G.R. No.
L-23678 June 6, 1967 delivery to her of shares of stock amounting to
TESTATE ESTATE OF AMOS G. BELLIS, deceased.
PEOPLE'S BANK and TRUST COMPANY, executor.
MARIA CRISTINA BELLIS and MIRIAM PALMA
BELLIS, oppositors-appellants,
vs.
EDWARD A. BELLIS, ET AL., heirs-appellees.
Vicente R. Macasaet and Jose D. Villena for oppositors
appellants.
Paredes, Poblador, Cruz and Nazareno for heirs-appellees
E. A. Bellis, et al.
Quijano and Arroyo for heirs-appellees W. S. Bellis, et al.
J. R. Balonkita for appellee People's Bank & Trust
Company.
Ozaeta, Gibbs and Ozaeta for appellee A. B. Allsman.
BENGZON, J.P., J.:
This is a direct appeal to Us, upon a question purely of
law, from an order of the Court of First Instance of Manila
dated April 30, 1964, approving the project of partition
filed by the executor in Civil Case No. 37089
therein.1äwphï1.ñët
The facts of the case are as follows:
Amos G. Bellis, born in Texas, was "a citizen of the State
of Texas and of the United States." By his first wife, Mary
E. Mallen, whom he divorced, he had five legitimate
children: Edward A. Bellis, George Bellis (who pre-
deceased him in infancy), Henry A. Bellis, Alexander
Bellis and Anna Bellis Allsman; by his second wife, Violet
Kennedy, who survived him, he had three legitimate
children: Edwin G. Bellis, Walter S. Bellis and Dorothy
Bellis; and finally, he had three illegitimate children:
Amos Bellis, Jr., Maria Cristina Bellis and Miriam Palma
Bellis.
On August 5, 1952, Amos G. Bellis executed a will in the
Philippines, in which he directed that after all taxes,
obligations, and expenses of administration are paid for,
his distributable estate should be divided, in trust, in the
following order and manner: (a) $240,000.00 to his first
wife, Mary E. Mallen; (b) P120,000.00 to his three
illegitimate children, Amos Bellis, Jr., Maria Cristina
Bellis, Miriam Palma Bellis, or P40,000.00 each and (c)
after the foregoing two items have been satisfied, the
remainder shall go to his seven surviving children by his
first and second wives, namely: Edward A. Bellis, Henry
A. Bellis, Alexander Bellis and Anna Bellis Allsman, Edwin
G. Bellis, Walter S. Bellis, and Dorothy E. Bellis, in equal
shares.1äwphï1.ñët
Subsequently, or on July 8, 1958, Amos G. Bellis died a
resident of San Antonio, Texas, U.S.A. His will was
admitted to probate in the Court of First Instance of
Manila on September 15, 1958.
The People's Bank and Trust Company, as executor of the
will, paid all the bequests therein including the amount of
$240,000.00 in the form of shares of stock to Mary E.
Mallen and to the three (3) illegitimate children, Amos
Bellis, Jr., Maria Cristina Bellis and Miriam Palma Bellis,
various amounts totalling P40,000.00 each in satisfaction
of their respective legacies, or a total of P120,000.00,
which it released from time to time according as the
lower court approved and allowed the various motions or
petitions filed by the latter three requesting partial
advances on account of their respective legacies.
On January 8, 1964, preparatory to closing its
administration, the executor submitted and filed its
"Executor's Final Account, Report of Administration and
Project of Partition" wherein it reported, inter alia, the
satisfaction of the legacy of Mary E. Mallen by the
$240,000.00, and the legacies of Amos Bellis, Jr., Maria
Cristina Bellis and Miriam Palma Bellis in the amount of
P40,000.00 each or a total of P120,000.00. In the project
of partition, the executor — pursuant to the "Twelfth"
clause of the testator's Last Will and Testament —
divided the residuary estate into seven equal portions for
the benefit of the testator's seven legitimate children by
his first and second marriages.
On January 17, 1964, Maria Cristina Bellis and Miriam
Palma Bellis filed their respective oppositions to the
project of partition on the ground that they were
deprived of their legitimes as illegitimate children and,
therefore, compulsory heirs of the deceased.
Amos Bellis, Jr. interposed no opposition despite notice to
him, proof of service of which is evidenced by the registry
receipt submitted on April 27, 1964 by the executor.1
After the parties filed their respective memoranda and
other pertinent pleadings, the lower court, on April 30,
1964, issued an order overruling the oppositions and
approving the executor's final account, report and
administration and project of partition. Relying upon Art.
16 of the Civil Code, it applied the national law of the
decedent, which in this case is Texas law, which did not
provide for legitimes.
Their respective motions for reconsideration having been
denied by the lower court on June 11, 1964, oppositors-
appellants appealed to this Court to raise the issue of
which law must apply — Texas law or Philippine law.
In this regard, the parties do not submit the case on, nor
even discuss, the doctrine of renvoi, applied by this Court
in Aznar v. Christensen Garcia, L-16749, January 31,
1963. Said doctrine is usually pertinent where the
decedent is a national of one country, and a domicile of
another. In the present case, it is not disputed that the
decedent was both a national of Texas and a domicile
thereof at the time of his death.2 So that even assuming
Texas has a conflict of law rule providing that the
domiciliary system (law of the domicile) should govern,
the same would not result in a reference back (renvoi) to
Philippine law, but would still refer to Texas law.
Nonetheless, if Texas has a conflicts rule adopting the
situs theory (lex rei sitae) calling for the application of
the law of the place where the properties are situated,
renvoi would arise, since the properties here involved are
found in the Philippines. In the absence, however, of
proof as to the conflict of law rule of Texas, it should not
be presumed different from ours.3 Appellants' position is
therefore not rested on the doctrine of renvoi. As stated,
they never invoked nor even mentioned it in their
arguments. Rather, they argue that their case falls under
the circumstances mentioned in the third paragraph of
Article 17 in relation to Article 16 of the Civil Code.
Article 16, par. 2, and Art. 1039 of the Civil Code, render
applicable the national law of the decedent, in intestate
or testamentary successions, with regard to four items:
(a) the order of succession; (b) the amount of
successional rights; (e) the intrinsic validity of the
provisions of the will; and (d) the capacity to succeed.
They provide that —
ART. 16. Real property as well as personal
property is subject to the law of the country
where it is situated.
However, intestate and testamentary
successions, both with respect to the order of
succession and to the amount of successional
rights and to the intrinsic validity of
testamentary provisions, shall be regulated by
the national law of the person whose succession
 is under consideration, whatever may he the
nature of the property and regardless of the
country wherein said property may be found.
ART. 1039. Capacity to succeed is governed by
the law of the nation of the decedent.
Appellants would however counter that Art. 17,
paragraph three, of the Civil Code, stating that —
Prohibitive laws concerning persons, their acts
or property, and those which have for their
object public order, public policy and good
customs shall not be rendered ineffective by
laws or judgments promulgated, or by
determinations or conventions agreed upon in a
foreign country.
prevails as the exception to Art. 16, par. 2 of the Civil
Code afore-quoted. This is not correct. Precisely,
Congress deleted the phrase, "notwithstanding the
provisions of this and the next preceding article" when
they incorporated Art. 11 of the old Civil Code as Art. 17
of the new Civil Code, while reproducing without
substantial change the second paragraph of Art. 10 of the
old Civil Code as Art. 16 in the new. It must have been
their purpose to make the second paragraph of Art. 16 a
specific provision in itself which must be applied in
testate and intestate succession. As further indication of
this legislative intent, Congress added a new provision,
under Art. 1039, which decrees that capacity to succeed
is to be governed by the national law of the decedent.
It is therefore evident that whatever public policy or good
customs may be involved in our System of legitimes,
Congress has not intended to extend the same to the
succession of foreign nationals. For it has specifically
chosen to leave, inter alia, the amount of successional
rights, to the decedent's national law. Specific provisions
must prevail over general ones.
Appellants would also point out that the decedent
executed two wills — one to govern his Texas estate and
the other his Philippine estate — arguing from this that
he intended Philippine law to govern his Philippine estate.
Assuming that such was the decedent's intention in
executing a separate Philippine will, it would not alter the
law, for as this Court ruled in Miciano v. Brimo, 50 Phil.
867, 870, a provision in a foreigner's will to the effect
that his properties shall be distributed in accordance with
Philippine law and not with his national law, is illegal and
void, for his national law cannot be ignored in regard to
those matters that Article 10 — now Article 16 — of the
Civil Code states said national law should govern.
The parties admit that the decedent, Amos G. Bellis, was
a citizen of the State of Texas, U.S.A., and that under the
laws of Texas, there are no forced heirs or legitimes.
Accordingly, since the intrinsic validity of the provision of
the will and the amount of successional rights are to be
determined under Texas law, the Philippine law on
legitimes cannot be applied to the testacy of Amos G.
Bellis.
Wherefore, the order of the probate court is hereby
affirmed in toto, with costs against appellants. So
ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala,
Makalintal, Zaldivar, Sanchez and Castro, JJ., concur.
Footnotes
1
He later filed a motion praying that as a legal
heir he be included in this case as one of the
oppositors-appellants; to file or adopt the
opposition of his sisters to the project of
partition; to submit his brief after paying his
proportionate share in the expenses incurred in
the printing of the record on appeal; or to allow
him to adopt the briefs filed by his sisters — but
this Court resolved to deny the motion.
2
San Antonio, Texas was his legal residence.
3
Lim vs. Collector, 36 Phil. 472; In re Testate
Estate of Suntay, 95 Phil. 500.
G.R. No. L-2935 March 23, 1909
THE GOVERNMENT OF THE PHILIPPINE ISLANDS,
plaintiff-appellee,
vs.
GEORGE I. FRANK, defendant-appellant.
Bishop and O'Brien for appellant.
Attorney-General Wilfley for appellee.
JOHNSON, J.:
Judgment was rendered in the lower court on the 5th day
of September, 1905. The defendant appealed. On the
12th day of October, 1905, the appellant filed his printed
bill of exceptions with the clerk of the Supreme Court. On
the 5th day of December, 1905, the appellant filed his
brief with the clerk of the Supreme Court. On the 19th
day of January, 1906, the Attorney-General filed his brief
in said cause. Nothing further was done in said cause
until on or about the 30th day of January, 1909, when
the respective parties were requested by this court to
prosecute the appeal under the penalty of having the
same dismissed for failure so to do; whereupon the
appellant, by petition, had the caused placed upon the
calendar and the same was heard on the 2d day of
February, 1909.
The facts from the record appear to be as follows:
First. That on or about the 17th day of April, 1903, in the
city of Chicago, in the state of Illinois, in the United
States, the defendant, through a respective of the Insular
Government of the Philippine Islands, entered into a
contract for a period of two years with the plaintiff, by
which the defendant was to receive a salary of 1,200
dollars per year as a stenographer in the service of the
said plaintiff, and in addition thereto was to be paid in
advance the expenses incurred in traveling from the said
city of Chicago to Manila, and one-half salary during said
period of travel.
Second. Said contract contained a provision that in case
of a violation of its terms on the part of the defendant, he
should become liable to the plaintiff for the amount
expended by the Government by way of expenses
incurred in traveling from Chicago to Manila and one-half
salary paid during such period.
Third. The defendant entered upon the performance of
his contract upon the 30th day of April, 1903, and was
paid half-salary from that date until June 4, 1903, the
date of his arrival in the Philippine Islands.
Fourth. That on the 11th day of February, 1904, the
defendant left the service of the plaintiff and refused to
make further compliance with the terms of the contract.
Fifth. On the 3d day of December, 1904, the plaintiff
commenced an action in the Court of First Instance of the
city of Manila to recover from the defendant the sum of
269.23 dollars, which amount the plaintiff claimed had
been paid to the defendant as expenses incurred in
traveling from Chicago to Manila, and as half salary for
the period consumed in travel.
Sixth. It was expressly agreed between the parties to
said contract that Laws No. 80 and No. 224 should
constitute a part of said contract.
To the complaint of the plaintiff the defendant filed a
general denial and a special defense, alleging in his
special defense that the Government of the Philippine
Islands had amended Laws No. 80 and No. 224 and had
thereby materially altered the said contract, and also that
he was a minor at the time the contract was entered into
and was therefore not responsible under the law.
To the special defense of the defendant the plaintiff filed
a demurrer, which demurrer the court sustained.
determined by the law of the place where the contract is
made. (Scudder vs. Union National Bank, 91 U. S., 406.)
Matters connected with its performance are regulated by
the law prevailing at the place of performance. Matters
respecting a remedy, such as the bringing of suit,
admissibility of evidence, and statutes of limitations,
depend upon the law of the place where the suit is
brought. (Idem.)
The defendant's claim that he was an adult when he left
Chicago but was a minor when he arrived at Manila; that
he was an adult at the time he made the contract but
was a minor at the time the plaintiff attempted to enforce
the contract, more than a year later, is not tenable.
Our conclusions with reference to the first above
assignment of error are, therefore:
First. That the amendments to Acts No. 80 and No. 224
in no way affected the terms of the contract in question;
and
Second. The plaintiff [defendant] being fully qualified to
enter into the contract at the place and time the contract
was made, he can not plead infancy as a defense at the
place where the contract is being enforced.

Upon the issue thus presented, and after hearing the We believe that the above conclusions also dispose of the
evidence adduced during the trial of the cause, the lower second assignment of error.
court rendered a judgment against the defendant and in
favor of the plaintiff for the sum of 265.90 dollars. The
For the reasons above stated, the judgment of the lower
lower court found that at the time the defendant quit the
court is affirmed, with costs.
service of the plaintiff there was due him from the said
plaintiff the sum of 3.33 dollars, leaving a balance due
the plaintiff in the sum of 265.90 dollars. From this
judgment the defendant appealed and made the following
assignments of error:

1. The court erred in sustaining plaintiff's demurrer to

defendant's special defenses.

2. The court erred in rendering judgment against the

defendant on the facts.

With reference to the above assignments of error, it may

be said that the mere fact that the legislative department
of the Government of the Philippine Islands had amended
said Acts No. 80 and No. 224 by the Acts No. 643 and
No. 1040 did not have the effect of changing the terms of
the contract made between the plaintiff and the
defendant. The legislative department of the Government
is expressly prohibited by section 5 of the Act of
Congress of 1902 from altering or changing the terms of
the contract. The right which the defendant had acquired
by virtue of Acts No. 80 and No. 224 had not been
changed in any respect by the fact that said laws had
been amended. These acts, constituting the terms of the
contract, still constituted a part of said contract and were
enforceable in favor of the defendant.

The defendant alleged in his special defense that he was

a minor and therefore the contract could not be enforced
against him. The record discloses that, at the time the
contract was entered into in the State of Illinois, he was
an adult under the laws of that State and had full
authority to contract. The plaintiff [the defendant] claims
that, by reason of the fact that, under the laws of the
Philippine Islands at the time the contract was made,
male persons in said Islands did not reach their majority
until they had attained the age of 23 years, he was not
liable under said contract, contending that the laws of the
Philippine Islands governed. It is not disputed — upon
the contrary the fact is admitted — that at the time and
place of the making of the contract in question the
defendant had full capacity to make the same. No rule is
better settled in law than that matters bearing upon the
execution, interpretation and validity of a contract are
[ G.R. No. 133876, December 29, 1999 ]
BANK OF AMERICA, NT AND SA, PETITIONER, VS.
AMERICAN REALTY CORPORATION AND COURT OF
APPEALS, RESPONDENTS.
DECISION
BUENA, J.:
Does a mortgage-creditor waive its remedy to foreclose
the real estate mortgage constituted over a third party
mortgagor’s property situated in the Philippines by filing
an action for the collection of the principal loan before
foreign courts?
Sought to be reversed in the instant petition for review
on certiorari under Rule 45 of the Rules of Court are the
decision[1] of public respondent Court of Appeals in CA
G.R. CV No. 51094, promulgated on 30 September 1997
and its resolution,[2] dated 22 May 1998, denying
petitioner’s motion for reconsideration.
Petitioner Bank of America NT & SA (BANTSA) is an
international banking and financing institution duly
licensed to do business in the Philippines, organized and
existing under and by virtue of the laws of the State of
California, United States of America while private
respondent American Realty Corporation (ARC) is a
domestic corporation.
Bank of America International Limited (BAIL), on the
other hand, is a limited liability company organized and
existing under the laws of England.
As borne by the records, BANTSA and BAIL on several
occasions granted three major multi-million United States
(US) Dollar loans to the following corporate borrowers:
(1) Liberian Transport Navigation, S.A.; (2) El Challenger
S.A. and (3) Eshley Compania Naviera S.A. (hereinafter
collectively referred to as "borrowers"), all of which are
existing under and by virtue of the laws of the Republic of
Panama and are foreign affiliates of private respondent.[3]
Due to the default in the payment of the loan
amortizations, BANTSA and the corporate borrowers
signed and entered into restructuring agreements. As
additional security for the restructured loans, private
respondent ARC as third party mortgagor executed two
real estate mortgages,[4] dated 17 February 1983 and 20
July 1984, over its parcels of land including
improvements thereon, located at Barrio Sto. Cristo, San
Jose Del Monte, Bulacan, and which are covered by
Transfer Certificate of Title Nos. T-78759, T-78760, T-
78761, T-78762 and T-78763.
Eventually, the corporate borrowers defaulted in the
payment of the restructured loans prompting petitioner
BANTSA to file civil actions[5] before foreign courts for the
collection of the principal loan, to wit:
"a) In England, in its High Court of Justice, Queen’s
Bench Division, Commercial Court (1992-Folio No. 2098)
against Liberian Transport Navigation S.A., Eshley
Compania Naviera S.A., El Challenger S.A., Espriona
Shipping Company S.A., Eddie Navigation Corp., S.A.,
Eduardo Katipunan Litonjua and Aurelio Katipunan
Litonjua on June 17, 1992.
b) In England, in its High Court of Justice, Queen’s Bench
Division, Commercial Court (1992-Folio No. 2245)
against El Challenger S.A., Espriona Shipping Company
S.A., Eduardo Katipuan Litonjua & Aurelio Katipunan
Litonjua on July 2, 1992;
c) In Hongkong, in the Supreme Court of Hongkong High
Court (Action No. 4039 of 1992) against Eshley
Compania Naviera S.A., El Challenger S.A., Espriona
Shipping Company S.A. Pacific Navigators Corporation,
Eddie Navigation Corporation S.A., Litonjua Chartering
(Edyship) Co., Inc., Aurelio Katipunan Litonjua, Jr. and
Eduardo Katipunan Litonjua on November 19, 1992; and
d) In Hongkong, in the Supreme Court of Hongkong High
Court (Action No. 4040 of 1992) against Eshley
Compania Naviera S.A., El Challenger S.A., Espriona
Shipping Company, S.A., Pacific Navigators Corporation,
Eddie Navigation Corporation S.A., Litonjua Chartering
(Edyship) Co., Jr. and Eduardo Katipunan Litonjua on
November 21, 1992."
In the civil suits instituted before the foreign courts,
private respondent ARC, being a third party mortgagor,
was not impleaded as party-defendant.
On 16 December 1992, petitioner BANTSA filed before
the Office of the Provincial Sheriff of Bulacan, Philippines,
an application for extrajudicial foreclosure[6] of real estate
mortgage.
On 22 January 1993, after due publication and notice, the
mortgaged real properties were sold at public auction in
an extrajudicial foreclosure sale, with Integrated Credit
and Corporation Services Co. (ICCS) as the highest
bidder for the sum of Twenty Four Million Pesos
(P24,000,000.00).[7]
On 12 February 1993, private respondent filed before the
Pasig Regional Trial Court, Branch 159, an action for
damages[8] against the petitioner, for the latter’s act of
foreclosing extrajudicially the real estate mortgages
despite the pendency of civil suits before foreign courts
for the collection of the principal loan.
In its answer[9] petitioner alleged that the rule prohibiting
the mortgagee from foreclosing the mortgage after an
ordinary suit for collection has been filed, is not
applicable in the present case, claiming that:
"a) The plaintiff, being a mere third party mortgagor and
not a party to the principal restructuring agreements,
was never made a party defendant in the civil cases filed
in Hongkong and England;
"b) There is actually no civil suit for sum of money filed in
the Philippines since the civil actions were filed in
Hongkong and England. As such, any decisions (sic)
which may be rendered in the abovementioned courts are
not (sic) enforceable in the Philippines unless a separate
action to enforce the foreign judgments is first filed in the
Philippines, pursuant to Rule 39, Section 50 of the
Revised Rules of Court.
"c) Under English Law, which is the governing law under
the principal agreements, the mortgagee does not lose its
security interest by filing civil actions for sums of
money."
On 14 December 1993, private respondent filed a motion
for suspension[10] of the redemption period on the ground
that "it cannot exercise said right of redemption without
at the same time waiving or contradicting its contentions
in the case that the foreclosure of the mortgage on its
properties is legally improper and therefore invalid."
In an order[11] dated 28 January 1994, the trial court
granted the private respondent’s motion for suspension
after which a copy of said order was duly received by the
Register of Deeds of Meycauayan, Bulacan.
On 07 February 1994, ICCS, the purchaser of the
mortgaged properties at the foreclosure sale,
consolidated its ownership over the real properties,
resulting to the issuance of Transfer Certificate of Title
Nos. T-18627, T-186272, T-186273, T-16471 and T-
16472 in its name.
On 18 March 1994, after the consolidation of ownership
in its favor, ICCS sold the real properties to Stateland
Investment Corporation for the amount of Thirty Nine
Million Pesos (P39,000,000.00).[12] Accordingly, Transfer
Certificate of Title Nos. T-187781(m), T-187782(m), T-
187783(m), T-16653P(m) and T-16652P(m) were issued
in the latter’s name.
After trial, the lower court rendered a decision[13] in favor
of private respondent ARC dated 12 May 1993, the
decretal portion of which reads:
"WHEREFORE, judgment is hereby rendered declaring
that the filing in foreign courts by the defendant of
collection suits against the principal debtors operated as
a waiver of the security of the mortgages. Consequently,
the plaintiff’s rights as owner and possessor of the
properties then covered by Transfer Certificates of Title
Nos. T-78759, T-78762, T-78763, T-78760 and T-78761,
all of the Register of Deeds of Meycauayan, Bulacan,
Philippines, were violated when the defendant caused the
extrajudicial foreclosure of the mortgages constituted
thereon.
"Accordingly, the defendant is hereby ordered to pay the
plaintiff the following sums, all with legal interest thereon
from the date of the filing of the complaint up to the date
of actual payment:
"1) Actual or compensatory damages in the amount of
Ninety Nine Million Pesos (P99,000,000.00);
"2) Exemplary damages in the amount of Five Million
Pesos (P5,000,000.00); and
"3) Costs of suit.
"SO ORDERED."
On appeal, the Court of Appeals affirmed the assailed
decision of the lower court prompting petitioner to file a
motion for reconsideration which the appellate court
denied.
Hence, the instant petition for review[14] on certiorari
where herein petitioner BANTSA ascribes to the Court of
Appeals the following assignment of errors:
1. The Honorable Court of Appeals disregarded the
doctrines laid down by this Hon. Supreme Court in the
cases of Caltex Philippines, Inc. vs. Intermediate
Appellate Court docketed as G.R. No. 74730
promulgated on August 25, 1989 and Philippine
Commercial International Bank vs. IAC, 196 SCRA
29 (1991 case), although said cases were duly cited,
extensively discussed and specifically mentioned, as one
of the issues in the assignment of errors found on page 5
of the decision dated September 30, 1997.
2. The Hon. Court of Appeals acted with grave abuse of
discretion when it awarded the private respondent actual
and exemplary damages totalling P171,600,000.00, as of
July 12, 1998 although such huge amount was not asked
nor prayed for in private respondent’s complaint, is
contrary to law and is totally unsupported by evidence
(sic).
In fine, this Court is called upon to resolve two main
issues:
1. Whether or not the petitioner’s act of filing a collection
suit against the principal debtors for the recovery of the
loan before foreign courts constituted a waiver of the
remedy of foreclosure.
2. Whether or not the award by the lower court of actual
and exemplary damages in favor of private respondent
ARC, as third-party mortgagor, is proper.
The petition is bereft of merit.
First, as to the issue of availability of remedies, petitioner
submits that a waiver of the remedy of foreclosure
requires the concurrence of two requisites: an ordinary
civil action for collection should be filed and subsequently
a final judgment be correspondingly rendered therein.
According to petitioner, the mere filing of a personal
action to collect the principal loan does not suffice; a final
judgment must be secured and obtained in the personal
action so that waiver of the remedy of foreclosure may
be appreciated. To put it differently, absent any of the
two requisites, the mortgagee-creditor is deemed not to
have waived the remedy of foreclosure.
We do not agree.
Certainly, this Court finds petitioner’s arguments
untenable and upholds the jurisprudence laid down in
Bachrach[15] and similar cases adjudicated thereafter,
thus:
"In the absence of express statutory provisions, a
mortgage creditor may institute against the mortgage
debtor either a personal action for debt or a real action to
foreclose the mortgage. In other words, he may pursue
either of the two remedies, but not both. By such
election, his cause of action can by no means be
impaired, for each of the two remedies is complete in
itself. Thus, an election to bring a personal action will
leave open to him all the properties of the debtor for
attachment and execution, even including the mortgaged
property itself. And, if he waives such personal action
and pursues his remedy against the mortgaged property,
an unsatisfied judgment thereon would still give him the
right to sue for a deficiency judgment, in which case, all
the properties of the defendant, other than the
mortgaged property, are again open to him for the
satisfaction of the deficiency. In either case, his remedy
is complete, his cause of action undiminished, and any
advantages attendant to the pursuit of one or the other
remedy are purely accidental and are all under his right
of election. On the other hand, a rule that would
authorize the plaintiff to bring a personal action against
the debtor and simultaneously or successively another
action against the mortgaged property, would result not
only in multiplicity of suits so offensive to justice (Soriano
vs. Enriques, 24 Phil. 584) and obnoxious to law and
equity (Osorio vs. San Agustin, 25 Phil., 404), but also in
subjecting the defendant to the vexation of being sued in
the place of his residence or of the residence of the
plaintiff, and then again in the place where the property
lies."
In Danao vs. Court of Appeals,[16] this Court,
reiterating jurisprudence enunciated in Manila Trading
and Supply Co. vs. Co Kim[17]and Movido vs. RFC,[18]
invariably held:
"x x x The rule is now settled that a mortgage creditor
may elect to waive his security and bring, instead, an
ordinary action to recover the indebtedness with the right
to execute a judgment thereon on all the properties of
the debtor, including the subject matter of the mortgage
x x x, subject to the qualification that if he fails in the
remedy by him elected, he cannot pursue further the
remedy he has waived. (Underscoring Ours)
Anent real properties in particular, the Court has laid
down the rule that a mortgage creditor may institute
against the mortgage debtor either a personal action for
debt or a real action to foreclose the mortgage.[19]
In our jurisdiction, the remedies available to the
mortgage creditor are deemed alternative and not
cumulative. Notably, an election of one remedy operates
as a waiver of the other. For this purpose, a remedy is
deemed chosen upon the filing of the suit for collection or
upon the filing of the complaint in an action for
foreclosure of mortgage, pursuant to the provision of
Rule 68 of the 1997 Rules of Civil Procedure. As to
extrajudicial foreclosure, such remedy is deemed elected
by the mortgage creditor upon filing of the petition not
with any court of justice but with the Office of the Sheriff
of the province where the sale is to be made, in
accordance with the provisions of Act No. 3135, as
amended by Act No. 4118.
In the case at bench, private respondent ARC constituted
real estate mortgages over its properties as security for
the debt of the principal debtors. By doing so, private
respondent subjected itself to the liabilities of a third
party mortgagor. Under the law, third persons who are
not parties to a loan may secure the latter by pledging or
mortgaging their own property.[20]
Notwithstanding, there is no legal provision nor
jurisprudence in our jurisdiction which makes a third
person who secures the fulfillment of another‘s obligation
by mortgaging his own property, to be solidarily bound
with the principal obligor. The signatory to the principal
contract"loan"remains to be primarily bound. It is only
upon default of the latter that the creditor may have
recourse on the mortgagors by foreclosing the mortgaged
properties in lieu of an action for the recovery of the
amount of the loan.[21]
In the instant case, petitioner’s contention that the
requisites of filing the action for collection and rendition
of final judgment therein should concur, is untenable.
Thus, in Cerna vs. Court of Appeals,[22] we agreed with
the petitioner in said case, that the filing of a collection
suit barred the foreclosure of the mortgage:
"A mortgagee who files a suit for collection abandons the
remedy of foreclosure of the chattel mortgage constituted
over the personal property as security for the debt or
value of the promissory note when he seeks to recover in
the said collection suit."
"x x x When the mortgagee elects to file a suit for
collection, not foreclosure, thereby abandoning the
chattel mortgage as basis for relief, he clearly manifests
his lack of desire and interest to go after the mortgaged
property as security for the promissory note x x x."
Contrary to petitioner’s arguments, we therefore reiterate
the rule, for clarity and emphasis, that the mere act of
filing of an ordinary action for collection operates as a
waiver of the mortgage-creditor’s remedy to foreclose the
mortgage. By the mere filing of the ordinary action for
collection against the principal debtors, the petitioner in
the present case is deemed to have elected a remedy, as
a result of which a waiver of the other necessarily must
arise. Corollarily, no final judgment in the collection suit
is required for the rule on waiver to apply.
Hence, in Caltex Philippines, Inc. vs. Intermediate
Appellate Court,[23] a case relied upon by petitioner,
supposedly to buttress its contention, this Court had
occasion to rule that the mere act of filing a collection
suit for the recovery of a debt secured by a mortgage
constitutes waiver of the other remedy of foreclosure.
In the case at bar, petitioner BANTSA only has one cause
of action which is non-payment of the debt. Nevertheless,
alternative remedies are available for its enjoyment and
exercise. Petitioner then may opt to exercise only one of
two remedies so as not to violate the rule against
splitting a cause of action.
As elucidated by this Court in the landmark case of
Bachrach Motor Co., Inc. vs. Icarangal.[24]
"For non-payment of a note secured by mortgage, the
creditor has a single cause of action against the debtor.
This single cause of action consists in the recovery of the
credit with execution of the security. In other words, the
creditor in his action may make two demands, the
payment of the debt and the foreclosure of his mortgage.
But both demands arise from the same cause, the non-
payment of the debt, and for that reason, they constitute
a single cause of action. Though the debt and the
mortgage constitute separate agreements, the latter is
subsidiary to the former, and both refer to one and the
same obligation. Consequently, there exists only one
cause of action for a single breach of that obligation.
Plaintiff, then, by applying the rules above stated, cannot
split up his single cause of action by filing a complaint for
payment of the debt, and thereafter another complaint
for foreclosure of the mortgage. If he does so, the filing
of the first complaint will bar the subsequent complaint.
By allowing the creditor to file two separate complaints
simultaneously or successively, one to recover his credit
and another to foreclose his mortgage, we will, in effect,
be authorizing him plural redress for a single breach of
contract at so much cost to the courts and with so much
vexation and oppression to the debtor."
Petitioner further faults the Court of Appeals for allegedly
disregarding the doctrine enunciated in Caltex, wherein
this High Court relaxed the application of the general
rules to wit:
"In the present case, however, we shall not follow this
rule to the letter but declare that it is the collection suit
which was waived and/or abandoned. This ruling is more
in harmony with the principles underlying our judicial
system. It is of no moment that the collection suit was
filed ahead, what is determinative is the fact that the
foreclosure proceedings ended even before the decision
in the collection suit was rendered. x x x"
Notably, though, petitioner took the Caltex ruling out of
context. We must stress that the Caltex case was never
intended to overrule the well-entrenched doctrine
enunciated in Bachrach, which to our mind still finds
applicability in cases of this sort. To reiterate, Bachrach is
still good law.
We then quote the decision[25]of the trial court, in the
present case, thus:
"The aforequoted ruling in Caltex is the exception rather
than the rule, dictated by the peculiar circumstances
obtaining therein. In the said case, the Supreme Court
chastised Caltex for making - x x x a mockery of our
judicial system when it initially filed a collection suit then,
during the pendency thereof, foreclosed extrajudicially
the mortgaged property which secured the indebtedness,
and still pursued the collection suit to the end." Thus, to
prevent a mockery of our judicial system", the collection
suit had to be nullified because the foreclosure
proceedings have already been pursued to their end and
can no longer be undone.
xxxxxxxxx
"In the case at bar, it has not been shown whether the
defendant pursued to the end or are still pursuing the
collection suits filed in foreign courts. There is no
occasion, therefore, for this court to apply the exception
laid down by the Supreme Court in Caltex, by nullifying
the collection suits. Quite obviously, too, the aforesaid
collection suits are beyond the reach of this Court. Thus
the only way the court may prevent the spector of a
creditor having "plural redress for a single breach of
contract" is by holding, as the Court hereby holds, that
the defendant has waived the right to foreclose the
mortgages constituted by the plaintiff on its properties
originally covered by Transfer Certificates of Title Nos. T-
78759, T-78762, T-78760 and T-78761." (RTC Decision
pp., 10-11)
In this light, the actuations of Caltex are deserving of
severe criticism, to say the least.[26]
Moreover, petitioner attempts to mislead this Court by
citing the case of PCIB vs. IAC.[27] Again, petitioner tried
to fit a square peg in a round hole. It must be stressed
that far from overturning the doctrine laid down in
Bachrach, this Court in PCIB buttressed its firm stand on
this issue by declaring:
"While the law allows a mortgage creditor to either
institute a personal action for the debt or a real action to
foreclosure the mortgage, he cannot pursue both
remedies simultaneously or successively as was done by
PCIB in this case."
xxxxxxxxx
"Thus, when the PCIB filed Civil Case No. 29392 to
enforce payment of the 1.3 million promissory note
secured by real estate mortgages and subsequently filed
a petition for extrajudicial foreclosure, it violates the rule
against splitting a cause of action."
Accordingly, applying the foregoing rules, we hold that
petitioner, by the expediency of filing four civil suits
before foreign courts, necessarily abandoned the remedy
to foreclose the real estate mortgages constituted over
the properties of third-party mortgagor and herein
private respondent ARC. Moreover, by filing the four civil
actions and by eventually foreclosing extrajudicially the
mortgages, petitioner in effect transgressed the rules
against splitting a cause of action well-enshrined in
jurisprudence and our statute books.
In Bachrach, this Court resolved to deny the creditor the
remedy of foreclosure after the collection suit was filed,
considering that the creditor should not be afforded
"plural redress for a single breach of contract." For cause
of action should not be confused with the remedy created
for its enforcement.[28]
Notably, it is not the nature of the redress which is
crucial but the efficacy of the remedy chosen in
addressing the creditor’s cause. Hence, a suit brought
before a foreign court having competence and jurisdiction
to entertain the action is deemed, for this purpose, to be
within the contemplation of the remedy available to the
mortgagee-creditor. This pronouncement would best
serve the interest of justice and fair play and further
discourage the noxious practice of splitting up a lone
cause of action.
Incidentally, BANTSA alleges that under English Law,
which according to petitioner is the governing law with
regard to the principal agreements, the mortgagee does
not lose its security interest by simply filing civil actions
for sums of money.[29]
We rule in the negative.
This argument shows desperation on the part of
petitioner to rivet its crumbling cause. In the case at
bench, Philippine law shall apply notwithstanding the
evidence presented by petitioner to prove the English law
on the matter.
In a long line of decisions, this Court adopted the well-
imbedded principle in our jurisdiction that there is no
judicial notice of any foreign law. A foreign law must be
properly pleaded and proved as a fact.[30] Thus, if the
foreign law involved is not properly pleaded and proved,
our courts will presume that the foreign law is the same
as our local or domestic or internal law.[31] This is what
we refer to as the doctrine of processual presumption.
In the instant case, assuming arguendo that the English
Law on the matter were properly pleaded and proved in
accordance with Section 24, Rule 132 of the Rules of
Court and the jurisprudence laid down in Yao Kee, et al.
vs. Sy-Gonzales,[32] said foreign law would still not find
applicability.
Thus, when the foreign law, judgment or contract is
contrary to a sound and established public policy of the
forum, the said foreign law, judgment or order shall not
be applied.[33]
Additionally, prohibitive laws concerning persons, their
acts or property, and those which have for their object
public order, public policy and good customs shall not be
rendered ineffective by laws or judgments promulgated,
or by determinations or conventions agreed upon in a
foreign country.[34]
The public policy sought to be protected in the instant
case is the principle imbedded in our jurisdiction
proscribing the splitting up of a single cause of action.
Section 4, Rule 2 of the 1997 Rules of Civil Procedure is
pertinent -
"If two or more suits are instituted on the basis of the
same cause of action, the filing of one or a judgment
upon the merits in any one is available as a ground for
the dismissal of the others."
Moreover, foreign law should not be applied when its
application would work undeniable injustice to the
citizens or residents of the forum. To give justice is the
most important function of law; hence, a law, or
judgment or contract that is obviously unjust negates the
fundamental principles of Conflict of Laws.[35]
Clearly then, English Law is not applicable.
As to the second pivotal issue, we hold that the private
respondent is entitled to the award of actual or
compensatory damages inasmuch as the act of petitioner
BANTSA in extrajudicially foreclosing the real estate
mortgages constituted a clear violation of the rights of
herein private respondent ARC, as third-party mortgagor.
Actual or compensatory damages are those recoverable
because of pecuniary loss in business, trade, property,
profession, job or occupation and the same must be
proved, otherwise if the proof is flimsy and non-
substantial, no damages will be given.[36] Indeed, the
question of the value of property is always a difficult one
to settle as valuation of real property is an imprecise
process since real estate has no inherent value readily
ascertainable by an appraiser or by the court.[37] The
opinions of men vary so much concerning the real value
of property that the best the courts can do is hear all of
the witnesses which the respective parties desire to
present, and then, by carefully weighing that testimony,
arrive at a conclusion which is just and equitable.[38]
In the instant case, petitioner assails the Court of
Appeals for relying heavily on the valuation made by
Philippine Appraisal Company. In effect, BANTSA
questions the act of the appellate court in giving due
weight to the appraisal report composed of twenty three
pages, signed by Mr. Lauro Marquez and submitted as
evidence by private respondent. The appraisal report, as
the records would readily show, was corroborated by the
testimony of Mr. Reynaldo Flores, witness for private
respondent.
On this matter, the trial court observed:
"The record herein reveals that plaintiff-appellee formally
offered as evidence the appraisal report dated March 29,
1993 (Exhibit J, Records, p. 409), consisting of twenty
three (23) pages which set out in detail the valuation of
the property to determine its fair market value (TSN,
April 22, 1994, p. 4), in the amount of P99,986,592.00
(TSN, ibid., p. 5), together with the corroborative
testimony of one Mr. Reynaldo F. Flores, an appraiser
and director of Philippine Appraisal Company, Inc. (TSN,
ibid., p. 3). The latter’s testimony was subjected to
extensive cross-examination by counsel for defendant-
appellant (TSN, April 22, 1994, pp. 6-22)."[39]
In the matter of credibility of witnesses, the Court
reiterates the familiar and well-entrenched rule that the
factual findings of the trial court should be respected.[40]
The time-tested jurisprudence is that the findings and
conclusions of the trial court on the credibility of
witnesses enjoy a badge of respect for the reason that
trial courts have the advantage of observing the
demeanor of witnesses as they testify.[41]
This Court will not alter the findings of the trial court on
the credibility of witnesses, principally because they are
in a better position to assess the same than the appellate
court.[42] Besides, trial courts are in a better position to
examine real evidence as well as observe the demeanor
of witnesses.[43]
Similarly, the appreciation of evidence and the
assessment of the credibility of witnesses rest primarily
with the trial court.[44] In the case at bar, we see no
reason that would justify this Court to disturb the factual
findings of the trial court, as affirmed by the Court of
Appeals, with regard to the award of actual damages.
In arriving at the amount of actual damages, the trial
court justified the award by presenting the following
ratiocination in its assailed decision[45], to wit:
"Indeed, the Court has its own mind in the matter of
valuation. The size of the subject real properties are (sic)
set forth in their individual titles, and the Court itself has
seen the character and nature of said properties during
the ocular inspection it conducted. Based principally on
the foregoing, the Court makes the following
observations:
"1. The properties consist of about 39 hectares in Bo.
Sto. Cristo, San Jose del Monte, Bulacan, which is (sic)
not distant from Metro Manila - the biggest urban center
in the Philippines - and are easily accessible through well-
paved roads;
"2. The properties are suitable for development into a
subdivision for low cost housing, as admitted by
defendant’s own appraiser (TSN, May 30, 1994, p. 31);
"3. The pigpens which used to exist in the property have
already been demolished. Houses of strong materials are
found in the vicinity of the property (Exhs. 2, 2-1 to 2-7),
and the vicinity is a growing community. It has even
been shown that the house of the Barangay Chairman is
located adjacent to the property in question (Exh. 27),
and the only remaining piggery (named Cherry Farm) in
the vicinity is about 2 kilometers away from the western
boundary of the property in question (TSN, November
19, p. 3);
"4. It will not be hard to find interested buyers of the
property, as indubitably shown by the fact that on March
18, 1994, ICCS (the buyer during the foreclosure sale)
sold the consolidated real estate properties to Stateland
Investment Corporation, in whose favor new titles were
issued, i.e., TCT Nos. T-187781(m); T-187782(m), T-
187783(m); T-16653P(m) and T-166521(m) by the
Register of Deeds of Meycauayan (sic), Bulacan;
"5. The fact that ICCS was able to sell the subject
properties to Stateland Investment Corporation for Thirty
Nine Million (P39,000,000.00) Pesos, which is more than
triple defendant’s appraisal (Exh. 2) clearly shows that
the Court cannot rely on defendant’s aforesaid estimate
(Decision, Records, p. 603)."
It is a fundamental legal aphorism that the conclusions of
the trial judge on the credibility of witnesses command
great respect and consideration especially when the
conclusions are supported by the evidence on record.[46]
Applying the foregoing principle, we therefore hold that
the trial court committed no palpable error in giving
credence to the testimony of Reynaldo Flores, who
according to the records, is a licensed real estate broker,
appraiser and director of Philippine Appraisal Company,
Inc. since 1990.[47] As the records show, Flores had been
with the company for 26 years at the time of his
testimony.
Of equal importance is the fact that the trial court did not
confine itself to the appraisal report dated 29 March
1993, and the testimony given by Mr. Reynaldo Flores, in
determining the fair market value of the real property.
Above all these, the record would likewise show that the
trial judge in order to appraise himself of the
characteristics and condition of the property, conducted
an ocular inspection where the opposing parties appeared
and were duly represented.
Based on these considerations and the evidence
submitted, we affirm the ruling of the trial court as
regards the valuation of the property -
"x x x a valuation of Ninety Nine Million Pesos
(P99,000,000.00) for the 39-hectare properties (sic)
translates to just about Two Hundred Fifty Four Pesos
(P254.00) per square meter. This appears to be, as the
court so holds, a better approximation of the fair market
value of the subject properties. This is the amount which
should be restituted by the defendant to the plaintiff by
way of actual or compensatory damages x x x."[48]
Further, petitioner ascribes error to the lower court for
awarding an amount allegedly not asked nor prayed for
in private respondent’s complaint.
Notwithstanding the fact that the award of actual and
compensatory damages by the lower court exceeded that
prayed for in the complaint, the same is nonetheless
valid, subject to certain qualifications.
On this issue, Rule 10, Section 5 of the Rules of Court is
pertinent:
"SEC. 5. Amendment to conform to or authorize
presentation of evidence. - When issues not raised by the
pleadings are tried with the express or implied consent of
the parties, they shall be treated in all respects as if they
had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform
to the evidence and to raise these issues may be made
upon motion of any party at any time, even after
judgement; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected
to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if
the presentation of the merits of the action and the ends
of substantial justice will be subserved thereby. The court
may grant a continuance to enable the amendment to be
made."
The jurisprudence enunciated in Talisay-Silay Milling
Co., Inc. vs. Asociacion de Agricultures de Talisay-
Silay, Inc.[49] citing Northern Cement Corporation vs.
Intermediate Appellate Court [50] is enlightening:
"There have been instances where the Court has held
that even without the necessary amendment, the amount
proved at the trial may be validly awarded, as in Tuazon
v. Bolanos (95 Phil. 106), where we said that if the facts
shown entitled plaintiff to relief other than that asked for,
no amendment to the complaint was necessary,
especially where defendant had himself raised the point
on which recovery was based. The appellate court could
treat the pleading as amended to conform to the
evidence although the pleadings were actually not
amended. Amendment is also unnecessary when only
clerical error or non substantial matters are involved, as
we held in Bank of the Philippine Islands vs. Laguna (48
Phil. 5). In Co Tiamco vs. Diaz (75 Phil. 672), we
stressed that the rule on amendment need not be applied
rigidly, particularly where no surprise or prejudice is
caused the objecting party. And in the recent case of
National Power Corporation vs. Court of Appeals (113
SCRA 556), we held that where there is a variance in the
defendant’s pleadings and the evidence adduced by it at
the trial, the Court may treat the pleading as amended to
conform with the evidence.
"It is the view of the Court that pursuant to the above-
mentioned rule and in light of the decisions cited, the trial
court should not be precluded from awarding an amount
higher than that claimed in the pleading notwithstanding
the absence of the required amendment. But it is upon
the condition that the evidence of such higher amount
has been presented properly, with full opportunity on the
part of the opposing parties to support their respective
contentions and to refute each other’s evidence.
"The failure of a party to amend a pleading to conform to
the evidence adduced during trial does not preclude an
adjudication by the court on the basis of such evidence
WHEREFORE, premises considered, the instant petition
is DENIED for lack of merit. The decision of the Court of
Appeals is hereby AFFIRMED with MODIFICATION of
the amount awarded as exemplary damages.
Accordingly, petitioner is hereby ordered to pay private
respondent the sum of P99,000,000.00 as actual or
compensatory damages; P50,000.00 as exemplary
damage and the costs of suit.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De
Leon, Jr., JJ., concur.
[1]
CA Decision in CA-G.R. CV No. 51094, penned by
Justice Ricardo P. Galvez and concurred in by Justice
Fidel V. Purisima and Justice B.A. Adefuin-De la Cruz;
Rollo, pp. 38-58.
CA Resolution in CA G.R. CV No. 51094, dated 22 May
[2]

which may embody new issues not raised in the 1998; Rollo, p. 60.
pleadings, or serve as a basis for a higher award of
damages. Although the pleading may not have been
[3]
Rollo, p. 38.
amended to conform to the evidence submitted during
trial, judgment may nonetheless be rendered, not simply
[4]
Ibid., p. 39.
on the basis of the issues alleged but also on the basis of
issues discussed and the assertions of fact proved in the
[5]
Ibid.
course of trial. The court may treat the pleading as if it
had been amended to conform to the evidence, although
[6]
Ibid., p. 40.
it had not been actually so amended. Former Chief
Justice Moran put the matter in this way:
[7]
Ibid.

`When evidence is presented by one party, with the

[8]
Ibid.
expressed or implied consent of the adverse party, as to
issues not alleged in the pleadings, judgment may be
[9]
Ibid.
rendered validly as regards those issues, which shall be
considered as if they have been raised in the pleadings.
[10]
Rollo, p. 41.
There is implied consent to the evidence thus presented
when the adverse party fails to object thereto.’
[11]
Ibid.

"Clearly, a court may rule and render judgment on the

[12]
Ibid.
basis of the evidence before it even though the relevant
pleading had not been previously amended, so long as no
[13]
Rollo,, pp. 41-42.
surprise or prejudice is thereby caused to the adverse
party. Put a little differently, so long as the basis
[14]
Rollo, pp. 10-36.
requirements of fair play had been met, as where
litigants were given full opportunity to support their
[15]
Bachrach Motor Co., Inc. vs. Esteban Icarangal, 68
respective contentions and to object to or refute each Phil. 287.
other’s evidence, the court may validly treat the
pleadings as if they had been amended to conform to the
[16]
154 SCRA 446.
evidence and proceed to adjudicate on the basis of all the
evidence before it."
[17]
71 Phil. 448.

[18]
105 Phil. 886.
In the instant case, inasmuch as the petitioner was
afforded the opportunity to refute and object to the [19]
Danao vs. Court of Appeals 154 SCRA 446.
evidence, both documentary and testimonial, formally
offered by private respondent, the rudiments of fair play
Article 2085, Civil Code; Lustan vs. Court of Appeals,
[20]
are deemed satisfied. In fact, the testimony of Reynaldo
266 SCRA 663.
Flores was put under scrutiny during the course of the
cross-examination. Under these circumstances, the court [21]
Cerna vs. Court of Appeals 220 SCRA 517.
acted within the bounds of its jurisdiction and committed
no reversible error in awarding actual damages the [22]
Ibid.
amount of which is higher than that prayed for. Verily,
the lower court’s actuations are sanctioned by the Rules [23]
176 SCRA 741.
and supported by jurisprudence.
[24]
68 Phil. 287.
Similarly, we affirm the grant of exemplary damages
although the amount of Five Million Pesos [25]
Rollo, p.94.
(P5,000,000.00) awarded, being excessive, is subject to
reduction. Exemplary or corrective damages are imposed,
Caltex Philippines, Inc. vs. Intermediate Appellate
[26]
by way of example or correction for the public good, in
Court, 176 SCRA 741.
addition to the moral, temperate, liquidated or
compensatory damages.[51] Considering its purpose, it [27]
196 SCRA 29.
must be fair and reasonable in every case and should not
be awarded to unjustly enrich a prevailing party.[52] In [28]
Bachrach Motor vs. Icarangal, 68 Phil. 287.
our view, an award of P50,000.00 as exemplary damages
in the present case qualifies the test of reasonableness.
 THIRD DIVISION
G.R. No. 61594 September 28, 1990
PAKISTAN INTERNATIONAL AIRLINES
CORPORATION, petitioner,
vs
HON. BLAS F. OPLE, in his capacity as Minister of
Labor; HON. VICENTE LEOGARDO, JR., in his
capacity as Deputy Minister; ETHELYNNE B.
FARRALES and MARIA MOONYEEN MAMASIG,
respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles
for petitioner.
Ledesma, Saludo & Associates for private respondents.
FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines
Corporation ("PIA"), a foreign corporation licensed to do business
in the Philippines, executed in Manila two (2) separate contracts
of employment, one with private respondent Ethelynne B.
Farrales and the other with private respondent Ma. M.C.
Mamasig. 1 The contracts, which became effective on 9 January
1979, provided in pertinent portion as follows:
5. DURATION OF EMPLOYMENT AND
PENALTY
This agreement is for a period of three (3)
years, but can be extended by the mutual
consent of the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as
herein provided, PIA reserves the right to
terminate this agreement at any time by
giving the EMPLOYEE notice in writing in
advance one month before the intended
termination or in lieu thereof, by paying the
EMPLOYEE wages equivalent to one
month's salary.
xxx xxx xxx
10. APPLICABLE LAW:
This agreement shall be construed and
governed under and by the laws of Pakistan,
and only the Courts of Karachi, Pakistan shall
have the jurisdiction to consider any matter
arising out of or under this agreement.
Respondents then commenced training in Pakistan. After their
training period, they began discharging their job functions as flight
attendants, with base station in Manila and flying assignments to
different parts of the Middle East and Europe.
On 2 August 1980, roughly one (1) year and four (4) months prior
to the expiration of the contracts of employment, PIA through Mr.
Oscar Benares, counsel for and official of the local branch of PIA,
sent separate letters both dated 1 August 1980 to private
respondents Farrales and Mamasig advising both that their
services as flight stewardesses would be terminated "effective 1
September 1980, conformably to clause 6 (b) of the employment
agreement [they had) executed with [PIA]."2
On 9 September 1980, private respondents Farrales and
Mamasig jointly instituted a complaint, docketed as NCR-STF-
95151-80, for illegal dismissal and non-payment of company
benefits and bonuses, against PIA with the then Ministry of Labor
and Employment ("MOLE"). After several unfruitful attempts at
conciliation, the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position papers and evidence
supporting their respective positions. The PIA submitted its
position paper, 3 but no evidence, and there claimed that both
private respondents were habitual absentees; that both were in
the habit of bringing in from abroad sizeable quantities of
"personal effects"; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs
officials to advise private respondents to discontinue that practice.
PIA further claimed that the services of both private respondents
were terminated pursuant to the provisions of the employment
contract.
In his Order dated 22 January 1981, Regional Director Francisco
L. Estrella ordered the reinstatement of private respondents with
full backwages or, in the alternative, the payment to them of the
amounts equivalent to their salaries for the remainder of the fixed
three-year period of their employment contracts; the payment to
private respondent Mamasig of an amount equivalent to the value
of a round trip ticket Manila-USA Manila; and payment of a bonus
to each of the private respondents equivalent to their one-month
salary. 4 The Order stated that private respondents had attained
the status of regular employees after they had rendered more
than a year of continued service; that the stipulation limiting the
period of the employment contract to three (3) years was null and
void as violative of the provisions of the Labor Code and its
implementing rules and regulations on regular and casual
employment; and that the dismissal, having been carried out
without the requisite clearance from the MOLE, was illegal and
entitled private respondents to reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982, Hon. Vicente
Leogardo, Jr., Deputy Minister, MOLE, adopted the findings of
fact and conclusions of the Regional Director and affirmed the
latter's award save for the portion thereof giving PIA the option, in
lieu of reinstatement, "to pay each of the complainants [private
respondents] their salaries corresponding to the unexpired portion
of the contract[s] [of employment] . . .". 5
In the instant Petition for Certiorari, petitioner PIA assails the
award of the Regional Director and the Order of the Deputy
Minister as having been rendered without jurisdiction; for having
been rendered without support in the evidence of record since,
allegedly, no hearing was conducted by the hearing officer, Atty.
Jose M. Pascual; and for having been issued in disregard and in
violation of petitioner's rights under the employment contracts with
private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE,
had no jurisdiction over the subject matter of the complaint
initiated by private respondents for illegal dismissal, jurisdiction
over the same being lodged in the Arbitration Branch of the
National Labor Relations Commission ("NLRC") It appears to us
beyond dispute, however, that both at the time the complaint was
initiated in September 1980 and at the time the Orders assailed
were rendered on January 1981 (by Regional Director Francisco
L. Estrella) and August 1982 (by Deputy Minister Vicente
Leogardo, Jr.), the Regional Director had jurisdiction over
termination cases.
Art. 278 of the Labor Code, as it then existed, forbade the
termination of the services of employees with at least one (1) year
of service without prior clearance from the Department of Labor
and Employment:
Art. 278. Miscellaneous Provisions — . . .
(b) With or without a collective agreement, no
employer may shut down his establishment
or dismiss or terminate the employment of
employees with at least one year of service
during the last two (2) years, whether such
service is continuous or broken, without prior
written authority issued in accordance with
such rules and regulations as the Secretary
may promulgate . . . (emphasis supplied)
 Rule XIV, Book No. 5 of the Rules and Regulations
Implementing the Labor Code, made clear that in case
of a termination without the necessary clearance, the
Regional Director was authorized to order the
reinstatement of the employee concerned and the
payment of backwages; necessarily, therefore, the
Regional Director must have been given jurisdiction
over such termination cases:
Sec. 2. Shutdown or dismissal without
clearance. — Any shutdown or dismissal
without prior clearance shall be conclusively
presumed to be termination of employment
without a just cause. The Regional Director
shall, in such case order the immediate
reinstatement of the employee and the
payment of his wages from the time of the
shutdown or dismissal until the time of
reinstatement. (emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of
Labor, dated 23 April 1976, was similarly very explicit
about the jurisdiction of the Regional Director over
termination of employment cases:
Under PD 850, termination cases — with or
without CBA — are now placed under the
original jurisdiction of the Regional Director.
Preventive suspension cases, now made
cognizable for the first time, are also placed
under the Regional Director. Before PD 850,
termination cases where there was a CBA
were under the jurisdiction of the grievance
machinery and voluntary arbitration, while
termination cases where there was no CBA
were under the jurisdiction of the Conciliation
Section.
In more details, the major innovations
introduced by PD 850 and its implementing
rules and regulations with respect to
termination and preventive suspension cases
are:
1. The Regional Director is now required to
rule on every application for clearance,
whether there is opposition or not, within ten
days from receipt thereof.
xxx xxx xxx
(Emphasis supplied)
2. The second contention of petitioner PIA is that, even if the
Regional Director had jurisdiction, still his order was null and void
because it had been issued in violation of petitioner's right to
procedural due process .6 This claim, however, cannot be given
serious consideration. Petitioner was ordered by the Regional
Director to submit not only its position paper but also such
evidence in its favor as it might have. Petitioner opted to rely
solely upon its position paper; we must assume it had no
evidence to sustain its assertions. Thus, even if no formal or oral
hearing was conducted, petitioner had ample opportunity to
explain its side. Moreover, petitioner PIA was able to appeal his
case to the Ministry of Labor and Employment. 7
There is another reason why petitioner's claim of denial of due
process must be rejected. At the time the complaint was filed by
private respondents on 21 September 1980 and at the time the
Regional Director issued his questioned order on 22 January
1981, applicable regulation, as noted above, specified that a
"dismissal without prior clearance shall be conclusively presumed
to be termination of employment without a cause", and the
Regional Director was required in such case to" order the
immediate reinstatement of the employee and the payment of his
wages from the time of the shutdown or dismiss until . . .
reinstatement." In other words, under the then applicable rule, the
Regional Director did not even have to require submission of
position papers by the parties in view of the conclusive (juris et de
jure) character of the presumption created by such applicable law
and regulation. In Cebu Institute of Technology v. Minister of
Labor and Employment, 8 the Court pointed out that "under Rule
14, Section 2, of the Implementing Rules and Regulations, the
termination of [an employee] which was without previous
clearance from the Ministry of Labor is conclusively presumed to
be without [just] cause . . . [a presumption which] cannot be
overturned by any contrary proof however strong."
3. In its third contention, petitioner PIA invokes paragraphs 5 and
6 of its contract of employment with private respondents Farrales
and Mamasig, arguing that its relationship with them was
governed by the provisions of its contract rather than by the
general provisions of the Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that
relationship, extendible by agreement between the parties; while
paragraph 6 provided that, notwithstanding any other provision in
the Contract, PIA had the right to terminate the employment
agreement at any time by giving one-month's notice to the
employee or, in lieu of such notice, one-months salary.
A contract freely entered into should, of course, be respected, as
PIA argues, since a contract is the law between the parties. 10
The principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is
that the contracting parties may establish such stipulations as
they may deem convenient, "provided they are not contrary to
law, morals, good customs, public order or public policy." Thus,
counter-balancing the principle of autonomy of contracting parties
is the equally general rule that provisions of applicable law,
especially provisions relating to matters affected with public
policy, are deemed written into the contract. 11 Put a little
differently, the governing principle is that parties may not contract
away applicable provisions of law especially peremptory
provisions dealing with matters heavily impressed with public
interest. The law relating to labor and employment is clearly such
an area and parties are not at liberty to insulate themselves and
their relationships from the impact of labor laws and regulations
by simply contracting with each other. It is thus necessary to
appraise the contractual provisions invoked by petitioner PIA in
terms of their consistency with applicable Philippine law and
regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister,
MOLE, in effect held that paragraph 5 of that employment
contract was inconsistent with Articles 280 and 281 of the Labor
Code as they existed at the time the contract of employment was
entered into, and hence refused to give effect to said paragraph 5.
These Articles read as follows:
Art. 280. Security of Tenure. — In cases of
regular employment, the employer shall not
terminate the services of an employee except
for a just cause or when authorized by this
Title An employee who is unjustly dismissed
from work shall be entitled to reinstatement
without loss of seniority rights and to his
backwages computed from the time his
compensation was withheld from him up to
the time his reinstatement.
Art. 281. Regular and Casual Employment.
The provisions of written agreement to the
contrary notwithstanding and regardless of
the oral agreements of the parties, an
employment shall be deemed to be regular
where the employee has been engaged to
perform activities which are usually
necessary or desirable in the usual business
or trade of the employer, except where the
employment has been fixed for a specific
project or undertaking the completion or
termination of which has been determined at
the time of the engagement of the employee
or where the work or services to be
performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual
if it is not covered by the preceding
paragraph: provided, that, any employee who
has rendered at least one year of service,
whether such service is continuous or
 broken, shall be considered as regular
employee with respect to the activity in which
he is employed and his employment shall
continue while such actually exists.
(Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the
Court had occasion to examine in detail the question of whether
employment for a fixed term has been outlawed under the above
quoted provisions of the Labor Code. After an extensive
examination of the history and development of Articles 280 and
281, the Court reached the conclusion that a contract providing
for employment with a fixed period was not necessarily unlawful:
There can of course be no quarrel with the
proposition that where from the
circumstances it is apparent that periods
have been imposed to preclude acquisition of
tenurial security by the employee, they
should be struck down or disregarded as
contrary to public policy, morals, etc. But
where no such intent to circumvent the law is
shown, or stated otherwise, where the reason
for the law does not exist e.g. where it is
indeed the employee himself who insists
upon a period or where the nature of the
engagement is such that, without being
seasonal or for a specific project, a definite
date of termination is a sine qua non would
an agreement fixing a period be essentially
evil or illicit, therefore anathema Would such
an agreement come within the scope of
Article 280 which admittedly was enacted "to
prevent the circumvention of the right of the
employee to be secured in . . . (his)
employment?"
As it is evident from even only the three
examples already given that Article 280 of the
Labor Code, under a narrow and literal
interpretation, not only fails to exhaust the
gamut of employment contracts to which the
lack of a fixed period would be an anomaly,
but would also appear to restrict, without
reasonable distinctions, the right of an
employee to freely stipulate with his employer
the duration of his engagement, it logically
follows that such a literal interpretation should
be eschewed or avoided. The law must be
given reasonable interpretation, to preclude
absurdity in its application. Outlawing the
whole concept of term employment and
subverting to boot the principle of freedom of
contract to remedy the evil of employers"
using it as a means to prevent their
employees from obtaining security of tenure
is like cutting off the nose to spite the face or,
more relevantly, curing a headache by
lopping off the head.
xxx xxx xxx
Accordingly, and since the entire purpose
behind the development of legislation
culminating in the present Article 280 of the
Labor Code clearly appears to have been, as
already observed, to prevent circumvention of
the employee's right to be secure in his
tenure, the clause in said article
indiscriminately and completely ruling out all
written or oral agreements conflicting with the
concept of regular employment as defined
therein should be construed to refer to the
substantive evil that the Code itself has
singled out: agreements entered into
precisely to circumvent security of tenure. It
should have no application to instances
where a fixed period of employment was
agreed upon knowingly and voluntarily by the
parties, without any force, duress or improper
pressure being brought to bear upon the
employee and absent any other
circumstances vitiating his consent, or where
it satisfactorily appears that the employer and
employee dealt with each other on more or
less equal terms with no moral dominance
whatever being exercised by the former over
the latter. Unless thus limited in its purview,
the law would be made to apply to purposes
other than those explicitly stated by its
framers; it thus becomes pointless and
arbitrary, unjust in its effects and apt to lead
to absurd and unintended consequences.
(emphasis supplied)
It is apparent from Brent School that the critical
consideration is the presence or absence of a
substantial indication that the period specified in an
employment agreement was designed to circumvent
the security of tenure of regular employees which is
provided for in Articles 280 and 281 of the Labor Code.
This indication must ordinarily rest upon some aspect of
the agreement other than the mere specification of a
fixed term of the ernployment agreement, or upon
evidence aliunde of the intent to evade.
Examining the provisions of paragraphs 5 and 6 of the
employment agreement between petitioner PIA and private
respondents, we consider that those provisions must be read
together and when so read, the fixed period of three (3) years
specified in paragraph 5 will be seen to have been effectively
neutralized by the provisions of paragraph 6 of that agreement.
Paragraph 6 in effect took back from the employee the fixed three
(3)-year period ostensibly granted by paragraph 5 by rendering
such period in effect a facultative one at the option of the
employer PIA. For petitioner PIA claims to be authorized to
shorten that term, at any time and for any cause satisfactory to
itself, to a one-month period, or even less by simply paying the
employee a month's salary. Because the net effect of paragraphs
5 and 6 of the agreement here involved is to render the
employment of private respondents Farrales and Mamasig
basically employment at the pleasure of petitioner PIA, the Court
considers that paragraphs 5 and 6 were intended to prevent any
security of tenure from accruing in favor of private respondents
even during the limited period of three (3) years,13 and thus to
escape completely the thrust of Articles 280 and 281 of the Labor
Code.
Petitioner PIA cannot take refuge in paragraph 10 of its
employment agreement which specifies, firstly, the law of
Pakistan as the applicable law of the agreement and, secondly,
lays the venue for settlement of any dispute arising out of or in
connection with the agreement "only [in] courts of Karachi
Pakistan". The first clause of paragraph 10 cannot be invoked to
prevent the application of Philippine labor laws and regulations to
the subject matter of this case, i.e., the employer-employee
relationship between petitioner PIA and private respondents. We
have already pointed out that the relationship is much affected
with public interest and that the otherwise applicable Philippine
laws and regulations cannot be rendered illusory by the parties
agreeing upon some other law to govern their relationship.
Neither may petitioner invoke the second clause of paragraph 10,
specifying the Karachi courts as the sole venue for the settlement
of dispute; between the contracting parties. Even a cursory
scrutiny of the relevant circumstances of this case will show the
multiple and substantive contacts between Philippine law and
Philippine courts, on the one hand, and the relationship between
the parties, upon the other: the contract was not only executed in
the Philippines, it was also performed here, at least partially;
private respondents are Philippine citizens and respondents,
while petitioner, although a foreign corporation, is licensed to do
business (and actually doing business) and hence resident in the
Philippines; lastly, private respondents were based in the
Philippines in between their assigned flights to the Middle East
and Europe. All the above contacts point to the Philippine courts
and administrative agencies as a proper forum for the resolution
of contractual disputes between the parties. Under these
circumstances, paragraph 10 of the employment agreement
cannot be given effect so as to oust Philippine agencies and
courts of the jurisdiction vested upon them by Philippine law.
Finally, and in any event, the petitioner PIA did not undertake to
plead and prove the contents of Pakistan law on the matter; it
must therefore be presumed that the applicable provisions of the
law of Pakistan are the same as the applicable provisions of
Philippine law.14
We conclude that private respondents Farrales and Mamasig
were illegally dismissed and that public respondent Deputy
Minister, MOLE, had not committed any grave abuse of discretion
nor any act without or in excess of jurisdiction in ordering their
reinstatement with backwages. Private respondents are entitled to
three (3) years backwages without qualification or deduction.
Should their reinstatement to their former or other substantially
equivalent positions not be feasible in view of the length of time
which has gone by since their services were unlawfully
terminated, petitioner should be required to pay separation pay to
private respondents amounting to one (1) month's salary for every
year of service rendered by them, including the three (3) years
service putatively rendered.
ACCORDINGLY, the Petition for certiorari is hereby DISMISSED
for lack of merit, and the Order dated 12 August 1982 of public
respondent is hereby AFFIRMED, except that (1) private
respondents are entitled to three (3) years backwages, without
deduction or qualification; and (2) should reinstatement of private
respondents to their former positions or to substantially equivalent
positions not be feasible, then petitioner shall, in lieu thereof, pay
to private respondents separation pay amounting to one (1)-
month's salary for every year of service actually rendered by them
and for the three (3) years putative service by private
respondents. The Temporary Restraining Order issued on 13
September 1982 is hereby LIFTED. Costs against petitioner.
SO ORDERED.
Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Cortés, JJ.,
concur.
NORTHWEST AIRLINES, INC. petitioner, vs. COURT
OF APPEALS and ROLANDO I. TORRES respondents.
[G.R. No. 120337. January 20, 1998]
ROLANDO I. TORRES, petitioner, vs. COURT OF APPEALS
and NORTHWEST AIRLINES, INC., respondents.
DECISION
DAVIDE, JR., J.:
Unable to accept the decision of the Court of Appeals in
CA-G.R. CV No. 24068,i[1] petitioner Northwest Airlines,
Inc., (hereafter NORTHWEST) and petitioner Rolando I.
Torres (hereafter TORRES) filed separate petitions for
review under Rule 45 of the Rules of Court, which were
docketed as G.R. No. 120334 and G.R. No. 120337 and
thereafter consolidated.
The antecedents of these cases were summarized by the
Court of Appeals as follows:ii[2]
The plaintiff, [Torres], allegedly on a special mission to
purchase firearms for the Philippine Senate, purchased a
round trip ticket from defendant [Northwest] for his
travel to Chicago and back to Manila. Via defendants
flight, plaintiff left for United States.
After purchasing firearms and on the way back to Manila,
plaintiff checked-in and presented before defendants
representative his two identical baggage, one of which
contained firearms. Defendants representative required
the baggage to be opened and the supporting evidence to
be presented. Plaintiff showed them his authorization
from the Philippine government and the purchase
receipts. Plaintiff thereafter sealed the baggage and
defendants representative placed a red tag on the
baggage with firearms with the marking "CONTAINS
FIREARMS".
Upon arrival in Manila on June 22, 1988 plaintiff was not
able to claim one of his baggages. Plaintiff was informed
by defendants representative that his baggage containing
firearms was recalled back to Chicago by defendant for
US Customs verification. A telex to this effect was shown
to plaintiff.
On June 28, 1988, after being advised of the arrival of his
other baggage, plaintiff claimed and opened the baggage
in the presence of defendants representative and found
out that the firearms were missing. A Personal Property
Missing Damage Report was issued by defendant to
plaintiff.
On account of the continuous refusal of defendant to
settle amicably, plaintiff then prayed before the trial
court that defendant be ordered to pay actual damages,
moral damages, temperate damages, exemplary
damages and attorney's fees (pp. 1-6, Complaint; p. 1,
Record).
In its answer, defendant pleaded: a) that it was the
agents from the US Customs who ordered for the return
of the weapons which plaintiff checked-in; b) that when
opened in the presence of US Customs agents the box
contained no firearms; and c) that since the baggage
which was returned back to Chicago did not contain any
firearms, then the baggage which plaintiff received upon
arrival in Manila must have contained the firearms (pp.
3-5, Answer; pp. 32-34, Record).
After plaintiff had presented its evidence, defendant filed
a "Motion to Dismiss (By Way of Demurrer to the
Evidence with Motion for Summary Judgment)" dated
April 24, 1989.
In said motion, defendant moved for the dismissal of the
complaint in so far as it prays for moral, exemplary and
temperate damages and attorney's fees and further
moved for "Summary Judgment to be rendered awarding
the plaintiff $640.00 as actual damages." (Motion to
Dismiss By Way of Demurrer to Evidence with Motion for
Summary Judgment; p. 115, Records).
Plaintiff on the other hand, offered no objection to the
submission of the case for decision but insisted that he is
entitled to damages as prayed for (p. 1, Comment on
Defendant's Motion to Dismiss by Way of Demurrer to
Evidence with Summary Judgment; pp. 136-169,
Records).
We add to this summary the following relevant matters:
NORTHWEST argued in its motion for summary judgment
that the Warsaw Convention and the contract of carriage
limited its liability to US$640 and that the evidence
presented by TORRES did not entitle him to moral,
exemplary, and temperate damages and attorneys
fees.iii[3]
Instead of just ruling on NORTHWESTs Motion to Dismiss
(By Way of Demurrer to Evidence) with Motion for
Summary Judgment, which it considered submitted for
resolution in the order of 14 June 1989,iv[4] the trial
court rendered on 13 September 1989 a full-blown
decisionv[5] ordering NORTHWEST to pay TORRES the
following amounts:
1. The amount of $9,009.32, with legal interest thereon
from the date of the filing of the complaint, in its peso
equivalent at the official rate of exchange at the time
payment is made, representing the value of the goods
lost by the plaintiff;
2. The amount of P100,000.00 by way of attorney's fees;
3. The amount of P5,181.09 as filing fees paid by the
plaintiff and the amount of P20,000.00 for expenses of
litigation, representing travel expenses and hotel
accommodations of plaintiff's counsels; and
4. The amount of P50,000.00 as moral damages.
The award of US$9,009.32, representing the value of the
lost firearms, was grounded on the trial courts finding
that the act of [NORTHWESTs] personnel in Tokyo or
Narita Airport in just guessing which baggage contained
the firearms was careless and imprudent, amounting to
careless disregard for the safety of the luggage of the
passenger. According to the trial court, such act
constituted willful misconduct which brought the case
beyond the application of Section 22(2) of the Warsaw
Convention, thereby depriving NORTHWEST of the
limitation of the liability provided for in said section.
The awards of attorneys fees and expenses of litigation
were premised on NORTHWESTs having ignored the
demands of TORRES forcing the latter to litigate in order
to assert his right. TORRES was also awarded moral
damages because of the inconvenience, anxiety and
worry he suffered by reason of NORTHWESTs
unjustifiable refusal to settle his claim.
Both TORRES and NORTHWEST appealed from the
decision to the Court of Appeals, which docketed the case
as CA-G.R. CV No. 24068. Torres assailed the failure of
the trial court to award the actual, moral, and exemplary
damages prayed for by him.vi[6] Northwest, on the other
hand, alleged that in prematurely resolving the case on
the merits the court prevented it from presenting
evidence, thereby denying it due process; and that even
assuming that the trial court could resolve the entire case
on the merits, it erred in awarding damages, attorneys
fees, and expenses of litigation.vii[7]
In its Decisionviii[8] of 14 September 1994, the Court of
Appeals sustained the trial courts judgment that TORRES
was entitled to actual damages, since NORTHWEST had,
in effect, admitted the loss of the firearms when it
insisted that its liability was limited to $9.07 per pound or
$20 per kilo. The appellate court then concluded that
NORTHWESTs guessing of which luggage contained the
firearms amounted to willful misconduct under Section
25(1) of the Warsaw Convention which entitled TORRES
to claim actual damages in excess of the limitation
provided for under Section 22(2) of said Convention.
Nevertheless, the Court of Appeals held that while the
trial court properly ruled on the right of TORRES to actual
damages, it erred in determining by way of summary
judgment the amount of damages; for under Section 3 of
Rule 34 of the Rules of Court, a summary judgment may
be rendered upon proper motion except as to the amount
of damages.
As to the trial courts act of disposing of the entire case by
way of summary judgment, the Court of Appeals noted
that NORTHWEST categorically moved for summary
judgment only on the issue of actual damages, but not on
the claims for moral damages and attorneys fees.
NORTHWEST moved for the dismissal of the latter claims
by way of demurrer to evidence. That being so, the trial
court could not, by way of summary judgment, dispose of
the case on its entirety. Section 2 of Rule 34 of the Rules
of Court required that summary judgment should be
issued only after the motion therefor has been heard.
Since there was no such motion as to the claims for
moral damages and attorneys fees, no summary
judgment thereon could be made.
Anent the demurrer to evidence, the Court of Appeals
held that the trial court had to either grant or deny it. If
granted, no award therefor could have been validly
made. If denied, then under Section 1 of Rule 35 of the
Rules of Court, NORTHWEST should have been allowed to
present its evidence, as it was not deemed to have
waived that right. This section provided:
SECTION 1. Effect of judgment on demurrer to evidence.
-- After the plaintiff has completed the presentation of his
evidence, the defendant without waiving his right to offer
evidence in the event the motion is not granted, may
move for a dismissal on the ground that upon facts and
the law the plaintiff has shown no right to relief.
However, if the motion is granted and order of dismissal
is reversed on appeal, the movant loses his right to
present evidence in his behalf.ix[9]
The Court of Appeals then held that since the demurrer
was impliedly denied by the trial court, NORTHWEST
should have been allowed to present its evidence in
accordance with the above rule.
Accordingly, the Court of Appeals affirmed the trial courts
finding as to the right of TORRES to actual damages but
set aside the rest of the appealed decision. It then
remanded the case to the court a quo for further
proceedings.
On 23 May 1995, the Court of Appeals deniedx[10]
NORTHWESTs motion for a partial reconsideration of the
decision.
Hence, the present petitions.
NORTHWEST contests the right of TORRES to actual
damages on the following grounds: (1) the loss of
firearms was disputed; (2) the finding of willful
misconduct was arbitrary; and (3) TORRES failed to
produce a United States license for the shipment of the
firearms; hence, the importation was illegal and no
damages could arise therefrom.
TORRES, on the other hand, claims that the Court of
Appeals erred (1) in setting aside the appealed decision
of the court a quo as to the awards of damages,
attorneys fees, and cost of suit; (2) in remanding the
case to the court a quo for further proceedings; and (3)
in failing to award other damages for breach of contract
and willful misconduct committed by Northwest for
mishandling the cargo.
NORTHWESTs Motion to Dismiss (By Way of Demurrer to
Evidence) with Motion for Summary Judgment involved
two distinct and separate processes, viz: (1) demurrer to
evidence, which was then governed by Rule 35, now by
Rule 33; and (2) motion for summary judgment, which
was then governed by Rule 34, now Rule 35, of the Rules
of Court. The subject of the demurrer were the claims for
moral, exemplary, and temperate damages and attorneys
fees; while the target of the motion for summary
judgment was the claim for actual damages.
We agree with the Court of Appeals in its holding that the
trial court erred in deciding the entire case on its merits.
Indeed, as to the demurrer to evidence, the trial court
should have been solely guided by the procedure laid
down in the abovementioned rule on demurrer to
evidence. It had no choice other than to grant or to deny
the demurrer. It could not, without committing grave
abuse of discretion amounting to excess of jurisdiction,
deny the motion and then forthwith grant TORRES claims
on a finding that TORRES has established a
preponderance of evidence in support of such claims. In
the instant case, the trial court did just that insofar as
moral damages, attorneys fees, and expenses of
litigation were concerned. What it should have done was
to merely deny the demurrer and set a date for the
reception of NORTHWESTs evidence in chief.
As to the motion for summary judgment, both the trial
court and the Court of Appeals were in error . Summary
judgments were formerly governed by Rule 34 of the
Rules of Court. The rule is now Rule 35 of the 1987 Rules
of Civil Procedure with the amendments allowing the
parties to submit not only affidavits but also depositions award TORRES actual damages commensurate to the
or admissions in support of their respective value of the firearms and based on his evidence alone.
contentions.xi[11] Motions for summary judgment may
be filed by the claimant or by the defending party.
We, however, agree with both the trial court and the
Sections 1, 2, and 3 of the old Rule 34, the governing law
Court of Appeals that NORTHWESTs liability for actual
in this case, provided as follows:
damages may not be limited to that prescribed in Section
22(2) of the Warsaw Convention. In Alitalia v.
SECTION 1. Summary judgment for claimant. -- A party Intermediate Appellate Court,xv[15] we held:
seeking to recover upon a claim, counterclaim, or cross-
claim or to obtain a declaratory relief may, at any time
The [Warsaw] Convention does not operate as an
after the pleading in answer thereto has been served,
exclusive enumeration of the instances of an airlines
move with supporting affidavits for a summary judgment
liability, or as an absolute limit of the extent of that
in his favor upon all or any part thereof.
liability. Such a proposition is not borne out by the
language of the Convention, as this Court has now, and
SEC. 2. Summary judgment for defending party. -- A at an earlier time, pointed out. Moreover, slight reflection
party against whom a claim, counterclaim, or cross-claim readily leads to the conclusion that it should be deemed a
is asserted or a declaratory relief is sought may, at any limit of liability only in those cases where the cause of
time, move with supporting affidavits for a summary the death or injury to person, or destruction, loss or
judgment in his favor as to all or any part thereof. damage to property or delay in its transport is not
attributable to or attended by any willful misconduct, bad
faith, recklessness, or otherwise improper conduct on the
SEC. 3. Motion and proceedings thereon. -- The motion
part of any official or employee for which the carrier is
shall be served at least ten (10) days before the time
responsible, and there is otherwise no special or
specified for the hearing. The adverse party prior to the
extraordinary form of resulting injury. The Conventions
day of hearing may serve opposing affidavits. After the
provisions, in short, do not regulate or exclude liability
hearing, the judgment sought shall be rendered forthwith
for other breaches of contract by the carrier or
if the pleadings, depositions, and admissions on file
misconduct of its officers and employees, or for some
together with the affidavits, show that, except as to the
particular or exceptional type of damage.
amount of damages, there is no genuine issue as to any
material fact and that the moving party is entitled to a
judgment as a matter of law. IN VIEW WHEREOF, judgment is hereby rendered (1)
PARTLY GRANTING the petition in G.R. No. 120334 by
setting aside that portion of the challenged decision of
NORTHWEST, the defending party, moved for summary
the Court of Appeals in CA-G.R. CV No. 24068 affirming
judgment on the claim for actual damages after TORRES
the summary judgment as to the right of respondent
had presented his evidence in chief. This was allowed by
ROLANDO I. TORRES to actual damages; (2) DENYING
Section 2 where the motion may be filed at any time, as
for want of merit the petition in G.R. No. 120337; and (3)
distinguished from section 1 where the claimant, like
REMANDING this case to the trial court for the reception
TORRES, may file the motion at any time after the
of the evidence for Northwest Airlines, Inc. in Civil Case
answer is filed.
No. 88-46117 and, thereafter, for the rendition of the
judgment therein on the merits.
Summary judgment is allowed if, except as to the
amount of damages, there is no genuine issue as to any
No pronouncement as to costs.
material fact and the moving party is entitled to a
judgment as a matter of law.
SO ORDERED.
In this case, NORTHWEST denied in its Answer the
material allegations in the complaint and asserted, in Bellosillo, Kapunan, and Vitug, JJ., concur.
fact, that it was not liable for actual damages because
the box containing the alleged lost firearms was the one
received by TORRES when he arrived in Manila. It
likewise contended that, even granting that the firearms
i[1] Per Labitoria, E., J,, with Ramirez, P. and Abad
were lost, its liability was limited by the Warsaw
Convention and the contract of transportation to $9.07 Santos, Q., Jr., JJ., concurring. Rollo G.R. No. 120334,
per pound, or a total of $640 as the box weighed 70 42-50; Rollo G.R. No. 120337, 27-35.
pounds.xii[12] It also denied having acted fraudulently or
in bad faith.xiii[13] ii[2] Rollo G.R. No. 120334, 44-45; Rollo G.R. No.
120337, 29-30.
In thus submitting for summary judgment the matter of iii[3] Original Record (OR) Civil Case No. 88-46117, 115.
its liability only to the maximum allowed in Section 22(2)
of the Warsaw Convention, NORTHWEST was deemed to iv[4] Id., 189.
have hypothetically admitted arguendo that the firearms
were lost. It did not waive the presentation of evidence v[5] Per Judge Sergio D. Mabunay. OR, 191-204.
that it was not in fact liable for the alleged loss of
firearms. And even if it were so liable, NORTHWEST could vi[6] Rollo, CA-G.R. CV No. 24068, 11.
still prove at the appropriate time that it was not liable
beyond the maximum provided in said Section 22(2). vii[7] Id., unpaginated; Defendant-Appellants Brief, 6-7.
Notably, TORRES prayed for actual damages in the
amounts of (1) $9,009.32 representing the value of the viii[8] Supra note 1.
lost firearms; and (2) P39,065xiv[14] representing the
cost of his plane tickets. ix[9] This is now Section 1 of Rule 33 of the 1997 Rules of
Civil Procedure with modification in the wordings to make
the provision clearer.
Concretely then, there remained a genuine issue on the
fact and amount of actual damages. The motion for x[10] Rollo, G.R. No. 120334, 52.
summary judgment was not therefore in order.
NORTHWEST must have resorted to it, in like manner as xi[11] 1 Florenz D. Regalado, Remedial Law Compendium 359-
it did in filing the demurrer, to delay the progress of the 360 (Sixth Revised Edition 1997).
trial of the case. Verily, it was grave abuse of discretion
on the part of the trial court to grant such motion and xii[12] Paragraphs 21 and 22, Answer, OR, 33-34.
xiii[13] Paragraph 23, Answer, OR, 34.

xiv[14] Paragraph 13 of the Complaint and letter (b) of the Prayer

thereof, OR, 5 and 6.

xv[15] 192 SCRA 9, 17 [1990].