The Bachrach Motor Co v.

Espiritu Digest
The Bachrach Motor Co v. Espiritu
G.R. No. L-28497 November 6, 1928

Facts:
1. This is a consolidated case(Cases no. 28497 and 28948) involving two
separate sale transactions. One made in Feb. 18, 1925 (case 28498), when the
defendant earlier bought a truck on instalment from the petitioner and said truck was
mortgaged together with the two others (no. 77197 & 92744 in the the subsequent
sale transaction dated July 28, 1925. The said two of the other trucks were also
purchased (but already paid previously) from the plaintiff. The defendant failed to
pay the balance. In July 1925, defendant again purchased another truck from
Bachrach. The said truck, together with the 3 other vehicles were mortgaged to the
plaintiff to secure the remaining balance. The defendant failed to pay the balance for
the latest truck obtained.

2. It was agreed in both sales that 12% interest will be paid on the unpaid price,
and in case of the non-payment of the total debt at maturity, 25% shall be the
penalty. The defendant also signed a promissory note solidarily with his brother
Rosario (acting as intervenor), the sums secured by the mortgages. Rosario is
alleged to be the owner of the two white trucks no. 77197 & 92744 mortgaged.

3. While these two cases were pending in the lower court the mortgaged trucks
were sold by virtue of the mortgage, all of them together bringing in, after deducting
the sheriff's fees and transportation charges to Manila, the net sum of P3,269.58.

4. The lower court ordered the defendants and the intervenor to pay plaintiff in
case 28497 the sum of P7,732.09 with interest at the rate of 12 per cent per annum
from May 1, 1926 until fully paid, and 25 per cent thereof in addition as penalty. In
case 28498, the trial court ordered the defendant and the intervenor to pay plaintiff
the sum of P4,208.28 with interest at 12 per cent per annum from December 1, 1925
until fully paid, and 25 per cent thereon as penalty.

5. The appellants contend that trucks 77197 and 92744 were not mortgaged,
because, when the defendant signed the mortgage deeds these trucks were not
included in those documents, and were only put in later, without defendant's
knowledge. Appellants also alleged that on February 4, 1925, the defendant sold his
rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the latter
did not sign the mortgage deeds, such trucks cannot be considered as mortgaged.

6. But there is positive proof that they were included at the time the defendant
signed these documents. Besides, there were presented two of defendant's letters to
Hidalgo, an employee of the plaintiff's written a few days before the transaction,
acquiescing in the inclusion of all his White trucks already paid for, in the mortgage
(Exhibit H-I).

Issue: W/N the 25% penalty upon the debt in addition to the 25% p.a. is
usurious

Ruling: No, Article 1152 of the Civil Code permits the agreement upon a penalty
apart from the interest. Should there be such an agreement, the penalty, as was
held in the case of Lopez vs. Hernaez (32 Phil., 631), does not include the interest,
and which may be demanded separately. The penalty is not to be added to the
interest for the determination of whether the interest exceeds the rate fixed by the
law, since said rate was fixed only for the interest. But considering that the obligation
was partly performed, and making use of the power given to the court by article
1154 of the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt. The
penalty is however reduced from 25 % upon the sum owed, the defendants need
pay only 10 % thereon as penalty. (Judgment appealed from is affirmed in all other
respects).
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Robes-Francisco Realty & Dev’t Corp v. CFI-Rizal and Lolita Millan (1978)
Munoz Palma, J.
Robes Realty agreed to sell to Millan a parcel of land in Caloocan City.
Millan complied with her obligation and paid the installments. She made a total payment, including
interests and expenses for registration of title.
After which, she made repeated demands for the execution of the final deed of sale and the issuance
of the TCT over the lot.
The parties executed a deed of absolute sale. The deed had the provision:
o The seller warrants that the TCT shall be transferred in the name of the buyer within 6 months from
full payment.
o In case the seller fails to issue the TCT, the seller bears the obligation to refund the total amount
already paid, plus 4% per annum interest.
After 6 months, seller corporation failed to cause the issuance of the TCT. So, buyer Millan filed a
complaint for specific performance and damages against the seller corporation. The complaint prays:
o Judgment ordering the reformation of the deed of absolute sale;
o Judgment ordering the seller corporation to deliver the TCT; or, if not possible, pay buyer Millan the
value of the lot
o Judgment ordering the seller corp to pay damages, corrective and actual (P15k)
Seller corp answered. They:
o Want the complaint to be dismissed because the deed of absolute sale was voluntarily executed
between them and the interest of the buyer Millan was protected by the provision of interest at 4% per
annum
TC awarded nominal damages of P20k.

Issue: Was award of nominal damages proper?

Held: Yes.
Ratio:
 Seller corporation was in delay, amounting to non-performance of obligation to buyer Millan who had
fully paid up her instalments.
NCC170 provides that those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for
damages.
Unfortunately, the buyer Millan submitted her case without presenting evidence on the actual
damages suffered.
STILL, the facts show that the right of the buyer MIillan to acquire title was violated by seller corp and
this entitles her at the very least to nominal damages.
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded.

NATURE OF NOMINAL DAMAGES

Under American jurisprudence, nominal damages by their very nature are small sums fixed by the
court without regard to the extent of the harm done to the injured party.
Fouraker v. Kidd : It is generally held that a nominal damage is a substantial claim, if based upon the
violation of a legal right; in such case, the law presumes a damage, although actual or compensatory
damages are not proven.
o Nominal damages are damages in name only and not in fact, and are allowed, not as an equivalent
of a wrong inflicted, but simply in recogniton of the existence of a technical injury.
In Phil jurisdiction, the SC in Medina v. Cresencia eliminated an award of P10k nominal damages,
saying that the amount cannot in common sense be deemed "nominal".
In a subsequent case (Northwest Airlines v. Cuenca) SC sustained an award of P20k nominal damages,
the SC there found special reasons to consider P20k as "nominal."
Actually, the Northwest Airlines case ruled that there is no conflict between that case and Medina.
o In Medina, the P10k nominal damages was eliminated because the aggrieved party had already been
awarded P6k as compensatory damages, P30k as moral damages and P10k as exemplary damages.
o While in Northwest, no such compensatory, moral, or exemplary damages were granted to the
aggrieved party.
Northwest case said "nominal damages cannot coexist with compensatory damages."

PURPOSE OF NOMINAL DAMAGES

Based on the preceding articles, nominal damages are not intended for indemnification of loss
suffered, but for the vindication or recognition of a right violated or invaded.

WHEN NOMINAL DAMAGES RECOVERABLE

They are recoverable where some injury has been done the amount of which the evidence fails to
show, the assessment of damages being left to the discretion of the court according to the
circumstances of the case.
The circumstances of a particular case will determine whether the amount assessed as nominal
damages is within the scope or intent of the law (NCC 2221)
In this case:
P20k is excessive.
Seller corp’s failure to convey a TCT to buyer Millan because the property was mortgaged to GSIS does
not in itself show bad faith or fraud.
 Bad faith is not to be presumed.
Also, there was the expectation of the seller that arrangements were possible for the GSIS to make
partial releases of the subdivision lots from the overall mortgage.
o It was just unfortunate that seller did not succeed in that.
For that reason We cannot agree with respondent Millan Chat the P20,000.00 award may be
considered in the nature of exemplary damages.
Because of that, P20k is excessive. P10k is fair.

Decision modified. Nominal damages decreased from P20k to P10k.

------------------------
PAMINTUAN v. CA

G.R. No. L-26339, December 14, 1979.

94 Phil. 556

AQUINO, J.

FACTS:

Mariano Pamintuan was in an agreement with Yu Ping Kun Co., Inc. to sell plastic sheetings
imported by the former from Japan through a barter license he had for the export of white flint corn to
Toyo Menka Kaisha, Ltd. While the plastic sheetings were arriving in Manila, Pamintuan informed the
President of Yu Ping Kun that he was in dire need of cash and requested that he be paid immediately for
the plastic sheetings. Consequently, the two parties fixed a price to the plastic sheetings regardless of
the kind, quality or actual invoice value thereof and based it on dividing the total price of the shipment
with its aggregate quantity. After the shipments arrived in Manila (4 shipments in total), Pamintuan only
delivered a portion or 224, 150 yards of the expected 339, 440 yards of plastic sheetings he received to
Yu Ping Kun's warehouse. Furthermore, he delivered plastic sheetings of inferior quality that were
valued at a lesser price than what Yu Ping Kun had paid. Subsequently, Yu Ping Kun filed an action to
enforce a provision in their contract of sale which states that any violation of the stipulations of that
contract would entitle the aggrieved party to liquidated damages in the amount of 10, 000 Php from the
offending party.

ISSUE:

Whether or not compensatory damages may be awarded for breach of a contract of sale in
addition to liquidated damages/stipulated penalty in the said contract.

HELD:
 Yes, compensatory damages may be awarded for breach of a contract of sale in addition to
liquidated damages/stipulated penalty in the said contract. Paragraph 1 of Article 1226 of the New Civil
Code states that:

“In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay
the penalty or is guilty of fraud in the fulfillment of the obligation.”

Thus, as a general rule, the penalty takes the place of the indemnity for damages and the
payment of interest. However there are exceptions to this rule under the Civil Code, and one of them is;
when the obligor is guilty of fraud in the fulfillment of the obligation, indemnity for damages may be
awarded in addition to and apart from the penalty stipulated.

The factual findings of the lower courts that Pamintuan was guilty of fraud because he did not
make a complete delivery of the plastic sheetings and he overpriced the same is conclusive upon the
Supreme Court. Hence, based on this fact, Pamintuan should pay damages. However, in case of fraud
the creditor (in this case Yu Ping Kun), in addition to and apart from the stipulated penalty, may only
recover the difference between the actual proven damages and the stipulated penalty.

-------------------------
Country Bankers Insurance v. CA
G.R. No. 85161, 9 September 1991

FACTS:

Sy (petitioner) leased theaters owned by Oscar Ventanilla Enterprises Corporation (OVEC)

(respondent). Despite numerous demands and a supplemental agreement, Petitioner failed to pay
the monthly rentals and amusement taxes as stipulated in their contract. Respondent thereafter
repossessed said properties in accordance with their written agreement. Sy filed to enjoin said action
of OVEC.

ISSUE:

WON the repossession is valid.

RULING:

Yes. The repossession is valid as the same constitutes a penal clause.

Article 1226 of the Civil Code provides that as a general rule, in obligations with a penal clause, the
penalty shall substitute the indemnity for damages and the payment of interests in case of non-
compliance.

There is no merit in petitioners’ argument that the forfeiture clause stipulated in the lease agreement
would unjustly enrich the respondent at the expense of petitioners is contrary to law, morals, good
customs, public order or public policy. A provision which calls for the forfeiture of the remaining
deposit still in the possession of the lessor, without prejudice to any other obligation still owing, in the
event of the termination or cancellation of the agreement by reason of the lessee’s violation of any of
the terms and conditions of the agreement is a penal clause that may be validly entered into. The
petition is denied.

--------------------
HEIRS OF MANUEL UY EK LIONG VS. CASTILLO GR 176425, JUNE 5, 2013

FACTS:

Respondents in this case were petitioners in a civil case to annul the title of PMPCI over
respondents’ land. Respondents entered into an AGREEMENT whereby in exchange for the legal
services of Atty. Zepeda and the financial assistance of MANUEL UY EK LIONG, in the event of a
favorable decision in the civil case, Atty Zepeda and Manuel would be entitled to 40% of the realties
and/or monetary benefits which may be adjudicated in favor of the respondents.

Respondents, on the same day entered into a Kasunduan, agreeing to sell the remaining 60% share
in the land in favor of Manuel for the sum of 180k. Manuel would pay a 1K down payment upon
execution of the Kasunduan. They agreed that any party violating the Kasunduan would pay the
aggrieved party a penalty fixed in the sum of P50K, together with the attorney’s fees and litigation
expenses incurred should a case be subsequently filed in court.

The respondents won in the CIVIL CASE. The land was divided in accordance with the Agreement
but the respondents refused to comply with the KASUNDUAN, despite Manuel’s offer to pay the
remaining 179K balance, claiming that the same was void ab initio for being violative violative of
Art 1491 of the NCC and the Canons of Professional Responsibility. Article 1491 prohibits lawyers
from acquiring by purchase or assignment the property /rights involved in the litigation in which
they intervene by virtue of their profession. Manuel instituted an action for Specific Performance
and Damages against respondents.

ISSUE: w/n the Kasunduan should be given effect

HELD: The Kasunduan is valid. The prohibition applies only during the pendency of the suit and
generally does not cover contracts for contingent fees where the transfer takes effect only after the
finality of a favorable judgment. The Agreement and the Kasunduan are not independent contracts,
with parties, objects and causes different from that of the other. Obligations arising from contracts
have the force of law between the contracting parties. When the terms of the contract are clear and
leave no doubt as to the intention of the parties, the literal meaning of its stipulation should govern.
The Kasunduan contained a penal clause which provides that a party who violates any of its
provisions shall be liable to pay the aggrieved party a penalty fixed at P50K, together with the
attorney’s fees and litigation expenses incurred by the latter should judicial resolution of the matter
becomes necessary. The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof of the existence and the measure of damages caused by the breach. The penalty
clause generally substitutes the indemnity for damages and the payment of interests in case
of noncompliance. The rule is settled that a penal clause is not limited to actual and
compensatory damages.

The RTC’s award of attorney’s fees in the sum of P50,000.00 is, however, proper. Aside from the fact
that the penal clause included a liability for said award in the event of litigation over a breach of the
Kasunduan, petitioners were able to prove that they incurred said sum in engaging the services of
their lawyer to pursue their rights and protect their interests.

--------------------
ANTONIO LO, petitioner, vs. THE HON. COURT OF APPEALS AND
NATIONAL ONIONS GROWERS COOPERATIVE MARKETING
ASSOCIATION, INC., respondents.

DECISION
CORONA, J.:

Assailed in the instant petition for review on certiorari under Rule 45 of the
Rules of Court is the May 26, 1998 decision of the Court of Appeals[1]

modifying the decision of the Regional Trial Court of Malabon, Branch 74:

WHEREFORE, the assailed decision is hereby AFFIRMED with the

MODIFICATION that the penalty imposed for each day of delay in surrendering the
leased property is reduced from P5,000.00 to P1,000.00 per day of delay. [2]

At the core of the present controversy are two parcels of land measuring a
total of 2,147 square meters, with an office building constructed thereon,
located at Bo. Potrero, Malabon, Metro Manila and covered by TCT Nos. M-
13166 and M-13167.
Petitioner acquired the subject parcels of land in an auction sale on
November 9, 1995 for P20,170,000 from the Land Bank of the Philippines
(Land Bank).
Private respondent National Onion Growers Cooperative Marketing
Association, Inc., an agricultural cooperative, was the occupant of the
disputed parcels of land under a subsisting contract of lease with Land Bank.
The lease was valid until December 31, 1995.
 Upon the expiration of the lease contract, petitioner demanded that private
respondent vacate the leased premises and surrender its possession to him.
Private respondent refused on the ground that it was, at the time, contesting
petitioners acquisition of the parcels of land in question in an action for
annulment of sale, redemption and damages.
On February 23, 1996, petitioner filed an action for ejectment before the
Metropolitan Trial Court of Malabon, Branch 55. He asked, inter alia, for the
imposition of the contractually stipulated penalty of P5,000 per day of delay in
surrendering the possession of the property to him. On September 3, 1996,
the trial court decided the case in favor of petitioner:

WHEREFORE, premises considered, the Court considers the allegations of the

complaint to be true and duly substantiated except as to the amount of damages and
attorneys fees, which are reduced accordingly, a decision is hereby rendered in favor
of the plaintiffs and against the defendant, ordering the latter and all persons claiming
rights under it:

1) To vacate the leased premises immediately and turn over the same
peacefully to the plaintiffs;

2) To pay plaintiff Antonio Lo the sum of P5,000.00 for every day of delay
from the time defendant is supposed to have vacated the premises;

3) To pay the sum of P36,000.00 a month from January 1996 until it finally
vacates the premises as payment for reasonable compensation for the use
and occupancy thereof;

4) To pay the sum of P20,000.00 by way of reasonable attorneys fees; and

5) To pay the costs of suit. [3]

On appeal to the Regional Trial Court of Malabon, Branch 74, the MTC
decision was affirmed in toto on August 29, 1997. Private respondents
[4]

subsequent motion for reconsideration of the RTC decision was denied on

November 26, 1997.
From the adverse decision of the trial court, private respondent elevated
the case to the Court of Appeals via a petition for review.
On May 26, 1999, the Court of Appeals rendered its assailed decision
affirming the decision of the trial court, with the modification that the penalty
imposed upon private respondent for the delay in turning over the leased
property to petitioner was reduced from P 5,000 to P 1000 per day.
 Unsatisfied with the decision of the Court of Appeals, petitioner filed the
instant petition for review, raising the sole issue of the alleged lack of authority
of the Court of Appeals to reduce the penalty awarded by the trial court, the
same having been stipulated by the parties in their Contract of Lease.
The petition has no merit.
Generally, courts are not at liberty to ignore the freedom of the parties to
agree on such terms and conditions as they see fit as long as they are not
contrary to law, morals, good customs, public order or public
policy. Nevertheless, courts may equitably reduce a stipulated penalty in the
contract if it is iniquitous or unconscionable, or if the principal obligation has
been partly or irregularly complied with. [5]

This power of the courts is explicitly sanctioned by Article 1229 of the Civil
Code which provides:

Article 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.

The question of whether a penalty is reasonable or iniquitous is addressed

to the sound discretion of the court and depends on several factors, including,
but not limited to, the following: the type, extent and purpose of the penalty,
the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties. [6]

In this case, the stipulated penalty was reduced by the appellate court for
being unconscionable and iniquitous. As provided in the Contract of Lease,
private respondent was obligated to pay a monthly rent of P30,000. On the
other hand, the stipulated penalty was pegged at P5,000 for each day of delay
or P150,000 per month, an amount five times the monthly rent. This penalty
was not only exorbitant but also unconscionable, taking into account that
private respondents delay in surrendering the leased premises was because
of a well-founded belief that its right of preemption to purchase the subject
premises had been violated. Considering further that private respondent was
an agricultural cooperative, collectively owned by farmers with limited
resources, ordering it to pay a penalty of P150,000 per month on top of the
monthly rent of P30,000 would seriously deplete its income and drive it to
bankruptcy. In Rizal Commercial Banking Corp. vs. Court of Appeals, the [7]

Court tempered the penalty charges after taking into account the debtors
pitiful financial condition.
 Accordingly, we rule that the Court of Appeals did not commit any
reversible error in the exercise of its discretion when it reduced the award of
penalty damages from P5,000 to P1,000 for each day of delay.
WHEREFORE, petition is hereby DENIED. The decision of the Court of
Appeals reducing the amount of penalty damages against private respondent
is AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban, Sandoval-Gutierrez, and Carpio-Morales,
JJ., concur