act for the corporation according to their best
judgment, and in so doing they cannot be controlled in the reasonable exercise and performance of such duty.
Whether the business of a corporation should be operated at a loss during a business depression, or closed down
at a smaller loss, is a purely business and economic problem to be determined by the directors of the
corporation, and not by the court. It is a well known rule of law that questions of policy of management are left
solely to the honest decision of officers and directors of a corporation, and the court is without authority to
substitute its judgment for the judgment of the board of directors; the board is the business manager of the
corporation, and so long as it acts in good faith its orders are not reviewable by the courts." (Fletcher on
Corporations, Vol. 2, p. 390.) 48

Kalaw's good faith, and that of the other directors, clinch the case for defendants. 49

Viewed in the light of the entire record, the judgment under review must be, as it is hereby, affirmed.

Without costs. So ordered.

G.R. No. 83589 March 13, 1991

RAMON FAROLAN as ACTING COMMISSIONER OF CUSTOMS, and GUILLERMO PARAYNO, as

CHIEF OF CUSTOM INTELLIGENCE and INVESTIGATION DIVISION, petitioners,
vs.
SOLMAC MARKETING CORPORATION and COURT OF APPEALS, respondents.

Dakila F. Castro & Associates for private respondent.

SARMIENTO, J.:

This petition for review on certiorari, instituted by the Solicitor General on behalf of the public officers-
petitioners, seek the nullification and setting aside of the Resolution1 dated May 25, 1988 of the Court of
Appeals in CA-G.R. No. SP-10509, entitled "Solmac Marketing Corporation vs. Ramon Farolan, Acting
Commissioner of Customs, and Guillermo Parayno, Chief of Customs Intelligence and Investigation Division,"
which adjudged these public officers to pay solidarily and in their private personal capacities respondent Solmac
Marketing Corporation temperate damages in the sum of P100,000.00, exemplary damages in the sum of
P50,000.00, and P25,000.00, as attorney's fees and expenses of litigation. This challenged resolution of the
respondent court modified its decision2 of July 27, 1987 by reducing into halves the original awards of
P100,000.00 and P50,000.00 for exemplary damages and attorney's fees and litigation expenses, respectively,
keeping intact the original grant of P100,000.00 in the concept of temperate damages. (Strangely, the first name
of petitioner Farolan stated in the assailed resolution, as well as in the decision, of the respondent court is
"Damian" when it should be "Ramon", his correct given name. Strictly speaking, petitioner Ramon Farolan
could not be held liable under these decision and resolution for he is not the one adjudged to pay the huge
damages but a different person. Nonetheless, that is of no moment now considering the disposition of
this ponencia.)

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

At the time of the commission of the acts complained of by the private respondent, which was the subject of the
latter's petition for mandamus and injunction filed with the Regional Trial Court (RTC) of Manila in Civil Case
No. 84-23537, petitioner Ramon Farolan was then the Acting Commissioner of Customs while petitioner
Guillermo Parayno was then the Acting Chief, Customs Intelligence and Investigation Division. They were thus
sued in their official capacities as officers in the government as clearly indicated in the title of the case in the
lower courts and even here in this Court. Nevertheless, they were both held personally liable for the awarded
damages "(s)ince the detention of the goods by the defendants (petitioners herein) was irregular and devoid of
legal basis, hence, not done in the regular performance of official duty . . . ." 3

However, as adverted to at the outset, in the dispositive portion of the challenged resolution, the one held
personally liable is a "Damian Farolan" and not the petitioner, Ramon Farolan. Also as earlier mentioned, we
will ignore that gross error.

Private respondent Solmac Marketing Corporation is a corporation organized and existing under the laws of the
Philippines. It was the assignee, transferee, and owner of an importation of Clojus Recycling Plastic Products of
202,204 kilograms of what is technically known as polypropylene film, valued at US$69,250.05.

Polypropylene is a substance resembling polyethelyne which is one of a group of partially crystalline

lightweight thermoplastics used chiefly in making fibers, films, and molded and extruded products.4

Without defect, polypropylene film is sold at a much higher price as prime quality film. Once rejected as
defective due to blemishes, discoloration, defective winding, holes, etc., polypropylene film is sold at a
relatively cheap price without guarantee or return, and the buyer takes the risk as to whether he can recover an
average 30% to 50% usable matter.5 This latter kind of polypropylene is known as OPP film waste/scrap and
this is what respondent SOLMAC claimed the Clojus shipment to be.

The subject importation, consisting of seventeen (17) containers, arrived in December, 1981. Upon application
for entry, the Bureau of Customs asked respondent SOLMAC for its authority from any government agency to
import the goods described in the bill of lading. Respondent SOLMAC presented a Board of Investment (BOI)
authority for polypropylene film scrap. However, upon examination of the shipment by the National Institute of
Science and Technology (NIST), it turned out that the fibers of the importation were oriented in such a way that
the materials were stronger than OPP film scrap.6 In other words, the Clojus shipment was not OPP film scrap,
as declared by the assignee respondent SOLMAC to the Bureau of Customs and BOI Governor Lilia R.
Bautista, but oriented polypropylene the importation of which is restricted, if not prohibited, under Letter of
Instructions (LOI) No. 658-B. Specifically, Sections 1 and 2 of LOI No. 658-B provide that:

xxx xxx xxx

1. The importation of cellophane shall be allowed only for quantities and types of cellophane that
cannot be produced by Philippine Cellophane Film Corporation. The Board of Investments shall issue
guidelines regulating such importations.

2. The Collector of Customs shall see to the apprehension of all illegal importations of cellophane and
oriented polypropylene (OPP) and the dumping of imported stock lots of cellophane and OPP.

xxx xxx xxx

Considering that the shipment was different from what had been authorized by the BOI and by law, petitioners
Parayno and Farolan withheld the release of the subject importation.

On June 7, 1982, petitioner Parayno, then Chief of Customs Intelligence and Investigation Division, wrote the
BOI asking for the latter's advice on whether or no t the subject importation may be released 7 A series of
exchange of correspondence between the BOI and the Bureau of Customs, on one hand, and between the late
Dakila Castro, counsel for the private respondent, and the BOI and the Bureau of Customs, on the other, ensued,
to wit:

xxx xxx xxx

4. In a letter dated August 17, 1982, the BOI agreed that the subject imports may be released but that
holes may be drilled on them by the Bureau of Customs prior to their release.

5. On January 20, 1983, (the late) Atty. Dakila Castro, (then) counsel of private respondent wrote to
petitioner Commissioner Farolan of Customs asking for the release of the importation. The importation
was not released, however, on the ground that holes had to be drilled on them first.

6. Atty. Dakila Castro then wrote a letter dated October 6, 1983, to BOI Governor Hermenigildo Zayco
stressing the reasons why the subject importation should be released without drilling of holes.

7. On November 8, 1983, BOI Governor H. Zayco wrote a letter to the Bureau of Customs stating that
the subject goods may be released without drilling of holes inasmuch as the goods arrived prior to the
endorsement on August 17, 1982 to the drilling of holes on all importations of waste/scrap films.

8. On February 1, 1984, petitioner Commissioner Farolan wrote the BOI requesting for definite
guidelines regarding the disposition of importations of Oriented Polypropylene (OPP) and
Polypropylene (PP) then being held at the Bureau of Customs.

9. On March 12, 1984, Minister Roberto Ongpin of Trade, the BOI Chairman, wrote his reply to
petitioner Farolan . . . .8 (This reply of Minister Ongpin is copied in full infra.)

On March 26, 1984, respondent Solmac filed the action for mandamus and injunction with the RTC as above
mentioned. It prayed for the unconditional release of the subject importation. It also prayed for actual damages,
exemplary damages, and attorney's fees. As prayed for, the trial court issued a writ of preliminary injunction.

After hearing on the merits, the RTC rendered a decision on February 5, 1985, the dispositive portion of which
reads as follows:
 Premises considered, judgment is hereby rendered ordering defendants to release the subject
importation immediately without drilling of holes, subject only to the normal requirements of the
customs processing for such release to be done with utmost dispatch as time is of the essence; and the
preliminary injunction hereto issued is hereby made permanent until actual physical release of the
merchandise and without pronouncement as to costs.

SO ORDERED.9

From the decision of the trial court, Solmac, the plaintiff below and the private respondent herein, appealed to
the Court of Appeals only insofar as to the denial of the award of damages is concerned. On the other hand, the
petitioners did not appeal from this decision. They did not see any need to appeal because as far as they were
concerned, they had already complied with their duty. They had already ordered the release of the importation
"without drilling of holes," as in fact it was so released, in compliance with the advice to effect such immediate
release contained in a letter of BOI dated October 9, 1984, to Commissioner Farolan. Thus, to stress, even
before the RTC rendered its decision on February 5, 1984, the Clojus shipment of OPP was released 10 to the
private respondent in its capacity as assignee of the same. Be that it may, the private respondent filed its appeal
demanding that the petitioners be held, in their personal and private capacities, liable for damages despite the
finding of lack of bad faith on the part of the public officers.

After due proceeding, the Court of Appeals rendered a decision11 on July 27, 1987, the dispositive portion which
reads as follows:

WHEREFORE, the appealed judgment is modified by ordering the defendants Ramon Farolan and
Guillermo Parayno solidarity, in their personal capacity, to pay the plaintiff temperate damages in the
sum of P100,000, exemplary damages in the sum of P100,000 and P50,000 as attorney's fees and
expenses of litigation. Costs against the defendants.

SO ORDERED.

On August 14, 1987, the petitioners filed a motion for reconsideration of the decision of the Court of Appeals.

On May 25, 1988, the Court of Appeals issued its resolution modifying the award of damages, to wit: temperate
damages in the sum of P100,000,00, exemplary damages in the sum of P50,000.00, and P25,000.00 as attorney's
fees and expenses of litigation. The respondent court explained the reduction of the awards for exemplary
damages and attorney's fees and expenses of litigation in this wise:

3. In our decision of July 27, 1987, We awarded to plaintiff-appellant Pl00,000 as temperate damages,
Pl00,000.00 as exemplary damages, and P50,000.00 as attorney's fees and expenses of litigation. Under
Art. 2233 of the Civil Code, recovery of exemplary damages is not a matter of right but depends upon
the discretion of the court. Under Article 2208 of the Civil Code, attorney's fees and expenses of
litigation must always be reasonable. In view of these provisions of the law, and since the award of
temperate damages is only P100,000.00, the amount of exemplary damages may not be at par as
temperate damages. An award of P50,000.00, as exemplary damages may already serve the
purpose, i.e., as an example for the public good. Likewise, the attorney's fees and expenses of litigation
have to be reduced to 25% of the amount of temperate damages, or P25,000.00, if the same have to be
reasonable. The reduction in the amount of exemplary damages, and attorney's fees and expenses of
litigation would be in accord with justice and fairness. 12

The petitioners now come to this Court, again by the Solicitor General, assigning the following errors allegedly
committed by the respondent court:

The Court of Appeals erred in disregarding the finding of the trial court that the defense of good faith
of petitioners (defendants) cannot be discredited.

II
 The Court of Appeals erred in adjudging petitioners liable to pay temperate damages, exemplary
damages, attorney's fees and expenses of litigation.13

These two issues boil down to a single question, i.e., whether or not the petitioners acted in good faith in not
immediately releasing the questioned importation, or, simply, can they be held liable, in their personal and
private capacities, for damages to the private respondent.

We rule for the petitioners.

The respondent court committed a reversible error in overruling the trial court's finding that:

. . . with reference to the claim of plaintiff to damages, actual and exemplary, and attorney's fees, the
Court finds it difficult to discredit or disregard totally the defendants' defense of good faith premised on
the excuse that they were all the time awaiting clarification of the Board of Investments on the matter. 14

We hold that this finding of the trial court is correct for good faith is always presumed and it is upon him who
alleges the contrary that the burden of proof lies.15 In Abando v. Lozada,16 we defined good faith as "refer[ring]
to a state of the mind which is manifested by the acts of the individual concerned. It consists of the honest
intention to abstain from taking an unconscionable and unscrupulous advantage of another. It is the opposite of
fraud, and its absence should be established by convincing evidence."

We had reviewed the evidence on record carefully and we did not see any clear and convincing proof showing
the alleged bad faith of the petitioners. On the contrary, the record is replete with evidence bolstering the
petitioners' claim of good faith. First, there was the report of the National Institute of Science and Technology
(NIST) dated January 25, 1982 that, contrary to what the respondent claimed, the subject importation was not
OPP film scraps but oriented polypropylene, a plastic product of stronger material, whose importation to the
Philippines was restricted, if not prohibited, under LOI
658-B.17 It was on the strength of this finding that the petitioners withheld the release of the subject importation
for being contrary to law. Second, the petitioners testified that, on many occasions, the Bureau of Customs
sought the advice of the BOI on whether the subject importation might be released.18 Third, petitioner Parayno
also testified during the trial that up to that time (of the trial) there was no clear-cut policy on the part of the BOI
regarding the entry into the Philippines of oriented polypropylene (OPP), as the letters of BOI Governors
Tordesillas and Zayco of November 8, 1983 and September 24, 1982, respectively, ordering the release of the
subject importation did not clarify the BOI policy on the matter. He then testified on the letter of the BOI
Chairman Roberto Ongpin dated March 12, 1984, which states in full:

Thank you for your letter of 1 February 1984, on the subject of various importations of Oriented
Polypropylene (OPP) and Polypropylene (PP) withheld by Customs and the confusion over the
disposition of such imports.

I have discussed the matter with Vice-Chairman Tordesillas and Governor Zayco of the Board of
Investments and the following is their explanation:

1. On 22 June 1982, the BOI ruled that importation of OPP/PP film scraps intended for recycling or
repelletizing did not fall within the purview of LOI 658-B.

2. On 17 August l982, the BOI agreed that holes could be drilled on subject film imports to prevent
their use for other purposes.

3. For importations authorized prior to 22 June 1982, the drilling of holes should depend on purpose for
which the importations was approved by the BOI that is, for direct packaging use or for
recycling/repelletizing into raw material. The exemption from drilling of holes on Solmac Marketing's
importation under Certificates of Authority issued on 1 April 1982 and 5 May 1982 and on Clojus'
importation authorized in 1982 were endorsed by the BOI on the premise that these were not intended
for recycling/repelletizing.
 Should your office have any doubts as to the authorized intended use of any imported lots of OPP/PP
film scraps that you have confiscated, we have no objection to the drilling of holes to ensure that these
are indeed recycled.

I have requested Governor Zayco to contact your office in order to offer any further assistance which
you may require.19

It can be seen from all the foregoing that even the highest officers (Chairman Ongpin, Vice-Chairman
Tordesillas, and Governor Zayco) of the BOI themselves were not in agreement as to what proper course to take
on the subject of the various importations of Oriented Polypropylene (OPP) and Polypropylene (PP) withheld by
the Bureau of Customs. The conflicting recommendations of the BOI on this score prompted the petitioners to
seek final clarification from the former with regard to its policy on these importations. This resulted in the
inevitable delay in the release of the Clojus shipment, one of the several of such importations. The confusion
over the disposition of this particular importation obviates bad faith. Thus the trial court's finding that the
petitioners acted in good faith in not immediately releasing the Clojus shipment pending a definitive policy of
the BOI on this matter is correct. It is supported by substantial evidence on record, independent of the
presumption of good faith, which as stated earlier, was not successfully rebutted.

When a public officer takes his oath of office, he binds himself to perform the duties of his office faithfully and
to use reasonable skill and diligence, and to act primarily for the benefit of the public. Thus, in the discharge of
his duties, he is to use that prudence, caution, and attention which careful men use in the management of their
affairs. In the case at bar, prudence dictated that petitioners first obtain from the BOI the latter's definite
guidelines regarding the disposition of the various importations of oriented polypropylene (OPP) and
polypropylene (PP) then being withheld at the Bureau of Customs. These cellophane/film products were
competing with locally manufactured polypropylene and oriented polypropylene as raw materials which were
then already sufficient to meet local demands, hence, their importation was restricted, if not prohibited under
LOI 658-B. Consequently, the petitioners can not be said to have acted in bad faith in not immediately releasing
the import goods without first obtaining the necessary clarificatory guidelines from the BOI. As public officers,
the petitioners had the duty to see to it that the law they were tasked to implement, i.e., LOI 658-B, was
faithfully complied with.

But even granting that the petitioners committed a mistake in withholding the release of the subject importation
because indeed it was composed of OPP film scraps,20 contrary to the evidence submitted by the National
Institute of Science and Technology that the same was pure oriented OPP, nonetheless, it is the duty of the Court
to see to it that public officers are not hampered in the performance of their duties or in making decisions for
fear of personal liability for damages due to honest mistake.1wphi1 Whatever damage they may have caused as
a result of such an erroneous interpretation, if any at all, is in the nature of a damnum absque injuria. Mistakes
concededly committed by public officers are not actionable absent any clear showing that they were motivated
by malice or gross negligence amounting to bad faith. 21 After all, "even under the law of public officers, the acts
of the petitioners are protected by the presumption of good faith. 22

In the same vein, the presumption, disputable though it may be, that an official duty has been regularly
performed23applies in favor of the petitioners. Omnia praesumuntur rite et solemniter esse acta. (All things are
presumed to be correctly and solemnly done.) It was private respondent's burden to overcome this juris
tantum presumption. We are not persuaded that it has been able to do so.

WHEREFORE, the petition is hereby GRANTED, the assailed Resolution of the respondent court, in CA-G.R.
SP No. 10509, dated May 25, 1988, is SET ASIDE and ANNULLED. No costs.

SO ORDERED.