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clear and unequivocal, it must be given its literal meaning and applied embrace matters not covered by the statute.—The OSG cannot claim that
without any attempt at interpretation.—Statutory construction has it that in addition to fixing the minimum requirements for parking spaces for
if a statute is clear and unequivocal, it must be given its literal meaning buildings, Rule XIX of the IRR also mandates that such parking spaces
and applied without any attempt at interpretation. Since Section 803 of be provided by building owners free of charge. If Rule XIX is not covered
the National Building Code and Rule XIX of its IRR do not mention by the enabling law, then it cannot be added to or included in the
parking fees, then simply, said provisions do not regulate the collection of implementing rules. The rule-making power of administrative agencies
the same. The RTC and the Court of Appeals correctly applied Article must be confined to details for regulating the mode or proceedings to
1158 of the New Civil Code, which states: Art. 1158. Obligations derived carry into effect the law as it has been enacted, and it cannot be extended
from law are not presumed. Only those expressly determined in this to amend or expand the statutory requirements or to embrace matters
Code or in special laws are demandable, and shall be regulated by the not covered by the statute. Administrative regulations must always be in
precepts of the law which establishes them; and as to what has not been harmony with the provisions of the law because any resulting
foreseen, by the provisions of this Book. discrepancy between the two will always be resolved in favor of the basic
law.
National Building Code; The Office of the Solicitor General (OSG)
cannot rely on Section 102 of the National Building Code to expand the National Building Code; Whether allowing or prohibiting the
coverage of Section 803 of the same Code and Rule XIX of the collection of such parking fees, the action of the Department of Public
Implementing Rules and Regulations (IRR), so as to include the Works and Highways (DPWH) Secretary and local building officials must
regulation of parking fees.—The OSG cannot rely on Section 102 of the pass the test of classic reasonableness and propriety of the measures or
National Building Code to expand the coverage of Section 803 of the means in the promotion of the ends sought to be accomplished.—It is not
same Code and Rule XIX of the IRR, so as to include the regulation of sufficient for the OSG to claim that “the power to regulate and control
parking fees. The OSG limits its citation to the first part of Section 102 of the use, occupancy, and maintenance of buildings and structures carries
the National Building Code declaring the policy of the State “to with it the power to impose fees and, conversely, to control, partially or,
safeguard life, health, property, and public welfare, consistent with the as in this case, absolutely, the imposition of such fees.” Firstly, the fees
principles of sound environmental management and control”; but totally within the power of regulatory agencies to impose are regulatory fees.
ignores the second part of said provision, which reads, “and to this end, It has been settled law in this jurisdiction that this broad and all-
make it the purpose of this Code to provide for all buildings and compassing governmental competence to restrict rights of liberty and
structures, a framework of minimum standards and property carries with it the undeniable power to collect a regulatory fee.
requirements to regulate and control their location, site, design, quality It looks to the enactment of specific measures that govern the relations
of materials, construction, use, occupancy, and maintenance.” While the not only as between individuals but also as between private parties and
first part of Section 102 of the National Building Code lays down the the political society. True, if the regulatory agencies have the power to
State policy, it is the second part thereof that explains how said policy impose regulatory fees, then conversely, they also have the power to
shall be carried out in the Code. Section 102 of the National Building remove the same. Even so, it is worthy to note that the present case does
Code is not an all-encompassing grant of regulatory power to the DPWH not involve the imposition by the DPWH Secretary and local building
Secretary and local building officials in the name of life, health, property, officials of regulatory fees upon respondents; but the collection by
and public welfare. On the contrary, it limits the regulatory power of said respondents of parking fees from persons who use the mall parking
officials to ensuring that the minimum standards and requirements for facilities. Secondly, assuming arguendo that the DPWH Secretary and
all buildings and structures, as set forth in the National Building Code, local building officials do have regulatory powers over the collection of
are complied with. parking fees for the use of privately owned parking facilities, they cannot
allow or prohibit such collection arbitrarily or whimsically. Whether
Administrative Agencies; The rule-making power of administrative allowing or prohibiting the collection of such parking fees, the action of
agencies must be confined to details for regulating the mode or the DPWH Secretary and local building officials must pass the test of
proceedings to carry into effect the law as it has been enacted and it
classic reasonableness and propriety of the measures or means in the confiscation of an illegally possessed article, such as opium and
promotion of the ends sought to be accomplished. firearms.—Police power is the power of promoting the public welfare by
restraining and regulating the use of liberty and property. It is usually
Same; The National Building Code regulates buildings, by setting the exerted in order to merely regulate the use and enjoyment of the
minimum specifications and requirements for the same.—The Court is property of the owner. The power to regulate, however, does not include
unconvinced. The National Building Code regulates buildings, by the power to prohibit. A fortiori, the power to regulate does not include
setting the minimum specifications and requirements for the same. It the power to confiscate. Police power does not involve the taking or
does not concern itself with traffic congestion in areas surrounding the confiscation of property, with the exception of a few cases where there is
building. It is already a stretch to say that the National Building Code a necessity to confiscate private property in order to destroy it for the
and its IRR also intend to solve the problem of traffic congestion around purpose of protecting peace and order and of promoting the general
the buildings so as to ensure that the said buildings shall have adequate welfare; for instance, the confiscation of an illegally possessed article,
lighting and ventilation. Moreover, the Court cannot simply assume, as such as opium and firearms.
the OSG has apparently done, that the traffic congestion in areas around
the malls is due to the fact that respondents charge for their parking Taking; A police regulation that unreasonably restricts the right to
facilities, thus, forcing vehicle owners to just park in the streets. The use business property for business purposes amounts to taking of private
Court notes that despite the fees charged by respondents, vehicle owners property, and the owner may recover therefor.—The power of eminent
still use the mall parking facilities, which are even fully occupied on domain results in the taking or appropriation of title to, and possession
some days. Vehicle owners may be parking in the streets only because of, the expropriated property; but no cogent reason appears why the said
there are not enough parking spaces in the malls, and not because they power may not be availed of only to impose a burden upon the owner of
are deterred by the parking fees charged by respondents. Free parking condemned property, without loss of title and possession. It is a settled
spaces at the malls may even have the opposite effect from what the OSG rule that neither acquisition of title nor total destruction of value is
envisioned: more people may be encouraged by the free parking to bring essential to taking. It is usually in cases where title remains with the
their own vehicles, instead of taking public transport, to the malls; as a private owner that inquiry should be made to determine whether the
result, the parking facilities would become full sooner, leaving more impairment of a property is merely regulated or amounts to a
vehicles without parking spaces in the malls and parked in the streets compensable taking. A regulation that deprives any person of the
instead, causing even more traffic congestion. profitable use of his property constitutes a taking and entitles him to
compensation, unless the invasion of rights is so slight as to permit the
Police Power; The Court finds, however, that in totally prohibiting regulation to be justified under the police power. Similarly, a police
respondents from collecting parking fees from the public for the use of the regulation that unreasonably restricts the right to use business property
mall parking facilities, the State would be acting beyond the bounds of for business purposes amounts to a taking of private property, and the
police power.—Without using the term outright, the OSG is actually owner may recover therefor.
invoking police power to justify the regulation by the State, through the
DPWH Secretary and local building officials, of privately owned parking Same; Although in the present case, title to and/or possession of the
facilities, including the collection by the owners/operators of such parking facilities remain/s with respondents, the prohibition against their
facilities of parking fees from the public for the use thereof. The Court collection of parking fees from the public, for the use of said facilities, is
finds, however, that in totally prohibiting respondents from collecting already tantamount to a taking or confiscation of their properties.—
parking fees from the public for the use of the mall parking facilities, the Although in the present case, title to and/or possession of the parking
State would be acting beyond the bounds of police power. facilities remain/s with respondents, the prohibition against their
collection of parking fees from the public, for the use of said facilities, is
Same; Police power does not involve the taking or confiscation of property, already tantamount to a taking or confiscation of their properties. The
with the exception of a few cases where there is a necessity to confiscate State is not only requiring that respondents devote a portion of the
private property in order to destroy it for the purpose of protecting peace latter’s properties for use as parking spaces, but is also mandating that
and order and of promoting the general welfare; for instance, the they give the public access to said parking spaces for free. Such is
already an excessive intrusion into the property rights of respondents. DECISION
Not only are they being deprived of the right to use a portion of their
properties as they wish, they are further prohibited from profiting from
its use or even just recovering therefrom the expenses for the CHICO-NAZARIO, J.:
maintenance and operation of the required parking facilities.
Same; Expropriation; The total prohibition against the collection by Before this Court is a Petition for Review
respondents of parking fees from persons who use the mall parking on Certiorari,[1] under Rule 45 of the Revised Rules of Court, filed by
facilities has no basis in the National Building Code or its Implementing petitioner Office of the Solicitor General (OSG), seeking the reversal
Rules and Regulations (IRR).—The total prohibition against the and setting aside of the Decision[2] dated 25 January 2007 of the
collection by respondents of parking fees from persons who use the mall Court of Appeals in CA-G.R. CV No. 76298, which affirmed in toto the
parking facilities has no basis in the National Building Code or its IRR. Joint Decision[3] dated 29 May 2002 of the Regional Trial Court (RTC)
The State also cannot impose the same prohibition by generally invoking of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-
police power, since said prohibition amounts to a taking of respondents’ 1210; and (2) the Resolution[4] dated 14 March 2007 of the appellate
property without payment of just compensation. court in the same case which denied the Motion for Reconsideration
of the OSG. The RTC adjudged that respondents Ayala Land
Incorporated (Ayala Land), Robinsons Land Corporation (Robinsons),
Shangri-la Plaza Corporation (Shangri-la), and SM Prime Holdings,
Inc. (SM Prime) could not be obliged to provide free parking spaces in
their malls to their patrons and the general public.
THIRD DIVISION
Respondents Ayala Land, Robinsons, and Shangri-la
maintain and operate shopping malls in various locations in Metro
Manila. Respondent SM Prime constructs, operates, and leases out
THE OFFICE OF THE G.R. No. 177056
commercial buildings and other structures, among which, are SM
SOLICITOR GENERAL,
City, Manila; SM Centerpoint, Sta. Mesa, Manila; SM City, North
Petitioner, Present:
Avenue, Quezon City; and SM Southmall, Las Pias.
YNARES-SANTIAGO, J.,
The shopping malls operated or leased out by respondents
- versus - Chairperson,
have parking facilities for all kinds of motor vehicles, either by way of
CHICO-NAZARIO,
parking spaces inside the mall buildings or in separate buildings
VELASCO, JR.,
and/or adjacent lots that are solely devoted for use as parking
AYALA LAND INCORPORATED, NACHURA, and
spaces. Respondents Ayala Land, Robinsons, and SM Prime spent for
ROBINSONS LAND PERALTA, JJ.
the construction of their own parking facilities. Respondent Shangri-
CORPORATION, SHANGRI-LA
la is renting its parking facilities, consisting of land and building
PLAZA CORPORATION and SM
specifically used as parking spaces, which were constructed for the
PRIME HOLDINGS, INC., Promulgated:
lessors account.
Respondents.
Respondents expend for the maintenance and
September 18, 2009
administration of their respective parking facilities. They provide
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
security personnel to protect the vehicles parked in their parking
- - - - -x
facilities and maintain order within the area. In turn, they collect the
following parking fees from the persons making use of their parking
facilities, regardless of whether said persons are mall patrons or not:
In view of the foregoing, the Committees find
Respondent Parking Fees that the collection of parking fees by shopping malls
is contrary to the National Building Code and is
Ayala Land On weekdays, P25.00 for the first four hours therefor [sic] illegal. While it is true that the Code
and P10.00 for every succeeding hour; on weekends, merely requires malls to provide parking spaces,
flat rate of P25.00 per day without specifying whether it is free or not, both
Committees believe that the reasonable and logical
Robinsons P20.00 for the first three hours and P10.00 for every interpretation of the Code is that the parking spaces
succeeding hour are for free. This interpretation is not only
reasonable and logical but finds support in the
Shangri-la Flat rate of P30.00 per day actual practice in other countries like the United
SM Prime P10.00 to P20.00 (depending on whether the parking States of America where parking spaces owned and
space is outdoors or indoors) for the first three hours operated by mall owners are free of charge.
and 59 minutes, and P10.00 for every succeeding
hour or fraction thereof Figuratively speaking, the Code has
expropriated the land for parking something similar
The parking tickets or cards issued by respondents to vehicle owners to the subdivision law which require developers to
contain the stipulation that respondents shall not be responsible for devote so much of the land area for parks.
any loss or damage to the vehicles parked in respondents parking
facilities. Moreover, Article II of R.A. No. 9734
(Consumer Act of the Philippines) provides that it is
In 1999, the Senate Committees on Trade and Commerce the policy of the State to protect the interest of the
and on Justice and Human Rights conducted a joint investigation for consumers, promote the general welfare and establish
the following purposes: (1) to inquire into the legality of the prevalent standards of conduct for business and
practice of shopping malls of charging parking fees; (2) industry. Obviously, a contrary interpretation (i.e.,
assuming arguendo that the collection of parking fees was legally justifying the collection of parking fees) would be
authorized, to find out the basis and reasonableness of the parking going against the declared policy of R.A. 7394.
rates charged by shopping malls; and (3) to determine the legality of
the policy of shopping malls of denying liability in cases of theft, Section 201 of the National Building Code
robbery, or carnapping, by invoking the waiver clause at the back of gives the responsibility for the administration and
the parking tickets. Said Senate Committees invited the top enforcement of the provisions of the Code, including
executives of respondents, who operate the major malls in the the imposition of penalties for administrative
country; the officials from the Department of Trade and Industry violations thereof to the Secretary of Public
(DTI), Department of Public Works and Highways (DPWH), Metro Works. This set up, however, is not being carried out
Manila Development Authority (MMDA), and other local government in reality.
officials; and the Philippine Motorists Association (PMA) as
representative of the consumers group. In the position paper submitted by the
Metropolitan Manila Development Authority
After three public hearings held on 30 September, 3 (MMDA), its chairman, Jejomar C. Binay, accurately
November, and 1 December 1999, the afore-mentioned Senate pointed out that the Secretary of the DPWH is
Committees jointly issued Senate Committee Report No. 225 [5] on 2 responsible for the implementation/enforcement of
May 2000, in which they concluded: the National Building Code. After the enactment of
the Local Government Code of 1991, the local
government units (LGUs) were tasked to discharge
the regulatory powers of the DPWH.Hence, in the 3. Finally, Congress should amend and update the
local level, the Building Officials enforce all rules/ National Building Code to expressly prohibit
regulations formulated by the DPWH relative to all shopping malls from collecting parking fees
building plans, specifications and designs including by at the same time, prohibit them from
parking space requirements. There is, however, no invoking the waiver of liability.[7]
single national department or agency directly tasked
to supervise the enforcement of the provisions of the
Code on parking, notwithstanding the national Respondent SM Prime thereafter received information that,
character of the law.[6] pursuant to Senate Committee Report No. 225, the DPWH Secretary
and the local building officials of Manila, Quezon City, and Las Pias
intended to institute, through the OSG, an action to enjoin
Senate Committee Report No. 225, thus, contained the respondent SM Prime and similar establishments from collecting
following recommendations: parking fees, and to impose upon said establishments penal
sanctions under Presidential Decree No. 1096, otherwise known as
In light of the foregoing, the Committees on the National Building Code of the Philippines (National Building
Trade and Commerce and Justice and Human Code), and its Implementing Rules and Regulations (IRR). With the
Rights hereby recommend the following: threatened action against it, respondent SM Prime filed, on 3 October
2000, a Petition for Declaratory Relief[8] under Rule 63 of the Revised
1. The Office of the Solicitor General should institute Rules of Court, against the DPWH Secretary and local building
the necessary action to enjoin the collection officials of Manila, Quezon City, and Las Pias. Said Petition was
of parking fees as well as to enforce the docketed as Civil Case No. 00-1208 and assigned to the RTC of
penal sanction provisions of the National Makati City, Branch 138, presided over by Judge Sixto Marella, Jr.
Building Code. The Office of the Solicitor (Judge Marella). In its Petition, respondent SM Prime prayed for
General should likewise study how refund judgment:
can be exacted from mall owners who
continue to collect parking fees. a) Declaring Rule XIX of the Implementing
Rules and Regulations of the National Building Code
2. The Department of Trade and Industry pursuant as ultra vires, hence, unconstitutional and void;
to the provisions of R.A. No. 7394, otherwise
known as the Consumer Act of b) Declaring [herein respondent SM Prime]s
the Philippines should enforce the clear legal right to lease parking spaces appurtenant
provisions of the Code relative to to its department stores, malls, shopping centers
parking. Towards this end, the DTI should and other commercial establishments; and
formulate the necessary implementing rules
and regulations on parking in shopping c) Declaring the National Building Code of
malls, with prior consultations with the local the Philippines Implementing Rules and Regulations
government units where these are as ineffective, not having been published once a
located. Furthermore, the DTI, in week for three (3) consecutive weeks in a newspaper
coordination with the DPWH, should be of general circulation, as prescribed by Section 211
empowered to regulate and supervise the of Presidential Decree No. 1096.
construction and maintenance of parking
establishments. [Respondent SM Prime] further prays for
such other reliefs as may be deemed just and
equitable under the premises.[9]
3. Whether
respondent Ayala Land, Robinsons, Shangri-La and
The very next day, 4 October 2000, the OSG filed a Petition SM Prime are obligated to provide parking spaces in
for Declaratory Relief and Injunction (with Prayer for Temporary their malls for the use of their patrons or the public
Restraining Order and Writ of Preliminary Injunction)[10] against in general, free of charge.
respondents. This Petition was docketed as Civil Case No. 00-1210
and raffled to the RTC of Makati, Branch 135, presided over by 4. Entitlement of the parties of
Judge Francisco B. Ibay (Judge Ibay). Petitioner prayed that the RTC: [sic] award of damages.[13]
THE TRIAL COURT ERRED IN FAILING TO In its Decision, the Court of Appeals affirmed the capacity of the OSG
DECLARE RULE XIX OF THE IMPLEMENTING to initiate Civil Case No. 00-1210 before the RTC as the legal
RULES AS HAVING BEEN ENACTED ULTRA VIRES, representative of the government,[22] and as the one deputized by the
HENCE, UNCONSTITUTIONAL AND VOID. Senate of the Republic of the Philippines through Senate Committee
Report No. 225.
II
The Court of Appeals rejected the contention of respondent
THE TRIAL COURT ERRED IN FAILING TO SM Prime that the OSG failed to exhaust administrative
DECLARE THE IMPLEMENTING RULES remedies. The appellate court explained that an administrative
INEFFECTIVE FOR NOT HAVING BEEN PUBLISHED review is not a condition precedent to judicial relief where the
AS REQUIRED BY LAW. question in dispute is purely a legal one, and nothing of an
administrative nature is to be or can be done.
III
The Court of Appeals likewise refused to rule on the validity
THE TRIAL COURT ERRED IN FAILING TO DISMISS of the IRR of the National Building Code, as such issue was not
THE OSGS PETITION FOR DECLARATORY RELIEF among those the parties had agreed to be resolved by the RTC during
AND INJUNCTION FOR FAILURE TO EXHAUST the pre-trial conference for Civil Cases No. 00-1208 and No. 00-
ADMINISTRATIVE REMEDIES. 1210. Issues cannot be raised for the first time on
appeal. Furthermore, the appellate court found that the controversy
IV could be settled on other grounds, without touching on the issue of
the validity of the IRR. It referred to the settled rule that courts
THE TRIAL COURT ERRED IN FAILING TO should refrain from passing upon the constitutionality of a law or
DECLARE THAT THE OSG HAS NO LEGAL implementing rules, because of the principle that bars judicial
CAPACITY TO SUE AND/OR THAT IT IS NOT A inquiry into a constitutional question, unless the resolution thereof
REAL PARTY-IN-INTEREST IN THE INSTANT is indispensable to the determination of the case.
CASE.[21]
Lastly, the Court of Appeals declared that Section 803 of the
National Building Code and Rule XIX of the IRR were clear and
Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG needed no further construction. Said provisions were only intended
on the ground that the lone issue raised therein involved a pure to control the occupancy or congestion of areas and structures. In
question of law, not reviewable by the Court of Appeals. the absence of any express and clear provision of law, respondents
could not be obliged and expected to provide parking slots free of
The Court of Appeals promulgated its Decision in CA-G.R. CV No. charge.
76298 on 25 January 2007. The appellate court agreed with
respondent Robinsons that the appeal of the OSG should suffer the The fallo of the 25 January 2007 Decision of the Court of
fate of dismissal, since the issue on whether or not the National Appeals reads:
Building Code and its implementing rules require shopping mall
operators to provide parking facilities to the public for free was
evidently a question of law. Even so, since CA-G.R. CV No. 76298
WHEREFORE, premises considered, the
instant appeals are DENIED. Accordingly, appealed Pursuant to Section 803 of the National
Decision is hereby AFFIRMED in toto.[23] Building Code (PD 1096) providing for maximum site
occupancy, the following provisions on parking and
loading space requirements shall be observed:
In its Resolution issued on 14 March 2007, the Court of Appeals
denied the Motion for Reconsideration of the OSG, finding that the 1. The parking space ratings listed below are
grounds relied upon by the latter had already been carefully minimum off-street requirements for
considered, evaluated, and passed upon by the appellate court, and specific uses/occupancies for
there was no strong and cogent reason to modify much less reverse buildings/structures:
the assailed judgment. 1.1 The size of an average
automobile parking slot shall
The OSG now comes before this Court, via the instant be computed as 2.4 meters
Petition for Review, with a single assignment of error: by 5.00 meters for
THE COURT OF APPEALS SERIOUSLY ERRED IN perpendicular or diagonal
AFFIRMING THE RULING OF THE LOWER parking, 2.00 meters by 6.00
COURT THAT RESPONDENTS ARE NOT OBLIGED meters for parallel parking. A
TO PROVIDE FREE PARKING SPACES TO THEIR truck or bus
CUSTOMERS OR THE PUBLIC.[24] parking/loading slot shall be
computed at a minimum of
3.60 meters by 12.00
The OSG argues that respondents are mandated to provide meters. The parking slot
free parking by Section 803 of the National Building Code and Rule shall be drawn to scale and
XIX of the IRR. the total number of which
shall be indicated on the
According to Section 803 of the National Building Code: plans and specified whether
or not parking
SECTION 803. Percentage of Site accommodations, are
Occupancy attendant-managed. (See
Section 2 for computation of
(a) Maximum site occupancy shall be parking requirements).
governed by the use, type of construction, and
height of the building and the use, area, nature, and xxxx
location of the site; and subject to the provisions of
the local zoning requirements and in accordance 1.7 Neighborhood shopping center 1
with the rules and regulations promulgated by the slot/100 sq. m. of shopping
Secretary. floor area
In connection therewith, Rule XIX of the old The OSG avers that the aforequoted provisions should be
IRR,[25] provides: read together with Section 102 of the National Building Code, which
declares:
RULE XIX PARKING AND LOADING SPACE
REQUIREMENTS SECTION 102. Declaration of Policy
Art. 1158. Obligations derived from law are
It is hereby declared to be the policy of the not presumed. Only those expressly determined in
State to safeguard life, health, property, and public this Code or in special laws are demandable, and
welfare, consistent with the principles of sound shall be regulated by the precepts of the law which
environmental management and control; and to this establishes them; and as to what has not been
end, make it the purpose of this Code to provide for foreseen, by the provisions of this Book. (Emphasis
all buildings and structures, a framework of ours.)
minimum standards and requirements to regulate
and control their location, site, design, quality of
materials, construction, use, occupancy, and Hence, in order to bring the matter of parking fees within
maintenance. the ambit of the National Building Code and its IRR, the OSG had to
resort to specious and feeble argumentation, in which the Court
cannot concur.
The requirement of free-of-charge parking, the OSG argues, greatly
contributes to the aim of safeguarding life, health, property, and The OSG cannot rely on Section 102 of the National Building
public welfare, consistent with the principles of sound environmental Code to expand the coverage of Section 803 of the same Code and
management and control. Adequate parking spaces would contribute Rule XIX of the IRR, so as to include the regulation of parking
greatly to alleviating traffic congestion when complemented by quick fees. The OSG limits its citation to the first part of Section 102 of the
and easy access thereto because of free-charge parking. Moreover, National Building Code declaring the policy of the State to safeguard
the power to regulate and control the use, occupancy, and life, health, property, and public welfare, consistent with the
maintenance of buildings and structures carries with it the power to principles of sound environmental management and control; but
impose fees and, conversely, to control -- partially or, as in this case, totally ignores the second part of said provision, which reads, and to
absolutely -- the imposition of such fees. this end, make it the purpose of this Code to provide for all buildings
and structures, a framework of minimum standards and
The Court finds no merit in the present Petition. requirements to regulate and control their location, site, design,
quality of materials, construction, use, occupancy, and
The explicit directive of the afore-quoted statutory and maintenance. While the first part of Section 102 of the National
regulatory provisions, garnered from a plain reading thereof, is that Building Code lays down the State policy, it is the second part
respondents, as operators/lessors of neighborhood shopping centers, thereof that explains how said policy shall be carried out in the
should provide parking and loading spaces, in accordance with the Code.Section 102 of the National Building Code is not an all-
minimum ratio of one slot per 100 square meters of shopping floor encompassing grant of regulatory power to the DPWH Secretary and
area. There is nothing therein pertaining to the collection (or non- local building officials in the name of life, health, property, and
collection) of parking fees by respondents. In fact, the term parking public welfare. On the contrary, it limits the regulatory power of said
fees cannot even be found at all in the entire National Building Code officials to ensuring that the minimum standards and requirements
and its IRR. for all buildings and structures, as set forth in the National Building
Code, are complied with.
Statutory construction has it that if a statute is clear and
unequivocal, it must be given its literal meaning and applied without Consequently, the OSG cannot claim that in addition to
any attempt at interpretation.[26] Since Section 803 of the National fixing the minimum requirements for parking spaces for buildings,
Building Code and Rule XIX of its IRR do not mention parking fees, Rule XIX of the IRR also mandates that such parking spaces be
then simply, said provisions do not regulate the collection of the provided by building owners free of charge. If Rule XIX is not covered
same. The RTC and the Court of Appeals correctly applied Article by the enabling law, then it cannot be added to or included in the
1158 of the New Civil Code, which states: implementing rules. The rule-making power of administrative
agencies must be confined to details for regulating the mode or
proceedings to carry into effect the law as it has been enacted, and it parking facilities available for use by the general
cannot be extended to amend or expand the statutory requirements public. In Republicand City of Ozamis, the concerned local
or to embrace matters not covered by the statute. Administrative governments regulated parking pursuant to their power to control
regulations must always be in harmony with the provisions of the and regulate their streets; in the instant case, the DPWH Secretary
law because any resulting discrepancy between the two will always and local building officials regulate parking pursuant to their
be resolved in favor of the basic law.[27] authority to ensure compliance with the minimum standards and
requirements under the National Building Code and its IRR. With the
From the RTC all the way to this Court, the OSG repeatedly difference in subject matters and the bases for the regulatory powers
referred to Republic v. Gonzales[28] and City of Ozamis v. being invoked, Republic and City of Ozamis do not constitute
Lumapas[29] to support its position that the State has the power to precedents for this case.
regulate parking spaces to promote the health, safety, and welfare of
the public; and it is by virtue of said power that respondents may be Indeed, Republic and City of Ozamis both contain
required to provide free parking facilities. The OSG, though, failed to pronouncements that weaken the position of the OSG in the case at
consider the substantial differences in the factual and legal bar. In Republic, the Court, instead of placing the burden on private
backgrounds of these two cases from those of the Petition at bar. persons to provide parking facilities to the general public, mentioned
the trend in other jurisdictions wherein the municipal governments
In Republic, the Municipality of Malabon sought to eject the themselves took the initiative to make more parking spaces available
occupants of two parcels of land of the public domain to give way to so as to alleviate the traffic problems, thus:
a road-widening project. It was in this context that the Court
pronounced: Under the Land Transportation and Traffic
Code, parking in designated areas along public
Indiscriminate parking along F. Sevilla streets or highways is allowed which clearly
Boulevard and other main thoroughfares was indicates that provision for parking spaces serves a
prevalent; this, of course, caused the build up of useful purpose. In other jurisdictions where traffic is
traffic in the surrounding area to the great at least as voluminous as here, the provision by
discomfort and inconvenience of the public who use municipal governments of parking space is not
the streets. Traffic congestion constitutes a threat to limited to parking along public streets or highways.
the health, welfare, safety and convenience of the There has been a marked trend to build off-street
people and it can only be substantially relieved by parking facilities with the view to removing parked
widening streets and providing adequate parking cars from the streets. While the provision of off-
areas. street parking facilities or carparks has been
commonly undertaken by private enterprise,
municipal governments have been constrained to
The Court, in City of Ozamis, declared that the City had put up carparks in response to public necessity
been clothed with full power to control and regulate its streets for the where private enterprise had failed to keep up with
purpose of promoting public health, safety and welfare. The City can the growing public demand. American courts have
regulate the time, place, and manner of parking in the streets and upheld the right of municipal governments to
public places; and charge minimal fees for the street parking to cover construct off-street parking facilities as clearly
the expenses for supervision, inspection and control, to ensure the redounding to the public benefit.[30]
smooth flow of traffic in the environs of the public market, and for
the safety and convenience of the public.
In City of Ozamis, the Court authorized the collection by the
Republic and City of Ozamis involved parking in the local City of minimal fees for the parking of vehicles along the streets: so
streets; in contrast, the present case deals with privately owned why then should the Court now preclude respondents from collecting
from the public a fee for the use of the mall parking their parking spaces. Contrary to the averment of the OSG, the
facilities? Undoubtedly, respondents also incur expenses in the former does not necessarily include or imply the latter. It totally
maintenance and operation of the mall parking facilities, such as escapes this Court how lighting and ventilation conditions at the
electric consumption, compensation for parking attendants and malls could be affected by the fact that parking facilities thereat are
security, and upkeep of the physical structures. free or paid for.
It is not sufficient for the OSG to claim that the power to The OSG attempts to provide the missing link by arguing
regulate and control the use, occupancy, and maintenance of that:
buildings and structures carries with it the power to impose fees
and, conversely, to control, partially or, as in this case, absolutely, Under Section 803 of the National Building
the imposition of such fees. Firstly, the fees within the power of Code, complimentary parking spaces are required to
regulatory agencies to impose are regulatory fees. It has been enhance light and ventilation, that is, to avoid traffic
settled law in this jurisdiction that this broad and all-compassing congestion in areas surrounding the building, which
governmental competence to restrict rights of liberty and property certainly affects the ventilation within the building
carries with it the undeniable power to collect a regulatory fee. It itself, which otherwise, the annexed parking spaces
looks to the enactment of specific measures that govern the relations would have served. Free-of-charge parking avoids
not only as between individuals but also as between private parties traffic congestion by ensuring quick and easy access
and the political society.[31] True, if the regulatory agencies have the of legitimate shoppers to off-street parking spaces
power to impose regulatory fees, then conversely, they also have the annexed to the malls, and thereby removing the
power to remove the same. Even so, it is worthy to note that the vehicles of these legitimate shoppers off the busy
present case does not involve the imposition by the DPWH Secretary streets near the commercial establishments.[33]
and local building officials of regulatory fees upon respondents; but
the collection by respondents of parking fees from persons who use
the mall parking facilities. Secondly, assuming arguendo that the The Court is unconvinced. The National Building Code
DPWH Secretary and local building officials do have regulatory regulates buildings, by setting the minimum specifications and
powers over the collection of parking fees for the use of privately requirements for the same. It does not concern itself with traffic
owned parking facilities, they cannot allow or prohibit such collection congestion in areas surrounding the building. It is already a stretch
arbitrarily or whimsically. Whether allowing or prohibiting the to say that the National Building Code and its IRR also intend to
collection of such parking fees, the action of the DPWH Secretary and solve the problem of traffic congestion around the buildings so as to
local building officials must pass the test of classic reasonableness ensure that the said buildings shall have adequate lighting and
and propriety of the measures or means in the promotion of the ends ventilation. Moreover, the Court cannot simply assume, as the OSG
sought to be accomplished.[32] has apparently done, that the traffic congestion in areas around the
malls is due to the fact that respondents charge for their parking
Keeping in mind the aforementioned test of reasonableness facilities, thus, forcing vehicle owners to just park in the streets. The
and propriety of measures or means, the Court notes that Section Court notes that despite the fees charged by respondents, vehicle
803 of the National Building Code falls under Chapter 8 on Light owners still use the mall parking facilities, which are even fully
and Ventilation. Evidently, the Code deems it necessary to regulate occupied on some days. Vehicle owners may be parking in the streets
site occupancy to ensure that there is proper lighting and ventilation only because there are not enough parking spaces in the malls, and
in every building. Pursuant thereto, Rule XIX of the IRR requires that not because they are deterred by the parking fees charged by
a building, depending on its specific use and/or floor area, should respondents. Free parking spaces at the malls may even have the
provide a minimum number of parking spaces. The Court, however, opposite effect from what the OSG envisioned: more people may be
fails to see the connection between regulating site occupancy to encouraged by the free parking to bring their own vehicles, instead of
ensure proper light and ventilation in every building vis-- taking public transport, to the malls; as a result, the parking
vis regulating the collection by building owners of fees for the use of facilities would become full sooner, leaving more vehicles without
parking spaces in the malls and parked in the streets instead, Similarly, a police regulation that unreasonably restricts the right to
causing even more traffic congestion. use business property for business purposes amounts to a taking of
private property, and the owner may recover therefor.[37]
Without using the term outright, the OSG is actually Although in the present case, title to and/or possession of
invoking police power to justify the regulation by the State, through the parking facilities remain/s with respondents, the prohibition
the DPWH Secretary and local building officials, of privately owned against their collection of parking fees from the public, for the use of
parking facilities, including the collection by the owners/operators of said facilities, is already tantamount to a taking or confiscation of
such facilities of parking fees from the public for the use thereof. The their properties. The State is not only requiring that respondents
Court finds, however, that in totally prohibiting respondents from devote a portion of the latters properties for use as parking spaces,
collecting parking fees from the public for the use of the mall parking but is also mandating that they give the public access to said
facilities, the State would be acting beyond the bounds of police parking spaces for free. Such is already an excessive intrusion into
power. the property rights of respondents. Not only are they being deprived
of the right to use a portion of their properties as they wish, they are
Police power is the power of promoting the public welfare by further prohibited from profiting from its use or even just recovering
restraining and regulating the use of liberty and property. It is therefrom the expenses for the maintenance and operation of the
usually exerted in order to merely regulate the use and enjoyment of required parking facilities.
the property of the owner. The power to regulate, however, does not
include the power to prohibit. A fortiori, the power to regulate does The ruling of this Court in City Government of Quezon City v.
not include the power to confiscate. Police power does not involve the Judge Ericta[38] is edifying. Therein, the City Government of Quezon
taking or confiscation of property, with the exception of a few cases City passed an ordinance obliging private cemeteries within its
where there is a necessity to confiscate private property in order to jurisdiction to set aside at least six percent of their total area for
destroy it for the purpose of protecting peace and order and of charity, that is, for burial grounds of deceased paupers. According to
promoting the general welfare; for instance, the confiscation of an the Court, the ordinance in question was null and void, for it
illegally possessed article, such as opium and firearms. [34] authorized the taking of private property without just compensation:
When there is a taking or confiscation of private property for There is no reasonable relation between the
public use, the State is no longer exercising police power, but setting aside of at least six (6) percent of the total
another of its inherent powers, namely, eminent domain. Eminent area of all private cemeteries for charity burial
domain enables the State to forcibly acquire private lands intended grounds of deceased paupers and the promotion of'
for public use upon payment of just compensation to the owner.[35] health, morals, good order, safety, or the general
welfare of the people. The ordinance is actually a
Normally, of course, the power of eminent domain results in taking without compensation of a certain area from
the taking or appropriation of title to, and possession of, the a private cemetery to benefit paupers who are
expropriated property; but no cogent reason appears why the said charges of the municipal corporation. Instead of'
power may not be availed of only to impose a burden upon the owner building or maintaining a public cemetery for this
of condemned property, without loss of title and possession.[36] It is a purpose, the city passes the burden to private
settled rule that neither acquisition of title nor total destruction of cemeteries.
value is essential to taking. It is usually in cases where title remains
with the private owner that inquiry should be made to determine 'The expropriation without compensation of a
whether the impairment of a property is merely regulated or amounts portion of private cemeteries is not covered by
to a compensable taking. A regulation that deprives any person of Section 12(t) of Republic Act 537, the Revised
the profitable use of his property constitutes a taking and entitles Charter of Quezon City which empowers the city
him to compensation, unless the invasion of rights is so slight as to council to prohibit the burial of the dead within the
permit the regulation to be justified under the police power. center of population of the city and to provide for
their burial in a proper place subject to the 2007 and Resolution dated 14 March 2007 of the Court of Appeals in
provisions of general law regulating burial grounds CA-G.R. CV No. 76298, affirming in toto the Joint Decision dated 29
and cemeteries. When the Local Government Code, May 2002 of the Regional Trial Court of Makati City, Branch 138, in
Batas Pambansa Blg. 337 provides in Section 177(q) Civil Cases No. 00-1208 and No. 00-1210 are hereby AFFIRMED.No
that a sangguniang panlungsod may "provide for the costs.
burial of the dead in such place and in such manner
as prescribed by law or ordinance" it simply SO ORDERED.
authorizes the city to provide its own city owned
land or to buy or expropriate private properties to
construct public cemeteries. This has been the law,
and practise in the past. It continues to the present.
Expropriation, however, requires payment of just
compensation. The questioned ordinance is different
from laws and regulations requiring owners of
subdivisions to set aside certain areas for streets,
parks, playgrounds, and other public facilities from
the land they sell to buyers of subdivision lots. The
necessities of public safety, health, and convenience
are very clear from said requirements which are
intended to insure the development of communities
with salubrious and wholesome environments. The
beneficiaries of the regulation, in turn, are made to
pay by the subdivision developer when individual
lots are sold to homeowners.
Article 115914 of the same Code also provides that obligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith. Courts cannot stipulate
for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy,
for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect
thereto.15 Not being contrary to public policy, the non-involvement
clause, which petitioner and respondent freely agreed upon, has the
force of law between them, and thus, should be complied with in
good faith.16
Thus, as held by the trial court and the Court of Appeals, petitioner
is bound to pay respondent ₱100,000 as liquidated damages. While
we have equitably reduced liquidated damages in certain cases, 17 we
cannot do so in this case, since it appears that even from the start,
petitioner had not shown the least intention to fulfill the non-
involvement clause in good faith.
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice
Obligations and Contracts; Interests; Words and Phrases; Interest is Civil Code, if the borrower of loan pays interest when there has been no
a compensation fixed by the parties for the use or forbearance of money, stipulation therefor, the provisions of the Civil Code
and this is referred to as monetary interest; Interest may also be imposed concerning solutio indebiti shall be applied. Article 2154 of the Civil Code
by law or by courts as penalty or indemnity for damages, and this is explains the principle of solutio indebiti. Said provision provides that if
called compensatory interest; Article 1956 of the Civil Code refers to something is received when there is no right to demand it, and it was
monetary interest; Monetary interest shall be due only if it has been unduly delivered through mistake, the obligation to return it arises. In
expressly stipulated in writing.—Interest is a compensation fixed by the such a case, a creditor-debtor relationship is created under a quasi-
parties for the use or forbearance of money. This is referred to as contract whereby the payor becomes the creditor who then has the right
monetary interest. Interest may also be imposed by law or by courts as to demand the return of payment made by mistake, and the person who
penalty or indemnity for damages. This is called compensatory interest. has no right to receive such payment becomes obligated to return the
The right to interest arises only by virtue of a contract or by virtue of same. The quasi-contract of solutio indebiti harks back to the ancient
damages for delay or failure to pay the principal loan on which interest is principle that no one shall enrich himself unjustly at the expense of
demanded. Article 1956 of the Civil Code, which refers to monetary another. The principle of solutio indebiti applies where (1) a payment is
interest, specifically mandates that no interest shall be due unless it has made when there exists no binding relation between the payor, who has
been expressly stipulated in writing. As can be gleaned from the no duty to pay, and the person who received the payment; and (2) the
foregoing provision, payment of monetary interest is allowed only if: (1) payment is made through mistake, and not through liberality or some
there was an express stipulation for the payment of interest; and (2) the other cause. We have held that the principle of solutio indebiti applies in
agreement for the payment of interest was reduced in writing. The case of erroneous payment of undue interest.
concurrence of the two conditions is required for the payment of
monetary interest. Thus, we have held that collection of interest without any Damages; Article 2216 of the Civil Code instructs that assessment of
stipulation therefor in writing is prohibited by law. damages is left to the discretion of the court according to the
circumstances of each case, which discretion is limited by the principle
Same; Same; The interest under Arts. 2209 and 2212 of the Civil that the amount awarded should not be palpably excessive as to indicate
Code may be imposed only as a penalty or damages for breach of that it was the result of prejudice or corruption on the part of the trial
contractual obligations—it cannot be charged as a compensation for the court.—Article 2217 of the Civil Code provides that moral damages may
use or forbearance of money.—There are instances in which an interest be recovered if the party underwent physical suffering, mental anguish,
may be imposed even in the absence of express stipulation, verbal or fright, serious anxiety, besmirched reputation, wounded feelings, moral
written, regarding payment of interest. Article 2209 of the Civil Code shock, social humiliation and similar injury. Respondent testified that
states that if the obligation consists in the payment of a sum of money, she experienced sleepless nights and wounded feelings when petitioner
and the debtor incurs delay, a legal interest of 12% per annum may be refused to return the amount paid as interest despite her repeated
imposed as indemnity for damages if no stipulation on the payment of demands. Hence, the award of moral damages is justified. However, its
interest was agreed upon. Likewise, Article 2212 of the Civil Code corresponding amount of P300,000.00, as fixed by the RTC and the Court
provides that interest due shall earn legal interest from the time it is of Appeals, is exorbitant and should be equitably reduced. Article 2216 of
judicially demanded, although the obligation may be silent on this point. the Civil Code instructs that assessment of damages is left to the
All the same, the interest under these two instances may be imposed discretion of the court according to the circumstances of each case. This
only as a penalty or damages for breach of contractual obligations. It discretion is limited by the principle that the amount awarded should not
cannot be charged as a compensation for the use or forbearance of money. be palpably excessive as to indicate that it was the result of prejudice or
In other words, the two instances apply only to compensatory interest corruption on the part of the trial court. To our mind, the amount of
and not to monetary interest. The case at bar involves petitioner’s claim P150,000.00 as moral damages is fair, reasonable, and proportionate to
for monetary interest. the injury suffered by respondent.
Same; Same; Solutio Indebiti; The principle of solutio indebiti applies in Same; In a quasi-contract, such as solutio indebiti, exemplary
case of erroneous payment of undue interest.—Under Article 1960 of the damages may be imposed if the defendant acted in an oppressive manner,
such as when the creditor defendant acted oppressively by pestering imposed on the amount to be refunded as well as on the damages
debtor to pay interest and threatening to block the latter’s transactions awarded and on the attorney’s fees, to be computed from the time of the
with a government office if she would not pay interest.—Article 2232 of extrajudicial demand on 3 March 1998, up to the finality of this Decision.
the Civil Code states that in a quasi-contract, such as solutio indebiti, In addition, the interest shall become 12% per annum from the finality of
exemplary damages may be imposed if the defendant acted in an this Decision up to its satisfaction.
oppressive manner. Petitioner acted oppressively when he pestered
respondent to pay interest and threatened to block her transactions with
the PNO if she would not pay interest. This forced respondent to pay THIRD DIVISION
interest despite lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00 imposed as
exemplary damages by the RTC and the Court is fitting so as to deter SEBASTIAN SIGA-AN, G.R. No. 173227
petitioner and other lenders from committing similar and other serious Petitioner,
wrongdoings. Present:
Same; Attorney’s Fees; In awarding attorney’s fees, the trial court must
state the factual, legal or equitable justification for awarding the same.— YNARES-SANTIAGO,
Jurisprudence instructs that in awarding attorney’s fees, the trial court Chairperson,
must state the factual, legal or equitable justification for awarding the AUSTRIA-MARTINEZ,
same. In the case under consideration, the RTC stated in its Decision -versus CHICO-NAZARIO,
that the award of attorney’s fees equivalent to 25% of the amount paid as NACHURA, and
interest by respondent to petitioner is reasonable and moderate LEONARDO-DE CASTRO,* JJ.
considering the extent of work rendered by respondent’s lawyer in the
instant case and the fact that it dragged on for several years. Further,
Promulgated:
respondent testified that she agreed to compensate her lawyer handling
ALICIA VILLANUEVA,
the instant case such amount. The award, therefore, of attorney’s fees
Respondent. January 20, 2009
and its amount equivalent to 25% of the amount paid as interest by
x----------------------------------------------
respondent to petitioner is proper.
- - - -x
Interests; Where the obligation arose from a quasi-contract of solutio
indebiti and not from a loan or forbearance of money, the interest of 6% DECISION
per annum should be imposed on the amount to be refunded as well as on
the damages awarded and on the attorney’s fees, to be computed from the CHICO-NAZARIO, J.:
time of the extrajudicial demand up to the finality of the Decision.—
In Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994), Before Us is a Petition[1] for Review on Certiorari under Rule
that when an obligation, not constituting a loan or forbearance of money 45 of the Rules of Court seeking to set aside the Decision,[2] dated 16
is breached, an interest on the amount of damages awarded may be December 2005, and Resolution,[3] dated 19 June 2006 of the Court
imposed at the rate of 6% per annum. We further declared that when the of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the
judgment of the court awarding a sum of money becomes final and Decision,[4] dated 26 January 2001, of the Las Pinas City Regional
executory, the rate of legal interest, whether it is a loan/forbearance of Trial Court, Branch 255, in Civil Case No. LP-98-0068.
money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed equivalent to a The facts gathered from the records are as follows:
forbearance of credit. In the present case, petitioner’s obligation arose
from a quasi-contract of solutio indebiti and not from a loan or On 30 March 1998, respondent Alicia Villanueva filed a
forbearance of money. Thus, an interest of 6% per annum should be complaint[5] for sum of money against petitioner Sebastian Siga-an
before the Las Pinas City Regional Trial Court (RTC), Branch 255, Petitioner, despite receipt of the demand letter, ignored her claim for
docketed as Civil Case No. LP-98-0068. Respondent alleged that she reimbursement.[8]
was a businesswoman engaged in supplying office materials and
equipments to the Philippine Navy Office (PNO) located at Fort Respondent prayed that the RTC render judgment ordering
Bonifacio, Taguig City, while petitioner was a military officer and petitioner to pay respondent (1) P660,000.00 plus legal interest from
comptroller of the PNO from 1991 to 1996. the time of demand; (2) P300,000.00 as moral damages;
(3) P50,000.00 as exemplary damages; and (4) an amount equivalent
Respondent claimed that sometime in 1992, petitioner to 25% of P660,000.00 as attorneys fees.[9]
approached her inside the PNO and offered to loan her the amount
of P540,000.00. Since she needed capital for her business In his answer[10] to the complaint, petitioner denied that he
transactions with the PNO, she accepted petitioners proposal. The offered a loan to respondent. He averred that in 1992, respondent
loan agreement was not reduced in writing. Also, there was no approached and asked him if he could grant her a loan, as she
stipulation as to the payment of interest for the loan.[6] needed money to finance her business venture with the PNO. At first,
he was reluctant to deal with respondent, because the latter had a
On 31 August 1993, respondent issued a check spotty record as a supplier of the PNO. However, since respondent
worth P500,000.00 to petitioner as partial payment of the loan. On was an acquaintance of his officemate, he agreed to grant her a
31 October 1993, she issued another check in the amount loan. Respondent paid the loan in full.[11]
of P200,000.00 to petitioner as payment of the remaining balance of
the loan. Petitioner told her that since she paid a total amount Subsequently, respondent again asked him to give her a
of P700,000.00 for the P540,000.00 worth of loan, the excess loan. As respondent had been able to pay the previous loan in full,
amount of P160,000.00 would be applied as interest for the loan. Not he agreed to grant her another loan. Later, respondent requested him
satisfied with the amount applied as interest, petitioner pestered her to restructure the payment of the loan because she could not give
to pay additional interest. Petitioner threatened to block or full payment on the due date. He acceded to her request. Thereafter,
disapprove her transactions with the PNO if she would not comply respondent pleaded for another restructuring of the payment of the
with his demand. As all her transactions with the PNO were subject loan. This time he rejected her plea. Thus, respondent proposed to
to the approval of petitioner as comptroller of the PNO, and fearing execute a promissory note wherein she would acknowledge her
that petitioner might block or unduly influence the payment of her obligation to him, inclusive of interest, and that she would issue
vouchers in the PNO, she conceded. Thus, she paid additional several postdated checks to guarantee the payment of her obligation.
amounts in cash and checks as interests for the loan. She asked Upon his approval of respondents request for restructuring of the
petitioner for receipt for the payments but petitioner told her that it loan, respondent executed a promissory note dated 12 September
was not necessary as there was mutual trust and confidence 1994 wherein she admitted having borrowed an amount
between them. According to her computation, the total amount she of P1,240,000.00, inclusive of interest, from petitioner and that she
paid to petitioner for the loan and interest accumulated would pay said amount in March 1995. Respondent also issued to
to P1,200,000.00.[7] him six postdated checks amounting to P1,240,000.00 as guarantee
of compliance with her obligation. Subsequently, he presented the
Thereafter, respondent consulted a lawyer regarding the six checks for encashment but only one check was honored. He
propriety of paying interest on the loan despite absence of agreement demanded that respondent settle her obligation, but the latter failed
to that effect. Her lawyer told her that petitioner could not validly to do so. Hence, he filed criminal cases for Violation of the Bouncing
collect interest on the loan because there was no agreement between Checks Law (Batas Pambansa Blg. 22) against respondent. The cases
her and petitioner regarding payment of interest. Since she paid were assigned to the Metropolitan Trial Court of Makati City, Branch
petitioner a total amount of P1,200,000.00 for the P540,000.00 65 (MeTC).[12]
worth of loan, and upon being advised by her lawyer that she made
overpayment to petitioner, she sent a demand letter to petitioner Petitioner insisted that there was no overpayment because
asking for the return of the excess amount of P660,000.00. respondent admitted in the latters promissory note that her
monetary obligation as of 12 September 1994 amounted
to P1,240,000.00 inclusive of interests. He argued that respondent (4) Ordering defendant to pay plaintiff the
was already estopped from complaining that she should not have amount equivalent to 25% of P660,000.00 as
paid any interest, because she was given several times to settle her attorneys fees; and
obligation but failed to do so. He maintained that to rule in favor of
respondent is tantamount to concluding that the loan was given (5) Ordering defendant to pay the costs of
interest-free. Based on the foregoing averments, he asked the RTC to suit.[14]
dismiss respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001 Petitioner appealed to the Court of Appeals. On 16 December
holding that respondent made an overpayment of her loan obligation 2005, the appellate court promulgated its Decision affirming in
to petitioner and that the latter should refund the excess amount to toto the RTC Decision, thus:
the former. It ratiocinated that respondents obligation was only to
pay the loaned amount of P540,000.00, and that the alleged interests WHEREFORE, the foregoing considered, the
due should not be included in the computation of respondents total instant appeal is hereby DENIED and the assailed
monetary debt because there was no agreement between them decision [is] AFFIRMED in toto.[15]
regarding payment of interest. It concluded that since respondent
made an excess payment to petitioner in the amount of P660,000.00
through mistake, petitioner should return the said amount to Petitioner filed a motion for reconsideration of the appellate
respondent pursuant to the principle of solutio indebiti.[13] courts decision but this was denied.[16] Hence, petitioner lodged the
instant petition before us assigning the following errors:
The RTC also ruled that petitioner should pay moral I.
damages for the sleepless nights and wounded feelings experienced
by respondent. Further, petitioner should pay exemplary damages by THE RTC AND THE COURT OF APPEALS ERRED IN
way of example or correction for the public good, plus attorneys fees RULING THAT NO INTEREST WAS DUE TO
and costs of suit. PETITIONER;
(3) Ordering defendant to pay plaintiff the Article 1956 of the Civil Code, which refers to monetary
amount of P50,000.00 as exemplary damages; interest,[20] specifically mandates that no interest shall be due unless
it has been expressly stipulated in writing. As can be gleaned from reduced in writing; that the application of Article 1956 of the Civil
the foregoing provision, payment of monetary interest is allowed only Code should not be absolute, and an exception to the application of
if: (1) there was an express stipulation for the payment of interest; such provision should be made when the borrower admits that a
and (2) the agreement for the payment of interest was reduced in specific rate of interest was agreed upon as in the present case; and
writing. The concurrence of the two conditions is required for the that it would be unfair to allow respondent to pay only the loan when
payment of monetary interest. Thus, we have held that collection of the latter very well knew and even admitted in the Batas Pambansa
interest without any stipulation therefor in writing is prohibited by Blg. 22 cases that there was an agreed 7% rate of interest on the
law.[21] loan.[25]
It appears that petitioner and respondent did not agree on We have carefully examined the RTC Decision and found
the payment of interest for the loan. Neither was there convincing that the RTC did not make a ruling therein that petitioner and
proof of written agreement between the two regarding the payment of respondent agreed on the payment of interest at the rate of 7% for
interest. Respondent testified that although she accepted petitioners the loan. The RTC clearly stated that although petitioner and
offer of loan amounting to P540,000.00, there was, nonetheless, no respondent entered into a valid oral contract of loan amounting
verbal or written agreement for her to pay interest on the loan.[22] to P540,000.00, they, nonetheless, never intended the payment of
interest thereon.[26] While the Court of Appeals mentioned in its
Petitioner presented a handwritten promissory note dated 12 Decision that it concurred in the RTCs ruling that petitioner and
September 1994[23] wherein respondent purportedly admitted owing respondent agreed on a certain rate of interest as regards the loan,
petitioner capital and interest. Respondent, however, explained that we consider this as merely an inadvertence because, as earlier
it was petitioner who made a promissory note and she was told to elucidated, both the RTC and the Court of Appeals ruled that
copy it in her own handwriting; that all her transactions with the petitioner is not entitled to the payment of interest on the loan. The
PNO were subject to the approval of petitioner as comptroller of the rule is that factual findings of the trial court deserve great weight
PNO; that petitioner threatened to disapprove her transactions with and respect especially when affirmed by the appellate court.[27] We
the PNO if she would not pay interest; that being unaware of the law found no compelling reason to disturb the ruling of both courts.
on interest and fearing that petitioner would make good of his
threats if she would not obey his instruction to copy the promissory Petitioners reliance on respondents alleged admission in the
note, she copied the promissory note in her own handwriting; and Batas Pambansa Blg. 22 cases that they had agreed on the payment
that such was the same promissory note presented by petitioner as of interest at the rate of 7% deserves scant consideration. In the said
alleged proof of their written agreement on interest.[24] Petitioner did case, respondent merely testified that after paying the total amount
not rebut the foregoing testimony. It is evident that respondent did of loan, petitioner ordered her to pay interest.[28] Respondent did not
not really consent to the payment of interest for the loan and that categorically declare in the same case that she and respondent made
she was merely tricked and coerced by petitioner to pay an express stipulation in writing as regards payment of interest at
interest. Hence, it cannot be gainfully said that such promissory note the rate of 7%. As earlier discussed, monetary interest is due only if
pertains to an express stipulation of interest or written agreement of there was an express stipulation in writing for the payment of
interest on the loan between petitioner and respondent. interest.
Petitioner, nevertheless, claims that both the RTC and the There are instances in which an interest may be imposed
Court of Appeals found that he and respondent agreed on the even in the absence of express stipulation, verbal or written,
payment of 7% rate of interest on the loan; that the agreed 7% rate of regarding payment of interest. Article 2209 of the Civil Code states
interest was duly admitted by respondent in her testimony in the that if the obligation consists in the payment of a sum of money, and
Batas Pambansa Blg. 22 cases he filed against respondent; that the debtor incurs delay, a legal interest of 12% per annum may be
despite such judicial admission by respondent, the RTC and the imposed as indemnity for damages if no stipulation on the payment
Court of Appeals, citing Article 1956 of the Civil Code, still held that of interest was agreed upon. Likewise, Article 2212 of the Civil Code
no interest was due him since the agreement on interest was not provides that interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent on this because there was no express stipulation in writing to that
point. effect. There was no binding relation between petitioner and
respondent as regards the payment of interest. The payment was
All the same, the interest under these two instances may be clearly a mistake. Since petitioner received something when there
imposed only as a penalty or damages for breach of contractual was no right to demand it, he has an obligation to return it.
obligations. It cannot be charged as a compensation for the use or
forbearance of money. In other words, the two instances apply only We shall now determine the propriety of the monetary award
to compensatory interest and not to monetary interest.[29] The case at and damages imposed by the RTC and the Court of Appeals.
bar involves petitioners claim for monetary interest.
Records show that respondent received a loan amounting
Further, said compensatory interest is not chargeable in the to P540,000.00 from petitioner.[34] Respondent issued two checks
instant case because it was not duly proven that respondent with a total worth of P700,000.00 in favor of petitioner as payment of
defaulted in paying the loan. Also, as earlier found, no interest was the loan.[35] These checks were subsequently encashed by
due on the loan because there was no written agreement as regards petitioner.[36] Obviously, there was an excess of P160,000.00 in the
payment of interest. payment for the loan. Petitioner claims that the excess
of P160,000.00 serves as interest on the loan to which he was
Apropos the second assigned error, petitioner argues that the entitled. Aside from issuing the said two checks, respondent also
principle of solutio indebiti does not apply to the instant case. Thus, paid cash in the total amount of P175,000.00 to petitioner as
he cannot be compelled to return the alleged excess amount paid by interest.[37]Although no receipts reflecting the same were presented
respondent as interest.[30] because petitioner refused to issue such to respondent, petitioner,
nonetheless, admitted in his Reply-Affidavit[38] in the Batas
Under Article 1960 of the Civil Code, if the borrower of loan Pambansa Blg. 22 cases that respondent paid him a total amount
pays interest when there has been no stipulation therefor, the of P175,000.00 cash in addition to the two checks. Section 26 Rule
provisions of the Civil Code concerning solutio indebiti shall be 130 of the Rules of Evidence provides that the declaration of a party
applied. Article 2154 of the Civil Code explains the principle of solutio as to a relevant fact may be given in evidence against him. Aside
indebiti. Said provision provides that if something is received when from the amounts of P160,000.00 and P175,000.00 paid as interest,
there is no right to demand it, and it was unduly delivered through no other proof of additional payment as interest was presented by
mistake, the obligation to return it arises. In such a case, a creditor- respondent. Since we have previously found that petitioner is not
debtor relationship is created under a quasi-contract whereby the entitled to payment of interest and that the principle of solutio
payor becomes the creditor who then has the right to demand the indebiti applies to the instant case, petitioner should return to
return of payment made by mistake, and the person who has no respondent the excess amount of P160,000.00 and P175,000.00 or
right to receive such payment becomes obligated to return the the total amount of P335,000.00. Accordingly, the reimbursable
same. The quasi-contract of solutio indebiti harks back to the ancient amount to respondent fixed by the RTC and the Court of Appeals
principle that no one shall enrich himself unjustly at the expense of should be reduced from P660,000.00 to P335,000.00.
another.[31] The principle of solutio indebiti applies where (1) a
payment is made when there exists no binding relation between the As earlier stated, petitioner filed five (5) criminal cases for
payor, who has no duty to pay, and the person who received the violation of Batas Pambansa Blg. 22 against respondent. In the said
payment; and (2) the payment is made through mistake, and not cases, the MeTC found respondent guilty of violating Batas
through liberality or some other cause.[32] We have held that the Pambansa Blg. 22 for issuing five dishonored checks to petitioner.
principle of solutio indebiti applies in case of erroneous payment of Nonetheless, respondents conviction therein does not affect our
undue interest.[33] ruling in the instant case. The two checks, subject matter of this
case, totaling P700,000.00 which respondent claimed as payment of
It was duly established that respondent paid interest to the P540,000.00 worth of loan, were not among the five checks found
petitioner. Respondent was under no duty to make such payment to be dishonored or bounced in the five criminal cases. Further, the
MeTC found that respondent made an overpayment of the loan by equivalent to 25% of the amount paid as interest by respondent to
reason of the interest which the latter paid to petitioner.[39] petitioner is proper.
Article 2217 of the Civil Code provides that moral damages Finally, the RTC and the Court of Appeals imposed a 12%
may be recovered if the party underwent physical suffering, mental rate of legal interest on the amount refundable to respondent
anguish, fright, serious anxiety, besmirched reputation, wounded computed from 3 March 1998 until its full payment. This is
feelings, moral shock, social humiliation and similar injury. erroneous.
Respondent testified that she experienced sleepless nights and
wounded feelings when petitioner refused to return the amount paid We held in Eastern Shipping Lines, Inc. v. Court of
as interest despite her repeated demands. Hence, the award of moral Appeals,[45] that when an obligation, not constituting a loan or
damages is justified. However, its corresponding amount forbearance of money is breached, an interest on the amount of
of P300,000.00, as fixed by the RTC and the Court of Appeals, is damages awarded may be imposed at the rate of 6% per annum. We
exorbitant and should be equitably reduced. Article 2216 of the Civil further declared that when the judgment of the court awarding a
Code instructs that assessment of damages is left to the discretion of sum of money becomes final and executory, the rate of legal interest,
the court according to the circumstances of each case. This whether it is a loan/forbearance of money or not, shall be 12% per
discretion is limited by the principle that the amount awarded annum from such finality until its satisfaction, this interim period
should not be palpably excessive as to indicate that it was the result being deemed equivalent to a forbearance of credit.
of prejudice or corruption on the part of the trial court. [40] To our
mind, the amount of P150,000.00 as moral damages is fair, In the present case, petitioners obligation arose from a
reasonable, and proportionate to the injury suffered by respondent. quasi-contract of solutio indebiti and not from a loan or forbearance
of money. Thus, an interest of 6% per annum should be imposed on
Article 2232 of the Civil Code states that in a quasi-contract, the amount to be refunded as well as on the damages awarded and
such as solutio indebiti, exemplary damages may be imposed if the on the attorneys fees, to be computed from the time of the extra-
defendant acted in an oppressive manner. Petitioner acted judicial demand on 3 March 1998,[46] up to the finality of this
oppressively when he pestered respondent to pay interest and Decision. In addition, the interest shall become 12% per annum from
threatened to block her transactions with the PNO if she would not the finality of this Decision up to its satisfaction.
pay interest. This forced respondent to pay interest despite lack of
agreement thereto. Thus, the award of exemplary damages is WHEREFORE, the Decision of the Court of Appeals in CA-
appropriate. The amount of P50,000.00 imposed as exemplary G.R. CV No. 71814, dated 16 December 2005, is
damages by the RTC and the Court is fitting so as to deter petitioner hereby AFFIRMED with the following MODIFICATIONS: (1) the
and other lenders from committing similar and other serious amount of P660,000.00 as refundable amount of interest is reduced
wrongdoings.[41] to THREE HUNDRED THIRTY FIVE THOUSAND PESOS
(P335,000.00); (2) the amount of P300,000.00 imposed as moral
Jurisprudence instructs that in awarding attorneys fees, the damages is reduced to ONE HUNDRED FIFTY THOUSAND PESOS
trial court must state the factual, legal or equitable justification for (P150,000.00); (3) an interest of 6% per annum is imposed on
awarding the same.[42] In the case under consideration, the RTC the P335,000.00, on the damages awarded and on the attorneys fees
stated in its Decision that the award of attorneys fees equivalent to to be computed from the time of the extra-judicial demand on 3
25% of the amount paid as interest by respondent to petitioner is March 1998 up to the finality of this Decision; and (4) an interest of
reasonable and moderate considering the extent of work rendered by 12% per annum is also imposed from the finality of this Decision up
respondents lawyer in the instant case and the fact that it dragged to its satisfaction. Costs against petitioner.
on for several years.[43] Further, respondent testified that she agreed
to compensate her lawyer handling the instant case such SO ORDERED.
amount.[44] The award, therefore, of attorneys fees and its amount
Banks and Banking; Bank Deposits; Loans; The contractual fiduciary nature of banking requires banks to assume a degree of
relationship between banks and their depositors is governed by the Civil diligence higher than that of a good father of a family. Article 1172 of the
Code provisions on simple loan.—The contractual relationship between Civil Code states that the degree of diligence required of an obligor is
banks and their depositors is governed by the Civil Code provisions on that prescribed by law or contract, and absent such stipulation then the
simple loan. Once a person makes a deposit of his or her money to the diligence a good father of a family.
bank, he or she is considered to have lent the bank that money. The bank
becomes his or her debtor, and he or she becomes the creditor of the Taxation; Estate Tax; Bank Deposits; Estate tax may also serve as
bank, which is obligated to pay him or her on demand. The default guard against the release of deposits to persons who have no sufficient
standard of diligence in the performance of obligations is “diligence of a and valid claim over the deposits.—Taxes are created primarily to
good father of a family.” generate revenues for the maintenance of the government. However, this
particular tax may also serve as guard against the release of deposits to
Same; Same; Fiduciary Relationship; The Supreme Court (SC) has persons who have no sufficient and valid claim over the deposits. Based
recognized the fiduciary nature of the banks’ functions, and attached a on the assumption that only those with sufficient and valid claim to the
special standard of diligence for the exercise of their functions.—Other deposit will pay the taxes for it, requiring the certificate from the BIR
industries, because of their nature, are bound by law to observe higher increases the chance that the deposit will be released only to them.
standards of diligence. Common carriers, for example, must observe
“extraordinary diligence in the vigilance over the goods and for the safety Banks and Banking; Diligence Required of Banks; Petitioner
of [their] passengers” because it is considered a business affected with Philippine National Bank (PNB) is a bank from which a degree of
public interest. “Extraordinary diligence” with respect to passenger diligence higher than that of a good father of a family is expected.—
safety is further qualified as “carry[ing] the passengers safely as far as Petitioner PNB is a bank from which a degree of diligence higher than
human care and foresight can provide, using the utmost diligence of very that of a good father of a family is expected. Petitioner PNB and its
cautious persons, with a due regard for all the circumstances.” Similar to manager, petitioner Aguilar, failed to meet even the standard of diligence
common carriers, banking is a business that is impressed with public of a good father of a family. Their actions and inactions constitute gross
interest. It affects economies and plays a significant role in businesses negligence. It is for this reason that we sustain the trial court’s and the
and commerce. The public reposes its faith and confidence upon banks, Court of Appeals’ rulings that petitioners PNB and Aguilar are solidarily
such that “even the humble wage-earner has not hesitated to entrust his liable with each other.
life’s savings to the bank of his choice, knowing that they will be safe in
its custody and will even earn some interest for him.” This is why we Same; Damages; Moral Damages; The Supreme Court (SC) sustains
have recognized the fiduciary nature of the banks’ functions, and the award of moral damages; The bank’s negligence was the result of lack
attached a special standard of diligence for the exercise of their of due care and caution required of managers and employees of a firm
functions. engaged in so sensitive and demanding business as banking.—For the
same reason, we sustain the award for moral damages. Petitioners PNB
Same; Same; Same; This fiduciary relationship means that the and Aguilar’s gross negligence deprived Angel C. Santos’ heirs what is
bank’s obligation to observe “high standards of integrity and rightfully theirs. Respondents also testified that they experienced anger
performance” is deemed written into every deposit agreement between a and embarrassment when petitioners PNB and Aguilar refused to
bank and its depositor. The fiduciary nature of banking requires banks to release Angel C. Santos’ deposit. “The bank’s negligence was the result of
assume a degree of diligence higher than that of a good father of a lack of due care and caution required of managers and employees of a
family.—In The Consolidated Bank and Trust Corporation v. Court of firm engaged in so sensitive and demanding business as banking.”
Appeals, 410 SCRA 562 (2003), this court explained the meaning of
fiduciary relationship and the standard of diligence assumed by Same; Same; Exemplary Damages; The law allows the grant of
banks: This fiduciary relationship means that the banks obligation to exemplary damages by way of example for the public good.—Exemplary
observe “high standards of integrity and performance” is deemed written damages should also be awarded. “The law allows the grant of exemplary
into every deposit agreement between a bank and its depositor. The damages by way of example for the public good. The public relies on the
banks’ sworn profession of diligence and meticulousness in giving G.R. No. 208293
irreproachable service. The level of meticulousness must be maintained
at all times by the banking sector.” PHILIPPINE NATIONAL BANK, Petitioner
vs.
Same; Same; Attorney’s Fees; Since exemplary damages are CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS,
awarded and since respondents were compelled to litigate to protect their NONENG S. DIANCO, ET AL., Respondent
interests, the award of attorney’s fees is also proper.—Since exemplary
damages are awarded and since respondents were compelled to litigate to
x-----------------------x
protect their interests, the award of attorney’s fees is also proper.
Same; Same; Interest Rates; The Court of Appeals’ (CA’s) award of G.R. No. 208295
interest should be modified to twelve percent (12%) from demand on April
25, 1998 until June 30, 2013, and six percent (6%) from July 1, 2013 until LINA B. AGUILAR, Petitioner
fully paid.—The Court of Appeals’ award of interest should be modified vs.
to 12% from demand on April 26, 1998 until June 30, 2013, and 6% from CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L. SANTOS,
July 1, 2013 until fully paid. In Nacar v. Gallery Frames, 703 SCRA 439 BUENVENIDO L. SANTOS, ET AL.,Respondents.
(2013): Thus, from the foregoing, in the absence of an express stipulation
as to the rate of interest that would govern the parties, the rate of legal DECISION
interest for loans or forbearance of any money . . . shall no longer be
twelve percent (12%) per annum . . . but will now be six percent (6%) per
LEONEN, J.:
annum effective July 1, 2013. It should be noted, nonetheless, that . . .
the twelve percent (12%) per annum legal interest shall apply only until
June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per The standard of diligence required of banks is higher than the degree
annum shall be the prevailing rate of interest when applicable. . . . . 1. of diligence of a good father of a family. Respondents are children of
When the obligation is breached, and it consists in the payment of a sum Angel C. Santos who died on March 21, 1991.1
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the Sometime in May 1996, respondents discovered that their father
interest due shall itself earn legal interest from the time it is judicially maintained a premium savings account with Philippine National
demanded. In the absence of stipulation, the rate of interest shall be Bank (PNB), Sta. Elena-Marikina City Branch.2 As of July 14, 1996,
6% per annum to be computed from default, i.e., from judicial or the deposit amounted to 1,759,082.63.3 Later, respondents would
extrajudicial demand. . . . . . . 3. When the judgment of the court discover that their father also had a time deposit of 1,000,000.00
awarding a sum of money becomes final and executory, the rate of legal with PNB.4
interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 6% per annum from such finality until its satisfaction, this Respondents went to PNB to withdraw their father’s deposit.5
interim period being deemed to be by then an equivalent to a forbearance
of credit. Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina
City Branch, required them to submit the following: "(1) original or
certified true copy of the Death Certificate of Angel C. Santos; (2)
certificate of payment of, or exemption from, estate tax issued by the
Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial
Settlement; (4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond effective for two (2)
years and in an amount equal to the balance of the deposit to be Manimbo.22 He also alleged that Manimbo presented the certificate of
withdrawn."6 time deposit without his knowledge and consent.23
By April 26, 1998, respondents had already obtained the necessary Capital Insurance and Surety Co., Inc. alleged that its undertaking
documents.7 They tried to withdraw the deposit.8 However, Aguilar was to pay claims only when persons who were unduly deprived of
informed them that the deposit had already "been released to a their lawful participation in the estate filed an action in court for
certain Bernardito Manimbo (Manimbo) on April 1, 1997."9 An their claims.24 It did not undertake to pay claims resulting from
amount of 1,882,002.05 was released upon presentation of: (a) an PNB’s negligence.25
affidavit of selfadjudication purportedly executed by one of the
respondents, Reyme L. Santos; (b) a certificate of time deposit dated In the decision26 dated February 22, 2011, the trial court held that
December 14, 1989 amounting to 1,000,000.00; and (c) the death PNB and Aguilar were jointly and severally liable to pay respondents
certificate of Angel C. Santos, among others.10 A special power of the amount of 1,882,002.05 with an interest rate of 6% starting May
attorney was purportedly executed by Reyme L. Santos in favor of 20, 1998.27 PNB and Aguilar were also declared jointly and severally
Manimbo and a certain Angel P. Santos for purposes of withdrawing liable for moral and exemplary damages, attorney’s fees, and costs of
and receiving the proceeds of the certificate of time deposit.11 suit.28Manimbo, Angel P. Santos, and Capital Insurance and Surety
Co., Inc. were held jointly and severally liable to pay PNB
On May 20, 1998, respondents filed before the Regional Trial Court 1,877,438.83 pursuant to the heir’s bond and 50,000.00 as
of Marikina City a complaint for sum of money and damages against attorney’s fees and the costs of suit.29 The dispositive portion of the
PNB, Lina B. Aguilar, and a John Doe.12 Respondents questioned the trial court’s decision reads:
release of the deposit amount to Manimbo who had no authority
from them to withdraw their father’s deposit and who failed to WHEREFORE, foregoing premises considered, judgment is hereby
present to PNB all the requirements for such rendered as follows:
withdrawal.13 Respondents prayed that they be paid: (a) the premium
deposit amount; (b) the certificate of time deposit amount; and (c)
moral and exemplary damages, attorney’s fees, and costs of suit.14 1. ordering the defendants PNB and LINA B. AGUILAR jointly and
severally liable to pay the plaintiffs the amount of P1,882,002.05,
representing the face value of PNB Manager’s Check No. AF-974686B
PNB and Aguilar denied that Angel C. Santos had two separate as balance of the total deposits of decedent Angel C. Santos at the
accounts (premium deposit account and time deposit account) with time of its issue, with interest thereon at the rate of 6% starting on
PNB.15 They alleged that Angel C. Santos’ deposit account was May 20, 1998, the date when the complaint was filed, until fully
originally a time deposit account that was subsequently converted paid;
into a premium savings account.16 They also alleged that Aguilar did
not know about Angel C. Santos’ death in 1991 because she only
assumed office in 1996.17 Manimbo was able to submit an affidavit of 2. ordering both defendants jointly and severally liable to pay
self-adjudication and the required surety bond.18 He also submitted plaintiffs the amount of Php 100,000.00 as moral damages, another
a certificate of payment of estate tax dated March 31, 1997. 19 All Php100,000.00 as exemplary damages and Php 50,000.00 as
documents he submitted appeared to be regular.20 attorney’s fees and the costs of suit;
PNB and Aguilar filed a third-party complaint against Manimbo, On the Third party complaint:
Angel P. Santos, and Capital Insurance and Surety Co., Inc.21
3. Ordering the third party defendants Bernardito P. Manimbo, Angel
Angel P. Santos denied having anything to do with the special power P. Santos and Capital Insurance & Surety Co., Inc., jointly and
of attorney and affidavit of self-adjudication presented by severally liable to pay third party plaintiff PNB, the amount of Php
1,877,438.83 pursuant to the Heir’s Bond and the amount of Php In the decision48 promulgated on July 25, 2013, the Court of Appeals
50,000.00 as attorney’s fees and the costs of suit. sustained the trial court’s finding that there was only one
account.49 Angel C. Santos could not have possibly opened the
SO ORDERED.30 premium savings account in 1994 since he already died in
1991.50 The Court of Appeals also held that PNB and Aguilar were
negligent in handling the deposit.51 The deposit amount was released
The trial court found that Angel C. Santos had only one account with to Manimbo who did not present all the requirements, particularly
PNB.31 The account was originally a time deposit, which was the Bureau of Internal Revenue (BIR) certification that estate taxes
converted into a premium savings account when it was not renewed had already been paid.52 They should also not have honored the
on maturity.32 The trial court took judicial notice that in 1989,
automatic rollover of time deposit was not yet prevailing.33
affidavit of self-adjudication.53
On the liability of PNB and Aguilar, the trial court held that they
were both negligent in releasing the deposit to Manimbo.34 The trial The Court of Appeals ruled that Aguilar could not escape liability by
court noted PNB’s failure to notify the depositor about the maturity pointing her finger at PNB’s Legal Department.54As the Bank
of the time deposit and the conversion of the time deposit into a Manager, she should have given the Legal Department all the
premium savings account.35 The trial court also noted PNB’s failure necessary information that must be known in order to protect both
to cancel the certificate of time deposit despite conversion.36 PNB and the depositors’ and the bank’s interests.55
Aguilar also failed to require the production of birth certificates to
prove claimants’ relationship to the depositor.37 Further, they relied The Court of Appeals removed the award of exemplary damages,
on the affidavit of self-adjudication when several persons claiming to upon finding that there was no malice or bad faith.56
be heirs had already approached them previously.38
The Court of Appeals considered the deposit as an ordinary loan by
Aguilar filed a motion for reconsideration39 of the February 22, 2011 the bank from Angel C. Santos or his heirs.57Therefore, the deposit
Regional Trial Court decision. This was denied in the June 21, 2011 was a forbearance which should earn an interest of 12% per
Regional Trial Court order.40 annum.58 The dispositive portion of the Court of Appeals’ decision
reads:
PNB and Aguilar appealed before the Court of Appeals.41
WHEREFORE, premises considered, the assailed decision of the
Aguilar contended that she was not negligent and should not have court a quo dated February 22, 2011 is AFFIRMED with
been made jointly and severally liable with PNB. 42 She merely the MODIFICATIONS in that the rate of interest shall be twelve
implemented PNB’s Legal Department’s directive to release the percent (12%) per annum computed from the filing of the case until
deposit to Manimbo.43 fully satisfied. The interest due shall further earn an interest of
12% per annum to be computed from the date of the filing of the
complaint until fully paid. Meanwhile, the award of exemplary
PNB argued that it was not negligent.44 The release of the deposit to damages is DELETED.
Manimbo was pursuant to an existing policy.45Moreover, the
documents submitted by Manimbo were more substantial than those
submitted by respondents.46Respondents could have avoided the SO ORDERED.59
incident "had they accomplished the required documents
immediately."47 PNB and Aguilar filed their separate petitions for review of the Court
of Appeals’ July 25, 2013 decision.60
We resolve the following issues: The trial court and the Court of Appeals correctly found that
petitioners PNB and Aguilar were negligent in handling the deposit of
I. Whether Philippine National Bank was negligent in releasing the Angel C. Santos.
deposit to Bernardito Manimbo;
The contractual relationship between banks and their depositors is
II. Whether Lina B. Aguilar is jointly and severally liable with governed by the Civil Code provisions on simple loan.73 Once a
Philippine National Bank for the release of the deposit to Bernardito person makes a deposit of his or her money to the bank, he or she is
Manimbo; and considered to have lent the bank that money.74 The bank becomes
his or her debtor, and he or she becomes the creditor of the bank,
which is obligated to pay him or her on demand.75
III. Whether respondents were properly awarded damages.
The default standard of diligence in the performance of obligations is
Petitioner Aguilar argued that the Court of Appeals had already "diligence of a good father of a family." Thus, the Civil Code provides:
found no malice or bad faith on her part.61 Moreover, as a mere
officer of the bank, she cannot be made personally liable for acts that
she was authorized to do.62 These acts were mere directives to her by ART. 1163. Every person obliged to give something is also obliged to
her superiors.63 Hence, she should not be held solidarily liable with take care of it with the proper diligence of a good father of a family,
PNB.64 unless the law or the stipulation of the parties requires another
standard of care.
Petitioner PNB argued that it was the presumptuousness and
cavalier attitude of respondents that gave rise to the controversy and ....
not its judgment call.65 Respondents were lacking in sufficient
documentation.66 Petitioner PNB also argued that respondents failed ART. 1173. The fault or negligence of the obligor consists in the
to show any justification for the award of moral damages.67 No bad omission of that diligence which is required by the nature of the
faith can be attributed to Aguilar.68 obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
In their separate comments to the petitions, respondents argued that provisions of articles 1171 and 2201, paragraph 2, shall apply.
the trial court and the Court of Appeals did not err in finding that
petitioners PNB and Aguilar were negligent in handling their father’s If the law or contract does not state the diligence which is to be
deposit.69 The acceptance of invalid and incomplete documents to observed in the performance, that which is expected of a good father of
support the deposit’s release to Manimbo was a violation of the a family shall be required. (Emphasis supplied)
bank’s fiduciary duty to its clients.70 These acts constituted gross
negligence on the part of petitioners PNB and Aguilar.71 "Diligence of a good father of a family" is the standard of diligence
expected of, among others,
However, according to respondents, the Court of Appeals erred in
deleting the award for exemplary damages because the acts in usufructuaries,76 passengers of common
violation of the bank’s fiduciary were done in bad faith.72 carriers,77 agents,78 depositaries,79 pledgees,80 officious
managers,81 and persons deemed by law as responsible for the acts
We rule for the respondents. of others.82 "The diligence of a good father of a family requires only
that diligence which an ordinary prudent man would exercise with
regard to his own property.83
Other industries, because of their nature, are bound by law to and efficient banking and financial system that is globally
observe higher standards of diligence. Common carriers, for example, competitive, dynamic and responsive to the demands of a developing
must observe "extraordinary diligence in the vigilance over the goods economy. (Emphasis supplied)
and for the safety of [their] passengers"84 because it is considered a
business affected with public interest. "Extraordinary diligence" with In The Consolidated Bank and Trust Corporation v. Court of
respect to passenger safety is further qualified as "carry[ing] the Appeals,90 this court explained the meaning of fiduciary relationship
passengers safely as far as human care and foresight can provide, and the standard of diligence assumed by banks:
using the utmost diligence of very cautious persons, with a due
regard for all the circumstances."85
This fiduciary relationship means that the bank’s obligation to observe
"high standards of integrity and performance" is deemed written into
Similar to common carriers, banking is a business that is impressed every deposit agreement between a bank and its depositor. The
with public interest. It affects economies and plays a significant role fiduciary nature of banking requires banks to assume a degree of
in businesses and commerce.86 The public reposes its faith and diligence higher than that of a good father of a family. Article 1172 of
confidence upon banks, such that "even the humble wage-earner has the Civil Code states that the degree of diligence required of an
not hesitated to entrust his life’s savings to the bank of his choice, obligor is that prescribed by law or contract, and absent such
knowing that they will be safe in its custody and will even earn some stipulation then the diligence of a good father of a
interest for him."87 This is why we have recognized the fiduciary family.91 (Emphasis supplied, citation omitted)
nature of the banks’ functions, and attached a special standard of
diligence for the exercise of their functions.
Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account
is inconsistent with the high standard of diligence required of banks.
In Simex International (Manila), Inc. v. Court of Appeals,88 this court They accepted Manimbo’s representations despite knowledge of the
described the nature of banks’ functions and the attitude expected of existence of circumstances that should have raised doubts on such
banks in handling their depositors’ accounts, thus: representations. As a result, Angel C. Santos’ deposit was given to a
person stranger to him.
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few Petitioner PNB pointed out that since petitioner Aguilar assumed
hundred pesos or of millions. . . . office as PNB-Sta. Elena-Marikina City Branch Manager only five (5)
years from Angel C. Santos’ death, she was not in the position to
The point is that as a business affected with public interest and know that respondents were the heirs of Angel C. Santos.92 She
because of the nature of its functions, the bank is under obligation could not have accepted the unsigned and unnotarized extrajudicial
to treat the accounts of its depositors with meticulous care, always settlement deed that respondents had first showed her.93 She was
having in mind the fiduciary nature of their relationship.89 (Emphasis not competent to make a conclusion whether that deed was
supplied) genuine.94 Neither could petitioners PNB and Aguilar pass judgment
on a letter from respondents’ lawyer stating that respondents were
The fiduciary nature of banking is affirmed in Republic Act No. 8791 the nine heirs of Angel C. Santos.95 Petitioners PNB and Aguilar’s
or The General Banking Law, thus: negligence is not based on their failure to accept respondents’
documents as evidence of their right to claim Angel C. Santos’
deposit. Rather, it is based on their failure to exercise the diligence
SEC. 2. Declaration of Policy.—The State recognizes the vital role of required of banks when they accepted the fraudulent representations
banks in providing an environment conducive to the sustained of Manimbo. Petitioners PNB and Aguilar disregarded their own
development of the national economy and the fiduciary nature of requirements for the release of the deposit to persons claiming to be
banking that requires high standards of integrity and performance. In heirs of a deceased depositor. When respondents asked for the
furtherance thereof, the State shall promote and maintain a stable
release of Angel C. Santos’ deposit, they were required to present the In this case, petitioners PNB and Aguilar released Angel C. Santos’
following: "(1) original or certified true copy of the Death Certificate of deposit to Manimbo without having been presented the BIR-issued
Angel C. Santos; (2) certificate of payment of, or exemption from, certificate of payment of, or exception from, estate tax. This is a legal
estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of requirement before the deposit of a decedent is released. Presidential
Extrajudicial Settlement; (4) Publisher’s Affidavit of publication of the Decree No. 1158,98 the tax code applicable when Angel C. Santos
Deed of Extrajudicial Settlement; and (5) Surety bond effective for died in 1991, provides:
two (2) years and in an amount equal to the balance of the deposit to
be withdrawn."96 SEC. 118. Payment of tax antecedent to the transfer of shares, bonds,
or rights. — There shall not be transferred to any new owner in the
Petitioners PNB and Aguilar, however, accepted Manimbo’s books of any corporation, sociedad anonima, partnership, business,
representations, and they released Angel C. Santos’ deposit based on or industry organized or established in the Philippines, any shares,
only the following documents: obligations, bonds or rights by way of gift inter vivos or mortis causa,
legacy, or inheritance unless a certification from the Commissioner
1. Death certificate of Angel C. Santos; that the taxes fixed in this Title and due thereon have been paid is
shown.
2. Birth certificate of Reyme L. Santos;
If a bank has knowledge of the death of a person who maintained a
bank deposit account alone, or jointly with another, it shall not allow
3. Affidavit of self-adjudication of Reyme L. Santos; any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this
4. Affidavit of publication; Title have been paid; Provided, however, That the administrator of the
estate or any one of the heirs of the decedent may upon
5. Special power of attorney that Reyme L. Santos executed in favor authorization by the Commissioner of Internal Revenue, withdraw an
of Bernardito Manimbo and Angel P. Santos; amount not exceeding 10,000 without the said certification. For this
purpose, all withdrawal slips shall contain a statement to the effect
that all of the joint depositors are still living at the time of withdrawal
6. Personal items of Angel C. Santos, such as photocopies or by any one of the joint depositors and such statement shall be under
originals of passport, residence certificate for year 1990, SSS I.D., oath by the said depositors.99 (Emphasis supplied)
etc.;
8. Certificate of Time Deposit No. 341306.97 SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights. - There shall not be transferred to any new owner
Based on these enumerations, petitioners PNB and Aguilar either in the books of any corporation, sociedad anonima, partnership,
have no fixed standards for the release of their deceased clients’ business, or industry organized or established in the Philippines any
deposits or they have standards that they disregard for convenience, share, obligation, bond or right by way of gift inter vivos or mortis
favor, or upon exercise of discretion. Both are inconsistent with the causa, legacy or inheritance, unless a certification from the
required diligence of banks. These threaten the safety of the Commissioner that the taxes fixed in this Title and due thereon have
depositors’ accounts as they provide avenues for fraudulent practices been paid is shown.
by third persons or by bank officers themselves.
If a bank has knowledge of the death of a person, who maintained a Manimbo appeared. Petitioner Aguilar even gave respondents the
bank deposit account alone, or jointly with another, it shall not allow updated passbook of Angel C. Santos’ account.107 Yet, petitioners
any withdrawal from the said deposit account, unless the PNB and Aguilar did not think twice before they released the deposit
Commissioner has certified that the taxes imposed thereon by this to Manimbo. They did not doubt why no original death certificate
Title have been paid: Provided, however, That the administrator of could be submitted. They did not doubt why Reyme L. Santos would
the estate or any one (1) of the heirs of the decedent may, upon execute an affidavit of self-adjudication when he, together with
authorization by the Commissioner, withdraw an amount not others, had previously asked for the release of Angel C. Santos’
exceeding Twenty thousand pesos (20,000) without the said deposit. They also relied on the certificate of time deposit and on
certification. For this purpose, all withdrawal slips shall contain a Manimbo’s representation that the passbook was lost when the
statement to the effect that all of the joint depositors are still living at passbook had just been previously presented to Aguilar for
the time of withdrawal by any one of the joint depositors and such updating.108
statement shall be under oath by the said depositors. (Emphasis
supplied) During the trial, petitioner PNB’s counsel only reasoned that the
photocopy of the death certificate was also submitted with other
Taxes are created primarily to generate revenues for the maintenance documents, which led him to no other conclusion than that Angel C.
of the government. However, this particular tax may also serve as Santos was already dead.109 On petitioners PNB and Aguilar’s
guard against the release of deposits to persons who have no reliance special power of attorney allegedly executed by Reyme L.
sufficient and valid claim over the deposits. Based on the Santos, Aguilar admitted that she did not contact Reyme L. Santos
assumption that only those with sufficient and valid claim to the for verification. Her reason was that Reyme L. Santos was their
deposit will pay the taxes for it, requiring the certificate from the BIR client. Therefore, they had no obligation to do so.110
increases the chance that the deposit will be released only to them.
Given the circumstances, "diligence of a good father of a family"
In their compulsory counterclaim,100 petitioners PNB and Aguilar would have required petitioners PNB and Aguilar to verify. A prudent
claimed that Manimbo presented a certificate of payment of estate man would have inquired why Reyme L. Santos would issue an
tax.101 During trial, however, it turned out that this certificate was affidavit of selfadjudication when others had also claimed to be heirs
instead an authority to accept payment, which is not the certificate of Angel C. Santos. Contrary to petitioner Aguilar’s reasoning, the
required for the release of bank deposits.102 It appears that Manimbo fact that Reyme L. Santos was not petitioner PNB’s client should
was not even required to submit the BIR certificate.103 He, thus, have moved her to take measures to ensure the veracity of
failed to present such certificate. Petitioners PNB and Aguilar Manimbo’s documents and representations. This is because she had
provided no satisfactory explanation why Angel C. Santos’ deposit no previous knowledge of Reyme L. Santos his representatives, and
was released without it. his signature.
Petitioners PNB and Aguilar’s negligence is also clear when they Petitioner PNB is a bank from which a degree of diligence higher than
accepted as bases for the release of the deposit to Manimbo: (a) a that of a good father of a family is expected. Petitioner PNB and its
mere photocopy of Angel C. Santos’ death certificate;104 (b) the manager, petitioner Aguilar, failed to meet even the standard of
falsified affidavit of self-adjudication and special power of attorney diligence of a good father of a family. Their actions and inactions
purportedly executed by Reyme L. Santos;105 and (c) the certificate of constitute gross negligence. It is for this reason that we sustain the
time deposit.106 trial court’s and the Court of Appeals’ rulings that petitioners PNB
and Aguilar are solidarily liable with each other.111
Petitioner Aguilar was aware that there were other claimants to Angel
C. Santos’ deposit. Respondents had already communicated with For the same reason, we sustain the award for moral damages.
petitioner Aguilar regarding Angel C. Santos’ account before Petitioners PNB and Aguilar’s gross negligence deprived Angel C.
Santos’ heirs what is rightfully theirs. Respondents also testified that ....
they experienced anger and embarrassment when petitioners PNB
and Aguilar refused to release Angel C. Santos’ deposit.112 "The 3. When the judgment of the court awarding a sum of money
bank’s negligence was the result of lack of due care and caution becomes final and executory, the rate of legal interest, whether the
required of managers and employees of a firm engaged in so sensitive case falls under paragraph 1 or paragraph 2, above, shall be 6% per
and demanding business as banking."113 annumfrom such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
Exemplary damages should also be awarded. "The law allows the credit.117
grant of exemplary damages by way of example for the public good.
The public relies on the banks’ sworn profession of diligence and WHEREFORE, the Court of Appeals' decision dated July 25, 2013
meticulousness in giving irreproachable service. The level of is AFFIRMED with the MODIFICATIONS in that petitioners
meticulousness must be maintained at all times by the banking Philippine National Bank and Lina B. Aguilar are ordered solidarily
sector."114 liable to pay respondents Pl 00,000.00 as exemplary damages.
Further, the interest rate for the amount of Pl,882,002.05,
Since exemplary damages are awarded and since respondents were representing the face value of PNB Manager's Check No. AF-974686B
compelled to litigate to protect their interests,115 the award of is modified to 12% from April 26, 1998 until June 30, 2013, and 6%
attorney’s fees is also proper. from July 1, 2013 until satisfaction. All monetary awards shall then
earn interest at the rate of 6% per annum from finality of the decision
The Court of Appeals' award of interest should be modified to 12% until full satisfaction.
from demand on April 26, 1998 until June 30, 2013, and 6% from
July I, 2013 until fully paid. In Nacar v. Gallery Frames:116 SO ORDERED.
Thus, from the foregoing, in the absence of an express stipulation as MARVIC M.V.F. LEONEN
to the rate of interest that would govern the parties, the rate of legal Associate Justice
interest for loans or forbearance of any money. . . s.hall no longer be
twelve percent (12%) per annum ... but will now be six percent
(6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that. .. the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.
....
I.
According to the CA, The Plaza cannot now be demanded to Whether or not the Court of Appeals acted without
comply with its obligation under the contract since Rhogen has or in excess of jurisdiction, or with grave abuse of
already failed to comply with its own contractual obligation. Thus, discretion amounting to lack of or excess of
The Plaza had every reason not to pay the progress billing as a result jurisdiction, when it found that Petitioner Rhogen
of Rhogens inability to perform its obligations under the had no factual or legal basis to terminate the
contract. Further, the stoppage and revocation orders were issued on General Construction Contract.
account of Rhogens own violations involving the construction as
found by the local building official. Clearly, Rhogen cannot blame II.
The Plaza for its own failure to comply with its contractual
obligations. The CA stressed that Rhogen obliged itself to comply Whether or not the Court of Appeals acted without
with all the laws, city and municipal ordinances and all government or in excess of jurisdiction, or with grave abuse of
regulations insofar as they are binding upon or affect the parties [to
discretion amounting to lack of or excess of Reciprocal obligations are those which arise from the same cause,
jurisdiction, when, as a consequence of its finding and in which each party is a debtor and a creditor of the other, such
that Petitioners did not have valid grounds to that the obligation of one is dependent upon the obligation of the
terminate the Construction Contract, it directed other. They are to be performed simultaneously such that the
Petitioners to return the downpayment paid by The performance of one is conditioned upon the simultaneous fulfillment
Plaza, with legal interest. of the other. Respondent The Plaza predicated its action on Article
1191[34] of the Civil Code, which provides for the remedy of rescission
III. or more properly resolution, a principal action based on breach of
faith by the other party who violates the reciprocity between
Whether or not the Court of Appeals acted without them. The breach contemplated in the provision is the obligors
or in excess of jurisdiction, or with grave abuse of failure to comply with an existing obligation. Thus, the power to
discretion amounting to lack of or excess of rescind is given only to the injured party. The injured party is the
jurisdiction, when, in addition thereto, it awarded party who has faithfully fulfilled his obligation or is ready and willing
temperate damages to The Plaza. to perform his obligation.[35]
IV.
The construction contract between Rhogen and The Plaza provides
Whether or not the Court of Appeals acted without for reciprocal obligations whereby the latters obligation to pay the
or in excess of jurisdiction, or with grave abuse of contract price or progress billing is conditioned on the formers
discretion amounting to lack of or excess of performance of its undertaking to complete the works within the
jurisdiction, when it failed to award damages in stipulated period and in accordance with approved plans and other
favor of Petitioners.[33] specifications by the owner. Pursuant to its contractual obligation,
The Plaza furnished materials and paid the agreed down payment. It
also exercised the option of furnishing and delivering construction
Petitioners contend that the CA gravely erred in not holding that materials at the jobsite pursuant to Article III of the Construction
there were valid and legal grounds for Rhogen to terminate the Contract. However, just two months after commencement of the
contract pursuant to Article 1191 of the Civil Code and Article 123 of project, construction works were ordered stopped by the local
the General Conditions of the Construction Contract. Petitioners building official and the building permit subsequently revoked on
claim that Rhogen sent Progress Billing No. 1 dated September 10, account of several violations of the National Building Code and other
1980 and demanded payment from The Plaza in the net amount regulations of the municipal authorities.
of P473,554.06 for the work it had accomplished from July 28,
1980 until September 7, 1980. The Plaza, however, failed to pay the Petitioners reiterate their position that the stoppage order
said amount. According to petitioners, Article 123 of the General was unlawful, citing the fact that when the new contractor (ACK
Conditions of the Construction Contract gives The Plaza seven days Construction, Inc.) took over the project, the local government
from notice within which to pay the Progress Billing; otherwise, of Makati allowed the construction of the building using the old
Rhogen may terminate the contract. Petitioners also invoke Article building permit; moreover, the basement depth of only two meters
1191 of the Civil Code, which states that the power to rescind was retained, with no further excavation made. They cite the
obligations is implied in reciprocal ones, in case one of the obligors testimony of the late Ramon Gaite before the trial court that at the
should not comply with what is incumbent upon him. time, he had incurred the ire of then Mayor of Makati because his
(Gaite) brother was the Mayors political opponent; hence, they
We deny the petition. sought to file whatever charge they could against him in order to call
the attention of his brother. This political harassment defense was
raised by petitioners in their Amended Answer. Gaites testimony was
intended to explain the circumstances leading to his decision to revocation orders lifted or recalled, Rhogen should take full
terminate the construction contract and not to question the responsibility in accordance with its contractual undertaking, thus:
revocation of the building permit. As the available remedy was
already foreclosed, it was thus error for the CA to suggest that In the performance of the works, services, and
Rhogen should have appealed the stoppage and revocations orders obligations subject of this Contract, the
issued by the municipal authorities to the DPWH and then to the CONTRACTOR binds itself to observe all pertinent
OP.[36] and applicable laws, rules and regulations
promulgated by duly constituted authorities and to
be personally, fully and solely liable for any and
Article 123 of the Articles of General Conditions states the grounds
all violations of the same.[38] (Emphasis supplied.)
for the termination of the work or contract by the Contractor:
Upon the foregoing, we find petitioners claim for actual, moral and
exemplary damages and attorneys fees lacking in legal basis and
undeserving of further discussion.
SO ORDERED.
Banks and Banking; Fiduciary Nature of Banking; The bank is under SECOND DIVISION
obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship; The CENTRAL BANK OF THE PHILIPPINES, G.R. No. 141835
fiduciary nature of banking requires banks to assume a degree of Petitioner,
diligence higher than that of a good father of a family.—The law Present:
imposes on banks high standards in view of the fiduciary nature of
banking. Section 2 of Republic Act No. 8791 (“RA 8791”), which took CARPIO MORALES,* J., Acting
effect on 13 June 2000, declares that the State recognizes the - versus - Chairperson,
“fiduciary nature of banking that requires high standards of integrity TINGA,
and performance.” This new provision in the general banking law, NAZARIO,
introduced in 2000, is a statutory affirmation of Supreme Court NACHURA,** and
decisions, starting with the 1990 case of Simex International v. Court CITYTRUST BANKING CORPORATION, BRION, JJ.
of Appeals, holding that “the bank is under obligation to treat the Respondent.
accounts of its depositors with meticulous care, always having in
mind the fiduciary nature of their relationship.” This fiduciary Promulgated:
relationship means that the bank’s obligation to observe “high February 4, 2009
standards of integrity and performance” is deemed written into x----------------------------------------------
every deposit agreement between a bank and its depositor. The - - - -x
fiduciary nature of banking requires banks to assume a degree of
diligence higher than that of a good father of a family. DECISION
Same; Same; Petitioner’s liability to Citytrust mitigated on a 60- CARPIO MORALES, J.:
40-ratio.—Citytrust’s failure to timely examine its account, cancel the Pursuant to Republic Act No. 625, the old Central Bank Law,
checks and notify petitioner of their alleged loss/theft should respondent Citytrust Banking Corporation (Citytrust), formerly Feati
mitigate petitioner’s liability, in accordance with Article 2179 of the Bank, maintained a demand deposit account with petitioner Central
Civil Code which provides that if the plaintiff’s negligence was only Bank of the Philippines, now Bangko Sentral ng Pilipinas.
contributory, the immediate and proximate cause of the injury being
the defendant’s lack of due care, the plaintiff may recover damages, As required, Citytrust furnished petitioner with the names
but the courts shall mitigate the damages to be awarded. For had and corresponding signatures of five of its officers authorized to sign
Citytrust timely discovered the loss/theft and/or subsequent checks and serve as drawers and indorsers for its account. And it
encashment, their proceeds or part thereof could have been provided petitioner with the list and corresponding signatures of its
recovered. In line with the ruling in Consolidated Bank and Trust roving tellers authorized to withdraw, sign receipts and perform other
Corporation v. Court of Appeals, 410 SCRA 562 (2003), the Court transactions on its behalf. Petitioner later issued security
deems it proper to allocate the loss between petitioner and Citytrust identification cards to the roving tellers one of whom was Rounceval
on a 60-40 ratio. Flores (Flores).
On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the
pawnshop vault. The incident was entered in the police blotter of the
Southern Police District, Paraaque Police Station as follows:
Petitioner Sicam sent respondent Lulu a letter dated October 19, The RTC further ruled that petitioner corporation could not be held
1987 informing her of the loss of her jewelry due to the robbery liable for the loss of the pawned jewelry since it had not been
incident in the pawnshop. On November 2, 1987, respondent Lulu rebutted by respondents that the loss of the pledged pieces of jewelry
then wrote a letter[4] to petitioner Sicam expressing disbelief stating in the possession of the corporation was occasioned by armed
that when the robbery happened, all jewelry pawned were deposited robbery; that robbery is a fortuitous event which exempts the victim
with Far East Bank near the pawnshop since it had been the practice from liability for the loss, citing the case of Austria v. Court of
that before they could withdraw, advance notice must be given to the Appeals;[7] and that the parties transaction was that
pawnshop so it could withdraw the jewelry from the bank. of a pledgor and pledgee and under Art. 1174 of the Civil Code, the
Respondent Lulu then requested petitioner Sicam to prepare the pawnshop as a pledgee is not responsible for those events which
pawned jewelry for withdrawal on November could not be foreseen.
6, 1987 but petitioner Sicam failed to return the jewelry.
Respondents appealed the RTC Decision to the CA. In a Decision
dated March 31, 2003, the CA reversed the RTC,
On September 28, 1988, respondent Lulu joined by her husband, the dispositive portion of which reads as follows:
Cesar Jorge, filed a complaint against petitioner Sicam with the
Regional Trial Court of Makati seeking indemnification for the loss of WHEREFORE, premises considered, the instant
pawned jewelry and payment of actual, moral and exemplary Appeal is GRANTED, and the Decision dated January
damages as well as attorney's fees. The case was docketed as Civil 12, 1993,of the Regional Trial Court of Makati,
Case No. 88-2035. Branch 62, is hereby REVERSED and SET ASIDE,
ordering the appellees to pay appellants the actual
Petitioner Sicam filed his Answer contending that he is not the real value of the lost jewelry amounting to P272,000.00,
party-in-interest as the pawnshop was incorporated on April 20, and attorney' fees of P27,200.00.[8]
1987 and known as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the safekeeping
of the articles pledged with it and could not be made liable for an In finding petitioner Sicam liable together with petitioner corporation,
event that is fortuitous. the CA applied the doctrine of piercing the veil of corporate entity
reasoning that respondents were misled into thinking that they were
Respondents subsequently filed an Amended Complaint to dealing with the pawnshop owned by petitioner Sicam as all the
include petitioner corporation. pawnshop tickets issued to them bear the
words Agencia de R.C. Sicam; and that there was no indication on
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is the pawnshop tickets that it was the petitioner corporation that
concerned considering that he is not the real party-in-interest.
owned the pawnshop which explained why respondents had to
amend their complaint impleading petitioner corporation. Anent the first assigned error, petitioners point out that the CAs
finding that petitioner Sicam is personally liable for the loss of the
The CA further held that the corresponding diligence required of a pawned jewelries is a virtual and uncritical reproduction of the
pawnshop is that it should take steps to secure and protect the arguments set out on pp. 5-6 of the Appellants brief.[10]
pledged items and should take steps to insure itself against the loss
ofarticles which are entrusted to its custody as it derives earnings Petitioners argue that the reproduced arguments of respondents in
from the pawnshop trade which petitioners failed to do; their Appellants Brief suffer from infirmities, as follows:
that Austria is not applicable to this case since the robbery incident
happened in 1961 when the criminality had not as yet reached the (1) Respondents conclusively asserted in paragraph
levels attained in the present day; that they are at least guilty of 2 of their Amended Complaint that Agencia de
contributory negligence and should be held liable for the loss of R.C. Sicam, Inc. is the present owner of Agencia de
jewelries; and that robberies and hold-ups are foreseeable risks in R.C. Sicam Pawnshop, and therefore, the CA cannot
that those engaged in the pawnshop business are expected to rule against said conclusive assertion of
foresee. respondents;
The CA concluded that both petitioners should be jointly and (2) The issue resolved against petitioner Sicam was
severally held liable to respondents for the loss of the pawned not among those raised and litigated in the trial
jewelry. court; and
Petitioners motion for reconsideration was denied in a (3) By reason of the above infirmities, it was error for
Resolution dated August 8, 2003. the CA to have pierced the corporate veil since a
corporation has a personality distinct and separate
Hence, the instant petition for review with the following assignment from its individual stockholders or members.
of errors:
THE COURT OF APPEALS ERRED AND WHEN IT Anent the second error, petitioners point out that the CA finding on
DID, IT OPENED ITSELF TO REVERSAL, WHEN IT their negligence is likewise an unedited reproduction of respondents
ADOPTED UNCRITICALLY (IN FACT IT brief which had the following defects:
REPRODUCED AS ITS OWN WITHOUT IN THE
MEANTIME ACKNOWLEDGING IT) WHAT THE (1) There were unrebutted evidence on record that
RESPONDENTS ARGUED IN THEIR BRIEF, WHICH petitioners had observed the diligence
ARGUMENT WAS PALPABLY UNSUSTAINABLE. required of them, i.e, they wanted to open a vault
with a nearby bank for purposes of safekeeping the
THE COURT OF APPEALS ERRED, AND WHEN IT pawned articles but was discouraged by the Central
DID, IT OPENED ITSELF TO REVERSAL BY THIS Bank (CB) since CB rules provide that they can only
HONORABLE COURT, WHEN IT AGAIN ADOPTED store the pawned articles in a vault inside the
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING pawnshop premises and no other place;
IT) THE SUBMISSIONS OF THE RESPONDENTS IN
THEIR BRIEF WITHOUT ADDING ANYTHING MORE (2) Petitioners were adjudged negligent as they did
THERETO DESPITE THE FACT THAT THE SAID not take insurance against the loss of the
ARGUMENT OF THE RESPONDENTS COULD NOT pledged jelweries, but it is judicial notice that due to
HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED high incidence of crimes, insurance companies
EVIDENCE ON RECORD.[9]
refused to cover pawnshops and banks because of
high probability of losses due to robberies; Notably, the evidence on record shows that at the time respondent
Lulu pawned her jewelry, the pawnshop was owned by
(3) In Hernandez v. Chairman, Commission on petitioner Sicam himself. As correctly observed by the CA, in all the
Audit (179 SCRA 39, 45-46), the victim of robbery pawnshop receipts issued to respondent Lulu in September 1987, all
was exonerated from liability for the sum of money bear the words Agencia de R. C. Sicam, notwithstanding that the
belonging to others and lost by him to robbers. pawnshop was allegedly incorporated in April 1987. The receipts
issued after such alleged incorporation were still in the name
of Agencia de R. C. Sicam, thus inevitably misleading, or at the very
Respondents filed their Comment and petitioners filed their Reply least, creating the wrong impression to respondents and the public
thereto. The parties subsequently submitted their respective as well, that the pawnshop was owned solely by petitioner Sicam and
Memoranda. not by a corporation.
We find no merit in the petition. Even petitioners counsel, Atty. Marcial T. Balgos, in his
letter[16] dated October 15, 1987 addressed to the Central Bank,
To begin with, although it is true that indeed the CA findings were expressly referred to petitioner Sicam as the proprietor of the
exact reproductions of the arguments raised in respondents pawnshop notwithstanding the alleged incorporation in April 1987.
(appellants) brief filed with the CA, we find the same to be not fatally
infirmed. Upon examination of the Decision, we find that it expressed We also find no merit in petitioners' argument that since respondents
clearly and distinctly the facts and the law on which it is based as had alleged in their Amended Complaint that petitioner
required by Section 8, Article VIII of the Constitution. The discretion corporation is the present owner of the pawnshop, the CA is bound
to decide a case one way or another is broad enough to justify the to decide the case on that basis.
adoption of the arguments put forth by one of the parties, as long as
these are legally tenable and supported by law and the facts on Section 4 Rule 129 of the Rules of Court provides that an admission,
records.[11] verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof. The admission may be
Our jurisdiction under Rule 45 of the Rules of Court is limited to the contradicted only by showing that it was made through palpable
review of errors of law committed by the appellate court. Generally, mistake or that no such admission was made.
the findings of fact of the appellate court are deemed conclusive and Thus, the general rule that a judicial admission is conclusive upon
we are not duty-bound to analyze and calibrate all over again the the party making it and does not require proof, admits of two
evidence adduced by the parties in the court a quo.[12] This rule, exceptions, to wit: (1) when it is shown that such admission was
however, is not without exceptions, such as where the factual made through palpable mistake, and (2) when it is shown that no
findings of the Court of Appeals and the trial court are conflicting or such admission was in fact made. The latter exception allows one
contradictory[13] as is obtaining in the instant case. to contradict an admission by denying that he made such an
admission.[17]
However, after a careful examination of the records, we find no The Committee on the Revision of the Rules of Court explained the
justification to absolve petitioner Sicam from liability. second exception in this wise:
The CA correctly pierced the veil of the corporate fiction and x x x if a party invokes an admission by an adverse
adjudged petitioner Sicam liable together with petitioner party, but cites the admission out of context, then
corporation. The rule is that the veil of corporate fiction may be the one making the admission may show that he
pierced when made as a shield to perpetrate fraud and/or confuse made no such admission, or that his admission
legitimate issues. [14] The theory of corporate entity was not meant to was taken out of context.
promote unfair objectives or otherwise to shield them.[15]
x x x that the party can also show that he made reached after consideration of the evidence to be
no such admission, i.e., not in the sense in which presented in due course.[19]
the admission is made to appear. Unmistakably, the alleged admission made in respondents'
Amended Complaint was taken out of context by petitioner Sicam to
That is the reason for the modifier such because if suit his own purpose. Ineluctably, the fact that
the rule simply states that the admission may be petitioner Sicamcontinued to issue pawnshop receipts under his
contradicted by showing that no admission was name and not under the corporation's name militates for the piercing
made, the rule would not really be providing for a of the corporate veil.
contradiction of the admission but just a We likewise find no merit in petitioners' contention that the CA erred
denial.[18] (Emphasis supplied). in piercing the veil of corporate fiction of petitioner corporation, as it
was not an issue raised and litigated before the RTC.
While it is true that respondents alleged in their Amended Complaint Petitioner Sicam had alleged in his Answer filed with the trial
that petitioner corporation is the present owner of the pawnshop, court that he was not the real party-in-interest because since April
they did so only because petitioner Sicam alleged in his Answer to 20, 1987, the pawnshop business initiated by him was incorporated
the original complaint filed against him that he was not the real and known as Agencia de R.C. Sicam. In the pre-trial brief filed by
party-in-interest as the pawnshop was incorporated in April 1987. petitioner Sicam, he submitted that as far as he was concerned, the
Moreover, a reading of the Amended Complaint in its entirety shows basic issue was whether he is the real party in interest against whom
that respondents referred to both petitioner Sicam and petitioner the complaint should be directed.[20] In fact, he subsequently moved
corporation where they (respondents) pawned their assorted pieces of for the dismissal of the complaint as to him but was not favorably
jewelry and ascribed to both the failure to observe due diligence acted upon by the trial court. Moreover, the issue was squarely
commensurate with the business which resulted in the loss of their passed upon, although erroneously, by the trial court in its Decision
pawned jewelry. in this manner:
Roberto C. Sicam was named the defendant in the This Court sustains the contention of the defendant
original complaint because the pawnshop tickets Roberto C. Sicam, Jr. The amended complaint itself
involved in this case did not show that the asserts that plaintiff pawned assorted jewelries in
R.C. Sicam Pawnshop was a corporation. In defendant's pawnshop. It has been held that as a
paragraph 1 of his Answer, he admitted the consequence of the separate juridical personality of
allegations in paragraph 1 and 2 of the Complaint. a corporation, the corporate debt or credit is not the
He merely added that defendant is not now the real debt or credit of the stockholder, nor is the
party in interest in this case. stockholder's debt or credit that of a corporation.[21]
It was defendant Sicam's omission to correct the
pawnshop tickets used in the subject transactions in Clearly, in view of the alleged incorporation of the pawnshop, the
this case which was the cause of the instant action. issue of whether petitioner Sicam is personally liable is inextricably
He cannot now ask for the dismissal of the connected with the determination of the question whether the
complaint against himsimply on the mere allegation doctrine of piercing the corporate veil should or should not apply to
that his pawnshop business is now incorporated. It the case.
is a matter of defense, the merit of which can only be
The next question is whether petitioners are liable for the damage or injury was a fortuitous event would not exempt one from
loss of the pawned articles in their possession. liability. When the effect is found to be partly the result of a person's
participation -- whether by active intervention, neglect or failure to
Petitioners insist that they are not liable since robbery is a fortuitous act -- the whole occurrence is humanized and removed from the
event and they are not negligent at all. rules applicable to acts of God. [26]
We are not persuaded. Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when
Article 1174 of the Civil Code provides: he started the pawnshop business in 1983, he thought of opening a
vault with the nearby bank for the purpose of safekeeping the
Art. 1174. Except in cases expressly specified by the valuables but was discouraged by the Central Bank since pawned
law, or when it is otherwise declared by stipulation, articles should only be stored in a vault inside the pawnshop.The
or when the nature of the obligation requires the very measures which petitioners had allegedly adopted show that to
assumption of risk, no person shall be responsible them the possibility of robbery was not only foreseeable, but actually
for those events which could not be foreseen or foreseen and anticipated. Petitioner Sicams testimony, in effect,
which, though foreseen, were inevitable. contradicts petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any
Fortuitous events by definition are extraordinary events not negligence by which the loss of the pawned jewelry may have been
foreseeable or avoidable. It is therefore, not enough that the event occasioned.
should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The Robbery per se, just like carnapping, is not a fortuitous event. It does
mere difficulty to foresee the happening is not impossibility to foresee not foreclose the possibility of negligence on the part of herein
the same. [22] petitioners. In Co v. Court of Appeals,[27] the Court held:
To constitute a fortuitous event, the following elements must concur: It is not a defense for a repair shop of
(a) the cause of the unforeseen and unexpected occurrence or of the motor vehicles to escape liability simply because
failure of the debtor to comply with obligations must be independent the damage or loss of a thing lawfully placed in its
of human will; (b) it must be impossible to foresee the event that possession was due to carnapping. Carnapping per
constitutes the caso fortuito or, if it can be foreseen, it must be se cannot be considered as a fortuitous event. The
impossible to avoid; (c) the occurrence must be such as to render it fact that a thing was unlawfully and forcefully
impossible for the debtor to fulfill obligations in a normal manner; taken from another's rightful possession, as in
and, (d) the obligor must be free from any participation in the cases of carnapping, does not automatically give
aggravation of the injury or loss. [23] rise to a fortuitous event. To be considered as
The burden of proving that the loss was due to a fortuitous event such, carnapping entails more than the mere
rests on him who invokes it.[24] And, in order for a fortuitous event to forceful taking of another's property. It must be
exempt one from liability, it is necessary that one has committed no proved and established that the event was an
negligence or misconduct that may have occasioned the loss. [25] act of God or was done solely by third parties
and that neither the claimant nor the person
It has been held that an act of God cannot be invoked to protect a alleged to be negligent has any participation. In
person who has failed to take steps to forestall the possible adverse accordance with the Rules of Evidence, the
consequences of such a loss. One's negligence may have concurred burden of proving that the loss was due to a
with an act of God in producing damage and injury to another; fortuitous event rests on him who invokes it
nonetheless, showing that the immediate or proximate cause of the which in this case is the private
respondent. However, other than the police report required by the nature of the obligation and
of the alleged carnapping incident, no other corresponds with the circumstances of the persons,
evidence was presented by private respondent to of time and of the place. When negligence shows bad
the effect that the incident was not due to its fault. faith, the provisions of Articles 1171 and 2201,
A police report of an alleged crime, to which only paragraph 2 shall apply.
private respondent is privy, does not suffice to
establish the carnapping. Neither does it prove that If the law or contract does not state the
there was no fault on the part of private respondent diligence which is to be observed in the performance,
notwithstanding the parties' agreement at the pre- that which is expected of a good father of a family
trial that the car was carnapped. Carnapping does shall be required.
not foreclose the possibility of fault or negligence on We expounded in Cruz v. Gangan[30] that negligence is the
the part of private respondent.[28] omission to do something which a reasonable man, guided by those
Just like in Co, petitioners merely presented the police considerations which ordinarily regulate the conduct of human
report of the Paraaque Police Station on the robbery committed affairs, would do; or the doing of something which a prudent and
based on the report of petitioners' employees which is not sufficient reasonable man would not do.[31] It is want of care required by the
to establish robbery. Such report also does not prove that petitioners circumstances.
were not at fault.
A review of the records clearly shows that petitioners failed to
On the contrary, by the very evidence of petitioners, the CA did not exercise reasonable care and caution that an ordinarily prudent
err in finding that petitioners are guilty of concurrent or contributory person would have used in the same situation. Petitioners were
negligence as provided in Article 1170 of the Civil Code, to wit: guilty of negligence in the operation of their pawnshop business.
Petitioner Sicam testified, thus:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, Court:
and those who in any manner contravene the tenor Q. Do you have security guards in your pawnshop?
thereof, are liable for damages.[29] A. Yes, your honor.
Appeals; Pleadings and Practice; It is well-settled that a party The facts of the case:
who does not appeal from the decision may not obtain any affirmative
relief from the appellate court other than what he has obtained from
the lower court, if any, whose decision is brought up on appeal; Petitioner owned and operated the Wasabe Fastfood stall located at the
Exceptions.—As to the award of temperate damages, the increase in Food Center of the Philippine Women's University (PWU) along Taft
the amount thereof by the RTC is improper. The RTC could no longer Avenue, Malate, Manila. Sisenando H. Belo (respondent) owned and
examine the amounts awarded by the MeTC since respondent did not operated the BS Masters fastfood stall, also located at the Food Center of
appeal from the Decision of the MeTC. It is well-settled that a party PWU.
who does not appeal from the decision may not obtain any
affirmative relief from the appellate court other than what he has Around 7:00 o'clock in the morning of January 25, 1996, a fire broke out
obtained from the lower court, if any, whose decision is brought up at petitioner's Wasabe Fastfood stall. The fire spread and gutted other
on appeal. While there are exceptions to this rule, such as if they fastfood stalls in the area, including respondent's stall. An investigation
involve (1) errors affecting the lower court’s jurisdiction over the on the cause of the fire by Fire Investigator SFO1 Arnel C. Pinca (Pinca)
subject matter, (2) plain errors not specified, and (3) clerical errors, revealed that the fire broke out due to the leaking fumes coming from the
none apply here. Liquefied Petroleum Gas (LPG) stove and tank installed at petitioner's
stall. For the loss of his fastfood stall due to the fire, respondent
demanded compensation from petitioner. However, petitioner refused to
accede to respondent's demand.
Petitioner then filed a Petition for Review with the CA, docketed as CA-
The counterclaim filed by the defendant is hereby DENIED FOR LACK
G.R. SP No. 58799.10 On June 16, 2000, the CA issued a Resolution
OF MERIT.
dismissing the petition for being "procedurally flawed/deficient." 11 The
CA held that the attached RTC Decision was not certified as a true copy
SO ORDERED.7 by the Clerk of Court; that a certified true copy of the MeTC Decision
was not attached; that material portions of the record, such as the
The MeTC held that the investigation conducted by the appropriate position papers of the parties and affidavits of witnesses, as would
authority revealed that the fire broke out due to the leaking fumes support the material allegations of the petition were also not attached.12
coming from the LPG stove and tank installed at petitioner's fastfood
stall; that factual circumstances did not show any sign of interference by On July 14, 2000, petitioner filed her Motion for
any force of nature to infer that the fire occurred due to fortuitous event; Reconsideration,13 attaching photocopies of the Decisions of the RTC and
that the petitioner failed to exercise due diligence, precaution, and MeTC as certified correct by the Clerk of Court.14
vigilance in the conduct of her business, particularly, in maintaining the
safety of her cooking equipment as well as in the selection and
On November 27, 2000, the CA issued its Resolution denying petitioner's
supervision of her employees; that even if petitioner passes the fault to Motion for Reconsideration.15
her employees, Article 2180 of the Civil Code finds application; that in
the absence of supporting evidence, the amount of actual damages and
unrealized profits prayed for by respondent cannot be granted; that, Hence, the present petition raising the following issues:
nonetheless, respondent is entitled to temperate damages since
1. Whether the submitted certified true copy of the appealed As to the MeTC Decision, petitioner contends that the submission of a
decision of the Regional Trial Court as authenticated by a court certified true copy thereof is not an indispensable requirement because
employee other than the Clerk of Court who was not around at that judgment is not the subject of the petition for review.
that time said copy was secured constitutes compliance with the
Rules? In any case, petitioner submits that she had substantially complied with
the requirements of the rule when she attached with her Motion for
2. Whether the submission of a certified true copy of the Reconsideration the copies of the Decisions of the RTC and MeTC as
Metropolitan Trial Court's judgment is still an indispensable certified correct by the Clerk of Court.
requirement in filing a petition for review before the Court of
Appeals despite the fact that said judgment was already Anent the non-submission of the position papers of the parties, petitioner
modified by the above decision of the Regional Trial Court and it maintains that the contents of said position papers were lengthily quoted
is the latter decision that is the proper subject of the petition for verbatim in the petition and in the attached copy of the MeTC Decision.
review?
On the submission of affidavits of witnesses, petitioner contends that it
3. Whether the submission of copies of the respective position was not necessary because the case before the MeTC was not covered by
papers of the contending parties is still an indispensable summary proceedings.
requirement in filing a petition for review before the Court of
Appeals despite the fact that the contents thereof are already
quoted in the body of the verified petition and in the subject On the merits of her petition before the CA, petitioner avers that she
judgment of the Metropolitan Trial Court? should not be held liable for a fire which was a fortuitous event since the
fire could not be foreseen and the spread of the fire to the adjacent
fastfood stalls was inevitable.
4. Whether the herein petitioner could be held liable for
damages as a result of the fire that razed not only her own food
kiosk but also the adjacent foodstalls at the Food Center Lastly, she argues that the RTC cannot increase the amount of
premises of the Philippine Women's University, including that of temperate damages since the respondent did not appeal from the
judgment of the MeTC.
the respondent?
5. Whether the Regional Trial Court could increase the amount Respondent opted not to file a Comment, manifesting that the petition
contains no new arguments which would require a comment since the
of damages awarded by the Metropolitan Trial Court in favor of
the respondent who has not even filed an appeal therefrom?16 arguments are but a rehash of those raised and decided by the lower
courts.17
In the present case, petitioner's submission of copies of the RTC Decision The Court's pronouncement in Republic of the Philippines v. Court of
and Order certified as correct by the Administrative Officer IV of the Appeals26 is worth echoing: "cases should be determined on the merits,
RTC is insufficient compliance with the requirements of the rule. after full opportunity to all parties for ventilation of their causes and
Petitioner failed to show that the Clerk of Court was officially on leave defenses, rather than on technicality or some procedural imperfections.
In that way, the ends of justice would be better served." 27 Thus, what unsubstantiated by evidence, are not equivalent to proof.32 In short, mere
should guide judicial action is that a party litigant is given the fullest allegations are not evidence.33
opportunity to establish the merits of his action or defense rather than
for him to lose life, honor or property on mere technicalities. 28 The Civil Code provides:
The next most logical step would then be for the Court to simply set aside Art. 2176. Whoever by act or omission causes damage to another, there
the challenged resolutions, remand the case to the CA and direct the being fault or negligence, is obliged to pay for the damage done. x x x
latter to resolve on the merits of the petition in CA-G.R. SP No. 58799.
But, that would further delay the case. Considering the issues raised
which can be resolved on the basis of the pleadings and documents filed, Art. 2180. The obligation imposed by Article 2176 is demandable not only
and the fact that petitioner herself has asked the Court to decide her for one's own acts or omissions, but also for those of persons for whom
one is responsible.
petition on the merits, the Court deems it more practical and in the
greater interest of justice not to remand the case to the CA but, instead,
to resolve the controversy once and for all.29 xxxx
The Court shall now address the issue of whether the fire was a The owners and managers of an establishment or enterprise are likewise
fortuitous event. responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their
functions.
Jurisprudence defines the elements of a "fortuitous event" as follows: (a)
the cause of the unforeseen and unexpected occurrence must be
independent of human will; (b) it must be impossible to foresee the event Employers shall be liable for the damages caused by their employees and
which constitutes the caso fortuito, or if it can be foreseen, it must be household helpers acting within the scope of their assigned tasks, even
impossible to avoid; (c) the occurrence must be such as to render it though the former are not engaged in any business or industry.
impossible for the debtor to fulfill his obligation in a normal manner; and
(d) the obligor must be free from any participation in the aggravation of xxxx
the injury resulting to the creditor. 30
The responsibility treated of in this article shall cease when the persons
Article 1174 of the Civil Code provides that no person shall be herein mentioned prove that they observed all the diligence of a good
responsible for a fortuitous event which could not be foreseen, or which, father of a family to prevent damage.
though foreseen, was inevitable. In other words, there must be an entire
exclusion of human agency from the cause of injury or loss.31
Whenever an employee's negligence causes damage or injury to another,
there instantly arises a presumption juris tantum that the employer
It is established by evidence that the fire originated from leaking fumes failed to exercise diligentissimi patris families in the selection (culpa in
from the LPG stove and tank installed at petitioner's fastfood stall and eligiendo) or supervision (culpa in vigilando) of its employees.34 To avoid
her employees failed to prevent the fire from spreading and destroying liability for a quasi-delict committed by his employee, an employer must
the other fastfood stalls, including respondent's fastfood stall. Such overcome the presumption by presenting convincing proof that he
circumstances do not support petitioner's theory of fortuitous event. exercised the care and diligence of a good father of a family in the
selection and supervision of his employee.35
Petitioner's bare allegation is far from sufficient proof for the Court to
rule in her favor. It is basic in the rule of evidence that bare allegations, In this case, petitioner not only failed to show that she submitted proof
that the LPG stove and tank in her fastfood stall were maintained in
good condition and periodically checked for defects but she also failed to
submit proof that she exercised the diligence of a good father of a family
in the selection and supervision of her employees. For failing to prove
care and diligence in the maintenance of her cooking equipment and in
the selection and supervision of her employees, the necessary inference
was that petitioner had been negligent.36
No costs.
SO ORDERED.
To help finance the project, petitioner, on June 30, 1997, entered into an
FIRST DIVISION Omnibus Loan and Security Agreement[3] (hereafter Omnibus
Agreement) with respondent banks for a syndicated term loan in the
MONDRAGON LEISURE AND G.R. No. 154188 aggregate principal amount of US$20M. Under the agreement, as
RESORTS CORPORATION, amended on January 19, 1999,[4] the proceeds of the loan were to be
Petitioner, Present: released through advances evidenced by promissory notes to be executed
Davide, Jr., C.J., by petitioner in favor of each lender-bank, and to be paid within a six-
(Chairman), year period from the date of initial advance inclusive of a one year and
Quisumbing, two quarters grace period.
- versus - Ynares-Santiago,
Carpio, and To secure the repayment of the loan, petitioner pledged in favor of
Azcuna, JJ. respondents US$20M worth of MIPI shares of stocks; assigned,
transferred and delivered all rights, title to and interest in the pledged
shares; and assigned by way of security its leasehold rights over the
COURT OF APPEALS, ASIAN project and all the rights, title, interests and benefits in, to and under
BANK CORPORATION, FAR any and all agreements in connection with the project.
EAST BANK AND TRUST Promulgated:
COMPANY, and UNITED On July 3, 1997, petitioner fully availed of and received the full amount
COCONUT PLANTERS BANK, June 15, 2005 of the syndicated loan agreement. Petitioner, which had regularly paid
Respondents. the monthly interests due on the promissory notes until October 1998,
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x thereafter failed to make payments. Consequently, on January 6
and February 5, 1999, written notices of default, acceleration of payment
DECISION and demand letters were sent by the lenders to the petitioner. Then
on August 27, 1999, respondents filed a complaint, docketed as Civil
Case No. 9527, for the foreclosure of leasehold rights against petitioner.
QUISUMBING, J.:
Petitioner moved for the dismissal of the complaint on the following
grounds: (1) a condition precedent for the filing of the complaint has not
been complied with and/or the instant complaint failed to state a cause of
In its Decision[1] dated March 12, 2002, the Court of Appeals in CA-G.R.
action, or otherwise the filing was premature; (2) the certification of non-
SP No. 61047 dismissed the petition for certiorari filed by Mondragon
forum shopping appended to the complaint was fatally defective since
Leisure and Resorts Corporation against the Order[2]dated March 9,
one of the plaintiffs, UCPB, deliberately failed to mention that it had
2000, of the Regional Trial Court of Angeles City, Branch 61, in Civil
previously filed another complaint; and (3) plaintiffs had engaged in
Case No. 9527. Likewise, in its Resolution dated July 3, 2002, the CA
forum shopping in filing the instant complaint.
denied the motion for reconsideration.
The trial court denied the motion and ruled as follows:
The facts of the case are undisputed.
...
After a careful study of the arguments of the parties, THE RESPONDENT-APPELLEE COURT OF
this court finds that the motion to dismiss is without APPEALS COMMITTED A SERIOUS ERROR OF
merit. As correctly pointed out by the plaintiffs under LAW AND ACTED WITH GRAVE ABUSE OF
par. 6.01, the borrower defaults when interests due at DISCRETION AMOUNTING TO LACK OR EXCESS
stated maturity are not paid and the lenders are OF JURISDICTION IN RULING THAT THE
authorized to accelerate any amount payable under the COMPLAINT IN CIVIL CASE NO. 9527 COMPLIED
loan agreements. One of the consequences of such WITH THE MANDATORY REQUIREMENTS OF
default is the foreclosure of collaterals. This is the CERTIFICATION OF NON-FORUM SHOPPING.
action taken by the herein plaintiffs-lenders.
II
This court also finds the alleged force majeure baseless.
THE RESPONDENT-APPELLEE COURT OF
The same are not those provided for under Sec. 1,
APPEALS COMMITTED A SERIOUS ERROR OF
Article 41 of the loan agreement.
LAW AND ACTED WITH GRAVE ABUSE OF
As to the allegation of forum shopping, the herein DISCRETION AMOUNTING TO LACK OR EXCESS
parties Asian Bank Corporation and Far East Bank and OF JURISDICTION IN NOT RULING THAT A
Trust Company are not parties to this case in 9510 (sic). CONDITION PRECEDENT FOR THE FILING OF
The subject matter of Civil Case No. 9527 is not the THE COMPLAINT IN CIVIL CASE NO. 9527 HAS
same with the subject matter in Civil Case No. 9510. NOT BEEN COMPLIED WITH, OR THAT IT IS
OTHERWISE PREMATURE, AND/OR THAT IT FAILS
Wherefore, premises considered, the motion to dismiss TO STATE A CAUSE OF ACTION AGAINST
is denied. The defendant is given 15 days from receipt PETITIONER-APPELLANT.
hereof within which to file its answer and/or responsive
pleading.
SO ORDERED.[5] III
THE RESPONDENT-APPELLEE COURT OF
APPEALS COMMITTED A SERIOUS ERROR OF
Petitioner moved for the reconsideration of the order and argued that the LAW AND ACTED WITH GRAVE ABUSE OF
complaint is premature, since it had not been validly declared in DISCRETION AMOUNTING TO LACK OR EXCESS
default.[6] The trial court denied the motion for reconsideration. OF JURISDICTION IN NOT RULING THAT
Seasonably, petitioner filed a special civil action for certiorari with the RESPONDENT-APPELLEE BANKS, IN FILING THE
Court of Appeals. COMPLAINT IN CIVIL CASE NO. 9527,
DELIBERATELY ENGAGED IN FORUM
Before the appellate court, petitioner reiterated its arguments in its SHOPPING.[9]
motion to dismiss before the trial court, including the failure of the
respondents to attach the board resolutions authorizing them to file the
complaint.[7] In brief, three issues are presented for resolution, namely, (1) Was the
certificate of non-forum shopping defective? (2) Did respondents engage
The Court of Appeals dismissed the petition and denied the subsequent in forum shopping? and (3) Do respondents have a cause of action against
motion for reconsideration. Hence, this appeal by certiorari [8] imputing the petitioner?
the following errors:
I
On the first issue, petitioner asserts that the verification and certificate judgment in one case will amount to res judicata in another.[12] The
of forum shopping were defective because there was no proof as to the requisites in order that an action may be dismissed on the ground of litis
authority of the signatories to file the complaint. Petitioner avers that pendentia are (a) the identity of parties, or at least such as representing
UCPB Resolution 48-87, which was only presented in the Court of the same interest in both actions; (b) the identity of rights asserted and
Appeals, merely authorized the signatory to appear, act for, or otherwise relief prayed for, the relief being founded on the same facts; and (c) the
represent the bank in all judicial, quasi-judicial or administrative identity of the two cases such that judgment in one, regardless of which
hearings or incidents, including pre-trial conference, and in connection party is successful, would amount to res judicata in the other.[13] Such
therewith, to do any and all of the following acts and deeds and clearly requisites are not present in this controversy.
pertains to a pending proceeding.
Apropos the third issue, petitioner contends the subject obligation of the
Respondents, on the other hand, contend that the lack of authority of the instant case is not yet due and demandable because the Omnibus
persons who verified and certified the complaint was neither raised in Agreement allows a full six-year term of payment. Even if it failed to pay
the motion to dismiss nor in the motion for reconsideration of the some installments, petitioner insists it is not in default because
petitioner. They aver that the verification and certification of non-forum respondents merely sent collection and demand letters, but failed to give
shopping contained a statement by the persons who signed it that they the written notice of default required under their agreement. Moreover,
had been so authorized by the board of directors of their respective petitioner avers that the provisions on default in the Omnibus
corporations. Agreement have been rendered inapplicable and unenforceable by
fortuitous events, namely the Asian economic crisis and the closure of the
Considering the submissions of the parties, we are constrained to agree Mimosa Regency Casino, which was petitioners primary source of
with the respondents contention. The trial court did not err in denying revenues.
the motion to dismiss. The issue concerning the signatories authorization Respondents counter that the Omnibus Agreement defines, as an event
was never raised before it. Likewise, the appellate court did not err in of default, the failure of petitioner to pay when due at stated maturity,
refusing to take cognizance of the issue, since the parties did not raise it by acceleration or otherwise, any amount payable under the loan
beforehand. Issues not raised in the trial court cannot be raised for the documents. Since petitioner is also required to pay interest, respondents
first time on appeal.[10] posit that non-payment thereof constituted a clear and unmistakable
On the second issue, petitioner claims that respondent UCPB engaged in case of default. Respondents add that they had properly advised the
forum shopping since it earlier instituted an action for foreclosure of petitioner that it had been declared in default, referring to the January 6
mortgage and/or collection, docketed as Civil Case No. 9510. [11] This and February 5, 1999 letters as their compliance with the notice
claim, in our view, is untenable. A comparison of the two complaints requirement.
would show its utter lack of merit. On this issue, we are unable to agree with the petitioner.
Civil Case No. 9510 pertains to an Omnibus Credit and Security Section 2.06 (a) of Part B of the Omnibus Agreement provides that the
Agreement executed by and between the petitioner and respondent borrower shall pay interest on the advances outstanding from time to
UCPB on November 23, 1995. This is separate and distinct from the time on each interest payment date, while Section 6 of Part A reads
Omnibus Agreement involved in Civil Case No. 9527. Moreover, 6.01 Events of Default
respondents Asian Bank and Far East Bank are not among the parties to
Civil Case No. 9510. Each of the following events shall constitute an Event of
Default under this Omnibus Agreement:
As pointed out by the Court of Appeals, forum shopping exists when both
actions involve the same transactions, with the same essential facts and (a) Payment Default The BORROWER defaults in the
circumstances; and where identical causes of actions, subject matter and payment when due at stated maturity, by
issues are raised. The test to determine the existence of forum shopping acceleration or otherwise, of any amount
is whether the elements of litis pendentia are present, or whether a final payable under the Loan Documents.[14]
... Petitioners claim, that the respondents could not be held in default
because of a fortuitous event, is untenable. Said event, the Asian
financial crisis of 1997, is not among the fortuitous events contemplated
Clearly, under the foregoing provisions of the Agreement, petitioner may under Article 1174[19] of the Civil Code. To exempt the obligor from
be validly declared in default for failure to pay the interest. As a liability for a breach of an obligation by reason of a fortuitous event, the
consequence of default, the unpaid amount shall earn default following requisites must concur: (a) the cause of the breach of the
interest,[15] and the respondent-banks have four alternative remedies obligation must be independent of the will of the debtor; (b) the event
without prejudice to the application of the provisions on collaterals and must be either unforeseeable or unavoidable; (c) the event must be such
any other steps or action which may be adopted by the majority as to render it impossible for the debtor to fulfill his obligation in a
lender.[16] normal manner; and (d) the debtor must be free from any participation
in, or aggravation of the injury to the creditor.[20]
The four remedies are alternative, with the right of choice given to the As pointed out by the respondents, the loan agreement was entered into
lenders, in this case the respondents. Under Article 1201 of the Civil on June 30, 1997, or when the Asian economic crisis had already started.
Code, the choice shall produce no effect except from the time it has been Petitioner, as a long established corporation, should have been well
communicated. This is the reason why a written notice is required under aware of the economic environment at that time, yet it still took the risk
Section 6.02 of the Omnibus Agreement. to expand operations. Likewise, the closure of the Mimosa Regency
Casino was not an unforeseeable or unavoidable event, in the context of
In the present case, we find that written notices were sent to the the contract of lease between petitioner and CDC. Every business
petitioner by the respondents. The notices clearly indicate respondents venture involves risks. Risks are not unforeseeable; they are inherent in
choice of remedy: to accelerate all payments payable under the loan business.
agreement. On January 6, 1999, respondents notified petitioner that it
was in default, and demanded payment of the stated amount within five Worthy of note, risk is an exception to the general rule on fortuitous
days from receipt of the letter, otherwise all outstanding availments of events. Under the law, these exceptions are: (1) when the law expressly
the US$20M term loan together with interests and other sum payable so specifies; (2) when it is otherwise declared by the parties; and (3) when
shall be declared due and demandable.[17] The letter clearly indicated the the nature of the obligation requires the assumption of risks.[21] We find
choice of remedy by the respondents, pursuant to the Omnibus that in the Omnibus Agreement, the parties expressly agreed that any
Agreement. enactment, official action, act of war, act of nature or other force
majeure or other similar circumstances shall in no way affect the
Even though subsequent demand is waived by the petitioner in Section obligation of the borrowers to make payments.[22]
6.02 of Part B of the Omnibus Agreement, on February 5, 1999, the
respondents nevertheless actually made their demand in writing for the In sum, the appellate court did not err in dismissing petitioners action
payment of the principal plus interest and penalty charges due on or for certiorari and in denying the motion for reconsideration. It committed
before February 28, 1999, with express notice that they would take all no reversible error, much less any grave abuse of discretion amounting to
legal remedies available to protect the interests of their lack or excess of jurisdiction, contrary to petitioners contentions.
clients.[18] Clearly, respondents have more than complied with the
requirement concerning notice to the petitioner. WHEREFORE, the appeal is DENIED for lack of merit. The Decision
dated March 12, 2002 and the Resolution dated July 3, 2002 of the Court
It should be noted that the agreement also provides that the choice of of Appeals in CA-G.R. SP No. 61047 are hereby AFFIRMED.
remedy is without prejudice to the action on the collaterals. Thus,
respondents could properly file an action for foreclosure of the leasehold Costs against petitioner.
rights to obtain payment for the amount demanded.
SO ORDERED.
Common Carriers; Obligations; Presumption of Fault; When the Same; Same; Same; The Supreme Court is not implying, however,
goods shipped either are lost or arrive in damaged condition, a that the arrastre operator and the customs broker are themselves
presumption arises against the carrier of its failure to observe that always and necessarily liable solidarily with the carrier, or vice-versa,
requisite diligence, and there need not be an express finding of nor that attendant facts in a given case may not vary the rule.—We do
negligence to hold it liable.—The common carrier’s duty to observe not, of course, imply by the above pronouncement that the arrastre
the requisite diligence in the shipment of goods lasts from the time operator and the customs broker are themselves always and
the articles are surrendered to or unconditionally placed in the necessarily liable solidarily with the carrier, or vice-versa, nor that
possession of, and received by, the carrier for transportation until attendant facts in a given case may not vary the rule. The instant
delivered to, or until the lapse of a reasonable time for their petition has been brought solely by Eastern Shipping Lines which,
acceptance by, the person entitled to receive them (Arts. 1736-1738, being the carrier and not having been able to rebut the presumption
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. of fault, is, in any event, to be held liable in this particular case. A
Dollar Steamship Lines, 52 Phil. 863). When the goods shipped factual finding of both the court a quo and the appellate court, we
either are lost or arrive in damaged condition, a presumption arises take note, is that “there is sufficient evidence that the shipment
against the carrier of its failure to observe that diligence, and there sustained damage while in the successive possession of appellants”
need not be an express finding of negligence to hold it liable (Art. (the herein petitioner among them). Accordingly, the liability imposed
1735, Civil Code; Philippine National Railways vs. Court of Appeals, on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA inevitable regardless of whether there are others solidarily liable with
365). There are, of course, exceptional cases when such presumption it.
of fault is not observed but these cases, enumerated in Article 1734
of the Civil Code, are exclusive, not one of which can be applied to Damages; Interest Rates; Rules of thumb for future guidance in
this case. the award of damages and interest rates.—The ostensible discord is
not difficult to explain. The factual circumstances may have called
Same; Same; Arrastre Operator; Carrier and arrastre operator for different applications, guided by the rule that the courts are
liable in solidum for the proper delivery of the goods to the vested with discretion, depending on the equities of each case, on the
consignee.—The question of charging both the carrier and the award of interest. Nonetheless, it may not be unwise, by way of
arrastre operator with the obligation of properly delivering the goods clarification and reconciliation, to suggest the following rules of
to the consignee has, too, been passed upon by the Court. In thumb for future guidance.
Fireman’s Fund Insurance Co. vs. Metro Port Service, Inc. (182 SCRA
455), we have explained, in holding the carrier and the arrastre Same; Same; Same; When an obligation is breached, the
operator liable in solidum, thus: “The legal relationship between the contravenor can be held liable for damages.—When an obligation,
consignee and the arrastre operator is akin to that of a depositor and regardless of its source, i.e., law, contracts, quasi-contracts, delicts
warehouseman (Lua Kian v. Manila Railroad Co., et al., 19 SCRA 5 or quasi-delicts is breached, the contravenor can be held liable for
[1967]. The relationship between the consignee and the common damages. The provisions under Title XVIII on “Damages” of the Civil
carrier is similar to that of the consignee and the arrastre operator Code govern in determining the measure of recoverable damages.
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]).
Since it is the duty of the ARRASTRE to take good care of the goods Same; Same; Same; Interests in the Concept of Actual and
that are in its custody and to deliver them in good condition to the Compensatory Damages; In a loan or forbearance of money, the
consignee, such responsibility also devolves upon the CARRIER. interest due should be that stipulated in writing, and in the absence
Both the ARRASTRE and the CARRIER are therefore charged with thereof, the rate shall be 12% per annum.—With regard particularly to
the obligation to deliver the goods in good condition to the an award of interest in the concept of actual and compensatory
consignee.” damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows: 1. When the obligation is breached, and it
consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest due shall Republic of the Philippines
itself earn legal interest from the time it is judicially demanded. In SUPREME COURT
the absence of stipulation, the rate of interest shall be 12% per Manila
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article
EN BANC
1169 of the Civil Code.
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
On December 4, 1981, two fiber drums of riboflavin There were, to be sure, other factual issues that confronted both courts.
were shipped from Yokohama, Japan for delivery vessel Here, the appellate court said:
"SS EASTERN COMET" owned by defendant Eastern
Shipping Lines under Bill of Lading Defendants filed their respective answers, traversing
No. YMA-8 (Exh. B). The shipment was insured under the material allegations of the complaint contending
plaintiff's Marine Insurance Policy No. 81/01177 for that: As for defendant Eastern Shipping it alleged that
P36,382,466.38. the shipment was discharged in good order from the
vessel unto the custody of Metro Port Service so that
Upon arrival of the shipment in Manila on December any damage/losses incurred after the shipment was
12, 1981, it was discharged unto the custody of incurred after the shipment was turned over to the
defendant Metro Port Service, Inc. The latter excepted latter, is no longer its liability (p. 17, Record);
to one drum, said to be in bad order, which damage was Metroport averred that although subject shipment was
unknown to plaintiff. discharged unto its custody, portion of the same was
already in bad order (p. 11, Record); Allied Brokerage
On January 7, 1982 defendant Allied Brokerage alleged that plaintiff has no cause of action against it,
Corporation received the shipment from defendant not having negligent or at fault for the shipment was
Metro Port Service, Inc., one drum opened and without already in damage and bad order condition when
seal (per "Request for Bad Order Survey." Exh. D). received by it, but nonetheless, it still exercised extra
ordinary care and diligence in the handling/delivery of
the cargo to consignee in the same condition shipment
On January 8 and 14, 1982, defendant Allied Brokerage was received by it.
Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents From the evidence the court found the following:
was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E). The issues are:
Plaintiff contended that due to the losses/damage 1. Whether or not the shipment
sustained by said drum, the consignee suffered losses sustained losses/damages;
totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants 2. Whether or not these
who failed and refused to pay the same (Exhs. H, I, J, losses/damages were sustained while
K, L). in the custody of defendants (in whose
respective custody, if determinable);
As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the 3. Whether or not defendant(s) should
aforestated marine insurance policy, so that it became be held liable for the losses/damages
subrogated to all the rights of action of said consignee (see plaintiff's pre-Trial Brief, Records,
against defendants (per "Form of Subrogation",
p. 34; Allied's pre-Trial Brief, adopting 15 kgs. The report went on to state
plaintiff's Records, p. 38). that when the drums reached the
consignee, one drum was found with
As to the first issue, there can be no adulterated/faked contents. It is
doubt that the shipment sustained obvious, therefore, that these
losses/damages. The two drums were losses/damages occurred before the
shipped in good order and condition, shipment reached the consignee while
as clearly shown by the Bill of Lading under the successive custodies of
and Commercial Invoice which do not defendants. Under Art. 1737 of the
indicate any damages drum that was New Civil Code, the common carrier's
shipped (Exhs. B and C). But when on duty to observe extraordinary
December 12, 1981 the shipment was diligence in the vigilance of goods
delivered to defendant Metro Port remains in full force and effect even if
Service, Inc., it excepted to one drum the goods are temporarily unloaded
in bad order. and stored in transit in the warehouse
of the carrier at the place of
destination, until the consignee has
Correspondingly, as to the second been advised and has had reasonable
issue, it follows that the opportunity to remove or dispose of
losses/damages were sustained while the goods (Art. 1738, NCC). Defendant
in the respective and/or successive Eastern Shipping's own exhibit, the
custody and possession of defendants "Turn-Over Survey of Bad Order
carrier (Eastern), arrastre operator
Cargoes" (Exhs. 3-Eastern) states that
(Metro Port) and broker (Allied on December 12, 1981 one drum was
Brokerage). This becomes evident found "open".
when the Marine Cargo Survey Report
(Exh. G), with its "Additional Survey
Notes", are considered. In the latter and thus held:
notes, it is stated that when the
shipment was "landed on vessel" to WHEREFORE, PREMISES
dock of Pier # 15, South Harbor, CONSIDERED, judgment is hereby
Manila on December 12, 1981, it was rendered:
observed that "one (1) fiber drum (was)
in damaged condition, covered by the A. Ordering defendants to pay plaintiff, jointly and
vessel's Agent's Bad Order Tally Sheet severally:
No. 86427." The report further states
that when defendant Allied Brokerage
withdrew the shipment from 1. The amount of P19,032.95, with the
defendant arrastre operator's custody present legal interest of 12% per
on January 7, 1982, one drum was annum from October 1, 1982, the date
found opened without seal, cello bag of filing of this complaints, until fully
paid (the liability of defendant
partly torn but contents intact. Net
unrecovered spillages was Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF
value of the loss, whichever is lesser, In this petition, Eastern Shipping Lines, Inc., the common carrier,
while the liability of defendant Metro attributes error and grave abuse of discretion on the part of the appellate
Port Service, Inc. shall be to the extent court when —
of the actual invoice value of each
package, crate box or container in no I. IT HELD PETITIONER CARRIER JOINTLY AND
case to exceed P5,000.00 each, SEVERALLY LIABLE WITH THE ARRASTRE
pursuant to Section 6.01 of the OPERATOR AND CUSTOMS BROKER FOR THE
Management Contract); CLAIM OF PRIVATE RESPONDENT AS GRANTED
IN THE QUESTIONED DECISION;
2. P3,000.00 as attorney's fees, and
II. IT HELD THAT THE GRANT OF INTEREST ON
3. Costs. THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF
B. Dismissing the THE COMPLAINT AT THE RATE OF TWELVE
counterclaims and PERCENT PER ANNUM INSTEAD OF FROM THE
crossclaim of DATE OF THE DECISION OF THE TRIAL COURT
defendant/cross- AND ONLY AT THE RATE OF SIX PERCENT PER
claimant Allied ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
Brokerage INDISPUTABLY UNLIQUIDATED.
Corporation.
The petition is, in part, granted.
SO ORDERED. (p. 207, Record).
In this decision, we have begun by saying that the questions raised by
Dissatisfied, defendant's recourse to US. petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.
The appeal is devoid of merit.
The common carrier's duty to observe the requisite diligence in the
shipment of goods lasts from the time the articles are surrendered to or
After a careful scrutiny of the evidence on record. We unconditionally placed in the possession of, and received by, the carrier
find that the conclusion drawn therefrom is correct. As for transportation until delivered to, or until the lapse of a reasonable
there is sufficient evidence that the shipment sustained time for their acceptance by, the person entitled to receive them (Arts.
damage while in the successive possession of
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui
appellants, and therefore they are liable to the appellee, Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped
as subrogee for the amount it paid to the consignee. (pp. either are lost or arrive in damaged condition, a presumption arises
87-89, Rollo.)
against the carrier of its failure to observe that diligence, and there need
not be an express finding of negligence to hold it liable (Art. 1735, Civil
The Court of Appeals thus affirmed in toto the judgment of the court Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87;
a quo. Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed
but these cases, enumerated in Article 17341 of the Civil Code, are
exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with The early case of Malayan Insurance Co., Inc., vs. Manila Port
the obligation of properly delivering the goods to the consignee has, too, Service,2 decided3 on 15 May 1969, involved a suit for recovery of money
been passed upon by the Court. In Fireman's Fund Insurance vs. Metro arising out of short deliveries and pilferage of goods. In this case, appellee
Port Services (182 SCRA 455), we have explained, in holding the carrier Malayan Insurance (the plaintiff in the lower court) averred in its
and the arrastre operator liable in solidum, thus: complaint that the total amount of its claim for the value of the
undelivered goods amounted to P3,947.20. This demand, however, was
The legal relationship between the consignee and the neither established in its totality nor definitely ascertained. In the
arrastre operator is akin to that of a depositor and stipulation of facts later entered into by the parties, in lieu of proof, the
warehouseman (Lua Kian v. Manila Railroad Co., 19 amount of P1,447.51 was agreed upon. The trial court rendered judgment
SCRA 5 [1967]. The relationship between the consignee ordering the appellants (defendants) Manila Port Service and Manila
and the common carrier is similar to that of the Railroad Company to pay appellee Malayan Insurance the sum of
consignee and the arrastre operator (Northern Motors, P1,447.51 with legal interest thereon from the date the complaint was
Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it filed on 28 December 1962 until full payment thereof. The appellants then
is the duty of the ARRASTRE to take good care of the assailed, inter alia, the award of legal interest. In sustaining the
goods that are in its custody and to deliver them in good appellants, this Court ruled:
condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and Interest upon an obligation which calls for the payment
the CARRIER are therefore charged with the obligation of money, absent a stipulation, is the legal rate. Such
to deliver the goods in good condition to the consignee. interest normally is allowable from the date of demand,
judicial or extrajudicial. The trial court opted for
We do not, of course, imply by the above pronouncement that the judicial demand as the starting point.
arrastre operator and the customs broker are themselves always and
necessarily liable solidarily with the carrier, or vice-versa, nor that But then upon the provisions of Article 2213 of the Civil
attendant facts in a given case may not vary the rule. The instant Code, interest "cannot be recovered upon unliquidated
petition has been brought solely by Eastern Shipping Lines, which, being claims or damages, except when the demand can be
the carrier and not having been able to rebut the presumption of fault, is, established with reasonable certainty." And as was held
in any event, to be held liable in this particular case. A factual finding of by this Court in Rivera vs. Perez,4 L-6998, February 29,
both the court a quo and the appellate court, we take note, is that "there 1956, if the suit were for damages, "unliquidated and
is sufficient evidence that the shipment sustained damage while in the not known until definitely ascertained, assessed and
successive possession of appellants" (the herein petitioner among them). determined by the courts after proof (Montilla
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco
sole petitioner in this case, is inevitable regardless of whether there are v. Guzman,
others solidarily liable with it. 38 Phil. 302)," then, interest "should be from the date of
the decision." (Emphasis supplied)
It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark. The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After
Let us first see a chronological recitation of the major rulings of this trial, the lower court decreed:
Court:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and third party defendants and against
the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell should have, instead, been applied. This Court6 ruled:
and Michael, Incorporated to pay jointly and severally
the following persons: The judgments spoken of and referred to are judgments
in litigations involving loans or forbearance of any
xxx xxx xxx money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving
(g) Plaintiffs Pacita F. Reformina and Francisco loans or forbearance of any money, goods or credits does
Reformina the sum of P131,084.00 which is the value of not fall within the coverage of the said law for it is not
the boat F B Pacita III together with its accessories, within the ambit of the authority granted to the Central
fishing gear and equipment minus P80,000.00 which is Bank.
the value of the insurance recovered and the amount of
P10,000.00 a month as the estimated monthly loss xxx xxx xxx
suffered by them as a result of the fire of May 6, 1969
up to the time they are actually paid or already the total Coming to the case at bar, the decision herein sought to
sum of P370,000.00 as of June 4, 1972 with legal be executed is one rendered in an Action for Damages
interest from the filing of the complaint until paid and for injury to persons and loss of property and does not
to pay attorney's fees of P5,000.00 with costs against involve any loan, much less forbearances of any money,
defendants and third party plaintiffs. (Emphasis goods or credits. As correctly argued by the private
supplied.) respondents, the law applicable to the said case is
Article 2209 of the New Civil Code which reads —
On appeal to the Court of Appeals, the latter modified the
amount of damages awarded but sustained the trial court in Art. 2209. — If the obligation consists
adjudging legal interest from the filing of the complaint until in the payment of a sum of money, and
fully paid. When the appellate court's decision became final, the the debtor incurs in delay, the
case was remanded to the lower court for execution, and this indemnity for damages, there being no
was when the trial court issued its assailed resolution which stipulation to the contrary, shall be
applied the 6% interest per annum prescribed in Article 2209 of the payment of interest agreed upon,
the Civil Code. In their petition for review on certiorari, the and in the absence of stipulation, the
petitioners contended that Central Bank Circular legal interest which is six percent per
No. 416, providing thus — annum.
By virtue of the authority granted to it under Section 1 The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
of Act 2655, as amended, Monetary Board in its v. Cruz,7 promulgated on 28 July 1986. The case was for damages
Resolution No. 1622 dated July 29, 1974, has prescribed occasioned by an injury to person and loss of property. The trial court
that the rate of interest for the loan, or forbearance of awarded private respondent Pedro Manabat actual and compensatory
any money, goods, or credits and the rate allowed in damages in the amount of P72,500.00 with legal interest thereon from the
judgments, in the absence of express contract as to such filing of the complaint until fully paid. Relying on the Reformina
rate of interest, shall be twelve (12%) percent per v. Tomol case, this Court8 modified the interest award from 12% to 6%
annum. This Circular shall take effect immediately. interest per annum but sustained the time computation thereof, i.e., from
(Emphasis found in the text) — the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for forbearance of any money, goods or credit; and
the recovery of damages arising from the collapse of a building, ordered, (3) rate allowed in judgments (judgments spoken of
inter alia, the "defendant United Construction Co., Inc. (one of the refer to judgments involving loans or forbearance of any
petitioners) money, goods or credits. (Philippine Rabbit Bus Lines
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v.
legal rate from November 29, 1968, the date of the filing of the complaint Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the
until full payment . . . ." Save from the modification of the amount instant case, there is neither a loan or a forbearance, but
granted by the lower court, the Court of Appeals sustained the trial then no interest is actually imposed provided the sums
court's decision. When taken to this Court for review, the case, on 03 referred to in the judgment are paid upon the finality of
October 1986, was decided, thus: the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and It will be noted that in the cases already adverted to,
environmental circumstances of this case, we deem it the rate of interest is imposed on the total sum, from
reasonable to render a decision imposing, as We do the filing of the complaint until paid; in other words,
hereby impose, upon the defendant and the third-party as part of the judgment for damages. Clearly, they are
defendants (with the exception of Roman Ozaeta) a not applicable to the instant case. (Emphasis supplied.)
solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar The subsequent case of American Express International, Inc.,
Association of FIVE MILLION (P5,000,000.00) Pesos to vs. Intermediate Appellate Court11 was a petition for review
cover all damages (with the exception to attorney's fees) on certiorari from the decision, dated 27 February 1985, of the then
occasioned by the loss of the building (including interest Intermediate Appellate Court reducing the amount of moral and
charges and lost rentals) and an additional ONE exemplary damages awarded by the trial court, to P240,000.00 and
HUNDRED THOUSAND (P100,000.00) Pesos as and P100,000.00, respectively, and its resolution, dated 29 April 1985,
for attorney's fees, the total sum being payable upon the restoring the amount of damages awarded by the trial court, i.e.,
finality of this decision. Upon failure to pay on such P2,000,000.00 as moral damages and P400,000.00 as exemplary damages
finality, twelve (12%) per cent interest per annum shall with interest thereon at 12% per annum from notice of judgment, plus
be imposed upon aforementioned amounts from finality costs of suit. In a decision of 09 November 1988, this Court, while
until paid. Solidary costs against the defendant and recognizing the right of the private respondent to recover damages, held
third-party defendants (Except Roman Ozaeta). the award, however, for moral damages by the trial court, later sustained
(Emphasis supplied) by the IAC, to be inconceivably large. The Court12 thus set aside the
decision of the appellate court and rendered a new one, "ordering the
A motion for reconsideration was filed by United Construction, petitioner to pay private respondent the sum of One Hundred Thousand
contending that "the interest of twelve (12%) per cent per (P100,000.00) Pesos as moral damages, with
annum imposed on the total amount of the monetary award was six (6%) percent interest thereon computed from the finality of this
in contravention of law." The Court10 ruled out the applicability decision until paid. (Emphasis supplied)
of the Reformina and Philippine Rabbit Bus Lines cases and, in
its resolution of 15 April 1988, it explained: Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz13 which arose from a breach of employment contract. For having
There should be no dispute that the imposition of 12% been illegally dismissed, the petitioner was awarded by the trial court
interest pursuant to Central Bank Circular No. 416 . . . moral and exemplary damages without, however, providing any legal
is applicable only in the following: (1) loans; (2)
interest thereon. When the decision was appealed to the Court of . . until fully paid." Again, in applying the 6% legal interest per
Appeals, the latter held: annum under the Civil Code, the Court15 declared:
WHEREFORE, except as modified hereinabove the . . . , (T)he transaction involved is clearly not a loan or
decision of the CFI of Negros Oriental dated October 31, forbearance of money, goods or credits but expropriation
1972 is affirmed in all respects, with the modification of certain parcels of land for a public purpose, the
that defendants-appellants, except defendant-appellant payment of which is without stipulation regarding
Merton Munn, are ordered to pay, jointly and severally, interest, and the interest adjudged by the trial court is
the amounts stated in the dispositive portion of the in the nature of indemnity for damages. The legal
decision, including the sum of P1,400.00 in concept of interest required to be paid on the amount of just
compensatory damages, with interest at the legal rate compensation for the properties expropriated is
from the date of the filing of the complaint until fully manifestly in the form of indemnity for damages for the
paid(Emphasis supplied.) delay in the payment thereof. Therefore, since the kind
of interest involved in the joint judgment of the lower
The petition for review to this Court was denied. The records court sought to be enforced in this case is interest by
were thereupon transmitted to the trial court, and an entry of way of damages, and not by way of earnings from loans,
judgment was made. The writ of execution issued by the trial etc. Art. 2209 of the Civil Code shall apply.
court directed that only compensatory damages should earn
interest at 6% per annum from the date of the filing of the Concededly, there have been seeming variances in the above holdings.
complaint. Ascribing grave abuse of discretion on the part of the The cases can perhaps be classified into two groups according to the
trial judge, a petition for certiorari assailed the said order. This similarity of the issues involved and the corresponding rulings rendered
Court said: by the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
. . . , it is to be noted that the Court of Appeals ordered v. Ruiz (1989)
the payment of interest "at the legal rate" from the time and National Power Corporation v. Angas (1992). In the "second group"
of the filing of the complaint. . . Said circular [Central would be Malayan Insurance Company v.Manila Port Service (1969),
Bank Circular No. 416] does not apply to actions based Nakpil and Sons v. Court of Appeals (1988), and American Express
on a breach of employment contract like the case at bar. International v.Intermediate Appellate Court (1988).
(Emphasis supplied)
In the "first group", the basic issue focuses on the application of either
The Court reiterated that the 6% interest per annum on the the 6% (under the Civil Code) or 12% (under the Central Bank Circular)
damages should be computed from the time the complaint was interest per annum. It is easily discernible in these cases that there has
filed until the amount is fully paid. been a consistent holding that the Central Bank Circular imposing the
12% interest per annum applies only to loans or forbearance16 of money,
goods or credits, as well as to judgments involving such loan or
Quite recently, the Court had another occasion to rule on the
forbearance of money, goods or credits, and that the 6% interest under
matter. National Power Corporation vs. Angas,14decided on 08 May 1992,
the Civil Code governs when the transaction involves the payment of
involved the expropriation of certain parcels of land. After conducting a indemnities in the concept of damage arising from the breach or a delay
hearing on the complaints for eminent domain, the trial court ordered the in the performance of obligations in general. Observe, too, that in these
petitioner to pay the private respondents certain sums of money as just cases, a common time frame in the computation of the 6% interest per
compensation for their lands so expropriated "with legal interest thereon . annum has been applied, i.e., from the time the complaint is filed until
the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application from the time it is judicially demanded.22 In the absence of stipulation,
of the 6% or 12% interest per annum,17depending on whether or not the the rate of interest shall be 12% per annum to be computed from
amount involved is a loan or forbearance, on the one hand, or one of default, i.e., from judicial or extrajudicial demand under and subject to
indemnity for damage, on the other hand. Unlike, however, the "first the provisions of Article 116923 of the Civil Code.
group" which remained consistent in holding that the running of the
legal interest should be from the time of the filing of the complaint until 2. When an obligation, not constituting a loan or forbearance of money, is
fully paid, the "second group" varied on the commencement of the breached, an interest on the amount of damages awarded may be
running of the legal interest. imposed at the discretion of the court24 at the rate of 6% per annum.25 No
interest, however, shall be adjudged on unliquidated claims or damages
Malayan held that the amount awarded should bear legal interest from except when or until the demand can be established with reasonable
the date of the decision of the court a quo,explaining that "if the suit were certainty.26 Accordingly, where the demand is established with
for damages, 'unliquidated and not known until definitely ascertained, reasonable certainty, the interest shall begin to run from the time the
assessed and determined by the courts after proof,' then, interest 'should claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
be from the date of the decision.'" American Express International when such certainty cannot be so reasonably established at the time the
v. IAC, introduced a different time frame for reckoning the 6% interest by demand is made, the interest shall begin to run only from the date the
ordering it to be "computed from the finality of (the) decision until paid." judgment of the court is made (at which time the quantification of
The Nakpil and Sons case ruled that 12% interest per annum should be damages may be deemed to have been reasonably ascertained). The
imposed from the finality of the decision until the judgment amount is actual base for the computation of legal interest shall, in any case, be on
paid. the amount finally adjudged.
The ostensible discord is not difficult to explain. The factual 3. When the judgment of the court awarding a sum of money becomes
circumstances may have called for different applications, guided by the final and executory, the rate of legal interest, whether the case falls
rule that the courts are vested with discretion, depending on the equities under paragraph 1 or paragraph 2, above, shall be 12% per annum from
of each case, on the award of interest. Nonetheless, it may not be unwise, such finality until its satisfaction, this interim period being deemed to be
by way of clarification and reconciliation, to suggest the following rules of by then an equivalent to a forbearance of credit.
thumb for future guidance.
WHEREFORE, the petition is partly GRANTED. The appealed decision
I. When an obligation, regardless of its source, i.e., law, contracts, quasi- is AFFIRMED with the MODIFICATION that the legal interest to be
contracts, delicts or quasi-delicts18 is breached, the contravenor can be paid is SIX PERCENT (6%) on the amount due computed from the
held liable for damages.19 The provisions under Title XVIII on "Damages" decision, dated
of the Civil Code govern in determining the measure of recoverable 03 February 1988, of the court a quo. A TWELVE PERCENT (12%)
damages.20 interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount
upon finality of this decision until the payment thereof.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the SO ORDERED.
accrual thereof, is imposed, as follows:
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado,
1. When the obligation is breached, and it consists in the payment of a Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and
sum of money, i.e., a loan or forbearance of money, the interest due Kapunan, JJ., concur.
should be that which may have been stipulated in
writing.21 Furthermore, the interest due shall itself earn legal interest Mendoza, J., took no part.
Labor Law; Termination of Employment; Illegal Dismissals; By the as to the rate of interest that would govern the parties, the rate of legal
nature of an illegal dismissal case, the reliefs continue to add up until full interest for loans or forbearance of any money, goods or credits and the
satisfaction, as expressed under Article 279 of the Labor Code.—No rate allowed in judgments shall no longer be twelve percent (12%) per
essential change is made by a recomputation as this step is a necessary annum — as reflected in the case of Eastern Shipping Lines, Inc. v. Court
consequence that flows from the nature of the illegality of dismissal of Appeals, 234 SCRA 78 (1994) and Subsection X305.1 of the Manual of
declared by the Labor Arbiter in that decision. A recomputation (or an Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
original computation, if no previous computation has been made) is a Manual of Regulations for Non-Bank Financial Institutions, before its
part of the law — specifically, Article 279 of the Labor Code and the amendment by BSP-MB Circular No. 799 — but will now be six percent
established jurisprudence on this provision — that is read into the (6%) per annum effective July 1, 2013. It should be noted, nonetheless,
decision. By the nature of an illegal dismissal case, the reliefs continue to that the new rate could only be applied prospectively and not
add up until full satisfaction, as expressed under Article 279 of the Labor retroactively. Consequently, the twelve percent (12%) per annum legal
Code. The recomputation of the consequences of illegal dismissal upon interest shall apply only until June 30, 2013. Come July 1, 2013 the new
execution of the decision does not constitute an alteration or amendment rate of six percent (6%) per annum shall be the prevailing rate of
of the final decision being implemented. The illegal dismissal ruling interest when applicable.
stands; only the computation of monetary consequences of this dismissal
is affected, and this is not a violation of the principle of immutability of Same; Monetary Board; The Bangko Sentral ng Pilipinas-Monetary
final judgments. Board may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits,
Same; Same; Same; Article 279 of the Labor Code provides for the including those for loans of low priority such as consumer loans, as well
consequences of illegal dismissal in no uncertain terms, qualified only by as such loans made by pawnshops, finance companies and similar credit
jurisprudence in its interpretation of when separation pay in lieu of institutions.—In the recent case of Advocates for Truth in Lending, Inc.
reinstatement is allowed.—That the amount respondents shall now pay and Eduardo B. Olaguer v. Bangko Sentral Monetary Board, 688 SCRA
has greatly increased is a consequence that it cannot avoid as it is the 530 (2013), this Court affirmed the authority of the BSP-MB to set
risk that it ran when it continued to seek recourses against the Labor interest rates and to issue and enforce Circulars when it ruled that “the
Arbiter’s decision. Article 279 provides for the consequences of illegal BSP-MB may prescribe the maximum rate or rates of interest for all
dismissal in no uncertain terms, qualified only by jurisprudence in its loans or renewals thereof or the forbearance of any money, goods or
interpretation of when separation pay in lieu of reinstatement is allowed. credits, including those for loans of low priority such as consumer loans,
When that happens, the finality of the illegal dismissal decision becomes as well as such loans made by pawnshops, finance companies and similar
the reckoning point instead of the reinstatement that the law decrees. In credit institutions. It even authorizes the BSP-MB to prescribe different
allowing separation pay, the final decision effectively declares that the maximum rate or rates for different types of borrowings, including
employment relationship ended so that separation pay and backwages deposits and deposit substitutes, or loans of financial intermediaries.”
are to be computed up to that point.
; When an obligation, not constituting a loan or forbearance of
Interest Rates; In the absence of an express stipulation as to the rate of money, is breached, an interest on the amount of damages awarded may
interest that would govern the parties, the rate of legal interest for loans be imposed at the discretion of the court at the rate of 6% per annum.—
or forbearance of any money, goods or credits and the rate allowed in When an obligation, not constituting a loan or forbearance of money, is
judgments shall no longer be twelve percent (12%) per annum — as breached, an interest on the amount of damages awarded may be
reflected in the case of Eastern Shipping Lines vs. Court of Appeals, 234 imposed at the discretion of the court at the rate of 6% per annum. No
SCRA 78 (1994), and Subsection X305.1 of the Manual of Regulations for interest, however, shall be adjudged on unliquidated claims or damages,
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of except when or until the demand can be established with reasonable
Regulations for Non-Bank Financial Institutions, before its amendment certainty. Accordingly, where the demand is established with reasonable
by BSP-MB Circular No. 799 — but will now be six percent (6%) per certainty, the interest shall begin to run from the time the claim is made
annum effective July 1, 2013.—In the absence of an express stipulation judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is Republic of the Philippines
made, the interest shall begin to run only from the date the judgment of SUPREME COURT
the court is made (at which time the quantification of damages may be Manila
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally EN BANC
adjudged.
G.R. No. 189871 August 13, 2013
Same; When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, shall be 6% per
annum from such finality until its satisfaction.—When the judgment of DARIO NACAR, PETITIONER,
the court awarding a sum of money becomes final and executory, the rate vs.
of legal interest, whether the case falls under paragraph 1 or paragraph GALLERY FRAMES AND/OR FELIPE BORDEY,
2, above, shall be 6% per annumfrom such finality until its satisfaction, JR., RESPONDENTS.
this interim period being deemed to be by then an equivalent to a
forbearance of credit. DECISION
Same; When the obligation is breached, and it consists in the PERALTA, J.:
payment of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in writing; In
This is a petition for review on certiorari assailing the
the absence of stipulation, the rate of interest shall be 6% per annum to be
Decision1 dated September 23, 2008 of the Court of Appeals (CA) in
computed from default, i.e., from judicial or extrajudicial demand under CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009
and subject to the provisions of Article 1169 of the Civil Code.—When the denying petitioner’s motion for reconsideration.
obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the The factual antecedents are undisputed.
interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be Petitioner Dario Nacar filed a complaint for constructive dismissal
6% per annum to be computed from default, i.e., from judicial or before the Arbitration Branch of the National Labor Relations
extrajudicial demand under and subject to the provisions of Article 1169 Commission (NLRC) against respondents Gallery Frames (GF) and/or
of the Civil Code. Felipe Bordey, Jr., docketed as NLRC NCR Case No. 01-00519-97.
Rate = ₱198/day Respondents appealed to the NLRC, but it was dismissed for lack of
merit in the Resolution5 dated February 29, 2000. Accordingly, the
Date of Decision = Aug. 18, 1998 NLRC sustained the decision of the Labor Arbiter. Respondents filed
a motion for reconsideration, but it was denied.6
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00 Dissatisfied, respondents filed a Petition for Review on Certiorari
before the CA. On August 24, 2000, the CA issued a Resolution
BACKWAGES dismissing the petition. Respondents filed a Motion for
Date Dismissed = January 24, 1997 Reconsideration, but it was likewise denied in a Resolution dated
May 8, 2001.7
Rate per day = ₱196.00
Respondents then sought relief before the Supreme Court, docketed
Date of Decisions = Aug. 18, 1998
as G.R. No. 151332. Finding no reversible error on the part of the
a) 1/24/97 to 2/5/98 = 12.36 mos. CA, this Court denied the petition in the Resolution dated April 17,
2002.8
₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months An Entry of Judgment was later issued certifying that the resolution
became final and executory on May 27, 2002.9The case was,
Prevailing Rate per day = ₱62,986.00 thereafter, referred back to the Labor Arbiter. A pre-execution
conference was consequently scheduled, but respondents failed to
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20 appear.10
TOTAL = ₱95.933.76
On November 5, 2002, petitioner filed a Motion for Correct
Computation, praying that his backwages be computed from the date
xxxx of his dismissal on January 24, 1997 up to the finality of the
Resolution of the Supreme Court on May 27, 2002.11 Upon
WHEREFORE, premises considered, judgment is hereby rendered recomputation, the Computation and Examination Unit of the NLRC
finding respondents guilty of constructive dismissal and are arrived at an updated amount in the sum of ₱471,320.31.12
therefore, ordered:
On December 2, 2002, a Writ of Execution13 was issued by the Labor
To pay jointly and severally the complainant the amount of sixty-two Arbiter ordering the Sheriff to collect from respondents the total
thousand nine hundred eighty-six pesos and 56/100 (₱62,986.56) amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of
Pesos representing his separation pay; Execution, arguing, among other things, that since the Labor Arbiter
awarded separation pay of ₱62,986.56 and limited backwages of decision states that the separation pay and backwages are computed
₱95,933.36, no more recomputation is required to be made of the only up to the promulgation of the said decision, it is the amount of
said awards. They claimed that after the decision becomes final and ₱158,919.92 that should be executed. Thus, since petitioner already
executory, the same cannot be altered or amended anymore.14 On received ₱147,560.19, he is only entitled to the balance of
January 13, 2003, the Labor Arbiter issued an Order15 denying the ₱11,459.73.
motion. Thus, an Alias Writ of Execution16 was issued on January
14, 2003. Petitioner then appealed before the NLRC,21 which appeal was denied
by the NLRC in its Resolution22 dated September 27, 2006. Petitioner
Respondents again appealed before the NLRC, which on June 30, filed a Motion for Reconsideration, but it was likewise denied in the
2003 issued a Resolution17 granting the appeal in favor of the Resolution23dated January 31, 2007.
respondents and ordered the recomputation of the judgment award.
Aggrieved, petitioner then sought recourse before the CA, docketed
On August 20, 2003, an Entry of Judgment was issued declaring the as CA-G.R. SP No. 98591.
Resolution of the NLRC to be final and executory. Consequently,
another pre-execution conference was held, but respondents failed to On September 23, 2008, the CA rendered a Decision24 denying the
appear on time. Meanwhile, petitioner moved that an Alias Writ of petition. The CA opined that since petitioner no longer appealed the
Execution be issued to enforce the earlier recomputed judgment October 15, 1998 Decision of the Labor Arbiter, which already
award in the sum of ₱471,320.31.18 became final and executory, a belated correction thereof is no longer
allowed. The CA stated that there is nothing left to be done except to
The records of the case were again forwarded to the Computation enforce the said judgment. Consequently, it can no longer be
and Examination Unit for recomputation, where the judgment award modified in any respect, except to correct clerical errors or mistakes.
of petitioner was reassessed to be in the total amount of only
₱147,560.19. Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution25 dated October 9, 2009.
Petitioner then moved that a writ of execution be issued ordering
respondents to pay him the original amount as determined by the Hence, the petition assigning the lone error:
Labor Arbiter in his Decision dated October 15, 1998, pending the
final computation of his backwages and separation pay.
I
On January 14, 2003, the Labor Arbiter issued an Alias Writ of
Execution to satisfy the judgment award that was due to petitioner in WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS
the amount of ₱147,560.19, which petitioner eventually received. SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION
AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
Petitioner then filed a Manifestation and Motion praying for the re- SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER
computation of the monetary award to include the appropriate MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER
interests.19 15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT
TO AN OPINION EXPRESSED IN THE BODY OF THE SAME
On May 10, 2005, the Labor Arbiter issued an Order20 granting the DECISION.26
motion, but only up to the amount of ₱11,459.73. The Labor Arbiter
reasoned that it is the October 15, 1998 Decision that should be Petitioner argues that notwithstanding the fact that there was a
enforced considering that it was the one that became final and computation of backwages in the Labor Arbiter’s decision, the same
executory. However, the Labor Arbiter reasoned that since the
is not final until reinstatement is made or until finality of the In concrete terms, the question is whether a re-computation in the
decision, in case of an award of separation pay. Petitioner maintains course of execution of the labor arbiter's original computation of the
that considering that the October 15, 1998 decision of the Labor awards made, pegged as of the time the decision was rendered and
Arbiter did not become final and executory until the April 17, 2002 confirmed with modification by a final CA decision, is legally proper.
Resolution of the Supreme Court in G.R. No. 151332 was entered in The question is posed, given that the petitioner did not immediately
the Book of Entries on May 27, 2002, the reckoning point for the pay the awards stated in the original labor arbiter's decision; it
computation of the backwages and separation pay should be on May delayed payment because it continued with the litigation until final
27, 2002 and not when the decision of the Labor Arbiter was judgment at the CA level.
rendered on October 15, 1998. Further, petitioner posits that he is
also entitled to the payment of interest from the finality of the A source of misunderstanding in implementing the final decision in
decision until full payment by the respondents. this case proceeds from the way the original labor arbiter framed his
decision. The decision consists essentially of two parts.
On their part, respondents assert that since only separation pay and
limited backwages were awarded to petitioner by the October 15, The first is that part of the decision that cannot now be disputed
1998 decision of the Labor Arbiter, no more recomputation is because it has been confirmed with finality. This is the finding of the
required to be made of said awards. Respondents insist that since illegality of the dismissal and the awards of separation pay in lieu of
the decision clearly stated that the separation pay and backwages reinstatement, backwages, attorney's fees, and legal interests.
are "computed only up to [the] promulgation of this decision," and
considering that petitioner no longer appealed the decision,
petitioner is only entitled to the award as computed by the Labor The second part is the computation of the awards made. On its face,
Arbiter in the total amount of ₱158,919.92. Respondents added that the computation the labor arbiter made shows that it was time-
it was only during the execution proceedings that the petitioner bound as can be seen from the figures used in the computation. This
questioned the award, long after the decision had become final and part, being merely a computation of what the first part of the
executory. Respondents contend that to allow the further decision established and declared, can, by its nature, be re-
recomputation of the backwages to be awarded to petitioner at this computed. This is the part, too, that the petitioner now posits should
point of the proceedings would substantially vary the decision of the no longer be re-computed because the computation is already in the
Labor Arbiter as it violates the rule on immutability of judgments. labor arbiter's decision that the CA had affirmed. The public and
private respondents, on the other hand, posit that a re-computation
is necessary because the relief in an illegal dismissal decision goes
The petition is meritorious. all the way up to reinstatement if reinstatement is to be made, or up
to the finality of the decision, if separation pay is to be given in lieu
The instant case is similar to the case of Session Delights Ice Cream reinstatement.
and Fast Foods v. Court of Appeals (Sixth Division),27 wherein the
issue submitted to the Court for resolution was the propriety of the That the labor arbiter's decision, at the same time that it found that
computation of the awards made, and whether this violated the an illegal dismissal had taken place, also made a computation of the
principle of immutability of judgment. Like in the present case, it award, is understandable in light of Section 3, Rule VIII of the then
was a distinct feature of the judgment of the Labor Arbiter in the NLRC Rules of Procedure which requires that a computation be
above-cited case that the decision already provided for the made. This Section in part states:
computation of the payable separation pay and backwages due and
did not further order the computation of the monetary awards up to
the time of the finality of the judgment. Also in Session Delights, the [T]he Labor Arbiter of origin, in cases involving monetary awards and
dismissed employee failed to appeal the decision of the labor arbiter. at all events, as far as practicable, shall embody in any such decision
The Court clarified, thus: or order the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to dismissal, computed as of the time of the labor arbiter's original
the finality of the labor arbiter's decision. As we noted above, this decision.28
implication is apparent from the terms of the computation itself, and
no question would have arisen had the parties terminated the case Consequently, from the above disquisitions, under the terms of the
and implemented the decision at that point. decision which is sought to be executed by the petitioner, no
essential change is made by a recomputation as this step is a
However, the petitioner disagreed with the labor arbiter's findings on necessary consequence that flows from the nature of the illegality of
all counts - i.e., on the finding of illegality as well as on all the dismissal declared by the Labor Arbiter in that decision.29 A
consequent awards made. Hence, the petitioner appealed the case to recomputation (or an original computation, if no previous
the NLRC which, in turn, affirmed the labor arbiter's decision. By computation has been made) is a part of the law – specifically, Article
law, the NLRC decision is final, reviewable only by the CA on 279 of the Labor Code and the established jurisprudence on this
jurisdictional grounds. provision – that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction,
The petitioner appropriately sought to nullify the NLRC decision on as expressed under Article 279 of the Labor Code. The recomputation
jurisdictional grounds through a timely filed Rule 65 petition for of the consequences of illegal dismissal upon execution of the
certiorari. The CA decision, finding that NLRC exceeded its authority decision does not constitute an alteration or amendment of the final
in affirming the payment of 13th month pay and indemnity, lapsed to decision being implemented. The illegal dismissal ruling stands; only
finality and was subsequently returned to the labor arbiter of origin the computation of monetary consequences of this dismissal is
for execution. affected, and this is not a violation of the principle of immutability of
final judgments.30
It was at this point that the present case arose. Focusing on the core
illegal dismissal portion of the original labor arbiter's decision, the That the amount respondents shall now pay has greatly increased is
implementing labor arbiter ordered the award re-computed; he a consequence that it cannot avoid as it is the risk that it ran when it
apparently read the figures originally ordered to be paid to be the continued to seek recourses against the Labor Arbiter's decision.
computation due had the case been terminated and implemented at Article 279 provides for the consequences of illegal dismissal in no
the labor arbiter's level. Thus, the labor arbiter re-computed the uncertain terms, qualified only by jurisprudence in its interpretation
award to include the separation pay and the backwages due up to of when separation pay in lieu of reinstatement is allowed. When that
the finality of the CA decision that fully terminated the case on the happens, the finality of the illegal dismissal decision becomes the
merits. Unfortunately, the labor arbiter's approved computation went reckoning point instead of the reinstatement that the law decrees. In
beyond the finality of the CA decision (July 29, 2003) and included allowing separation pay, the final decision effectively declares that
as well the payment for awards the final CA decision had deleted - the employment relationship ended so that separation pay and
specifically, the proportionate 13th month pay and the indemnity backwages are to be computed up to that point.31
awards. Hence, the CA issued the decision now questioned in the
present petition. Finally, anent the payment of legal interest. In the landmark case of
Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid
We see no error in the CA decision confirming that a re-computation down the guidelines regarding the manner of computing legal
is necessary as it essentially considered the labor arbiter's original interest, to wit:
decision in accordance with its basic component parts as we
discussed above. To reiterate, the first part contains the finding of II. With regard particularly to an award of interest in the concept of
illegality and its monetary consequences; the second part is the actual and compensatory damages, the rate of interest, as well as the
computation of the awards or monetary consequences of the illegal accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the absence of stipulation in loan contracts, thereby amending Section 2
payment of a sum of money, i.e., a loan or forbearance of of Circular No. 905, Series of 1982:
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall Section 1. The rate of interest for the loan or forbearance of any
itself earn legal interest from the time it is judicially money, goods or credits and the rate allowed in judgments, in the
demanded. In the absence of stipulation, the rate of interest absence of an express contract as to such rate of interest, shall be
shall be 12% per annum to be computed from default, i.e., six percent (6%) per annum.
from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
Section 2. In view of the above, Subsection X305.1 36 of the Manual of
Regulations for Banks and Sections 4305Q.1,37 4305S.338 and
2. When an obligation, not constituting a loan or forbearance 4303P.139 of the Manual of Regulations for Non-Bank Financial
of money, is breached, an interest on the amount of damages Institutions are hereby amended accordingly.
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or This Circular shall take effect on 1 July 2013.
until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with Thus, from the foregoing, in the absence of an express stipulation as
reasonable certainty, the interest shall begin to run from the to the rate of interest that would govern the parties, the rate of legal
time the claim is made judicially or extrajudicially (Art. 1169, interest for loans or forbearance of any money, goods or credits and
Civil Code) but when such certainty cannot be so reasonably the rate allowed in judgments shall no longer be twelve percent (12%)
established at the time the demand is made, the interest per annum - as reflected in the case of Eastern Shipping Lines40and
shall begin to run only from the date the judgment of the Subsection X305.1 of the Manual of Regulations for Banks and
court is made (at which time the quantification of damages Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
may be deemed to have been reasonably ascertained). The Regulations for Non-Bank Financial Institutions, before its
actual base for the computation of legal interest shall, in any amendment by BSP-MB Circular No. 799 - but will now be six
case, be on the amount finally adjudged. percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively
3. When the judgment of the court awarding a sum of money and not retroactively. Consequently, the twelve percent (12%) per
becomes final and executory, the rate of legal interest, annum legal interest shall apply only until June 30, 2013. Come
whether the case falls under paragraph 1 or paragraph 2, July 1, 2013 the new rate of six percent (6%) per annum shall be the
above, shall be 12% per annum from such finality until its prevailing rate of interest when applicable.
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.33 Corollarily, in the recent case of Advocates for Truth in Lending, Inc.
and Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board Court affirmed the authority of the BSP-MB to set interest rates and
(BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved to issue and enforce Circulars when it ruled that "the BSP-MB may
the amendment of Section 234 of Circular No. 905, Series of 1982 prescribe the maximum rate or rates of interest for all loans or
and, accordingly, issued Circular No. 799,35 Series of 2013, effective renewals thereof or the forbearance of any money, goods or credits,
July 1, 2013, the pertinent portion of which reads: including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and
similar credit institutions. It even authorizes the BSP-MB to
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, prescribe different maximum rate or rates for different types of
approved the following revisions governing the rate of interest in the
borrowings, including deposits and deposit substitutes, or loans of at the time the demand is made, the interest shall begin to run only
financial intermediaries." from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
Nonetheless, with regard to those judgments that have become final ascertained). The actual base for the computation of legal interest
and executory prior to July 1, 2013, said judgments shall not be shall, in any case, be on the amount finally adjudged.
disturbed and shall continue to be implemented applying the rate of
interest fixed therein.1awp++i1 When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
To recapitulate and for future guidance, the guidelines laid down in under paragraph 1 or paragraph 2, above, shall be 6% per annum
the case of Eastern Shipping Lines42 are accordingly modified to from such finality until its satisfaction, this interim period being
embody BSP-MB Circular No. 799, as follows: deemed to be by then an equivalent to a forbearance of credit.
I. When an obligation, regardless of its source, i.e., law, And, in addition to the above, judgments that have become final and
contracts, quasi-contracts, delicts or quasi-delicts is executory prior to July 1, 2013, shall not be disturbed and shall
breached, the contravenor can be held liable for damages. continue to be implemented applying the rate of interest fixed
The provisions under Title XVIII on "Damages" of the Civil therein.
Code govern in determining the measure of recoverable
damages.1âwphi1 WHEREFORE, premises considered, the Decision dated September
23, 2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the
II. With regard particularly to an award of interest in the Resolution dated October 9, 2009 are REVERSED and SET ASIDE.
concept of actual and compensatory damages, the rate of Respondents are Ordered to Pay petitioner:
interest, as well as the accrual thereof, is imposed, as
follows: (1) backwages computed from the time petitioner was
illegally dismissed on January 24, 1997 up to May 27, 2002,
When the obligation is breached, and it consists in the payment of a when the Resolution of this Court in G.R. No. 151332
sum of money, i.e., a loan or forbearance of money, the interest due became final and executory;
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the (2) separation pay computed from August 1990 up to May
time it is judicially demanded. In the absence of stipulation, the rate 27, 2002 at the rate of one month pay per year of service;
of interest shall be 6% per annum to be computed from default, i.e., and
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code. (3) interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30,
When an obligation, not constituting a loan or forbearance of money, 2013 and six percent (6%) per annum from July 1, 2013
is breached, an interest on the amount of damages awarded may be until their full satisfaction.
imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or The Labor Arbiter is hereby ORDERED to make another
damages, except when or until the demand can be established with recomputation of the total monetary benefits awarded and due to
reasonable certainty. Accordingly, where the demand is established petitioner in accordance with this Decision.
with reasonable certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so reasonably established SO ORDERED.
Civil Law; Contracts; Parties are free to enter into agreements and lower than those interest rates agreed upon by the parties in the above-
stipulate as to the terms and conditions of their contract, but such mentioned cases. Thus, there is no similarity of factual milieu for the
freedom is not absolute; Hence, if the stipulations in the contract are application of those cases. We do not consider the interest rate of 23%
valid, the parties thereto are bound to comply with them, since such p.a. agreed upon by petitioners and respondent bank to be
contract is the law between the parties.―Parties are free to enter into unconscionable.
agreements and stipulate as to the terms and conditions of their
contract, but such freedom is not absolute. As Article 1306 of the Civil Same; Same; A contract is the law between the parties and they are
Code provides, “The contracting parties may establish such stipulations, bound by the stipulations therein.―Petitioners defaulted in the payment
clauses, terms and conditions as they may deem convenient, provided of their loan obligation with respondent bank and their contract provided
they are not contrary to law, morals, good customs, public order, or for the payment of 12% p.a. penalty charge, and since there was no
public policy.” Hence, if the stipulations in the contract are valid, the showing that petitioners’ failure to perform their obligation was due
parties thereto are bound to comply with them, since such contract is the to force majeure or to respondent bank’s acts, petitioners cannot now
law between the parties. In this case, petitioners and respondent bank back out on their obligation to pay the penalty charge. A contract is the
agreed upon on a 23% p.a. interest rate on the P1.7 million loan. law between the parties and they are bound by the stipulations therein.
However, petitioners now contend that the interest rate of 23% p.a.
imposed by respondent bank is excessive or unconscionable, invoking our
ruling in Medel v. Court of Appeals, 299 SCRA 481 (1998), Toring v.
Spouses Ganzon-Olan, 568 SCRA 376 (2008), and Chua v. Timan, 562
SCRA 146 (2008).
Same; Same; The Supreme Court does not consider the interest rate of
23% p.a. agreed upon by petitioners and respondent bank to be
unconscionable.―In this case, the interest rate agreed upon by the
parties was only 23% p.a., or less than 2% per month, which are much
Republic of the Philippines attorney's fees equivalent to 15% p.a. of the total amount due, but not
SUPREME COURT less than ₱200.00, and penalty and collection charges of 12% p.a.
Manila Petitioners executed a Deed of Real Estate Mortgage6 in favor of
respondent bank covering petitioners' property under Transfer
THIRD DIVISION Certificate of Title (TCT) No. T-215175 of the Register of Deeds of Tarlac
to answer for the said loan.
G.R. No. 197861 June 5, 2013
Petitioners failed to settle their loan obligations with respondent bank,
thus, the latter, through its lawyer, sent a demand letter to the former
SPOUSES FLORENTINO T. MALLARI and AUREA V. for them to pay their obligations, which when computed up to January
MALLARI, Petitioners, 31, 1992, amounted to ₱571,218.54 for PN No. BD 84-055 and
vs. ₱2,991,294.82 for PN No. BDS 606-89.
PRUDENTIAL BANK (now BANK OF THE PHILIPPINE
ISLANDS), Respondent.
On February 25, 1992, respondent bank filed with the Regional Trial
Court (RTC) of Tarlac, a petition for the extrajudicial foreclosure of
DECISION
petitioners' mortgaged property for the satisfaction of the latter's
obligation of ₱1,700,000.00 secured by such mortgage, thus, the auction
PERALTA, J.: sale was set by the Provincial Sheriff on April 23, 1992.7
Before us is a Petition for Review on Certiorari under Rule 45, assailing On April 10, 1992, respondent bank's Assistant Manager sent petitioners
the Decision1 dated June 17, 2010 and the Resolution2 dated July 20, two (2) separate Statements of Account as of April 23, 1992, i.e., the loan
2011 of the Court of Appeals (CA) in CA-G.R. CV No. 65993. of ₱300,000.00 was increased to ₱594,043.54, while the ₱1,700,000.00
loan was already ₱3,171,836.18.
The antecedent facts are as follows:
On April 20, 1992, petitioners filed a complaint for annulment of
On December 11, 1984, petitioner Florentino T. Mallari (Florentino) mortgage, deeds, injunction, preliminary injunction, temporary
obtained from respondent Prudential Bank-Tarlac Branch (respondent restraining order and damages claiming, among others, that: (1) the
bank), a loan in the amount of ₱300,000.00 as evidenced by Promissory ₱300,000.00 loan obligation should have been considered paid, because
Note (PN) No. BD 84-055.3 Under the promissory note, the loan was the time deposit with the same amount under Certificate of Time Deposit
subject to an interest rate of 21% per annum (p.a.), attorney's fees No. 284051 had already been assigned to respondent bank; (2)
equivalent to 15% of the total amount due but not less than ₱200.00 and, respondent bank still added the ₱300,000.00 loan to the ₱1.7 million loan
in case of default, a penalty and collection charges of 12% p.a. of the total obligation for purposes of applying the proceeds of the auction sale; and
amount due. The loan had a maturity date of January 10, 1985, but was (3) they realized that there were onerous terms and conditions imposed
renewed up to February 17, 1985. Petitioner Florentino executed a Deed by respondent bank when it tried to unilaterally increase the charges
of Assignment4 wherein he authorized the respondent bank to pay his and interest over and above those stipulated. Petitioners asked the court
loan with his time deposit with the latter in the amount of ₱300,000.00. to restrain respondent bank from proceeding with the scheduled
foreclosure sale.
On December 22, 1989, petitioners spouses Florentino and Aurea Mallari
(petitioners) obtained again from respondent bank another loan of ₱1.7 Respondent bank filed its Answer with counterclaim arguing that: (1) the
million as evidenced by PN No. BDS 606-895 with a maturity date of interest rates were clearly provided in the promissory notes, which were
March 22, 1990. They stipulated that the loan will bear 23% interest p.a., used in computing for interest charges; (2) as early as January 1986,
petitioners' time deposit was made to apply for the payment of interest of to pay damages under the general concept that there should be no
their ₱300,000.00 loan; and (3) the statement of account as of April 10, premium on the right to litigate.
1992 provided for a computation of interest and penalty charges only
from May 26, 1989, since the proceeds of petitioners' time deposit was NO COSTS.
applied to the payment of interest and penalty charges for the preceding
period. Respondent bank also claimed that petitioners were fully
SO ORDERED.15
apprised of the bank's terms and conditions; and that the extrajudicial
foreclosure was sought for the satisfaction of the second loan in the
amount of ₱1.7 million covered by PN No. BDS 606-89 and the real The RTC found that as to the ₱300,000.00 loan, petitioners had assigned
estate mortgage, and not the ₱300,000.00 loan covered by another PN petitioner Florentino's time deposit in the amount of ₱300,000.00 in
No. 84-055. favor of respondent bank, which maturity coincided with petitioners' loan
maturity. Thus, if the loan was unpaid, which was later extended to
In an Order8 dated November 10, 1992, the RTC denied the Application February 17, 1985, respondent bank should had just applied the time
deposit to the loan. However, respondent bank did not, and allowed the
for a Writ of Preliminary Injunction. However, in petitioners'
Supplemental Motion for Issuance of a Restraining Order and/or loan interest to accumulate reaching the amount of ₱594,043.54 as of
Preliminary Injunction to enjoin respondent bank and the Provincial April 10, 1992, hence, the amount of ₱292,600.00 as penalty charges was
unjust and without basis.
Sheriff from effecting or conducting the auction sale, the RTC reversed
itself and issued the restraining order in its Order9 dated January 14,
1993. As to the ₱1.7 million loan which petitioners obtained from respondent
bank after the ₱300,000.00 loan, it had reached the amount of
Respondent bank filed its Motion to Lift Restraining Order, which the ₱3,171,836.18 per Statement of Account dated April 27, 1993, which was
RTC granted in its Order10 dated March 9, 1993. Respondent bank then computed based on the 23% interest rate and 12% penalty charge agreed
upon by the parties; and that contrary to petitioners' claim, respondent
proceeded with the extrajudicial foreclosure of the mortgaged property.
On July 7, 1993, a Certificate of Sale was issued to respondent bank bank did not add the ₱300,000.00 loan to the ₱1.7 million loan obligation
being the highest bidder in the amount of ₱3,500,000.00. for purposes of applying the proceeds of the auction sale.
Subsequently, respondent bank filed a Motion to Dismiss Complaint 11 for The RTC found no legal basis for petitioners' claim that since the total
failure to prosecute action for unreasonable length of time to which obligation was ₱1.7 million and respondent bank's bid price was ₱3.5
petitioners filed their Opposition.12 On November 19, 1998, the RTC million, the latter should return to petitioners the difference of ₱1.8
issued its Order13 denying respondent bank's Motion to Dismiss million. It found that since petitioners' obligation had reached
Complaint. ₱2,991,294.82 as of January 31, 1992, but the certificate of sale was
executed by the sheriff only on July 7, 1993, after the restraining order
was lifted, the stipulated interest and penalty charges from January 31,
Trial thereafter ensued. Petitioner Florentino was presented as the lone 1992 to July 7, 1993 added to the loan already amounted to ₱3.5 million
witness for the plaintiffs. Subsequently, respondent bank filed a as of the auction sale.
Demurrer to Evidence.
The RTC found that the 23% interest rate p.a., which was then the
On November 15, 1999, the RTC issued its Order14 granting respondent's prevailing loan rate of interest could not be considered unconscionable,
demurrer to evidence, the dispositive portion of which reads: since banks are not hospitable or equitable institutions but are entities
formed primarily for profit. It also found that Article 1229 of the Civil
WHEREFORE, this case is hereby ordered DISMISSED. Considering Code invoked by petitioners for the reduction of the interest was not
there is no evidence of bad faith, the Court need not order the plaintiffs applicable, since petitioners had not paid any single centavo of the ₱1.7
million loan which showed they had not complied with any part of the establish such stipulations, clauses, terms and conditions as they may
obligation. deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy." Hence, if the stipulations in the
Petitioners appealed the RTC decision to the CA. A Comment was filed contract are valid, the parties thereto are bound to comply with them,
by respondent bank and petitioners filed their Reply thereto. since such contract is the law between the parties. In this case,
petitioners and respondent bank agreed upon on a 23% p.a. interest rate
on the ₱1.7 million loan. However, petitioners now contend that the
On June 17, 2010, the CA issued its assailed Decision, the dispositive interest rate of 23% p.a. imposed by respondent bank is excessive or
portion of which reads:
unconscionable, invoking our ruling in Medel v. Court of
Appeals,18 Toring v. Spouses Ganzon-Olan,19 and Chua v. Timan.20
WHEREFORE, the instant appeal is hereby DENIED. The Order dated
November 15, 1999 issued by the Regional Trial Court (RTC), Branch 64, We are not persuaded.
Tarlac City, in Civil Case No. 7550 is hereby AFFIRMED.16
The issue for resolution is whether the 23% p.a. interest rate and the We do not consider the interest rate of 23% p.a. agreed upon by
12% p.a. penalty charge on petitioners' ₱1,700,000.00 loan to which they petitioners and respondent bank to be unconscionable.
agreed upon is excessive or unconscionable under the circumstances.
In Villanueva v. Court of Appeals,25 where the issue raised was whether
Parties are free to enter into agreements and stipulate as to the terms the 24% p.a. stipulated interest rate is unreasonable under the
and conditions of their contract, but such freedom is not absolute. As circumstances, we answered in the negative and held:
Article 1306 of the Civil Code provides, "The contracting parties may
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino breach. x x x28 And in Development Bank of the Philippines v. Family
Savings and Mortgage Bank, Dagupan City Branch, this Court held that Foods Manufacturing Co., Ltd.,29 we held that:
the interest rate of 24% per annum on a loan of ₱244,000.00, agreed
upon by the parties, may not be considered as unconscionable and x x x The enforcement of the penalty can be demanded by the creditor
excessive. As such, the Court ruled that the borrowers cannot renege on only when the non-performance is due to the fault or fraud of the debtor.
their obligation to comply with what is incumbent upon them under the The non-performance gives rise to the presumption of fault; in order to
contract of loan as the said contract is the law between the parties and avoid the payment of the penalty, the debtor has the burden of proving
they are bound by its stipulations. an excuse - the failure of the performance was due to either force
majeure or the acts of the creditor himself.30
Also, in Garcia v. Court of Appeals, this Court sustained the agreement
of the parties to a 24% per annum interest on an ₱8,649,250.00 loan Here, petitioners defaulted in the payment of their loan obligation with
finding the same to be reasonable and clearly evidenced by the amended respondent bank and their contract provided for the payment of 12% p.a.
credit line agreement entered into by the parties as well as two penalty charge, and since there was no showing that petitioners' failure
promissory notes executed by the borrower in favor of the lender. to perform their obligation was due to force majeure or to respondent
bank's acts, petitioners cannot now back out on their obligation to pay
Based on the above jurisprudence, the Court finds that the 24% per the penalty charge. A contract is the law between the parties and they
annum interest rate, provided for in the subject mortgage contracts for a are bound by the stipulations therein.
loan of ₱225,000.00, may not be considered unconscionable. Moreover,
considering that the mortgage agreement was freely entered into by both WHEREFORE, the petition for review is DENIED. The Decision dated
parties, the same is the law between them and they are bound to comply June 17, 2010 and the Resolution dated July 20, 2011 of the Court of
with the provisions contained therein.26 Appeals are hereby AFFIRMED.
Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate SO ORDERED.
was not considered unconscionable, thus, the 23% p.a. interest rate
imposed on petitioners' loan in this case can by no means be considered
excessive or unconscionable. DIOSDADO M. PERALTA
Associate Justice
We also do not find the stipulated 12% p.a. penalty charge excessive or
unconscionable.
Present:
On November 23, 1998, Marilou filed an Answer[7] with Special On appeal, Jocelyn asserts that she had made payments in the total
Affirmative Defenses and Counterclaim alleging that Jocelyn voluntarily amount of P778,000.00 for a principal amount of loan of only P290,000.00. What
obtained the said loans knowing fully well that the interest rate was at 6% to 7% is appalling, according to Jocelyn, was that such payments covered only the
per month. In fact, a 6% to 7% advance interest was already deducted from the interest because of the excessive, iniquitous, unconscionable and exorbitant
loan amount given to Jocelyn. imposition of the 6% to 7% monthly interest.
On August 24, 2005, the CA issued its Decision which provides:
Ruling of the Regional Trial Court
WHEREFORE, premises considered, the Decision
The court a quo did not find any showing that Jocelyn was forced, dated March 10, 2003 and the Order dated April 29, 2003, of
threatened, or intimidated in signing the document referred to as the Regional Trial Court, 7th Judicial Region, Branch
Acknowledgment of Debt and in issuing the postdated checks. Thus, in its March 22, Cebu City, in Civil Case No. CEB-22867 are
10, 2003 Decision the trial court ruled in favor of Marilou, viz: hereby AFFIRMED. No pronouncement as to costs.
II. In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury
Whether the CA gravely erred when it failed to declare that Law ceiling on interest effective January 1, 1983, parties to a loan agreement
the Acknowledgment of Debt is an inexistent contract that is have wide latitude to stipulate interest rates. Nevertheless, such stipulated
void from the very beginning pursuant to Article 1409 of the interest rates may be declared as illegal if the same is unconscionable.[14] There is
New Civil Code. certainly nothing in said circular which grants lenders carte blanche authority to
raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets.[15] In fact, in Medel v. Court of Appeals,[16] we
Petitioners Arguments annulled a stipulated 5.5% per month or 66% per annum interest with
additional service charge of 2% per annum and penalty charge of 1% per month
on a P500,000.00 loan for being excessive, iniquitous, unconscionable and
Jocelyn posits that the CA erred when it held that the imposition of interest at exorbitant.
the rates of 6% to 7% per month is not contrary to law, not unconscionable and
not contrary to morals. She likewise contends that the CA erred in ruling that In this case, however, we cannot consider the disputed 6% to 7% monthly
the Acknowledgment of Debt is valid and binding. According to Jocelyn, even interest rate to be iniquitous or unconscionable vis--vis the principle laid down
assuming that the execution of said document was not attended with force, in Medel. Noteworthy is the fact that in Medel, the defendant-spouses were
threat and intimidation, the same must nevertheless be declared null and void never able to pay their indebtedness from the very beginning and when their
for being contrary to law and public policy. This is borne out by the fact that the obligations ballooned into a staggering sum, the creditors filed a collection case
payments in the total amount of P778,000.00 was applied to interest payment against them. In this case, there was no urgency of the need for money on the
alone. This only proves that the transaction was iniquitous, excessive, oppressive part of Jocelyn, the debtor, which compelled her to enter into said loan
and unconscionable. transactions. She used the money from the loans to make advance payments for
prospective clients of educational plans offered by her employer. In this way, her
Respondents Arguments sales production would increase, thereby entitling her to 50% rebate on her
sales. This is the reason why she did not mind the 6% to 7% monthly
On the other hand, Marilou would like this Court to consider the fact interest. Notably too, a business transaction of this nature between Jocelyn and
that the document referred to as Acknowledgment of Debt was executed in the Marilou continued for more than five years. Jocelyn religiously paid the agreed
safe surroundings of the office of Jocelyn and it was witnessed by two of her amount of interest until she ordered for stop payment on some of the checks
staff. If at all there had been coercion, then Jocelyn could have easily prevented issued to Marilou. The checks were in fact sufficiently funded when she ordered
her staff from affixing their signatures to said document. In fact, petitioner had the stop payment and then filed a case questioning the imposition of a 6% to 7%
admitted that she was the one who went to the tables of her staff to let them sign interest rate for being allegedly iniquitous or unconscionable and, hence,
the said document. contrary to morals.
Our Ruling
It was clearly shown that before Jocelyn availed of said loans, she knew fully of P778,000.00. She claims that said document is an inexistent contract that is
well that the same carried with it an interest rate of 6% to 7% per month, yet she void from the very beginning as clearly provided for by Article 1409[19] of the New
did not complain. In fact, when she availed of said loans, an advance interest of Civil Code.
6% to 7% was already deducted from the loan amount, yet she never uttered a
word of protest. Jocelyn further claims that she signed the said document and issued the seven
postdated checks because Marilou threatened to sue her for violation of BP Blg.
After years of benefiting from the proceeds of the loans bearing an 22.
interest rate of 6% to 7% per month and paying for the same, Jocelyn cannot now
go to court to have the said interest rate annulled on the ground that it is Jocelyn is misguided. Even if there was indeed such threat made by
excessive, iniquitous, unconscionable, exorbitant, and absolutely revolting to the Marilou, the same is not considered as threat that would vitiate consent. Article
conscience of man. This is so because among the maxims of equity are (1) he who 1335 of the New Civil Code is very specific on this matter. It provides:
seeks equity must do equity, and (2) he who comes into equity must come with
clean hands. The latter is a frequently stated maxim which is also expressed in Art. 1335. There is violence when in order to wrest
the principle that he who has done inequity shall not have equity. It signifies consent, serious or irresistible force is employed.
that a litigant may be denied relief by a court of equity on the ground that his
conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as xxxx
to the controversy in issue. [17]
A threat to enforce ones claim through
We are convinced that Jocelyn did not come to court for equitable relief with competent authority, if the claim is just or legal, does
equity or with clean hands. It is patently clear from the above summary of the not vitiate consent. (Emphasis supplied.)
facts that the conduct of Jocelyn can by no means be characterized as nobly fair,
just, and reasonable. This Court likewise notes certain acts of Jocelyn before
filing the case with the RTC. In September 1998, she requested Marilou not to Clearly, we cannot grant Jocelyn the relief she seeks.
deposit her checks as she can cover the checks only the following month. On the
next month, Jocelyn again requested for another extension of one month. It As can be seen from the records of the case, Jocelyn has failed to prove her claim
turned out that she was only sweet-talking Marilou into believing that she had that she was made to sign the document Acknowledgment of Debt and draw the
no money at that time. But as testified by Serapio Romarate,[18] an employee of seven Bank of Commerce checks through force, threat and intimidation. As
the Bank of Commerce where Jocelyn is one of their clients, there was an earlier stressed, said document was signed in the office of Jocelyn, a high
available balance of P276,203.03 in the latters account and yet she ordered for ranking executive of CAP, and it was Jocelyn herself who went to the table of her
the stop payments of the seven checks which can actually be covered by the two subordinates to procure their signatures as witnesses to the execution of said
available funds in said account. She then caught Marilou by surprise when she document. If indeed, she was forced to sign said document, then Jocelyn should
surreptitiously filed a case for declaration of nullity of the document and for have immediately taken the proper legal remedy. But she did not. Furthermore,
damages. it must be noted that after the execution of said document, Jocelyn honored the
first three checks before filing the complaint with the RTC. If indeed she was
The document forced she would never have made good on the first three checks.
Acknowledgment of
Debt is valid and It is provided, as one of the conclusive presumptions under Rule 131, Section
binding. 2(a), of the Rules of Court that, Whenever a party has, by his own declaration,
act or omission, intentionally and deliberately led another to believe a particular
thing to be true, and to act upon such belief, he cannot, in any litigation arising
Jocelyn seeks for the nullification of the document entitled Acknowledgment of out of such declaration, act or omission, be permitted to falsify it. This is known
Debt and wants this Court to declare that she is no longer indebted to Marilou in as the principle of estoppel.
the amount of P290,000.00 as she had already paid a total amount
The essential elements of estoppel are: (1) conduct amounting to false
representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2) intent, or at least
expectation, that this conduct shall be acted upon by, or at least influence, the
other party; and, (3) knowledge, actual or constructive, of the real facts.[20]
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
Acknowledgment of Debt. [A] party to a contract cannot deny the validity thereof
after enjoying its benefits without outrage to ones sense of justice and
fairness.[21] It is a long established doctrine that the law does not relieve a party
from the effects of an unwise, foolish or disastrous contract, entered into with all
the required formalities and with full awareness of what she was doing. Courts
have no power to relieve parties from obligations voluntarily assumed, simply
because their contracts turned out to be disastrous or unwise investments.[22]
SO ORDERED.
Corporation Law; Board of Directors; Under the Corporation Law, event which constitutes the condition.” In the case at bar, there is no
unless otherwise provided, corporate powers are exercised by the Board of showing of compliance with the condition for allowing Yamamoto to take
Directors.—The resolution of the petition hinges, in the main, on whether the machineries and equipment, namely, his agreement to the deduction
the advice in the letter of Atty. Doce that Yamamoto may retrieve the of their value from his capital contribution due him in the buy-out of his
machineries and equipment, which admittedly were part of his interests in NLII. Yamamoto’s allegation that he agreed to the condition
investment, bound the corporation. The Court holds in the negative. remained just that, no proof thereof having been presented.
Indeed, without a Board Resolution authorizing respondent Nishino to
act for and in behalf of the corporation, he cannot bind the latter. Under Corporation Law; Trust Fund Doctrine; Words and Phrases; Under
the Corporation Law, unless otherwise provided, corporate powers are the trust fund doctrine, the capital stock, property, and other assets of a
exercised by the Board of Directors. corporation are regarded as equity in trust for the payment of corporate
creditors which are preferred over the stockholders in the distribution of
Same; Doctrine of Piercing the Veil of Corporate Fiction; Elements.— corporate assets.—It is settled that the property of a corporation is not
While the veil of separate corporate personality may be pierced when the the property of its stockholders or members. Under the trust fund
corporation is merely an adjunct, a business conduit, or alter ego of a doctrine, the capital stock, property, and other assets of a corporation are
person, the mere ownership by a single stockholder of even all or nearly regarded as equity in trust for the payment of corporate creditors which
all of the capital stocks of a corporation is not by itself a sufficient ground are preferred over the stockholders in the distribution of corporate
to disregard the separate corporate personality. The elements assets. The distribution of corporate assets and property cannot be made
determinative of the applicability of the doctrine of piercing the veil of to depend on the whims and caprices of the stockholders, officers, or
corporate fiction follow: “1. Control, not mere majority or complete stock directors of the corporation unless the indispensable conditions and
control, but complete domination, not only of finances but of policy and procedures for the protection of corporate creditors are followed.
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind,
will or existence of its own; 2. Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust act in
contravention of the plaintiff’s legal rights; and 3. The aforesaid control
and breach of duty must proximately cause the injury or unjust loss
complained of. The absence of any one of these elements prevents
“piercing the corporate veil.” In applying the ‘instrumentality’ or ‘alter
ego’ doctrine, the courts are concerned with reality and not form, with how
the corporation operated and the individual defendant’s relationship to
that operation.” (Italics in the original; emphasis and underscoring
supplied)
xxxx
NISHINO LEATHER INDUSTRIES, INC. and Promulgated:
IKUO NISHINO, April 16, 2008 12. Machinery and Equipment:
Respondents.
x---------------------------------------------- The following machinery/equipment have
---x been contributed by you to the company:
Eventually, Nishino and his brother[1] Yoshinobu Nishino x x x x[5] (Emphasis and underscoring
(Yoshinobu) acquired more than 70% of the authorized capital stock supplied)
On appeal,[13] the Court of Appeals held in favor of herein
On the basis of such letter, Yamamoto attempted to recover respondents and accordingly reversed the RTC decision and
the machineries and equipment which were, by Yamamotos dismissed the complaint.[14] In so holding, the appellate court found
admission, part of his investment in the corporation,[6] but he was that the machineries and equipment claimed by Yamamoto are
frustrated by respondents, drawing Yamamoto to file on January 15, corporate property of NLII and may not thus be retrieved without the
1992 before the Regional Trial Court (RTC) of Makati a authority of the NLII Board of Directors;[15] and that petitioners
complaint[7] against them for replevin. argument that Nishino and Yamamoto cannot hide behind the shield
of corporate fiction does not lie,[16] nor does petitioners invocation of
Branch 45 of the Makati RTC issued a writ of replevin after the doctrine of promissory estoppel.[17] At the same time, the Court of
Yamamoto filed a bond. [8] Appeals found no ground to support respondents Counterclaim.[18]
In their Answer with Counterclaim,[9] respondents claimed The Court of Appeals having denied[19] his Motion for
that the machineries and equipment subject of replevin form part of Reconsideration,[20] Yamamoto filed the present petition,[21] faulting
Yamamotos capital contributions in consideration of his equity in the Court of Appeals
NLII and should thus be treated as corporate property; and that the
above-said letter of Atty. Doce to Yamamoto was merely a
proposal, conditioned on [Yamamotos] sell-out to . . . Nishino of his A.
entire equity,[10] which proposal was yet to be authorized by the
stockholders and Board of Directors of NLII. x x x IN HOLDING THAT THE VEIL OF CORPORATE
FICTION SHOULD NOT BE PIERCED IN THE CASE
By way of Counterclaim, respondents, alleging that they AT BAR.
suffered damage due to the seizure via the implementation of the writ
of replevin over the machineries and equipment, prayed for the B.
award to them of moral and exemplary damages, attorneys fees and
litigation expenses, and costs of suit. x x x IN HOLDING THAT THE DOCTRINE OF
PROMISSORY ESTOPPEL DOES NOT APPLY TO
The trial court, by Decision of June 9, 1995, decided the case THE CASE AT BAR.
in favor of Yamamoto,[11] disposing thus:
C.
WHEREFORE, judgment is hereby rendered:
(1) declaring plaintiff as the rightful owner and x x x IN HOLDING THAT RESPONDENTS ARE NOT
possessor of the machineries in question, and LIABLE FOR ATTORNEYS FEES.[22]
making the writ of seizure permanent; (2) ordering
defendants to pay plaintiff attorneys fees and
expenses of litigation in the amount of Fifty The resolution of the petition hinges, in the main, on
Thousand Pesos (P50,000.00), Philippine Currency; whether the advice in the letter of Atty. Doce that Yamamoto may
(3) dismissing defendants counterclaims for lack of retrieve the machineries and equipment, which admittedly were part
merit; and (4) ordering defendants to pay the costs of of his investment, bound the corporation. The Court holds in the
suit. negative.
During the negotiations, the issue as to the The elements determinative of the applicability of the
ownership of the Machiner[ies] never came doctrine of piercing the veil of corporate fiction follow:
up. Neither did the issue on the proper procedure to 1. Control, not mere majority or complete
be taken to execute the complete take-over of the stock control, but complete domination, not only of
Company come up since Ikuo, Yoshinobu, and finances but of policy and business practice in respect
Yamamoto were the owners thereof, the presence of to the transaction attacked so that the corporate
other stockholders being only for the purpose of entity as to this transaction had at the time no
complying with the minimum requirements of the separate mind, will or existence of its own;
law.
2. Such control must have been used by the
What course of action the Company decides defendant to commit fraud or wrong, to perpetuate the
to do or not to do depends not on the other members violation of a statutory or other positive legal duty, or
of the Board of Directors. It depends on what Ikuo dishonest and unjust act in contravention of the
and Yoshinobu decide. The Company is but a plaintiffs legal rights; and
mere instrumentality of Ikuo [and] Yoshinobu.[24]
3. The aforesaid control and breach of duty
xxxx must proximately cause the injury or unjust loss
x x x The Company hardly holds board complained of.
meetings. It has an inactive board, the directors are
directors in name only and are there to do the The absence of any one of these elements
bidding of the Nish[i]nos, nothing more. Its minutes prevents piercing the corporate veil. In applying
are paper minutes. x x x [25] the instrumentality or alter ego doctrine, the courts
are concerned with reality and not form, with how the
xxxx corporation operated and the individual defendants
relationship to that operation.[29] (Italics in the
The fact that the parties started at a 70-30 original; emphasis and underscoring supplied)
ratio and Yamamotos percentage declined to 10%
does not mean the 20% went to others. x x x The
20% went to no one else but Ikuo himself. x x In relation to the second element, to disregard the separate juridical
x Yoshinobu is the younger brother of Ikuo and personality of a corporation, the wrongdoing or unjust act in
has no say at all in the business. Only Ikuo contravention of a plaintiffs legal rights must be clearly and
makes the decisions. There were, therefore, no convincingly established; it cannot be presumed.[30] Without a
other members of the Board who have not given demonstration that any of the evils sought to be prevented by the
their approval.[26] (Emphasis and underscoring doctrine is present, it does not apply.[31]
supplied)
In the case at bar, there is no showing that Nishino used the
separate personality of NLII to unjustly act or do wrong to Yamamoto
While the veil of separate corporate personality may be in contravention of his legal rights.
pierced when the corporation is merely an adjunct, a business
conduit, or alter ego of a person,[27] the mere ownership by a single
Yamamoto argues, in another vein, It bears noting, however, that the aforementioned paragraph
that promissory estoppel lies against respondents, thus: 12 of the letter is followed by a request for Yamamoto to give
his comments on all the above, soonest.[33]
Under the doctrine of promissory estoppel, x
x x estoppel may arise from the making of a promise, What was thus proffered to Yamamoto was not a promise,
even though without consideration, if it was but a mere offer, subject to his acceptance. Without acceptance, a
intended that the promise should be relied upon and mere offer produces no obligation.[34]
in fact it was relied upon, and if a refusal to enforce Thus, under Article 1181 of the Civil Code, [i]n conditional
it would be virtually to sanction the perpetration of obligations, the acquisition of rights, as well as the extinguishment
fraud or would result in other injustice. or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition. In the case at bar, there
x x x Ikuo and Yoshinobu wanted Yamamoto is no showing of compliance with the condition for allowing
out of the Company. For this purpose negotiations Yamamoto to take the machineries and equipment, namely, his
were had between the parties. Having expressly agreement to the deduction of their value from his capital
given Yamamoto, through the Letter and through a contribution due him in the buy-out of his interests in
subsequent meeting at the Manila Peninsula where NLII. Yamamotos allegation that he agreed to the
Ikuo himself confirmed that Yamamoto may take out condition[35] remained just that, no proof thereof having been
the Machinery from the Company anytime, presented.
respondents should not be allowed to turn around
and do the exact opposite of what they have The machineries and equipment, which comprised
represented they will do. Yamamotos investment in NLII,[36] thus remained part of the capital
property of the corporation.[37]
In paragraph twelve (12) of the Letter,
Yamamoto was expressly advised that he could take It is settled that the property of a corporation is not the
out the Machinery if he wanted to so, provided that property of its stockholders or members.[38] Under the trust fund
the value of said machines would be deducted from doctrine, the capital stock, property, and other assets of a
his capital contribution x x x. corporation are regarded as equity in trust for the payment of
corporate creditors which are preferred over the stockholders in the
xxxx distribution of corporate assets.[39] The distribution of corporate
assets and property cannot be made to depend on the whims and
Respondents cannot now argue that they did caprices of the stockholders, officers, or directors of the corporation
not intend for Yamamoto to rely upon the unless the indispensable conditions and procedures for the
Letter. That was the purpose of the Letter to begin protection of corporate creditors are followed.[40]
with. Petitioner[s] in fact, relied upon said Letter and
such reliance was further strengthened during their WHEREFORE, the petition is DENIED.
meeting at the Manila Peninsula.
Costs against petitioner.
To sanction respondents attempt to evade
their obligation would be to sanction the SO ORDERED.
perpetration of fraud and injustice against
petitioner.[32] (Underscoring supplied) CONCHITA CARPIO MORALES
Associate Justice
Actions; Pleadings, Practice and Procedure; The object of pleadings party to a contract of sale is subject to any condition which is not
is to draw the lines of battle between the litigants and to indicate fairly performed, such party may refuse to proceed with the contract or he may
the nature of the claims or defenses of both parties; Courts of justice have waive performance of the condition x x x. Paragraph 1(b) of the
no jurisdiction or power to decide a question not in issue.—This is not an Conditional Deed of Sale, stating that respondent shall pay the balance
instance where a party merely failed to assign an issue as an error in the of the purchase price when he has successfully negotiated and secured a
brief nor failed to argue a material point on appeal that was raised in the road right of way, is not a condition on the perfection of the contract nor
trial court and supported by the record. Neither is this a case where a on the validity of the entire contract or its compliance as contemplated in
party raised an error closely related to, nor dependent on the resolution Article 1308. It is a condition imposed only on respondent’s obligation to
of, an error properly assigned in his brief. This is a situation where a pay the remainder of the purchase price. In our view and applying
party completely changes his theory of the case on appeal and abandons Article 1182, such a condition is not purely potestative as petitioners
his previous assignment of errors in his brief, which plainly should not be contend. It is not dependent on the sole will of the debtor but also on the
allowed as anathema to due process. Petitioners should be reminded that will of third persons who own the adjacent land and from whom the road
the object of pleadings is to draw the lines of battle between the litigants right of way shall be negotiated. In a manner of speaking, such a
and to indicate fairly the nature of the claims or defenses of both parties. condition is likewise dependent on chance as there is no guarantee that
In Philippine National Construction Corporation v. Court of Appeals, 467 respondent and the third party-landowners would come to an agreement
SCRA 569 (2005), we held that “[w]hen a party adopts a certain theory in regarding the road right of way. This type of mixed condition is expressly
the trial court, he will not be permitted to change his theory on appeal, allowed under Article 1182 of the Civil Code.
for to permit him to do so would not only be unfair to the other party but
it would also be offensive to the basic rules of fair play, justice and due Same; Same; Interpretation of Contracts; A basic rule in the
process.” We have also previously ruled that “courts of justice have no interpretation of contracts is that the contract should be taken as a
jurisdiction or power to decide a question not in issue. Thus, a judgment whole.—It is petitioners’ strategy to insist that the Court examine the
that goes beyond the issues and purports to adjudicate something on first sentence of paragraph 5 alone and, resist a correlation of such
which the court did not hear the parties, is not only irregular but also sentence with other provisions of the contract. Petitioners’ view,
extrajudicial and invalid. The rule rests on the fundamental tenets of fair however, ignores a basic rule in the interpretation of contracts—that the
play.” contract should be taken as a whole. Article 1374 of the Civil Code
provides that “[t]he various stipulations of a contract shall be interpreted
Obligations and Contracts; Sales; A provision in a Conditional Deed of together, attributing to the doubtful ones that sense which may result
Sale stating that the vendee shall pay the balance of the purchase price from all of them taken jointly.” The same Code further sets down the rule
when he has successfully negotiated and secured a road right of way is that “[i]f some stipulation of any contract should admit of several
not a condition on the perfection of the contract nor on the validity of the meanings, it shall be understood as bearing that import which is most
entire contract or its compliance as contemplated by Article 1308 of the adequate to render it effectual.” Similarly, under the Rules of Court it is
Civil Code—such a condition is not purely potestative—such a condition prescribed that “[i]n the construction of an instrument where there are
is likewise dependent on chance as there is no guarantee that the vendee several provisions or particulars, such a construction is, if possible, to be
and the third-party landowners would come to an agreement regarding adopted as will give effect to all” and “for the proper construction of an
the road right of way, a type mixed condition expressly allowed under instrument, the circumstances under which it was made, including the
Article 1182 of the Civil Code.—In the past, this Court has distinguished situation of the subject thereof and of the parties to it, may be shown, so
between a condition imposed on the perfection of a contract and a that the judge may be placed in the position of those whose language he
condition imposed merely on the performance of an obligation. While is to interpret.”
failure to comply with the first condition results in the failure of a
contract, failure to comply with the second merely gives the other party Same; Same; Where the so-called potestative condition is imposed
the option to either refuse to proceed with the sale or to waive the not on the birth of the obligation but on its fulfillment, only the condition
condition. This principle is evident in Article 1545 of the Civil Code on is avoided, leaving unaffected the obligation itself.—In any event, even if
sales, which provides in part: Art. 1545. Where the obligation of either we assume for the sake of argument that the grant to Rodriguez of an
option to rescind, in the manner provided for in the contract, is Rodriguez is given a period of thirty (30) days from the finality of this
tantamount to a potestative condition, not being a condition affecting the decision to negotiate a road right of way. In the event no road right of
perfection of the contract, only the said condition would be considered way is secured by Rodriguez at the end of said period, the parties shall
void and the rest of the contract will remain valid. In Romero, the Court reassess and discuss other options as stipulated in paragraph 1(b) of the
observed that “where the so-called ‘potestative condition’ is imposed not Conditional Deed of Sale and, for this purpose, they are given a period of
on the birth of the obligation but on its fulfillment, only the condition is thirty (30) days to agree on a course of action. Should the discussions of
avoided, leaving unaffected the obligation itself.” the parties prove futile after the said thirty (30)-day period, immediately
upon the expiration of said period for discussion, Rodriguez may (a)
Same; Same; Being the primary law between the parties, the contract exercise his option to rescind the contract, subject to the return of his
governs the adjudication of their rights and obligations—a court has no downpayment, in accordance with the provisions of paragraphs 1(b) and
alternative but to enforce the contractual stipulations in the manner they 5 of the Conditional Deed of Sale or (b) waive the road right of way and
have been agreed upon and written.—It cannot be gainsaid that pay the balance of the deducted purchase price as determined in the RTC
“contracts have the force of law between the contracting parties and Decision dated May 30, 1992.
should be complied with in good faith.” We have also previously ruled
that “[b]eing the primary law between the parties, the contract governs
the adjudication of their rights and obligations. A court has no
alternative but to enforce the contractual stipulations in the manner
they have been agreed upon and written.” We find no merit in
petitioners’ contention that their parents were merely “duped” into
accepting the questioned provisions in the Conditional Deed of Sale. We
note that although the contract was between Agapita Catungal and
Rodriguez, Jose Catungal nonetheless signed thereon to signify his
marital consent to the same. We concur with the trial court’s finding that
the spouses Catungals’ claim of being misled into signing the contract
was contrary to human experience and conventional wisdom since it was
Jose Catungal who was a practicing lawyer while Rodriguez was a non-
lawyer. It can be reasonably presumed that Atty. Catungal and his wife
reviewed the provisions of the contract, understood and accepted its
provisions before they affixed their signatures thereon.
Same; Same; The Court, having made the observation that it was
desirable for the vendor to file a separate action to fix the period for the
vendee’s obligation to negotiate a road right of way, the Court finds it
necessary to fix said period in these proceedings.—After thorough review
of the records of this case, we have come to the conclusion that
petitioners failed to demonstrate that the Court of Appeals committed
any reversible error in deciding the present controversy. However,
having made the observation that it was desirable for the Catungals to
file a separate action to fix the period for respondent Rodriguez’s
obligation to negotiate a road right of way, the Court finds it necessary to
fix said period in these proceedings. It is but equitable for us to make a
determination of the issue here to obviate further delay and in line with
the judicial policy of avoiding multiplicity of suits. If still warranted,
Before the Court is a Petition for Review on Certiorari, assailing the
FIRST DIVISION following issuances of the Court of Appeals in CA-G.R. CV No. 40627
consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000
Decision,[1] which affirmed the Decision[2] dated May 30, 1992 of the
Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in
Civil Case No. 2365-L, and (b) the January 30, 2001
ROLANDO T. CATUNGAL, JOSE G.R. No. 146839 Resolution,[3] denying herein petitioners motion for reconsideration of
T. CATUNGAL, JR., CAROLYN T. the August 8, 2000 Decision.
CATUNGAL and ERLINDA
CATUNGAL-WESSEL, Present: The relevant factual and procedural antecedents of this case are as
Petitioners, follows:
CORONA, C.J.,
Chairperson,
VELASCO, JR., This controversy arose from a Complaint for Damages and Injunction
LEONARDO-DE CASTRO, with Preliminary Injunction/Restraining Order[4] filed on December
DEL CASTILLO, and 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with
PEREZ, JJ. the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case
- versus - No. 2365-L against the spouses Agapita and Jose Catungal (the
Promulgated: spouses Catungal), the parents of petitioners.
xxxx
1. Upon the filing of this complaint, a restraining Exemplary damages in the amount
order be issued enjoining defendants [the spouses of P200,000.00; Expenses of litigation and attorneys
Catungal], their employees, agents, representatives fees in the amount of P100,000.00; and
or other persons acting in their behalf from offering
the property subject of this case for sale to third
persons; from entertaining offers or proposals by
Costs of suit.[16]
third persons to purchase the said property; and, in
general, from performing acts in furtherance or
contended that Rodriguez did not have an exclusive right to rescind
the contract and that the contract, being reciprocal, meant both
On December 12, 1990, the trial court issued a temporary parties had the right to rescind.[23] The spouses Catungal further
restraining order and set the application for a writ of preliminary claimed that it was Rodriguez who was in breach of their agreement
injunction for hearing on December 21, 1990 with a directive to the and guilty of bad faith which justified their rescission of the
spouses Catungal to show cause within five days from notice why contract.[24] By way of counterclaim, the spouses Catungal prayed for
preliminary injunction should not be granted. The trial court likewise actual and consequential damages in the form of unearned interests
ordered that summons be served on them.[17] from the balance (of the purchase price in the amount)
of P24,500,000.00, moral and exemplary damages in the amount
of P2,000,000.00, attorneys fees in the amount of P200,000.00 and
costs of suits and litigation expenses in the amount
Thereafter, the spouses Catungal filed their opposition[18] to the of P10,000.00.[25] The spouses Catungal prayed for the dismissal of
issuance of a writ of preliminary injunction and later filed a motion the complaint and the grant of their counterclaim.
to dismiss[19] on the ground of improper venue. According to the
Catungals, the subject property was located in Cebu City and thus,
the complaint should have been filed in Cebu City, not Lapu-lapu
City. Rodriguez opposed the motion to dismiss on the ground that The Catungals amended their Answer twice,[26] retaining their basic
his action was a personal action as its subject was breach of a allegations but amplifying their charges of contractual breach and
contract, the Conditional Deed of Sale, and not title to, or possession bad faith on the part of Rodriguez and adding the argument that in
of real property.[20] view of Article 1191 of the Civil Code, the power to rescind reciprocal
obligations is granted by the law itself to both parties and does not
need an express stipulation to grant the same to the injured party. In
the Second Amended Answer with Counterclaim, the spouses
In an Order dated January 17, 1991,[21] the trial court denied the Catungal added a prayer for the trial court to order the Register of
motion to dismiss and ruled that the complaint involved a personal Deeds to cancel the annotations of the two contracts at the back of
action, being merely for damages with a prayer for injunction. their OCT.[27]
In a Motion for Reconsideration dated August 21, The Court gave due course to the Petition[53] and the parties
2000,[48] counsel for the Catungals, Atty. Borromeo, argued for the filed their respective Memoranda.
first time that paragraphs 1(b) and 5[49] of the Conditional Deed of
Sale, whether taken separately or jointly, violated the principle of
mutuality of contracts under Article 1308 of the Civil Code and thus,
said contract was void ab initio. He adverted to the cases mentioned The issues to be resolved in the case at bar can be summed
in his various citations of authorities to support his argument of into two questions:
nullity of the contract and his position that this issue may be raised
for the first time on appeal.
On petitioners change of
theory
We are not persuaded.
Reciprocal obligations are those which arise from the same cause,
a. Whether or not the petitioners are obligated to perform their and in which each party is a debtor and a creditor of the other, such
obligations under the JVA, including that of providing that the obligation of one is dependent upon the obligation of the
round-the-clock security for the subject properties, despite other. They are to be performed simultaneously, so that the
performance of one is conditioned upon the simultaneous fulfillment
of the other. In reciprocal obligations, neither party incurs in delay if
the successful Art. IIIa par. 2
the other does not comply or is not ready to comply in a proper
development of the Project Deposit P10M
manner with what is incumbent upon him. From the moment one of
Art. V par. 2
the parties fulfills his obligation, delay by the other begins.
Pay real estate taxes
Art. II(g)
xxxx
Warrant absolute
ownership
In reciprocal obligations, before a party can demand the performance
of the obligation of the other, the former must also perform its own DEVELOPER to Art. II(b) Art. V par. 2
obligation. For its failure to turn over a complete project in negotiate Deliver any and all Pay real estate
accordance with the terms and conditions of the installation immediately with documents required for taxes
contracts, CIGI cannot demand for the payment of the contract price all tenants, the successful Art. II(c)
balance from AMC, which, in turn, cannot legally be ordered to settlers, development of the Project Take possession of
pay.25chanrobleslaw occupants, tillers, Art. V par. 2 the parcels of land
cultivators of the Pay real estate taxes Art. III (j)
The determination of default on the part of either of the parties land in question. Art. II(c) Secure property
depends on the terms of the JVA that clearly categorized the parties' Allow DEVELOPER to take from invasion of
several obligations into two types. possession of subject squatters and
property other elements
The first type related to the continuous obligations that would be Art. III (c)
continuously performed from the moment of the execution of the JVA To negotiate with
until the parties shall have achieved the purpose of their joint occupants
venture. The continuous obligations under the JVA were as follows:
(1) the developer would secure the joint venture property from DEVELOPER to Art. II(b) Art. V par. 2
unauthorized occupants;26 (2) the owner would allow the developer to pay and settle all Deliver any and all Pay real estate
take possession of the joint venture property;27 (3) the owner would monetary claims documents required for taxes
deliver any and all documents necessary for the accomplishment of of all tenants, the successful Art. II(c)
each activity;28 and (4) both the developer and the owner would pay settlers, development of the Project Take possession of
the real estate taxes.29chanroblesvirtuallawlibrary occupants, tillers, Art. V par. 2 the parcels of land
cultivators of the Pay real estate taxes Art. III (j)
The second type referred to the activity obligations. The following land. Art. VI Secure property
table shows the activity obligations of the parties under the JVA, to Must consent on the from invasion of
wit: reasonableness of the squatters and
expenses. other elements
Art. III(a) par. 1
SEQUENCE OF ACTIVITIES (Article XIV of the JVA) Advance expense
for settlement and
ACTIVITY OWNER DEVELOPER
relocation
OBLIGATION OBLIGATION
Art. III(a) par. 2
Signing of JVA. Sign JVA Sign JVA Deposit P10M in a
Art. II(b) Art. V par. 2 joint account of
Deliver any and all Pay real estate parties.
documents required for taxes
DEVELOPER to Art. II(b) Art. V par. 2 conversion conversion/reclassification other elements
relocate and Deliver any and all Pay real estate application of the of subject property Art. III(a)
transfer all the documents required for taxes land in question Art. III(b) Advance expenses
tenants, settlers, the successful Art. III(c) within a period of Give DEVELOPER for exemption,
occupants, tillers, development of the Project Take possession of one and a half (1 authority to apply for conversion, re-
cultivators of the Art. V par. 2 the parcels of land 1/2) years from exemption, conversion and classification
land to their Pay real estate taxes Art. III(j) date of execution re-classification. expenses.
relocation site, Art. II(d) Secure property of this Agreement Art. VI Art.III(b) secure
and shall Agree to allocate and from invasion of subject to a six (6) Must consent on the exemption and
endeavor to fulfill aggregate a resettlement squatters and month extension. reasonableness of the conversion permit
the same and the site within the property other elements expenses.
two immediately subject to mutually Art. III(a) par. 1
preceding accepted conditions. Advance expense DEVELOPER to Art.III(i) Art. III(d)
paragraphs (b & c) Art. VI for settlement and lay out a complete Give written conformity to Complete
up to the extent of Must consent on the relocation Development Plan the development plan comprehensive
75% reasonableness of the Art. III(a)par. 2 development plan
accomplishment expenses. Deposit P10M in a (within 6 months
thereof within a joint account of to one year from
period of one (1) OWNER and the execution of
year from date of DEVELOPER the JVA)
execution of this Art. III(c)
Agreement. The Relocate the DEVELOPER to Art. II(b) Art. V par. 2
remaining 25% of occupants apply for and Deliver any and all Pay real estate
the same secure all documents required for taxes
requirements shall necessary the successful Art. II(c)
be fully development development of the Project Take possession of
accomplished permit, Art. V par. 2 the parcels of land
within another 6 performance Pay real estate taxes Art. III (j)
months from date bonds, Secure property
of expiration of the environmental from invasion of
original one-year compliance squatters and
period. certificate, license other elements
to sell and all Art. III(f)
DEVELOPER to Art. II(b) Art. V par. 2 other related Secure
apply for and Deliver any and all Pay real estate requirement from development
secure exemption documents required for taxes the pertinent permit, ECC,
or conversion the successful Art. II(c) Municipal License to Sell, etc.
permit and such development of the Project Take possession of Government,
other related Art. V par. 2 the parcels of land DENR, HLURB
requirements Pay real estate taxes Art. III (j) and other
needed for the Art. II(f) Secure property governmental
approval of Assist DEVELOPER secure from invasion of agencies
exemption or exemption from CARL and squatters and concerned within
a period of 2 years respective names relocation, application for
from date of of the parties form exemption, conversion, re-
execution of this the register of classification.
Agreement. deeds.
DEVELOPER Art. II(b) Art. V par. 2 Market and Sell Fix selling date Fix selling date
construction Deliver any and all Pay real estate the property
stage/ground documents required for taxes
breaking to the successful Art. II(c) Owner to
commence after development of the Project Take possession of reimburse and pay
release of DAR Art. V par. 2 the parcels of land the DEVELOPER
exemption permit Pay real estate taxes Art. III (j)
or conversion Secure property
clearance and from invasion of The activities under the JVA fell into seven major categories,
approval of other squatters and specifically: (l)the relocation of the occupants; (2) the completion of
required permits other elements the development plan; (3) the securing of exemption and conversion
by pertinent Art. III(e) permits; (4) the obtention of the development permits from
agencies of the Mobilize government agencies; (5) the development of the subject land; (6) the
government. development work issuance of titles for the subdivided lots; and (7) the selling of the
and solely pay its subdivided lots and the reimbursement of the advances.
expenses
Art. III(f) For the first activity (i.e., the relocation of the occupants), the
Develop the developer was obliged to negotiate with the occupants, to advance
property and solely payment for disturbance compensation, and to relocate the
pay its expenses on occupants to an area within the subject land, while the owner was
necessary permits obliged to agree to and to allocate the resettlement site within the
property, and to approve the expenses to be incurred for the process.
DEVELOPER to Art. II(b) Art. V par. 2
secure approval of Deliver any and all Pay real estate Should the owner fail to allocate the site for the resettlement, the
obligation of the developer to relocate would not be demandable.
subdivision plan documents required for taxes
Conversely, should the developer fail to negotiate with the occupants,
and technical the successful Art. II(c)
the owner's obligation to allocate the resettlement site would not
description from development of the Project Take possession of
become due.
the Bureau of Art. V par. 2 the parcels of land
Lands based on Pay real estate taxes Art. III (j)
As to the second activity (i.e., the completion of the development
the approved Art. II(a) Secure property
plan), the developer had the obligation to lay out the plan, but the
scheme and Deliver titles to from invasion of
owner needed to conform to the plan before the same was finalized.
thereafter to DEVELOPER squatters and
Accordingly, the final development plan would not be generated
petition, follow-up Art. II(a) other elements
should the owner fail to approve the lay-out plan; nor would the
and secure the Execute Deed of Art. III(k)
owner be able to approve if no such plan had been initially laid out
release of Assignment Process titling of
by the developer.
individual titles for Art. III(a) lots
all lots in the Pay all expenses for
In each activity, the obligation of each party was dependent upon the
project in the settlement of claims,
obligation of the other. Although their obligations were to be
performed simultaneously, the performance of an activity obligation § 135. Same; consequences of simultaneous performance. As a
was still conditioned upon the fulfillment of the continuous consequence of the rule of simultaneous performance, if the party
obligation, and vice versa. Should either party cease to perform a who has not performed his obligation demands performance from the
continuous obligation, the other's subsequent activity obligation other, the latter may interpose the defense of unfulfilled contract
would not accrue. Conversely, if an activity obligation was not (exceptio non adimpleli contraclus) by virtue of which he cannot be
performed by either party, the continuous obligation of the other obliged to perform while the other's obligation remains unfulfilled.
would cease to take effect. The performance of the continuous Hence, the Spanish Supreme Court has ruled that the non-
obligation was subject to the resolutory condition that performance of one party is justified if based on the non-performance
the precedent obligation of the other party, whether continuous or of the other; that the party who has failed to perform cannot demand
activity, was fulfilled as it became due. Otherwise, the continuous performance from the other; and that judicial approval is not
obligation would be extinguished. necessary to release a party from his obligation, the non-performance
of the other being a sufficient defense against any demand for
According to Article 1184 of the Civil Code, the condition that some performance by the guilty party.
event happen at a determinate time shall extinguish the obligation as
soon as the time expires, or if it has become indubitable that the Another consequence of simultaneous performance is the rule
event will not take place. Here, the common cause of the parties in of compensatio morae, that is to say that neither party incurs in
entering into the joint venture was the development of the joint delay if the other does not or is not ready to comply in a proper
venture property into the residential subdivision as to eventually manner with what is incumbent upon him. From the moment one of
profit therefrom. Consequently, all of the obligations under the JVA the parties fulfills his obligations, delay by the other begins.
were subject to the happening of the complete development of the
joint venture property, or if it would become indubitable that the Yet, the record is bereft of the proof to support the lower courts'
completion would not take place, like when an obligation, whether unanimous conclusion that the owner had already performed its
continuous or activity, was not performed. Should any of the correlative obligation under the JVA as to place itself in the position
obligations, whether continuous or activity, be not performed, all the to demand that the developer should already perform its obligation of
other remainingobligations would not ripen into demandable providing the round-the-clock security on the property. In issuing its
obligations while those already performed would cease to take effect. order of November 5, 2002, therefore, the RTC acted whimsically
This is because every single obligation of each party under the JVA because it did not first ascertain whether or not the precedent
rested on the common cause of profiting from the developed reciprocal obligation of the owner upon which the demanded
subdivision. obligation of the developer was dependent had already been
performed. Without such showing that the developer had ceased to
It appears that upon the execution of the JVA, the parties were perform a continuous obligation to provide security over the joint
performing their respective obligations until disagreement arose venture property despite complete fulfillment by the owner of all its
between them that affected the subsequent performance of their accrued obligations, the owner had no right to demand from the
accrued obligations. Being reciprocal in nature, their respective developer the round-the-clock security over the 215 hectares of land.
obligations as the owner and the developer were dependent upon the
performance by the other of its obligations; hence, any claim of delay The CA further gravely erred in characterizing the order for the
or non-performance against the other could prosper only if the petitioners to implement the round-the-clock security provision of
complaining party had faithfully complied with its own correlative the JVA and the addendum as an established and undisputed
obligation.30chanroblesvirtuallawlibrary interim measure that could be issued pending the resolution of the
case on the merits.
A respected commentator has cogently observed in this
connection:31chanroblesvirtuallawlibrary Apart from the provisional remedies expressly recognized and made
available under Rule 56 to Rule 61 of the Rules of Court, the Court
has sanctioned only the issuance of the status quo ante order but
only to maintain the last, actual, peaceable and uncontested state of injunctive relief that would issue under Rule 58 of the Rules of Court.
things that preceded the controversy.32 The eminent Justice Florenz Hence, the issuance of the order constituted a blatant jurisdictional
D. Regalado,33 an authority on remedial law, has delineated the error that needed to be excised. Verily, a jurisdictional error is one by
nature of the status quo ante order, and distinguished it from the which the act complained of was issued by the court without or in
provisional remedy of temporary restraining order, as follows: excess of jurisdiction.36Without jurisdiction means that the court
acted with absolute want of jurisdiction. Excess of jurisdiction means
There have been instances when the Supreme Court has issued that the court has jurisdiction but has transcended the same or
a status quo order which, as the very term connotes, is merely acted without any statutory authority.37chanroblesvirtuallawlibrary
intended to maintain the last, actual, peaceable and uncontested
state of things which preceded the controversy. This was resorted to Although the RTC undoubtedly had jurisdiction to hear and decide
when the projected proceedings in the case made the conservation of the principal action for specific performance as well as to act on the
the status quo desirable or essential, but the affected party neither motions submitted to it in the course of the proceedings, the
sought such relief or the allegations in his pleading did not distinction between jurisdiction over the case and jurisdiction to
sufficiently make out a case for a temporary restraining order. The issue an interlocutory order as an ancillary remedy incident to the
status quo order was thus issued motu proprio on equitable principal action should be discerned. We have frequently declared
considerations. Also, unlike a temporary restraining order or a that a court may have jurisdiction over the principal action but may
preliminary injunction, a status quo order is more in the nature of a nevertheless act irregularly or in excess of its jurisdiction in the
cease and desist order, since it neither directs the doing or undoing course of its proceedings by the granting of an auxiliary
of acts as in the case of prohibitory or mandatory injunctive relief. remedy.38 In Leung Ben v. O'Brien,39 for instance, this Court has thus
The further distinction is provided by the present amendment in the clarified:
sense that, unlike the amended rule on restraining orders, a status
quoorder does not require the posting of a bond. It may be observed in this connection that the word "jurisdiction" as
used in attachment cases, has reference not only to the authority of
The order of November 5, 2002, by directing the developer to provide the court to entertain the principal action but also to its authority to
sufficient round-the-clock security for the protection of the joint issue the attachment, as dependent upon the existence of the
venture property during the pendency of the case, was not of the statutory ground. (6 C. J., 89.) This distinction between jurisdiction
nature of the status quo ante order because the developer, as averred to issue the attachment as an ancillary remedy incident to the
in the complaint, had not yet provided a single security watchman to principal litigation is of importance; as a court's jurisdiction over the
secure the entire 215 hectares of land for several years.34 Also, the main action may be complete, and yet it may lack authority to grant
owner stated in the comment to the petition that the developer had an attachment as ancillary to such action. This distinction between
dismissed all the security guards posted in the property since jurisdiction over the ancillary has been recognized by this court in
1997.35 At the time of the filing of the complaint for specific connection with actions involving the appointment of a receiver.
performance on February 29, 2000, therefore, the last actual, Thus in Rocha & Co. vs. Crossfield and Figueras (6 Phil. Rep., 355),
peaceable and uncontested state of things preceding the controversy a receiver had been appointed without legal justification. It was held
was the absence of such security, not the installation of the security that the order making the appointment was beyond the jurisdiction
personnel/measures. In fact, the failure of the developer to provide of the court; and though the court admittedly had jurisdiction of the
the round-the-clock security itself became the controversy that main cause, the order was vacated by this court upon application a
impelled the owner to bring the action against the petitioners. writ of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep., 358, Blanco
vs. Ambler and McMicking 3 Phil. Rep., 735, Yangco vs. Rohde, 1
By preliminarily directing the developer to provide sufficient round- Phil. Rep., 404.)
the-clock security for the protection of the joint venture property
during the pendency of the case, the November 5, 2002 order of the By parity of reasoning it must follow that when a court issues a writ
RTC did not come under the category of the status quo ante order of attachment for which there is no statutory authority, it is acting
that would issue upon equitable consideration, or even of an
irregularly and in excess of its jurisdiction, in the sense necessary to
justify the Supreme Court in granting relief by the writ of certiorari.
SO ORDERED.cralawlawlibrary
It is the non-occurrence or non-execution of the share purchase In the case at bar, respondents PSALM and SPC challenge the
agreement that would give rise to the obligation to both parties to conduct of the bidding process for allegedly violating the second
free each other from their respective undertakings. This includes principle. They posit that SPC's Right to Top prevented genuine
returning to each other all that they received in pursuit of entering competition by discouraging other corporations from submitting their
into the share purchase agreement. respective bids.
PSALM and SPC's contentions are untenable. To pursue the argument that other parties were dissuaded by the
Right to Top would be to consider its exercise as an absolute
It bears stressing on the outset that the severability clause under IB- eventual certainty rather than a mere possibility. This would run
28, paragraph 26 was known to the bidders, as it was embodied in counter to the clear language of the Bidding Guidelines that the
the Bidding Procedures itself. Thus, any interested party had prior contract will be awarded to the winning bidder "should SPC not
knowledge of the possibility of the eventual nullification of SPC's exercise its right."
Right to Top and of its repercussions.
Neither can SPC claim that its Right to Top influenced its bid. That
That aside, the allegation that the Right to Top discouraged parties SPC mistakenly rested chiefly on its Right to Top is no one's fault but
from participating in the bidding process is speculative. There is no its own. To recall, SPC's Right to Top is embodied in Sec. 3.02 of the
guarantee that conducting another round of bidding will increase the LBGT-LLA.15 The same document, however, likewise contains a
number of bidders. severability clause that mirrors that in paragraph 26 of IB-28 of the
Bidding Procedure:16
To put the situation into perspective, it is well to recall that SPC's 14.16. Severability
right to top can be found in IB-20 of the Bidding Procedure. Thus,
parties interested in buying the NPPC would only know of SPC's If any one or more of the provisions of this Agreement is declared
Right to Top if they availed of the bid documents. There is no invalid or unenforceable in any respect under any Philippine Law,
showing, however, that there is a disparity between the number of the validity, legality or enforceability of the remaining provisions
parties who purchased the bid documents, on the one hand, and the contained herein shall not in any way be affected or impaired.
number of parties who actually submitted their respective bids, on Thus, SPC was fully aware of the possibility that the Land-Based Gas
the other. Only then could PSALM and SPC have possibly, but not Turbine (LBGT)-LLA provisions, the Right to Top included, would not
even conclusively, established that the Right to Top dissuaded other necessarily be upheld by the courts at every turn.
parties from submitting their bids.
Moreover, the Court was also not remiss in reminding bidders of
It is likewise worthy to note that this is already the third round of government contracts against their blind reliance on their alleged
bidding for the purchase of NPPC and in this round, only two preferential rights. As held in LTFRB v. Stronghold:17
companies participated: respondents SPC and TPVI. It may then be In the field of public contracts, these stipulations are weighed with
that the properties subjected to bidding are just really not attractive the taint of invalidity for contravening the policy requiring
assets to begin with so as to appeal to the public. government contracts to be awarded through public bidding. Unless
clearly falling under statutory exceptions, government contracts for
Furthermore, almost three (3) years had already elapsed since the the procurement of goods or services are required to undergo public
third round of bidding commenced, and even longer since the first. bidding "to protect the public interest by giving the public the best
NPPC's assets, by now, have already significantly depreciated and possible advantages thru open competition." x x x
may no longer fetch the same price as that offered by TPVI. It is not
entirely implausible, therefore, that the new bids would even be These clauses escape the taint of invalidity only in the narrow
lower than TPVI's winning bid. instance where the right of first refusal (or "right to top") is
founded on the beneficiary's "interest on the object over which
Similarly, there is no assurance that the new winning bid would be the right of first refusal is to be exercised" (such as a "tenant with
higher than TPVI's proposal, for it is possible that the Right to Top respect to the land occupied, a lessee vis-a-vis the property leased, a
even encouraged TPVI to maximize its bid in this third round. It stockholder as regards shares of stock, and a mortgagor in relation
could even be said that the existence of the Right to Top drove the to the subject of the mortgage") and the government stands to benefit
interested parties to bid an amount that would have been difficult, if from the stipulation. x x x (emphasis added)
not impossible, for SPC to meet, if not exceed. The above disquisition served as nothing less than a warning. The
clear message conveyed is that the advantage granted is generally
viewed as invalid, in consonance with the more fundamental As SPC also participated in the bidding, the bid for the lease
principle that all government procurement must undergo public component clearly computed on the basis of, and was for twenty-five
bidding under equal terms. It must first be established that the (25) years. However, by now stating in your letter that the "lease
beneficiary has an existing interest in the object of the contract has a Term often (10) years and will expire on 29 January
before his preferential right can "escape the taint of invalidity. 2020," SPC would effectively have less than six (6) years from today
to use the property, which is extremely short for the lease component
In this case, however, SPC had knowledge that it did not possess the computed and based on the twenty-five (25) year term that was
requisite subsisting interest in the NPPC project. It was then aware offered during the bidding. While we are aware that the second
that its Right to Top under the LBGT contract, which involves a paragraph of Section 3.02 of the LLA-LBGT provides that the
separate and distinct power plant from that in the NPPC project, property covered by the right to top will be "governed" by the LLA-
could not possibly be able to withstand judicial scrutiny. LBGT, we are of the reasonable belief that this does not include
"Term" under Section 2.01 thereof considering that the "Draft Land
In view of the foregoing circumstances—the Severability Clause in Lease Agreement for the 153.1-MW Naga Power Plant," which formed
Sec. 14.16 of the LBGT-LLA and in IB-28 of the Bidding Procedure, part of the bid documents, specifically provided for a "Term" of
the Court's warning in Stronghold, and SPC's knowledge of its lack of twenty-five (25) years.
subsisting interest—SPC should, therefore, be bound by its initial bid
of P858,999,888.88. It was never deprived of a fair chance to bid, On the basis of the foregoing, SPC confirms that it is exercising its
notwithstanding the Court's subsequent nullification of its Right to right to top the winning bid of TPVI and will pay the amount of
Top. It was simply mistaken when it put much premium on its P1,143,240,000.00 on the understanding that the Term of the
alleged Right to Top when it calculated its bid, even though it knew lease is twenty-five (25) years from closing date.
or ought to have known of its defect. It is clear from the tenor of SPC's letter that its acceptance of
PSALM's offer can never be categorized as unqualified. Instead, what
SPC did not legally and validly exercise its Right to Top SPC communicated was its counter-offer for a longer lease period.
This is further made evident by our pronouncement in Development
Regardless of whether or not the Right to Top was nullified, however, Bank of the Philippines v. Medrano(Medrano),20 to wit:
the award of the purchase contracts to TPVI would still be in order, Under the law, a contract is perfected by mere consent, that is, from
for it appears that SPC did not validly exercise its erstwhile the moment that there is a meeting of the offer and the acceptance
advantage. upon the thing and the cause that constitute the contract. The law
requires that the offer must be certain and the acceptance absolute
The exercise of the Right to Top is no different from the manner of and unqualified. An acceptance of an offer may be express and
perfecting any other sales contract. It is perfected by mere consent, implied; a qualified offer constitutes a counter-offer. Case law holds
upon a meeting of the minds on the offer and the acceptance thereof that an offer, to be considered certain, must be definite, while an
based on subject matter, price and terms of acceptance is considered absolute and unqualified when it is
payment.18chanrobleslaw identical in all respects with that of the offer so as to produce
consent or a meeting of the minds. We have also previously held
In the case at bar, PSALM Chief Emmanuel R. Ledesma, Jr., on April that the ascertainment of whether there is a meeting of minds on the
29, 2014, wrote to SPC informing the latter that it has the right to offer and acceptance depends on the circumstances surrounding the
top the winning bid of TPVI for a 10-year lease on NPPC that will case.
expire on January 29, 2020. The letter likewise directed SPC to pay As applied, it can readily be seen that there is no identity between
within thirty (30) days should it exercise the said right. This is what was offered and what was accepted. There is a glaring
constitutive of a defmite offer. difference not only in the term of the lease but also in its reckoning
period. It cannot then meet the criteria of an "unqualified acceptance"
In reply, SPC wrote to PSALM in the following wise:19 as discussed in the Medrano case.
Furthermore, whether the lease should only be until 2020 or 25 exercise were nullified by the Court. The Court never invalidated
years from closing date was an issue that reached the Office of the the entire bidding process since it was not established that there
Government Corporate Counsel (OGCC). Through Opinion No. 98, was a deviation from the procedure outlined in Republic Act No.
Series of 2014,21 dated May 21, 2014, the OGCC opined in the 9184, otherwise known as the Government Procurement Reform Act,
following wise:22 nor from the bidding guidelines. The acts of the procuring agency
We agree with PSALM's position that SPC's Right to Top should be prior to SPC's exercise of its Right to Top, therefore, subsist.
consistent with the 2009 LLA provisions. It is established that the Consequently, there is merit in TPVI's motion that the Notice of
2009 LLA is the source of SPC's Right to Top and explicitly provides Award dated April 30, 2014 be reinstated and the purchase contracts
that such right is to be exercised in accordance with its provisions. in its favor ordered executed.
Section 3.02 of the 2009 LLA is clear. If SPC opts to exercise the This should in no way be construed as a departure from the express
Right to Top, the property will form part of the Leased Premises and wording of the Court's Decision. On the contrary, it adheres to the
shall be subject to the LLA's provisions. Section 2.01 of the LLA is plain wording of its fallo: that only SPC's Right to Top and the NPPC-
explicit that the lease shall expire on 29 January 2020. Should SPC LLA and NPPC-APA in its favor were declared null and void.
opt to exercise the Right to Top, it must do so within the 2009 LLA's
parameters. Furthermore, it bears stressing in this case that the finality of the
Thus, when the 30-day period to exercise the Right to Top was about September 28, 2015 Decision extends only to petitioner Osmeña and
to lapse, the standing offer to SPC was for a lease expiring on respondents SPC and PSALM. Noticeably, while their respective
January 29, 2020. Without SPC communicating its unqualified motions for reconsideration have already been denied with finality,
acceptance of such offer before the Right to Top expired, the award of the Court has yet to resolve TPVI's pending Manifestation/Motion.
the purchase contracts to TPVI became due. The Court even ordered the other parties to Comment thereon,
thereby reserving the power to grant the same. The Court can still,
Although the Department of Justice eventually found for SPC on therefore, grant TPVI's motion and uphold the validity of the prior-
June 23, 2014,23 the 30-day period to exercise the Right to Top has conducted bidding process.
already elapsed, and the said right, by then, could no longer be
validly or legally consummated. It was incumbent upon SPC to seek In any event, the Court is not precluded from rendering a nunc pro
judicial intervention to toll the running of the 30-day period pending tunc judgment to amend the dispositive portion of the September 28,
the resolution of the issue. No recourse, however, was interposed by 2015 Decision for it to truly reflect the action of the
SPC. Court.25cralawredThe lack of directive in the fallo on how to proceed
from the nullification of SPC's Right to Top and its NPPC-APA and
The finality of Decision prevents the Court from departing from NPPC-LLA contracts, nothing more, left the parties at a quandary,
the clear language of the ruling prompting them to seek judicial intervention anew. The Court must,
therefore, supply herein what was inadvertently omitted in the
Lastly, in treating the Manifestation/Motion, due regard must be Decision—the natural and logical consequence of our September 28,
given to the finality of the judgment accorded to the Court's 2015 ruling. Otherwise, a rejection of the plea of TPVI will only
September 28, 2015 ruling. Jurisprudence teaches that a decision spawn a multiplicity of suits and clogging of the court docket. Such
that has acquired finality becomes immutable and unalterable, and event is without a doubt contrary to the established policy of the
may no longer be modified in any respect, even if the modification is Court to provide in its rules of procedure a just, speedy, and
meant to correct erroneous conclusions of fact and law, and whether inexpensive disposition of every action and
it be made by the court that rendered it or by the Highest Court of proceeding.26chanrobleslaw
the land.24chanrobleslaw
WHEREFORE, premises considered, the Manifestation/Motion dated
The dispositive portion of the September 28, 2015 Decision is clear. March 16, 2016 of respondent TPVI is hereby GRANTED. The Entry
Only SPC's Right to Top and the documents executed pursuant to its of Judgment is LIFTED. The fallo of the September 28, 2015
Decision is hereby amended to include a directive that the April 30,
2014 Notice of Award in favor of said respondent be REINSTATED,
excluding the portion therein granting to SPC the Right to Top.
Respondent PSALM is further directed to execute the NPPC-APA and
NPPC-LLA in favor of respondent TPVI with dispatch. As amended,
the fallo of said Decision shall read:
WHEREFORE, the petition is hereby GIVEN DUE COURSE and the
writ prayed for accordingly GRANTED. The right of first refusal (right
to top) granted to Salcon Power Corporation (now SPC Power
Corporation) under the 2009 Naga LBGT-LLA is hereby
declared NULL and VOID. Consequently, the Asset Purchase
Agreement (NPPC-APA) and Land Lease Agreement (NPPC-LLA)
executed by the Power Sector Assets and Liabilities Management
Corporation and SPC are ANNULLED and SET ASIDE. The Notice of
Award dated April 30, 2014 in favor of Therma Power Visayas, Inc. is
hereby REINSTATED, excluding the portion therein granting to SPC
the Right to Top. Respondent PSALM is directed to execute the
NPPC-APA and NPPC-LLA in favor of TPVI with dispatch.
No costs.
SO ORDERED.
Perez, and Reyes, JJ., concur.
Peralta, J., I join the opinion of J. Jardeleza.
Jardeleza, J., see dissenting opinion.
Civil Law; Contracts; Sales; Contract of Sale and Contract to Sell THIRD DIVISION
Distinguished.—In a contract of sale, the seller conveys ownership of the
property to the buyer upon the perfection of the contract. Should the RAYMUNDO S. DE LEON, G.R. No. 170405
buyer default in the payment of the purchase price, the seller may either Petitioner,
sue for the collection thereof or have the contract judicially resolved and Present:
set aside. The non-payment of the price is therefore a negative resolutory
condition. On the other hand, a contract to sell is subject to a positive CORONA, J., Chairperson,
suspensive condition. The buyer does not acquire ownership of the CARPIO,*
property until he fully pays the purchase price. For this reason, if the - v e r s u s - VELASCO, JR.,
buyer defaults in the payment thereof, the seller can only sue for NACHURA and
damages. PERALTA, JJ.
BENITA T. ONG.[1],
Same; Same; Same; Seller obliged to transfer title over the Respondent. Promulgated:
properties and deliver the same to the buyer; Execution of a notarized February 2,
deed of sale is equivalent to the delivery of a thing sold.—Settled is the 2010
rule that the seller is obliged to transfer title over the properties and
deliver the same to the buyer. In this regard, Article 1498 of the Civil x--------------------------------------------------
x
Code provides that, as a rule, the execution of a notarized deed of sale is
equivalent to the delivery of a thing sold.
DECISION
CORONA, J.:
Same; Same; Same; Condition regarding the approval of the
assumption of mortgage considered fulfilled as petitioner prevented its
fulfillment by paying his outstanding obligation and taking back the On March 10, 1993, petitioner Raymundo S. de Leon sold three
certificates of title without even notifying respondent.—Even parcels of land[2] with improvements situated in Antipolo, Rizal to
assuming arguendo that the agreement of the parties was subject to the respondent Benita T. Ong. As these properties were mortgaged to
condition that RSLAI had to approve the assumption of mortgage, the Real Savings and Loan Association, Incorporated (RSLAI), petitioner
said condition was considered fulfilled as petitioner prevented its and respondent executed a notarized deed of absolute sale with
fulfillment by paying his outstanding obligation and taking back the assumption of mortgage[3] stating:
certificates of title without even notifying respondent. In this connection, xxxxxxxxx
Article 1186 of the Civil Code provides: Article 1186. The condition shall
be deemed fulfilled when the obligor voluntarily prevents its fulfillment. That for and in consideration of the sum of ONE
MILLION ONE HUNDRED THOUSAND PESOS (P1.1
Same; Same; Same; Definition of a Buyer in Good Faith.—A million), Philippine currency, the receipt whereof is
purchaser in good faith is one who buys the property of another without hereby acknowledged from [RESPONDENT] to the
notice that some other person has a right to, or an interest in, such entire satisfaction of
property and pays a full and fair price for the same at the time of such [PETITIONER], said [PETITIONER] does hereby
purchase, or before he has notice of some other person’s claim or interest sell, transfer and convey in a manner absolute
in the property. The law requires, on the part of the buyer, lack of notice and irrevocable, unto said [RESPONDENT], his
of a defect in the title of the seller and payment in full of the fair price at heirs and assigns that certain real estate together
the time of the sale or prior to having notice of any defect in the seller’s with the buildings and other improvements existing
title. thereon, situated in [Barrio] Mayamot, Antipolo,
Rizal under the following terms and conditions:
longer had the right to sell the same to Viloria. Thus, petitioner
1. That upon full payment of fraudulently deprived her of the properties.
[respondent] of the amount of FOUR Petitioner, on the other hand, insisted that respondent did
HUNDRED FIFTEEN THOUSAND FIVE not have a cause of action against him and consequently prayed for
HUNDRED (P415,000), [petitioner] shall the dismissal of the complaint. He claimed that since the transaction
execute and sign a deed of assumption was subject to a condition (i.e., that RSLAI approve the assumption
of mortgage in favor of [respondent] of mortgage), they only entered into a contract to sell. Inasmuch as
without any further cost whatsoever; respondent did apply for a loan from RSLAI, the condition did not
arise. Consequently, the sale was not perfected and he could freely
2. That [respondent] shall assume dispose of the properties. Furthermore, he made a counter-claim for
payment of the outstanding loan of SIX damages as respondent filed the complaint allegedly with gross and
HUNDRED EIGHTY FOUR THOUSAND evident bad faith.
FIVE HUNDRED PESOS (P684,500) with
REAL SAVINGS AND LOAN,[4] Cainta, Because respondent was a licensed real estate broker, the
Rizal (emphasis supplied) RTC concluded that she knew that the validity of the sale was
subject to a condition. The perfection of a contract of sale depended
xxxxxxxxx on RSLAIs approval of the assumption of mortgage. Since RSLAI did
not allow respondent to assume petitioners obligation, the RTC held
Pursuant to this deed, respondent gave petitioner P415,500 that the sale was never perfected.
as partial payment. Petitioner, on the other hand, handed the keys to
the properties and wrote a letter informing RSLAI of the sale and In a decision dated August 27, 1999,[7] the RTC dismissed
authorizing it to accept payment from respondent and release the the complaint for lack of cause of action and ordered respondent to
certificates of title. pay petitioner P100,000 moral damages, P20,000 attorneys fees and
the cost of suit.
Thereafter, respondent undertook repairs and made
improvements on the properties.[5] Respondent likewise informed Aggrieved, respondent appealed to the Court of Appeals
RSLAI of her agreement with petitioner for her to assume petitioners (CA),[8] asserting that the court a quo erred in dismissing the
outstanding loan. RSLAI required her to undergo credit investigation. complaint.
Subsequently, respondent learned that petitioner again sold The CA found that the March 10, 2003 contract executed by
the same properties to one Leona Viloria after March 10, 1993 and the parties did not impose any condition on the sale and held that
changed the locks, rendering the keys he gave her useless. the parties entered into a contract of sale. Consequently, because
Respondent thus proceeded to RSLAI to inquire about the credit petitioner no longer owned the properties when he sold them to
investigation. However, she was informed that petitioner had already Viloria, it declared the second sale void. Moreover, it found petitioner
paid the amount due and had taken back the certificates of title. liable for moral and exemplary damages for fraudulently depriving
respondent of the properties.
Respondent persistently contacted petitioner but her efforts
proved futile. In a decision dated July 22, 2005,[9] the CA upheld the sale
to respondent and nullified the sale to Viloria. It likewise ordered
On June 18, 1993, respondent filed a complaint for specific respondent to reimburse petitioner P715,250 (or the amount he paid
performance, declaration of nullity of the second sale and to RSLAI). Petitioner, on the other hand, was ordered to deliver the
damages[6] against petitioner and Viloria in the Regional Trial Court certificates of titles to respondent and pay her P50,000 moral
(RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner damages and P15,000 exemplary damages.
had previously sold the properties to her on March 10, 1993, he no
Petitioner moved for reconsideration but it was denied in a resolution balance[15] payable directly to RSLAI (on behalf of petitioner) within a
dated November 11, 2005.[10] Hence, this petition,[11] with the sole reasonable time.[16] Nothing in said instrument implied that
issue being whether the parties entered into a contract of sale or a petitioner reserved ownership of the properties until the full payment
contract to sell. of the purchase price.[17] On the contrary, the terms and conditions of
the deed only affected the manner of payment, not the immediate
Petitioner insists that he entered into a contract to sell since the transfer of ownership (upon the execution of the notarized contract)
validity of the transaction was subject to a suspensive condition, that from petitioner as seller to respondent as buyer. Otherwise stated,
is, the approval by RSLAI of respondents assumption of mortgage. the said terms and conditions pertained to the performance of the
Because RSLAI did not allow respondent to assume his (petitioners) contract, not the perfection thereof nor the transfer of ownership.
obligation, the condition never materialized. Consequently, there was
no sale. Settled is the rule that the seller is obliged to transfer title over the
properties and deliver the same to the buyer.[18] In this regard, Article
Respondent, on the other hand, asserts that they entered into a 1498 of the Civil Code[19] provides that, as a rule, the execution of a
contract of sale as petitioner already conveyed full ownership of the notarized deed of sale is equivalent to the delivery of a thing sold.
subject properties upon the execution of the deed.
In this instance, petitioner executed a notarized deed of
We modify the decision of the CA. absolute sale in favor of respondent. Moreover, not only did
petitioner turn over the keys to the properties to respondent, he also
authorized RSLAI to receive payment from respondent and release
CONTRACT OF SALE OR CONTRACT TO SELL? his certificates of title to her. The totality of petitioners acts clearly
indicates that he had unqualifiedly delivered and transferred
ownership of the properties to respondent. Clearly, it was a contract
The RTC and the CA had conflicting interpretations of the March 10, of sale the parties entered into.
1993 deed. The RTC ruled that it was a contract to sell while the CA
held that it was a contract of sale. Furthermore, even assuming arguendo that the agreement of
the parties was subject to the condition that RSLAI had to approve
In a contract of sale, the seller conveys ownership of the the assumption of mortgage, the said condition was considered
property to the buyer upon the perfection of the contract. Should the fulfilled as petitioner prevented its fulfillment by paying his
buyer default in the payment of the purchase price, the seller may outstanding obligation and taking back the certificates of title
either sue for the collection thereof or have the contract judicially without even notifying respondent. In this connection, Article 1186 of
resolved and set aside. The non-payment of the price is therefore a the Civil Code provides:
negative resolutory condition.[12]
Article 1186. The condition shall be deemed fulfilled
On the other hand, a contract to sell is subject to a positive when the obligor voluntarily prevents its fulfillment.
suspensive condition. The buyer does not acquire ownership of the
property until he fully pays the purchase price. For this reason, if the
buyer defaults in the payment thereof, the seller can only sue for
damages.[13] VOID SALE OR DOUBLE SALE?
The deed executed by the parties (as previously quoted) stated that
petitioner sold the properties to respondent in a manner absolute and Petitioner sold the same properties to two buyers, first to
irrevocable for a sum of P1.1 million.[14] With regard to the manner of respondent and then to Viloria on two separate
payment, it required respondent to pay P415,500 in cash to occasions.[20] However, the second sale was not void for the sole
petitioner upon the execution of the deed, with the
reason that petitioner had previously sold the same properties to agreement with petitioner, respondent had the obligation to assume
respondent. On this account, the CA erred. the balance of petitioners outstanding obligation to RSLAI.
Consequently, respondent informed RSLAI of the sale and of her
This case involves a double sale as the disputed properties assumption of petitioners obligation. However, because petitioner
were sold validly on two separate occasions by the same seller to the surreptitiously paid his outstanding obligation and took back her
two different buyers in good faith. certificates of title, petitioner himself rendered respondents
obligation to assume petitioners indebtedness to RSLAI impossible to
Article 1544 of the Civil Code provides: perform.
Article 1544. If the same thing should have Article 1266 of the Civil Code provides:
been sold to different vendees, the ownership shall
be transferred to the person who may have first Article 1266. The debtor in obligations to do
taken possession thereof in good faith, if it should be shall be released when the prestation become legally
movable property. or physically impossible without the fault of the
obligor.
Should it be immovable property, the ownership
shall belong to the person acquiring it who in Since respondents obligation to assume petitioners outstanding
good faith first recorded it in the Registry of balance with RSLAI became impossible without her fault, she was
Property. released from the said obligation. Moreover, because petitioner
himself willfully prevented the condition vis--vis the payment of the
Should there be no inscription, the ownership remainder of the purchase price, the said condition is considered
shall pertain to the person who in good faith was fulfilled pursuant to Article 1186 of the Civil Code. For purposes,
first in the possession; and, in the absence therefore, of determining whether respondent was a purchaser in
thereof, to the person who presents the oldest good faith, she is deemed to have fully complied with the condition of
title, provided there is good faith. (emphasis the payment of the remainder of the purchase price.
supplied)
Respondent was not aware of any interest in or a claim on
This provision clearly states that the rules on double or multiple the properties other than the mortgage to RSLAI which
sales apply only to purchasers in good faith. Needless to say, it she undertook to assume. Moreover, Viloria bought the properties
disqualifies any purchaser in bad faith. from petitioner after the latter sold them to respondent. Respondent
was therefore a purchaser in good faith. Hence, the rules on double
A purchaser in good faith is one who buys the property of sale are applicable.
another without notice that some other person has a right to, or an Article 1544 of the Civil Code provides that when neither
interest in, such property and pays a full and fair price for the same buyer registered the sale of the properties with the registrar of deeds,
at the time of such purchase, or before he has notice of some other the one who took prior possession of the properties shall be the
persons claim or interest in the property.[21] The law requires, on the lawful owner thereof.
part of the buyer, lack of notice of a defect in the title of the seller
and payment in full of the fair price at the time of the sale or prior to In this instance, petitioner delivered the properties to
having notice of any defect in the sellers title. respondent when he executed the notarized deed[22] and handed over
to respondent the keys to the properties. For this reason, respondent
Was respondent a purchaser in good faith? Yes. took actual possession and exercised control thereof by making
repairs and improvements thereon. Clearly, the sale was perfected
Respondent purchased the properties, knowing they were and consummated on March 10, 1993. Thus, respondent became the
encumbered only by the mortgage to RSLAI. According to her lawful owner of the properties.
Nonetheless, while the condition as to the payment of the
balance of the purchase price was deemed fulfilled, respondents
obligation to pay it subsisted. Otherwise, she would be unjustly
enriched at the expense of petitioner.
SO ORDERED.
RENATO C. CORONA
Associate Justice
Chairperson
THIRD DIVISION On December 15, 2003, Luwalhati and Eliza were in the Philippines.
As the monthly common charges on the Unit had become due, they
G.R. No. 199455, June 27, 2018 decided to send several Citibank checks to Veronica Z. Sison (Sison),
who was based in New York. Citibank checks allegedly amounting to
US$17,726.18 for the payment of monthly charges and
FEDERAL EXPRESS CORPORATION, Petitioner, v. LUWALHATI R. US$11,619.35 for the payment of real estate taxes were sent by
ANTONINO AND ELIZA BETTINA RICASA Luwalhati through FedEx with Account No. x2546-4948-1 and
ANTONINO, Respondents. Tracking No. 8442 4588 4268. The package was addressed to Sison
who was tasked to deliver the checks payable to Maxwell-Kates, Inc.
DECISION and to the New York County Department of Finance. Sison allegedly
did not receive the package, resulting in the non-payment of
LEONEN, J.: Luwalhati and Eliza's obligations and the foreclosure of the Unit.9
The duty of common carriers to observe extraordinary diligence in Upon learning that the checks were sent on December 15, 2003,
shipping goods does not terminate until delivery to the consignee or Sison contacted FedEx on February 9, 2004 to inquire about the
to the specific person authorized to receive the shipped goods. non-delivery. She was informed that the package was delivered to her
Failure to deliver to the person authorized to receive the goods is neighbor but there was no signed receipt.10
tantamount to loss of the goods, thereby engendering the common
carrier's liability for loss. Ambiguities in contracts of carriage, which On March 14, 2004, Luwalhati and Eliza, through their counsel, sent
are contracts of adhesion, must be interpreted against the common a demand letter to FedEx for payment of damages due to the non-
carrier that prepared these contracts. delivery of the package, but FedEx refused to heed their
demand.11Hence, on April 5, 2004, they filed their Complaint12 for
This resolves a Petition for Review on Certiorari1 under Rule 45 of the damages.
1997 Rules of Civil Procedure praying that the assailed Court of
Appeals August 31, 2011 Decision2 and November 21, 2011 FedEx claimed that Luwalhati and Eliza "ha[d] no cause of action
Resolution3 in CA-G.R. CV No. 91216 be reversed and set aside and against it because [they] failed to comply with a condition precedent,
that Luwalhati R. Antonino (Luwalhati) and Eliza Bettina Ricasa that of filing a written notice of claim within the 45 calendar days
Antonino (Eliza) be held liable on Federal Express Corporation's from the acceptance of the shipment."13 It added that it was absolved
(FedEx) counterclaim. of liability as Luwalhati and Eliza shipped prohibited items and
misdeclared these items as "documents."14 It pointed to conditions
The assailed Court of Appeals August 31, 2011 Decision denied the under its Air Waybill prohibiting the "transportation of money
appeal filed by FedEx and affirmed the May 8, 2008 Decision 4 of (including but not limited to coins or negotiable instruments
Branch 217, Regional Trial Court, Quezon City, awarding moral and equivalent to cash such as endorsed stocks and bonds)."15
exemplary damages, and attorney's fees to Luwalhati and Eliza.5 In
its assailed November 21, 2011 Resolution, the Court of Appeals In its May 8, 2008 Decision,16 the Regional Trial Court ruled for
denied FedEx's Motion for Reconsideration.6 Luwalhati and Eliza, awarding them moral and exemplary damages,
and attorney's fees.17
Eliza was the owner of Unit 22-A (the Unit) in Allegro Condominium,
located at 62 West 62nd St., New York, United States.7 In November The Regional Trial Court found that Luwalhati failed to accurately
2003, monthly common charges on the Unit became due. These declare the contents of the package as "checks."18 However, it ruled
charges were for the period of July 2003 to November 2003, and that a check is not legal tender or a "negotiable instrument
were for a total amount of US$9,742.81.8 equivalent to cash," as prohibited by the Air Waybill.19 It explained
that common carriers are presumed to be at fault whenever goods Waybill is a contract of adhesion and should be construed against
are lost.20 Luwalhati testified on the non-delivery of the package. the party that drafted it.30
FedEx, on the other hand, claimed that the shipment was released
without the signature of the actual recipient, as authorized by the The dispositive portion of the Court of Appeals August 31, 2011
shipper or recipient. However, it failed to show that this Decision read:
authorization was made; thus, it was still liable for the loss of the
package.21
WHEREFORE, premises considered, the present appeal is hereby
DENIED. The assailed May 08, 2008 Decision of the Regional Trial
On non-compliance with a condition precedent, it ruled that under Court, Branch 217, Quezon City in Civil case No. Q-04-52325 is
the Air Waybill, the prescriptive period for filing an action was AFFIRMED. Costs against the herein appellant.
"within two (2) years from the date of delivery of the shipment or
from the date on which the shipment should have been
delivered."22 Luwalhati and Eliza's demand letter made on March 11, SO ORDERED.31
2004 was within the two (2)-year period sanctioned by the Air
Waybill.23 The trial court also noted that they were given a "run- Following the Court of Appeals' denial32 of its Motion for
around" by FedEx employees, and thus, were deemed to have Reconsideration, FedEx filed the present Petition.
complied with the filing of the formal claim.24
For resolution of this Court is the sole issue of whether or not
The dispositive portion of the Regional Trial Court May 8, 2008 petitioner Federal Express Corporation may be held liable for
Decision read: damages on account of its failure to deliver the checks shipped by
respondents Luwalhati R. Antonino and Eliza Bettina Ricasa
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Antonino to the consignee Veronica Sison.
Luwalhati R. Antonino and Eliza Bettina Ricasa Antonino ordering
the following: I
1) The amount of P200,000.00 by way of moral damages; Petitioner disclaims liability because of respondents' failure to
2) The amount of P100,000.00 by way of exemplary damages; and comply with a condition precedent, that is, the filing of a written
[3]) The amount of P150,000.00 as and for attorney's fees. Costs notice of a claim for non-delivery or misdelivery within 45 days from
against defendant. acceptance of the shipment.33 The Regional Trial Court found the
condition precedent to have been substantially complied with and
The counterclaim is ordered dismissed. attributed respondents' noncompliance to FedEx for giving them a
run-around.34 This Court affirms this finding.
SO ORDERED.25
A provision in a contract of carriage requiring the filing of a formal
claim within a specified period is a valid stipulation. Jurisprudence
In its assailed August 31, 2011 Decision,26 the Court of Appeals maintains that compliance with this provision is a legitimate
affirmed the ruling of the Regional Trial Court.27 According to it, by condition precedent to an action for damages arising from loss of the
accepting the package despite its supposed defect, FedEx was shipment:
deemed to have acquiesced to the transaction. Thus, it must deliver
the package in good condition and could not subsequently deny
liability for loss.28 The Court of Appeals sustained the Regional Trial More particularly, where the contract of shipment contains a
Court's conclusion that checks are not legal tender, and thus, not reasonable requirement of giving notice of loss of or injury to the
covered by the Air Waybill's prohibition.29 It further noted that an Air goods, the giving of such notice is a condition precedent to the action
for loss or injury or the right to enforce the carrier's liability. Such around the claim and leaving it unresolved for an indefinite period of
requirement is not an empty formalism. The fundamental reason or time" led this Court to deem the requisite period satisfied. 41 This is
purpose of such a stipulation is not to relieve the carrier from just pursuant to Article 1186 of the New Civil Code which provides that
liability, but reasonably to inform it that the shipment has been "[t]he condition shall be deemed fulfilled when the obligor voluntarily
damaged and that it is charged with liability therefor, and to give it prevents its fulfillment":42
an opportunity to examine the nature and extent of the injury. This
protects the carrier by affording it an opportunity to make an Considering the abovementioned incident and private respondent
investigation of a claim while the matter is fresh and easily Mejia's own zealous efforts in following up the claim, it was clearly
investigated so as to safeguard itself from false and fraudulent not her fault that the letter of demand for damages could only be
claims.35 (Citation omitted) filed, after months of exasperating follow-up of the claim, on August
13, 1990. If there was any failure at all to file the formal claim within
Petitioner's Air Waybill stipulates the following on filing of claims: the prescriptive period contemplated in the air waybill, this was
largely because of PAL's own doing, the consequences of which
Claims for Loss, Damage, or Delay. All claims must be made in cannot, in all fairness, be attributed to private respondent.
writing and within strict time limits. See any applicable tariff, our
service guide or our standard conditions for carriage for details. Even if the claim for damages was conditioned on the timely filing of
a formal claim, 'under Article 1186 of the Civil Code that condition
The right to damages against us shall be extinguished unless an was deemed fulfilled, considering that the collective action of PAL's
action is brought within two (2) years from the date of delivery of the personnel in tossing around the claim and leaving it unresolved for
shipment or from the date on which the shipment should have been an indefinite period of time was tantamount to "voluntarily
delivered. preventing its fulfillment." On grounds of equity, the filing of the
baggage freight claim, which sufficiently informed PAL of the damage
sustained by private respondent's cargo, constituted substantial
Within forty-five (45) days after notification of the claim, it must be compliance with the requirement in the contract for the filing of a
documented by sending to us [all the] relevant information about it.36 formal claim.43 (Citations omitted)
For their claim to prosper, respondents must, thus, surpass two (2) Here, the Court of Appeals detailed the efforts made by respondent
hurdles: first, the filing of their formal claim within 45 days; and Luwalhati and consignee Sison. It also noted petitioner's ambiguous
second, the subsequent filing of the action within two (2) years. and evasive responses, nonchalant handling of respondents'
concerns, and how these bogged down respondents' actions and
There is no dispute on respondents' compliance with the second impaired their compliance with the required 45-day period:
period as their Complaint was filed on April 5, 2004.37
Anent the issues concerning lack of cause of action and their so-
In appraising respondents' compliance with the first condition, this called "run-around" matter, We uphold the lower court's finding that
Court is guided by settled standards in jurisprudence. the herein appellees complied with the requirement for the
immediate filing of a formal claim for damages as required in the Air
In Philippine Airlines, Inc. v. Court of Appeals,38 Philippine Airlines Waybill or, at least, We find that there was substantial compliance
alleged that shipper Gilda Mejia (Mejia) failed to file a formal claim therewith. Luwalhati testified that the addressee, Veronica Z. Sison
within the period stated in the Air Waybill.39 This Court ruled that promptly traced the whereabouts of the said package, but to no avail.
there was substantial compliance with the period because of the Her testimony narrated what happened thereafter, thus:
zealous efforts demonstrated by Mejia in following up her
claim.40 These efforts coupled with Philippine Airlines' "tossing
". . . "A And then I asked my friend Mrs. Veronica Sison to trace
it, Sir.
"COURT: All right. She was informed that it was lost. What steps
did you take to find out or to recover back this package?
". . .
"ATTY. ALENTAJAN:
"Q What did you do to Fedex? "Q What did she report to you?
". . .
Article 1733. Common carriers, from the nature of their business Petitioner is unable to prove that it exercised extraordinary diligence
and for reasons of public policy, are bound to observe extraordinary in ensuring delivery of the package to its designated consignee. It
diligence in the vigilance over the goods and for the safety of the claims to have made a delivery but it even admits that it was not to
passengers transported by them, according to all the circumstances the designated consignee. It asserts instead that it was authorized to
of each case. release the package without the signature of the designated recipient
and that the neighbor of the consignee, one identified only as "LGAA
"Extraordinary diligence is that extreme measure of care and caution 385507," received it.51 This fails to impress.
which persons of unusual prudence and circumspection use for
securing and preserving their own property or rights."45 Consistent The assertion that receipt was made by "LGAA 385507" amounts to
with the mandate of extraordinary diligence, the Civil Code stipulates little, if any, value in proving petitioner's successful discharge of its
that in case of loss or damage to goods, common carriers are duty. "LGAA 385507" is nothing but an alphanumeric code that
presumed to be negligent or at fault,46 except in the following outside of petitioner's personnel and internal systems signifies
instances: nothing. This code does not represent a definite, readily identifiable
person, contrary to how commonly accepted identifiers, such as
numbers attached to official, public, or professional identifications
(1) Flood, storm, earthquake, lightning, or other natural disaster or
like social security numbers and professional license numbers,
calamity;
function. Reliance on this code is tantamount to reliance on nothing
(2) Act of the public enemy in war, whether international or civil; more than petitioner's bare, self-serving allegations. Certainly, this
cannot satisfy the requisite of extraordinary diligence consummated
through delivery to none but "the person who has a right to are not qualifiers that are integral to or inseverable from "money."
receive"52 the package. Despite the utterance of the enclosed phrase, the singular
prohibition remains: money.
Given the circumstances in this case, the more reasonable
conclusion is that the package was not delivered. The package Money is "what is generally acceptable in exchange for goods."55 It
shipped by respondents should then be considered lost, thereby can take many forms, most commonly as coins and banknotes.
engendering the liability of a common carrier for this loss. Despite its myriad forms, its key element is its general
acceptability.56 Laws usually define what can be considered as a
Petitioner cannot but be liable for this loss. It failed to ensure that generally acceptable medium of exchange.57 In the Philippines,
the package was delivered to the named consignee. It admitted to Republic Act No. 7653, otherwise known as The New Central Bank
delivering to a mere neighbor. Even as it claimed this, it failed to Act, defines "legal tender" as follows:
identify that neighbor.
All notes and coins issued by the Bangko Sentral shall be fully
III guaranteed by the Government of the Republic of the Philippines and
shall be legal tender in the Philippines for all debts, both public and
private: Provided, however, That, unless otherwise fixed by the
Petitioner further asserts that respondents violated the terms of the Monetary Board, coins shall be legal tender in amounts not
Air Waybill by shipping checks. It adds that this violation exempts it exceeding Fifty pesos (P50.00) for denomination of Twenty-five
from liability.53 centavos and above, and in amounts not exceeding Twenty pesos
(P20.00) for denominations of Ten centavos or less.58
This is untenable.
It is settled in jurisprudence that checks, being only negotiable
Petitioner's International Air Waybill states: instruments, are only substitutes for money and are not legal tender;
more so when the check has a named payee and is not payable to
Items Not Acceptable for Transportation. We do not accept bearer. In Philippine Airlines, Inc. v. Court of Appeals,59 this Court
transportation of money (including but not limited to coins or ruled that the payment of a check to the sheriff did not satisfy the
negotiable instruments equivalent to cash such as endorsed stocks judgment debt as checks are not considered legal tender. This has
and bonds). We exclude all liability for shipments of such items been maintained in other cases decided by this Court. In Cebu
accepted by mistake. Other items may be accepted for carriage only International Finance Corporation v. Court of Appeals,60 this Court
to limited destinations or under restricted conditions. We reserve the held that the debts paid in a money market transaction through the
right to reject packages based upon these limitations or for reasons use of a check is not a valid tender of payment as a check is not legal
of safety or security. You may consult our Service Guide, Standard tender in the Philippines. Further, in Bank of the Philippine Islands v.
Conditions of Carriage, or any applicable tariff for specific Court of Appeals,61 this Court held that "a check, whether a
details.54 (Emphasis in the original) manager's check or ordinary check, is not legal tender."62
The prohibition has a singular object: money. What follows the The Air Waybill's prohibition mentions "negotiable instruments" only
phrase "transportation of money" is a phrase enclosed in in the course of making an example. Thus, they are not prohibited
parentheses, and commencing with the words "including but not items themselves. Moreover, the illustrative example does not even
limited to." The additional phrase, enclosed as it is in parentheses, is pertain to negotiable instruments per se but to "negotiable
not the object of the prohibition, but merely a postscript to the word instruments equivalent to cash."63
"money." Moreover, its introductory words "including but not limited
to" signify that the items that follow are illustrative examples; they
The checks involved here are payable to specific payees, Maxwell- reason should respondents be exculpated from liability for shipping
Kates, Inc. and the New York County Department of Finance.64 Thus, documents or instruments, which are reasonably understood as not
they are order instruments. They are not payable to their bearer, being money, and for being unable to declare them as such.
i.e., bearer instruments. Order instruments differ from bearer
instruments in their manner of negotiation: Ultimately, in shipping checks, respondents were not violating
petitioner's Air Waybill. From this, it follows that they committed no
Under Section 30 of the [Negotiable Instruments Law], an order breach of warranty that would absolve petitioner of liability.
instrument requires an indorsement from the payee or holder before
it may be validly negotiated. A bearer instrument, on the other hand, WHEREFORE, the Petition for Review on Certiorari is DENIED. The
does not require an indorsement to be validly negotiated.65 assailed August 31, 2011 Decision and November 21, 2011
Resolution of the Court of Appeals in CA-G.R. CV No. 91216
There is no question that checks, whether payable to order or to are AFFIRMED.
bearer, so long as they comply with the requirements under Section
1 of the Negotiable Instruments Law, are negotiable SO ORDERED.
instruments.66 The more relevant consideration is whether checks
with a specified payee are negotiable instruments equivalent to cash,
as contemplated in the example added to the Air Waybill's Velasco, Jr., (Chairperson), Bersamin, Martires, and Gesmundo, JJ.,
prohibition. concur.
These assailed CA rulings annulled the June 27, 2006 decision 4 and January 14, 1997 ₱1,000,000.00
October 30, 2006 order5 of the Regional Trial Court of Makati,
Branch 64 (trial court), which directed respondent Jose V. Dueñas
(Dueñas) to pay Five Million Pesos (₱5 Million) to petitioner George C. February 8, 1997 ₱500,000.00
Fong (Fong), and imposed a six percent (6%) annual interest on this
amount.
March 7, 1997 ₱100,000.00
Factual Antecedents
April 28, 1997 ₱500,000.00
Dueñas is engaged in the bakery, food manufacturing, and retailing
business, which are all operated under his two companies, D.C. June 13, 1997 ₱919,524.80
DANTON, Inc. (Danton) and Bakcom Food Industries, Inc. (Bakcom).
Total ₱5,000,000.00 continue full speed. We have put our money down in trust and good
faith despite the much delayed financials. We continue to believe in
your game plan and capabilities to achieve the desired goals for
subject undertaking. Please permit us instead to be just a modest
On June 13, 1997, Fong sent a letter to Dueñas informing him of his silent investor now with a take out plan when time and price is right.
decision to limit his total contribution from ₱32.5 Million to ₱5
Million. This letter reads: Thank you for your kind understanding and consideration.
applicable in the present case Enclosed is our check for ₱919,534.80 representing our additional
advances to subject company in process of incorporation. This will
Reciprocal obligations are those which arise from the same cause, in make our total advances to date amounting to ₱5
which each party is a debtor and a creditor of the other, such that million.37[Emphasis supplied.]
the obligation of one is dependent on the obligation of the other.36
Moreover, under the Corporation Code, before a stock corporation
Fong and Dueñas’ execution of a joint venture agreement created may be incorporated and registered, itis required that at least twenty
between them reciprocal obligations that must be performed in order five percent (25%) of its authorized capital stock as stated in the
to fully consummate the contract and achieve the purpose for which articles of incorporation, be first subscribed at the time of
it was entered into. incorporation, and at least twenty five percent (25%) of the total
subscription, be paid upon subscription.38
Both parties verbally agreed to incorporate a company that would
hold the shares of Danton and Bakcom and which, in turn, would be To prove compliance with this requirement, the SEC requires the
the platform for their food business. Fong obligated himself to incorporators to submit a treasurer’s affidavit and a certificate of
contribute half of the capital or ₱32.5 Million in cash. On the other bank deposit, showing the existence of an amount compliant with
hand, Dueñas bound himself to shoulder the other half by the prescribed capital subscription.39
contributing his Danton and Bakcom shares, which were allegedly
also valued at ₱32.5 Million. Aside from this, Dueñas undertook In this light, we conclude that Fong’s cash contributions play an
toprocess Alliance’s incorporation and registration with the SEC. indispensable part in Alliance’s incorporation. The process
necessarily requires the money not only to fund Alliance’s
When the proposed company remained unincorporated by October registration with the SEC but also its initial capital subscription.
30, 1997, Fong cancelled the joint venture agreement and demanded This is evident in the receipts which Dueñas himself executed, one of
the return of his ₱5 Million contribution. which provides:
For his part, Dueñas explained that he could not immediately return I, JOSE V. DUEÑAS, hereby acknowledge the receipt on January 14,
the ₱5 Million since he had invested it in his two companies. He 1997 of the amount of One Million Pesos (Php1,000,000.00) Check
found nothing irregular in this as eventually, the Danton and No. 118 118 7014 Metro Bank, Pasong Tamo branch dated January
Bakcom shares would form part of Alliance’s capital. 13, 1997 from Mr. George Fong, which amount shall constitute an
advance of the contribution or investment of Mr. Fong in the joint
venture which he and I are in the process of organizing. Specifically,
Dueñas’ assertion is erroneous. this amount will be considered as part of Mr. Fong’s subscription to
the shares of stock of the joint venture company which we will
incorporate to embody and carry out our joint venture.40 [Emphasis However, the Court notes that Fong also breached his obligation in
supplied.] the joint venture agreement. In his June 13, 1997 letter, Fong
expressly informed Dueñas that he would be limiting his cash
Thus, Dueñas erred when he invested Fong’s contributions in his contribution from ₱32.5 Million to ₱5 Million because of the following
two companies. This money should have been used in processing reasons which we quote verbatim:
Alliance’s registration. Its incorporation would not materialize if there
would be no funds for its initial capital. Moreover, Dueñas 1. First, we were faced with the ‘personal’ factor which was
represented that Danton and Bakcom’s shares were valued at ₱32.5 explained to you one time. This has caused us to turn down
Million. If this was true, then there was no need for Fong’s additional a number of business opportunities;
₱5 Million investment, which may possibly increase the value of the
Danton and Bakcom shares. 2. Secondly, since last year, the operation of Century 21 has
been taking more time from us than anticipated. That is why
Under these circumstances, the Court agrees with the trial court that we decided to relinquish our original plan to manage and
Dueñas violated his agreement with Fong. Aside from unilaterally operate ‘Boboli’ knowing this limitation. For us, it does not
applying Fong’s contributions to his two companies, Dueñas also make sense anymore to go for a significant shareholding
failed to deliver the valuation documents of the Danton and Bakcom when we cannot be hands on and participate actively as
shares to prove that the combined values of their capital originally planned.43 x x x.
contributions actually amounted to ₱32.5 Million. These acts led to
Dueñas’ delay in incorporating the planned holding company, thus Although these reasons appear to be valid, they do not erase the fact
resulting in his breach of the contract. that Fong still reneged on his original promise to contribute ₱32.5
Million. The joint venture agreement was not reduced to writing and
On this basis, Dueñas’ breach justified Fong’s rescission of the joint the evidence does not show if the parties agreed on valid causes that
venture agreement under Article 1191. As the Court ruled in Velarde would justify the limitation of the parties’ capital contributions. Their
v. Court of Appeals:41 only admission was that they obligated themselves to contribute
₱32.5 Million each.
The right of rescission of a party to an obligation under Article 1191
of the Civil Code is predicated on a breach of faith by the other party Hence, Fong’s diminution of his capital share to ₱5 Million also
who violates the reciprocity between them. The breach contemplated amounted to a substantial breach of the joint venture agreement,
in the said provision is the obligor’s failure to comply with an existing which breach occurred before Fong decided to rescind his agreement
obligation. When the obligor cannot comply with what is incumbent with Dueñas. Thus, Fong also contributed to the non-incorporation
upon it, the obligee may seek rescission and in the absence of any of Alliance that needed ₱65 Million as capital to operate.
just cause for the court to determine the period of compliance, the
court shall decree the rescission. Fong cannot entirely blame Dueñas since the substantial reduction
of his capital contribution also greatly impeded the implementation
In the present case, private respondents validly exercised their right of their agreement to engage in the food business and to incorporate
to rescind the contract, because of the failure of petitioners to comply a holding company for it.
with their obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of reciprocity in the As both parties failed to comply with their respective reciprocal
contract of sale, a violation that consequently gave rise to private obligations, we apply Article 1192 of the Civil Code, which provides:
respondents’ right to rescind the same in accordance with
law.42 [Emphasis supplied.]
Art. 1192. In case both parties have committed a breach of the
obligation, the liability of the first in fractor shall be equitably
tempered by the courts. If it cannot be determined which of the breach and the first infractor of the contract cannot exactly be
parties first violated the contract, the same shall be deemed determined, each party shall bear his own damages.
extinguished, and each shall bear his own damages. [Emphasis
supplied.] WHEREFORE, premises considered, we hereby GRANT the petition
and reverse the September 16, 2008 decision and December 8, 2008
Notably, the Court is not aware of the schedule of performance of the resolution of the Court of Appeals in CA-G.R. CV No. 88396.
parties’ obligations since the joint venture agreement was never Respondent Jose V. Dueñas is ordered to RETURN Five Million Pesos
reduced to writing. The facts, however, show that both parties began to petitioner George C. Fong. This amount shall incur an interest of
performing their obligations after executing the joint venture six percent (6%) per annum from the date of finality of this judgment
agreement. Fong started remitting his share while Dueñas started until fully paid.45 The parties' respective claims for damages are
processing the Boboli international license for the proposed deemed EXTINGUISHED and each of them shall bear his own
corporation’s food business. damages.
Despite these gray areas, the fact that both Fong and Dueñas
substantially contributed to the non-incorporation of Alliance and to
the failure of their food business plans remains certain.
In these lights, the Court holds that the joint venture agreement
between Fong and Dueñas is deemed extinguished through
rescission under Article 1192 in relation with Article 1191 of the Civil
Code. Dueñas must therefore return the ₱5 Million that Fong initially
contributed since rescission requires mutual restitution.44 After
rescission, the parties must go back to their original status before
they entered into the agreement. Dueñas cannot keep Fong's
contribution as this would constitute unjust enrichment.
This is a Petition for Review on Certiorari under Rule 45 of the Rules 3) EMI to study the possibility of adding ‘LIABILITY CLAUSE’
of Court seeking the reversal of the Decision1dated November 28, to existing contract; to furnish HC copy for its review.
2003 and Resolution2 dated March 16, 2004 of the Court of Appeals
(CA) in CA-G.R. CV No. 69420. 4) No renewal of contract w/ HC should there be another
suspension of services in any hospitals to be chosen (w/
The facts, as found by the CA, are as follows: regard to item #2.) w/in the present contract period.
The plaintiff Healthcheck Inc. is a 1-lcalth Maintenance Organization 5) HC decision on APE provided by 7/24(FRI)."
HMO) that provides prepaid health and medical insurance coverage
to its clients. To under gird its program, it maintains a network of Although HCI had yet to settle its accounts with it, DLSUMC
accredited hospitals and medical clinics, one of which is the De La resumed services on July 24. In another meeting with EMI on August
Salle University Medical Center located at Dasmariñas. Cavite. Being 3, HCI undertook to settle all its accounts with DLSUMC in order to
within the access of this medical facility, the defendant Eds maintain its accreditation. Despite this commitment, HCI failed to
Manufacturing Inc. with about 5,000 employees at Imus, Cavite saw preserve its credit standing with DLSUMC prompting the latter to
fit in April 1998 to obtain insurance coverage from it. They entered suspend its accreditation for a second time from August 15 to 20. A
into a one-year contract from May 1, 1998 to April 30, 1999 in which third suspension was still to follow on September 9 and remained in
HCI was to provide the 4,191 employees of EMI and their 4,592 force until the end of the contract period.
dependents as host of medical services and benefits. Attached to the
Agreement was a Service Program which listed the services that HCI
would provide and the responsibilities that EMI would undertake in Until the difficulties between HCI and its client came to a head in
order to avail of the services. Putting the Agreement into effect, EMI September 1998, complaints from EMI employees and workers were
paid the full premium for the coverage in the staggering amount of pouring in that their HMO cards were not being honored by the
₱8,826,307.50. DLSUMC and other hospitals and physicians. On September 3, EMI
formally notified HCI that it was rescinding their April 1998
Agreement on account of HCI’s serious and repeated breach of its
undertaking including but not limited to the unjustified non-
availability of services. It demanded a return of premium for the medical coverage after EMI paid the premium in full. Having
unused period after September 3, giving a ballpark figure of ₱6 rescinded the contract, it claimed that it was entitled to the
million. unutilized portion of the premium, and that the accounting required
by HCI could not be undertaken until it submitted the monthly
What went in the way of the rescission of the contract, the fly in the utilization reports mentioned in the Agreement. EMI asked for the
ointment so to speak, was the failure of EMI to collect all the HMO dismissal of the complaint and interposed a counterclaim for
cards of the employees and surrender them to HCI as stipulated in damages and unutilized premium of ₱5,884,205.
the Agreement. HCI had to tell EMI on October 12, 1998 that its
employees were still utilizing the cards even beyond the In September 2000, after trial, the court ruled in favor of HCI. It
pretermination date set by EMI. It asked for the surrender of the found that EMI’s rescission of the Agreement on September 3, 1998
cards so that it could process the pretermination of the contract and was not done through court action or by a notarial act and was
finalize the reconciliation of accounts. Until we have received the IDs, based on casual or slight breaches of the contract. Moreover, despite
HCI said, we will consider your account with us ongoing and the announced rescission, the employees of EMI continued to avail of
existing, thus subject for inclusion to present billing and payment. HCI’s services until March 1999. The services rendered by HCI from
May 1998 to March 1999 purportedly came to a total of
Without responding to this reminder, EMI sent HCI two letters in ₱10,149,821.13. The court deducted from this figure the premium
January 1999 demanding for the payment of ₱5,884,205 as the 2/3 paid by EMI, leaving a net payable to HCI of ₱1,323,513.63, in
portion of the premium that remained unutilized after the Agreement addition to moral damages and attorney’s fees. EMI’s counterclaims,
was rescinded in the previous September. The computation was on the other hand, were dismissed for lack of merit.3
made on the basis of these observations:
On appeal, the CA reversed the decision of the Regional Trial Court
- that EMI paid premium of ₱8,826,307.50 (RTC) of Pasig City and ruled that although Healthcheck
International, (HCI) substantially breached their agreement, it also
appears that Eds Manufacturing, Inc. (EMI) did not validly rescind
- Healthcheck’s accreditation with DLSUMC was suspended the contract between them. Thus, the CA dismissed the complaint
on July 17, August 15 and Sept. 9, 1998 by reason of filed by HCI, while at the same time dismissing the counterclaim filed
Healthcheck’s unjustified failure to pay its benefits to the by EMI.
hospital.
Undeterred, EMI filed a Motion for Partial Reconsideration against
- That Healthcheck’s accreditation with other hospitals and said decision. However, the same was denied in a Resolution dated
individual physicians was also suspended on various dates March 16, 2004.
for the same reason.
Hence, EMI filed the present petition raising the following issues for
- That, in effect Healthcheck managed to comply with its our resolution:
obligation only for the first 4 months of the year-long
contract, or 1/3 thereof.
A
HCI pre-empted EMI’s threat of legal action by instituting the present
case before the Regional Trial Court of Pasig. The cause of action it THE COURT OF APPEALS, WHILE CORRECTLY
presented was the unlawful pretermination of the contract and OVERTURNING THE RTC’S DECISION BY DISMISSING THE
failure of EMI to submit to a joint reconciliation of accounts and COMPLAINT, COMMITTED A REVERSIBLE AND GROSS
deliver such assets as properly belonged to HCI. EMI responded with ERROR WHEN IT LIKEWISE DISMISSED THE
an answer alleging that HCI reneged on its duty to provide adequate COUNTERCLAIM ON THE GROUND THAT PETITIONER EMI
DID NOT ACTUALLY RESCIND THE CONTRACT WHICH The court shall decree the rescission claimed, unless there be just
RULING BY THE APPELLATE COURT ALREADY WENT cause authorizing the fixing of a period.
BEYOND THE AGREED/SUBMITTED ISSUES FOR
ADJUDICATION. This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
B 1385 and 1388 and the Mortgage Law.5
THE COURT OF APPEALS COMMITTED SERIOUS ERROR The general rule is that rescission (more appropriately, resolution ) of
OF LAW IN ADMITTING THE UTILIZATION REPORTS AS a contract will not be permitted for a slight or casual breach, but
COMPETENT EVIDENCE OF THE PURPORTED NON- only for such substantial and fundamental violations as would defeat
RESCISSION, WHEN SUCH EVIDENCE IS DOUBLE the very object of the parties in making the agreement.6
HEARSAY INASMUCH AS THE PERSON WHO PREPARED
THE SAME DID NOT TESTIFY IN COURT AND HIS In his concurring opinion in Universal Food Corporation v. Court of
UNAVAILABILITY WAS UNEXPLAINED. Appeals,7 Justice J.B.L. Reyes clarifies:
Simply, the issue is whether or not there was a valid rescission of the Reiterating the aforementioned pronouncement, this Court in Pryce
Agreement between the parties. Corporation v. Philippine Amusement Gaming Corporation 9 held
that:
We rule in the negative.
Relevantly, it has been pointed out that resolution was originally
First, Article 1191 of the Civil Code states: used in Article 1124 of the old Civil Code, and that the term became
the basis for rescission under Article 1191 (and conformably, also
Article 1659).10
The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon
him. Thus, the rescission referred to in Article 1191, more appropriately
referred to as resolution, is on the breach of faith by one of the
parties which is violative of the reciprocity between them.11
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen In the present case, it is apparent that HCI violated its contract with
fulfillment, if the latter should become impossible. EMI to provide medical service to its employees in a substantial way.
As aptly found by the CA, the various reports made by the EMI
employees from July to August 1998 are living testaments to the
gross denial of services to them at a time when the delivery was decree of the court and not the mere act of the vendor. Since a
crucial to their health and lives. judicial or notarial act is required by law for a valid rescission to take
place, the letter written by respondent declaring his intention to
However, although a ground exists to validly rescind the contract rescind did not operate to validly rescind the contract.13
between the parties, it appears that EMI failed to judicially rescind
the same. In Iringan v. Court of Appeals,12 this Court reiterated the What is more, it is evident that EMI had not rescinded the contract
rule that in the absence of a stipulation, a party cannot unilaterally at all. As observed by the CA, despite EMI s pronouncement, it failed
and extrajudicially rescind a contract. A judicial or notarial act is to surrender the HMO cards of its employees although this was
necessary before a valid rescission (or resolution) can take place. required by the Agreement, and allowed them to continue using them
Thus – beyond the date of the rescission. The in-patient and the out-patient
utilization reports submitted by 1 ICI shows entries as late as March
Clearly, a judicial or notarial act is necessary before a valid 1999, signifying that EMI employees 1 were availing of the services
rescission can take place, whether or not automatic rescission has until the contract period were almost over. The continued use by
been stipulated. It is to be noted that the law uses the phrase "even them of their privileges under the contract, with the apparent
though" emphasizing that when no stipulation is found on automatic consent of EMI, belies any intention to cancel or rescind it, even as
rescission, the judicial or notarial requirement still applies. they felt that they ought to have received more than what they got.
The party entitled to rescind should apply to the court for a decree of
rescission. The right cannot be exercised solely on a party’s own
judgment that the other committed a breach of the obligation. The
operative act which produces the resolution of the contract is the
Civil Law; Sales; Contract of Sale; Reciprocal Obligations; A language, these consequences. To uphold both Article 1191 of the Civil
contract of sale entails reciprocal obligations.—A contract of sale, such as Code and the parties’ will, contractually stipulated liquidated damages
that entered into by petitioner and respondent, entails reciprocal must, as a rule, be maintained.
obligations. As explained in Spouses Velarde v. Court of Appeals, 361 Bids and Bidding; Jurisprudence has established the impropriety of
SCRA 56 (2001), “[i]n a contract of sale, the seller obligates itself to modifying awarded contracts that were previously subjected to public
transfer the ownership of and deliver a determinate thing, and the buyer bidding.—Respondent’s attempt at rectification came too late and under
to pay therefor a price certain in money or its equivalent.” such circumstances that petitioner was no longer even in a position to
accept respondent’s offer. As petitioner notes, by the time respondent
Same; Contracts; Rescission; Jurisprudence has long settled that the made its offer, the Complaint for rescission and damages had already
restoration of the contracting parties to their original state is the very been filed before the Regional Trial Court of Pasay City. If at all, the
essence of rescission.—Respondent correctly notes that rescission under offer was nothing more than a belated reaction to undercut litigation. By
Article 1911 results in mutual restitution. Jurisprudence has long settled the time respondent made its attempt at rectification, petitioner was no
that the restoration of the contracting parties to their original state is longer capable of accommodating contractual modifications.
the very essence of rescission. In Spouses Velarde v. Court of Appeals, Jurisprudence has established the impropriety of modifying awarded
361 SCRA 56 (2001): Considering that the rescission of the contract is contracts that were previously subjected to public bidding, such as that
based on Article 1191 of the Civil Code, mutual restitution is required to between petitioner and respondent: An essential element of a publicly
bring back the parties to their original situation prior to the inception of bidded contract is that all bidders must be on equal footing. Not simply
the contract. Accordingly, the initial payment of P800,000 and the in terms of application of the procedural rules and regulations imposed
corresponding mortgage payments . . . should be returned by private by the relevant government agency, but more importantly, on the
respondents, lest the latter unjustly enrich themselves at the expense of contract bidded upon. Each bidder must be able to bid on the same thing.
the former. Rescission creates the obligation to return the object of the The rationale is obvious. If the winning bidder is allowed to later include
contract. It can be carried out only when the one who demands rescission or modify certain provisions in the contract awarded such that the
can return whatever he may be obliged to restore. To rescind is to declare contract is altered in any material respect, then the essence of fair
a contract void at its inception and to put an end to it as though it never competition in the public bidding is destroyed. A public bidding would
was. It is not merely to terminate it and release the parties from further indeed be a farce if after the contract is awarded, the winning bidder may
obligations to each other, but to abrogate it from the beginning and modify the contract and include provisions which are favorable to it that
restore the parties to their relative positions as if no contract has been were not previously made available to the other bidders.
made.
Damages; Liquidated Damages; Words and Phrases; By definition,
Same; Same; Same; Liquidated Damages; Mutual restitution under liquidated damages are a penalty, meant to impress upon defaulting
Article 1191 is no license for the negation of contractually stipulated obligors the graver consequences of their own culpability.—By definition,
liquidated damages.—Contrary to respondent’s assertion, mutual liquidated damages are a penalty, meant to impress upon defaulting
restitution under Article 1191 is, however, no license for the negation of obligors the graverconsequences of their own culpability. Liquidated
contractually stipulated liquidated damages. Article 1191 itself clearly damages must necessarily make noncompliance more cumbersome than
states that the options of rescission and specific performance come with compliance. Otherwise, contracts might as well make no threat of a
“with the payment of damages in either case.” The very same breach or penalty at all: Liquidated damages are those that the parties agree to be
delay in performance that triggers rescission is what makes damages paid in case of a breach. As worded, the amount agreed upon answers for
due. When the contracting parties, by their own free acts of will, agreed damages suffered by the owner due to delays in the completion of the
on what these damages ought to be, they established the law between project. Under Philippine laws, these damages take the nature of
themselves. Their contemplation of the consequences proper in the event penalties. A penal clause is an accessory undertaking to assume greater
of a breach has been articulated. When courts are, thereafter, confronted liability in case of a breach. It is attached to an obligation in order to
with the need to award damages in tandem with rescission, courts must ensure performance.
not lose sight of how the parties have explicitly stated, in their own
SECOND DIVISION
On October 4, 1997, the Philippine Economic Zone Authority published
G.R. No. 185765, September 28, 2016 an invitation to bid in the Business Daily for its acquisition of two (2)
brand new fire truck units "with a capacity of 4,000-5,000 liters [of]
water and 500-1,000 liters [of chemical foam,] with complete
PHILIPPINE ECONOMIC ZONE
accessories."8chanrobleslaw
AUTHORITY, Petitioner, v. PILHINO SALES
CORPORATION, Respondent.
Three (3) companies participated in the bidding: Starbilt Enterprise, Inc.,
Shurway Industries, Inc., and Pilhino.9 Pilhino secured the contract for
DECISION the acquisition of the fire trucks.10 The contract price was initially at
P3,000,000.00 per truck, but this was reduced after negotiation to
LEONEN, J.: P2,900,000.00 per truck.11chanrobleslaw
chanRoblesvirtualLawlibrary The same rule was restated by Chief Justice Stuart of the
Bataan EZ 2 Supreme Court of Minnesota:
Baguio City EZ 1
Cavite EZ 1 The law is well settled that where, as in this case, municipal
Mactan EZ 252 (Emphasis supplied) authorities can only let a contract for public work to the lowest
The Court of Appeals itself recognized that "time was of the essence responsible bidder, the proposals and specifications therefore
when the contract . . . was awarded to [respondent] and the non- must be so framed as to permit free and full competition. Nor
can they enter into a contract with the best bidder containing
substantial provisions beneficial to him, not included or
contemplated in the terms and specifications upon which the bids
were invited.55 (Emphasis supplied)
Respondent cannot now balk at the natural result of its own breach. As
for the Court of Appeals, we find it to be in error in frustrating the
express terms of the contract that respondent actively endeavored to be
awarded to it. The exigencies that impelled petitioner to obtain fire
trucks made it imperative for respondent to act with dispatch. Instead, it
dragged its feet, left petitioner with inadequate means for addressing the
very emergencies that engendered the need for fire trucks, and forced it
into litigation to enforce its rights.
SO ORDERED.chanRoblesvirtualLawlibrary
The Lam Spouses then filed before the Court of Appeals a Petition to Kodak would have the court believe that it did not deliver the other
Set Aside the Orders issued by the trial court dated July 30, 1993 two (2) units due to the failure of defendants to make good the
and August 13, 1993. These Orders were subsequently set aside by installments subsequent to the second. The court is not convinced.
the Court of Appeals Ninth Division, and the case was remanded to First of all, there should have been simultaneous delivery on account
the trial court for pre-trial.25 of the circumstances surrounding the transaction. . . . Even after the
first delivery . . . no delivery was made despite repeated demands
On September 12, 1995, an Urgent Motion for Inhibition was filed from the defendants and despite the fact no installments were due.
against Judge Fernando V. Gorospe, Jr.,26 who had issued the writ of Then in March and in April (three and four months respectively from
seizure.27 The ground for the motion for inhibition was not provided. the date of the agreement and the first delivery) when the
Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and installments due were both honored, still no delivery was made.
the case was reassigned to Branch 65 of the Regional Trial Court,
Makati City on October 3, 1995.28 Second, although it might be said that Kodak was testing the waters
with just one delivery - determining first defendants’ capacity to pay -
In the Decision dated February 26, 1999, the Regional Trial Court it was not at liberty to do so. It is implicit in the letter agreement that
found that Kodak Philippines, Ltd. defaulted in the performance of delivery within a reasonable time was of the essence and failure to so
deliver within a reasonable time and despite demand would render evidence showed that the Lam Spouses had purchased it from Davao
the vendor in default. Ken Trading, not from Kodak Philippines, Ltd.37 Thus, the generator
set that Kodak Philippines, Ltd. wrongfully took from the Lam
.... Spouses should be replaced.38
Third, at least two (2) checks were honored. If indeed Kodak refused The dispositive portion of the Regional Trial Court Decision reads:
delivery on account of defendants’ inability to pay, non-delivery
during the two (2) months that payments were honored is PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is
unjustified.33 ordered to pay the following:
Nevertheless, the trial court also ruled that when the Lam Spouses 1) PHP 130,000.00 representing the amount of the generator
accepted delivery of the first unit, they became liable for the fair set, plus legal interest at 12% per annum from December
value of the goods received: 1992 until fully paid; and
On the other hand, defendants accepted delivery of one (1) unit. 2) PHP 1,300,000.00 as actual expenses in the renovation of
Under Article 1522 of the Civil Code, in the event the buyer accepts the Tagum, Davao and Rizal Ave., Manila outlets.
incomplete delivery and uses the goods so delivered, not then
knowing that there would not be any further delivery by the seller, SO ORDERED.39
the buyer shall be liable only for the fair value to him of the goods
received. In other words, the buyer is still liable for the value of the
property received. Defendants were under obligation to pay the On March 31, 1999, the Lam Spouses filed their Notice of Partial
amount of the unit. Failure of delivery of the other units did not Appeal, raising as an issue the Regional Trial Court’s failure to order
thereby give unto them the right to suspend payment on the unit Kodak Philippines, Ltd. to pay: (1) ₱2,040,000 in actual damages; (2)
delivered. Indeed, in incomplete deliveries, the buyer has the remedy ₱50,000,000 in moral damages; (3) ₱20,000,000 in exemplary
of refusing payment unless delivery is first made. In this case damages; (4) ₱353,000 in attorney’s fees; and (5) ₱300,000 as
though, payment for the two undelivered units have not even litigation expenses.40 The Lam Spouses did not appeal the Regional
commenced; the installments made were for only one (1) unit. Trial Court’s award for the generator set and the renovation
expenses.41
Hence, Kodak is right to retrieve the unit delivered.34
Kodak Philippines, Ltd. also filed an appeal. However, the Court of
Appeals42 dismissed it on December 16, 2002 for Kodak Philippines,
The Lam Spouses were under obligation to pay for the amount of one Ltd.’s failure to file its appellant’s brief, without prejudice to the
unit, and the failure to deliver the remaining units did not give them continuation of the Lam Spouses’ appeal.43 The Court of Appeals’
the right to suspend payment for the unit already December 16, 2002 Resolution denying Kodak Philippines, Ltd.’s
delivered.35 However, the trial court held that since Kodak appeal became final and executory on January 4, 2003.44
Philippines, Ltd. had elected to cancel the sale and retrieve the
delivered unit, it could no longer seek payment for any deterioration
that the unit may have suffered while under the custody of the Lam In the Decision45 dated March 30, 2005, the Court of Appeals Special
Spouses.36 Fourteenth Division modified the February 26, 1999 Decision of the
Regional Trial Court:
As to the generator set, the trial court ruled that Kodak Philippines,
Ltd. attempted to mislead the court by claiming that it had delivered WHEREFORE, PREMISES CONSIDERED, the Assailed Decision
the generator set with its accessories to the Lam Spouses, when the dated 26 February 1999 of the Regional Trial Court, Branch 65 in
Civil Case No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is Third, it is also evident that the contract is one that is severable in
ordered to pay the following: character as demonstrated by the separate purchase price for each of
the minilab equipment. "If the part to be performed by one party
1. P130,000.00 representing the amount of the generator consists in several distinct and separate items and the price is
set, plus legal interest at 12% per annum from December apportioned to each of them, the contract will generally be held to be
1992 until fully paid; and severable. In such case, each distinct stipulation relating to a
separate subject matter will be treated as a separate
contract." Considering this, Kodak's breach of its obligation to deliver
2. P440,000.00 as actual damages; the other two (2) equipment cannot bar its recovery for the full payment
of the equipment already delivered. As far as Kodak is concerned, it
3. P25,000.00 as moral damages; and had already fully complied with its separable obligation to deliver the
first unit of Minilab Equipment.47 (Emphasis supplied)
4. P50,000.00 as exemplary damages.
The Court of Appeals held that the issuance of a writ of replevin is
SO ORDERED.46 (Emphasis supplied) proper insofar as the delivered Minilab Equipment unit and its
standard accessories are concerned, since Kodak Philippines, Ltd.
had the right to possess it:48
The Court of Appeals agreed with the trial court’s Decision, but
extensively discussed the basis for the modification of the dispositive
portion. The purchase price of said equipment is P1,796,000.00 which, under
the agreement is payable with forty eight (48) monthly amortization.
It is undisputed that Sps. Lam made payments which amounted to
The Court of Appeals ruled that the Letter Agreement executed by Two Hundred Seventy Thousand Pesos (P270,000.00) through the
the parties showed that their obligations were susceptible of partial following checks: Metrobank Check Nos. 00892620 and 00892621
performance. Under Article 1225 of the New Civil Code, their dated 31 March 1992 and 30 April 1992 respectively in the amount
obligations are divisible: of Thirty Five Thousand Pesos (P35,000.00) each, and BPI Family
Check dated 31 July 1992 amounting to Two Hundred Thousand
In determining the divisibility of an obligation, the following factors Pesos (P200,000.00). This being the case, Sps. Lam are still liable to
may be considered, to wit: (1) the will or intention of the parties, Kodak in the amount of One Million Five Hundred Twenty Six
which may be expressed or presumed; (2) the objective or purpose of Thousand Pesos (P1,526,000.00), which is payable in several
the stipulated prestation; (3) the nature of the thing; and (4) monthly amortization, pursuant to the Letter Agreement. However,
provisions of law affecting the prestation. Sps. Lam admitted that sometime in May 1992, they had already
ordered their drawee bank to stop the payment on all the other checks
Applying the foregoing factors to this case, We found that the they had issued to Kodak as payment for the Minilab Equipment
intention of the parties is to be bound separately for each Minilab delivered to them. Clearly then, Kodak ha[d] the right to repossess the
Equipment to be delivered as shown by the separate purchase price said equipment, through this replevin suit. Sps. Lam cannot excuse
for each of the item, by the acceptance of Sps. Lam of separate themselves from paying in full the purchase price of the equipment
deliveries for the first Minilab Equipment and for those of the delivered to them on account of Kodak’s breach of the contract to
remaining two and the separate payment arrangements for each of the deliver the other two (2) Minilab Equipment, as contemplated in the
equipment. Under this premise, Sps. Lam shall be liable for the entire Letter Agreement.49(Emphasis supplied)
amount of the purchase price of the Minilab
Echoing the ruling of the trial court, the Court of Appeals held that
Equipment delivered considering that Kodak had already completely the liability of the Lam Spouses to pay the remaining balance for the
fulfilled its obligation to deliver the same. . . . first delivered unit is based on the second sentence of Article 1592 of
the New Civil Code.50 The Lam Spouses’ receipt and use of the of advance payment, in the amount of P40,000.00, the same being
Minilab Equipment before they knew that Kodak Philippines, Ltd. intended for the repair of the flooring of the leased premises; and
would not deliver the two (2) remaining units has made them liable lastly, the payment of P300,000.00, as compromise agreement for
for the unpaid portion of the purchase price.51 the pre-termination of the contract of lease with Ruales.60
The Court of Appeals noted that Kodak Philippines, Ltd. sought the The total amount is ₱440,000.00. The Court of Appeals found that
rescission of its contract with the Lam Spouses in the letter dated all other claims made by the Lam Spouses were not supported by
October 14, 1992.52 The rescission was based on Article 1191 of the evidence, either through official receipts or check payments.61
New Civil Code, which provides: "The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not As regards the generator set improperly seized from Kodak
comply with what is incumbent upon him."53 In its letter, Kodak Philippines, Ltd. on the basis of the writ of replevin, the Court of
Philippines, Ltd. demanded that the Lam Spouses surrender the lone Appeals found that there was no basis for the Lam Spouses’ claim for
delivered unit of Minilab Equipment along with its standard reasonable rental of ₱5,000.00. It held that the trial court’s award of
accessories.54 12% interest, in addition to the cost of the generator set in the
amount of ₱130,000.00, is sufficient compensation for whatever
The Court of Appeals likewise noted that the Lam Spouses rescinded damage the Lam Spouses suffered on account of its improper
the contract through its letter dated November 18, 1992 on account seizure.62
of Kodak Philippines, Inc.’s breach of the parties’ agreement to
deliver the two (2) remaining units.55 The Court of Appeals also ruled on the Lam Spouses’ entitlement to
moral and exemplary damages, as well as attorney’s fees and
As a result of this rescission under Article 1191, the Court of Appeals litigation expenses:
ruled that "both parties must be restored to their original situation,
as far as practicable, as if the contract was never entered into."56 The In seeking recovery of the Minilab Equipment, Kodak cannot be
Court of Appeals ratiocinated that Article 1191 had the effect of considered to have manifested bad faith and malevolence because as
extinguishing the obligatory relation as if one was never created:57 earlier ruled upon, it was well within its right to do the same.
However, with respect to the seizure of the generator set, where
To rescind is to declare a contract void in its inception and to put an Kodak misrepresented to the court a quo its alleged right over the
end to it as though it never were. It is not merely to terminate it and said item, Kodak’s bad faith and abuse of judicial processes become
to release parties from further obligations to each other but abrogate self-evident. Considering the off-setting circumstances attendant, the
it from the beginning and restore parties to relative positions which amount of P25,000.00 by way of moral damages is considered
they would have occupied had no contract been made.58 sufficient.
The Lam Spouses were ordered to relinquish possession of the In addition, so as to serve as an example to the public that an
Minilab Equipment unit and its standard accessories, while Kodak application for replevin should not be accompanied by any false
Philippines, Ltd. was ordered to return the amount of ₱270,000.00, claims and misrepresentation, the amount of P50,000.00 by way of
tendered by the Lam Spouses as partial payment.59 exemplary damages should be pegged against Kodak.
As to the actual damages sought by the parties, the Court of Appeals With respect to the attorney’s fees and litigation expenses, We find
found that the Lam Spouses were able to substantiate the following: that there is no basis to award Sps. Lam the amount sought for.63
Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the Kodak Philippines, Ltd. moved for reconsideration of the Court of
rider to the contract of lease which made the Sps. Lam liable, by way Appeals Decision, but it was denied for lack of merit.64 However, the
Court of Appeals noted that the Lam Spouses’ Opposition correctly b. P130,000.00 representing the amount of the generator
pointed out that the additional award of ₱270,000.00 made by the set, plus legal interest at 12% per annum from December
trial court was not mentioned in the decretal portion of the March 1992 until fully paid;
30, 2005 Decision:
c. P440,000.00 as actual damages;
Going over the Decision, specifically page 12 thereof, the Court noted
that, in addition to the amount of Two Hundred Seventy Thousand d. P25,000.00 as moral damages; and
(P270,000.00) which plaintiff-appellant should return to the
defendantsappellants, the Court also ruled that defendants-
appellants should, in turn, relinquish possession of the Minilab e. P50,000.00 as exemplary damages.
Equipment and the standard accessories to plaintiff-appellant.
Inadvertently, these material items were not mentioned in the Upon the other hand, defendants-appellants are hereby ordered to
decretal portion of the Decision. Hence, the proper correction should return to plaintiff-appellant the Minilab equipment and the standard
herein be made.65 accessories delivered by plaintiff-appellant.
The Lam Spouses filed this Petition for Review on April 14, 2005. On SO ORDERED."
the other hand, Kodak Philippines, Ltd. filed its Motion for
Reconsideration66 before the Court of Appeals on April 22, 2005. SO ORDERED.68 (Emphasis in the original)
While the Petition for Review on Certiorari filed by the Lam Spouses Upon receiving the Amended Decision of the Court of Appeals, Kodak
was pending before this court, the Court of Appeals Special Philippines, Ltd. filed a Motion for Extension of Time to File an
Fourteenth Division, acting on Kodak Philippines, Ltd.’s Motion for Appeal by Certiorari under Rule 45 of the 1997 Rules of Civil
Reconsideration, issued the Amended Decision67 dated September 9, Procedure before this court.69
2005. The dispositive portion of the Decision reads:
This was docketed as G.R. No. 169639. In the Motion for
WHEREFORE, premises considered, this Court resolved that: Consolidation dated November 2, 2005, the Lam Spouses moved that
G.R. No. 167615 and G.R. No. 169639 be consolidated since both
A. Plaintiff-appellant’s Motion for Reconsideration is involved the same parties, issues, transactions, and essential facts
hereby DENIED for lack of merit. and circumstances.70
B. The decretal portion of the 30 March 2005 Decision In the Resolution dated November 16, 2005, this court noted the
should now read as follows: Lam Spouses’ September 23 and September 30, 2005 Manifestations
praying that the Court of Appeals’ September 9, 2005 Amended
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision Decision be considered in the resolution of the Petition for Review on
dated 26 February 1999 of the Regional Trial Court, Branch 65 in Certiorari.71 It also granted the Lam Spouses’ Motion for
Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-appellant is Consolidation.72
ordered to pay the following:
In the Resolution73 dated September 20, 2006, this court
a. P270,000.00 representing the partial payment made on deconsolidated G.R No. 167615 from G.R. No. 169639 and declared
the Minilab equipment. G.R. No. 169639 closed and terminated since Kodak Philippines, Ltd.
failed to file its Petition for Review.
II With the obligation being indivisible, petitioners argue that
respondent’s failure to comply with its obligation to deliver the two
We resolve the following issues: (2) remaining Minilab Equipment units amounted to a breach.
Petitioners claim that the breach entitled them to the remedy of
rescission and damages under Article 1191 of the New Civil Code.84
First, whether the contract between petitioners Spouses Alexander
and Julie Lam and respondent Kodak Philippines, Ltd. pertained to
obligations that are severable, divisible, and susceptible of partial Petitioners also argue that they are entitled to moral damages more
performance under Article 1225 of the New Civil Code; and than the ₱50,000.00 awarded by the Court of Appeals since
respondent’s wrongful act of accusing them of non-payment of their
obligations caused them sleepless nights, mental anguish, and
Second, upon rescission of the contract, what the parties are entitled wounded feelings.85 They further claim that, to serve as an example
to under Article 1190 and Article 1522 of the New Civil Code. for the public good, they are entitled to exemplary damages as
respondent, in making false allegations, acted in evident bad faith
Petitioners argue that the Letter Agreement it executed with and in a wanton, oppressive, capricious, and malevolent manner.86
respondent for three (3) Minilab Equipment units was not severable,
divisible, and susceptible of partial performance. Respondent’s Petitioners also assert that they are entitled to attorney’s fees and
recovery of the delivered unit was unjustified.74 litigation expenses under Article 2208 of the New Civil Code since
respondent’s act of bringing a suit against them was baseless and
Petitioners assert that the obligations of the parties were not malicious. This prompted them to engage the services of a lawyer.87
susceptible of partial performance since the Letter Agreement was for
a package deal consisting of three (3) units.75 For the delivery of Respondent argues that the parties’ Letter Agreement contained
these units, petitioners were obliged to pay 48 monthly payments, divisible obligations susceptible of partial performance as defined by
the total of which constituted one debt.76 Having relied on Article 1225 of the New Civil Code.88 In respondent’s view, it was the
respondent’s assurance that the three units would be delivered at intention of the parties to be bound separately for each individually
the same time, petitioners simultaneously rented and renovated priced Minilab Equipment unit to be delivered to different outlets:89
three stores in anticipation of simultaneous operations.77 Petitioners
argue that the divisibility of the object does not necessarily determine
the divisibility of the obligation since the latter is tested against its The three (3) Minilab Equipment are intended by petitioners LAM for
susceptibility to a partial performance.78 They argue that even if the install[a]tion at their Tagum, Davao del Norte, Sta. Cruz, Manila and
object is susceptible of separate deliveries, the transaction is Cotabato City outlets. Each of these units [is] independent from one
indivisible if the parties intended the realization of all parts of the another, as many of them may perform its own job without the other.
agreed obligation.79 Clearly the objective or purpose of the prestation, the obligation is
divisible.
Petitioners support the claim that it was the parties’ intention to
have an indivisible agreement by asserting that the payments they The nature of each unit of the three (3) Minilab Equipment is such
made to respondent were intended to be applied to the whole that one can perform its own functions, without awaiting for the
package of three units.80 The postdated checks were also intended as other units to perform and complete its job. So much so, the nature
initial payment for the whole package.81 The separate purchase price of the object of the Letter Agreement is susceptible of partial
for each item was merely intended to particularize the unit prices, performance, thus the obligation is divisible.90
not to negate the indivisible nature of their transaction.82 As to the
issue of delivery, petitioners claim that their acceptance of separate With the contract being severable in character, respondent argues
deliveries of the units was solely due to the constraints faced by that it performed its obligation when it delivered one unit of the
respondent, who had sole control over delivery matters.83 Minilab Equipment.91 Since each unit could perform on its own,
there was no need to await the delivery of the other units to complete 2. 19% Multiple Order Discount shall be applied in the form
its job.92 Respondent then is of the view that when petitioners of merchandise and delivered in advance immediately after
ordered the depository bank to stop payment of the issued checks signing of the contract.
covering the first delivered unit, they violated their obligations under
the Letter Agreement since respondent was already entitled to full * Also includes start-up packages worth P61,000.00.
payment.93
3. NO DOWNPAYMENT.
Respondent also argues that petitioners benefited from the use of the
Minilab Equipment for 10 months—from March to December 1992—
despite having paid only two (2) monthly installments. 94 Respondent 4. Minilab Equipment Package shall be payable in 48
avers that the two monthly installments amounting to ₱70,000.00 monthly installments at THIRTY FIVE THOUSAND PESOS
should be the subject of an offset against the amount the Court of (P35,000.00) inclusive of 24% interest rate for the first 12
Appeals awarded to petitioners.95 months; the balance shall be re-amortized for the remaining
36 months and the prevailing interest shall be applied.
Respondent further avers that petitioners have no basis for claiming
damages since the seizure and recovery of the Minilab Equipment 5. Prevailing price of Kodak Minilab System 22XL as of
was not in bad faith and respondent was well within its right.96 January 8, 1992 is at ONE MILLION SEVEN HUNDRED
NINETY SIX THOUSAND PESOS.
III
6. Price is subject to change without prior notice.
The Letter Agreement contained an indivisible obligation.
*Secured with PDCs; 1st monthly amortization due 45 days
after installation[.]98
Both parties rely on the Letter Agreement97 as basis of their
respective obligations. Written by respondent’s Jeffrey T. Go and
Antonio V. Mines and addressed to petitioner Alexander Lam, the Based on the foregoing, the intention of the parties is for there to be
Letter Agreement contemplated a "package deal" involving three (3) a single transaction covering all three (3) units of the Minilab
units of the Kodak Minilab System 22XL, with the following terms Equipment. Respondent’s obligation was to deliver all products
and conditions: purchased under a "package," and, in turn, petitioners’ obligation
was to pay for the total purchase price, payable in installments.
This confirms our verbal agreement for Kodak Phils., Ltd. to provide
Colorkwik Laboratories, Inc. with three (3) units Kodak Minilab The intention of the parties to bind themselves to an indivisible
System 22XL . . . for your proposed outlets in Rizal Avenue (Manila), obligation can be further discerned through their direct acts in
Tagum (Davao del Norte), and your existing Multicolor photo counter relation to the package deal. There was only one agreement covering
in Cotabato City under the following terms and conditions: all three (3) units of the Minilab Equipment and their accessories.
The Letter Agreement specified only one purpose for the buyer, which
was to obtain these units for three different outlets. If the intention of
1. Said Minilab Equipment packages will avail a total of 19% the parties were to have a divisible contract, then separate
multiple order discount based on prevailing equipment price agreements could have been made for each Minilab Equipment unit
provided said equipment packages will be purchased not instead of covering all three in one package deal. Furthermore, the
later than June 30, 1992. 19% multiple order discount as contained in the Letter Agreement
was applied to all three acquired units.99 The "no downpayment"
term contained in the Letter Agreement was also applicable to all the
Minilab Equipment units. Lastly, the fourth clause of the Letter There is no indication in the Letter Agreement that the units
Agreement clearly referred to the object of the contract as "Minilab petitioners ordered were covered by three (3) separate transactions.
Equipment Package." The factors considered by the Court of Appeals are mere incidents of
the execution of the obligation, which is to deliver three units of the
In ruling that the contract between the parties intended to cover Minilab Equipment on the part of respondent and payment for all
divisible obligations, the Court of Appeals highlighted: (a) the three on the part of petitioners. The intention to create an indivisible
separate purchase price of each item; (b) petitioners’ acceptance of contract is apparent from the benefits that the Letter Agreement
separate deliveries of the units; and (c) the separate payment afforded to both parties. Petitioners were given the 19% discount on
arrangements for each unit.100 However, through the specified terms account of a multiple order, with the discount being equally
and conditions, the tenor of the Letter Agreement indicated an applicable to all units that they sought to acquire. The provision on
intention for a single transaction. This intent must prevail even "no downpayment" was also applicable to all units. Respondent, in
though the articles involved are physically separable and capable of turn, was entitled to payment of all three Minilab Equipment units,
being paid for and delivered individually, consistent with the New payable by installments.
Civil Code:
IV
Article 1225. For the purposes of the preceding articles, obligations
to give definite things and those which are not susceptible of partial With both parties opting for rescission of the contract under Article
performance shall be deemed to be indivisible. 1191, the Court of Appeals correctly ordered for restitution.
When the obligation has for its object the execution of a certain The contract between the parties is one of sale, where one party
number of days of work, the accomplishment of work by metrical obligates himself or herself to transfer the ownership and deliver a
units, or analogous things which by their nature are susceptible of determinate thing, while the other pays a certain price in money or
partial performance, it shall be divisible. its equivalent.103 A contract of sale is perfected upon the meeting of
minds as to the object and the price, and the parties may reciprocally
However, even though the object or service may be physically demand the performance of their respective obligations from that
divisible, an obligation is indivisible if so provided by law or intended point on.104
by the parties. (Emphasis supplied)
The Court of Appeals correctly noted that respondent had rescinded
In Nazareno v. Court of Appeals,101the indivisibility of an obligation the parties’ Letter Agreement through the letter dated October 14,
is tested against whether it can be the subject of partial performance: 1992.105 It likewise noted petitioners’ rescission through the letter
dated November 18, 1992.106This rescission from both parties is
founded on Article 1191 of the New Civil Code:
An obligation is indivisible when it cannot be validly performed in
parts, whatever may be the nature of the thing which is the object
thereof. The indivisibility refers to the prestation and not to the object The power to rescind obligations is implied in reciprocal ones, in case
thereof. In the present case, the Deed of Sale of January 29, 1970 one of the obligors should not comply with what is incumbent upon
supposedly conveyed the six lots to Natividad. The obligation is him.
clearly indivisible because the performance of the contract cannot be
done in parts, otherwise the value of what is transferred is The injured party may choose between the fulfilment and the
diminished. Petitioners are therefore mistaken in basing the rescission of the obligation, with the payment of damages in either
indivisibility of a contract on the number of obligors.102 (Emphasis case. He may also seek rescission, even after he has chosen
supplied, citation omitted) fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just Accordingly, the initial payment of ₱800,000 and the corresponding
cause authorizing the fixing of a period. mortgage payments in the amounts of ₱27,225, ₱23,000 and ₱23,925
(totaling ₱874,150.00) advanced by petitioners should be returned by
Rescission under Article 1191 has the effect of mutual private respondents, lest the latter unjustly enrich themselves at the
restitution.107 In Velarde v. Court of Appeals:108 expense of the former.110 (Emphasis supplied)
Rescission abrogates the contract from its inception and requires a When rescission is sought under Article 1191 of the Civil Code, it
mutual restitution of benefits received. need not be judicially invoked because the power to resolve is implied
in reciprocal obligations.111 The right to resolve allows an injured
party to minimize the damages he or she may suffer on account of
.... the other party’s failure to perform what is incumbent upon him or
her.112 When a party fails to comply with his or her obligation, the
Rescission creates the obligation to return the object of the contract. It other party’s right to resolve the contract is triggered.113 The
can be carried out only when the one who demands rescission can resolution immediately produces legal effects if the non-performing
return whatever he may be obliged to restore. To rescind is to declare party does not question the resolution.114 Court intervention only
a contract void at its inception and to put an end to it as though it becomes necessary when the party who allegedly failed to comply
never was. It is not merely to terminate it and release the parties from with his or her obligation disputes the resolution of the
further obligations to each other, but to abrogate it from the beginning contract.115 Since both parties in this case have exercised their right
and restore the parties to their relative positions as if no contract has to resolve under Article 1191, there is no need for a judicial decree
been made.109 (Emphasis supplied, citations omitted) before the resolution produces effects.
Essentially, the petitioner is questioning the award of moral damages The award for moral and exemplary damages also appears to be
and attorney’s fees in favor of the respondent as the same is sufficient. Moral damages are granted to alleviate the moral suffering
supposedly not fully supported by evidence. However, in the final suffered by a party due to an act of another, but it is not intended to
analysis, the question of whether the said award is fully supported by enrich the victim at the defendant’s expense.127 It is not meant to
evidence is a factual question as it would necessitate whether the punish the culpable party and, therefore, must always be reasonable
evidence adduced in support of the same has any probative value. For vis-a-vis the injury caused.128 Exemplary damages, on the other
a question to be one of law, it must involve no examination of the hand, are awarded when the injurious act is attended by bad
probative value of the evidence presented by the litigants or any of faith.129 In this case, respondent was found to have misrepresented
them.120 (Emphasis supplied, citations omitted) its right over the generator set that was seized. As such, it is properly
liable for exemplary damages as an example to the public.130
The damages awarded by the Court of Appeals were supported by
documentary evidence.121 Petitioners failed to show any reason why However, the dispositive portion of the Court of Appeals Amended
the factual determination of the Court of Appeals must be reviewed, Decision dated September 9, 2005 must be modified to include the
especially in light of their failure to produce receipts or check recovery of attorney’s fees and costs of suit in favor of petitioners.
payments to support their other claim for actual damages.122 In Sunbanun v. Go:131
Furthermore, the actual damages amounting to ₱2,040,000.00 being Furthermore, we affirm the award of exemplary damages and
sought by petitioners123 must be tempered on account of their own attorney’s fees. Exemplary damages may be awarded when a
failure to pay the rest of the installments for the delivered unit. This wrongful act is accompanied by bad faith or when the defendant
failure on their part is a breach of their obligation, for which the acted in a wanton, fraudulent, reckless, oppressive, or malevolent
liability of respondent, for its failure to deliver the remaining units, manner which would justify an award of exemplary damages under
shall be equitably tempered on account of Article 1192 of the New Article 2232 of the Civil Code. Since the award of exemplary damages
Civil Code.124 In Central Bank of the Philippines v. Court of Appeals:125 is proper in this case, attorney’s fees and cost of the suit may also be
recovered as provided under Article 2208 of the Civil
Since both parties were in default in the performance of their Code.132 (Emphasis supplied, citation omitted)
respective reciprocal obligations, that is, Island Savings Bank failed to
comply with its obligation to furnish the entire loan and Sulpicio M. Based on the amount awarded for moral and exemplary damages, it
Tolentino failed to comply with his obligation to pay his ₱17,000.00 is reasonable to award petitioners ₱20,000.00 as attorney’s fees.
debt within 3 years as stipulated, they are both liable for damages.
WHEREFORE, the Petition is DENIED. The Amended Decision dated
Article 1192 of the Civil Code provides that in case both parties have September 9, 2005 is AFFIRMED with MODIFICATION. Respondent
committed a breach of their reciprocal obligations, the liability of the Kodak Philippines, Ltd. is ordered to pay petitioners Alexander and
first infractor shall be equitably tempered by the courts. WE rule that Julie Lam:
the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for
(a) P270,000.00, representing the partial payment made on
the Minilab Equipment;
SO ORDERED.
x--------------------------------------------------x
DECISION
In this case, there is no question that petitioner was initially a lawful In Asian Transmission Corporation v. Canlubang Sugar Estates,[40] the
possessor because his entry into the property is by virtue of a lease Court ruled that the reasonable compensation contemplated under said
contract with respondent. However, as a mere lessee whose possession Rule partakes of the nature of actual damages. While the trial court may
after the expiration of the contract is at the sufferance of the owner of the fix the reasonable amount of rent, it must base its action on the evidence
property, he cannot claim to be a builder in good faith. Under Article adduced by the parties. The Court also ruled that fair rental value is
1678 of the New Civil Code, petitioner is entitled to one-half of the value defined as the amount at which a willing lessee would pay and a willing
of the improvements only if respondent, as the owner, decides to lessor would receive for the use of a certain property, neither being under
appropriate the improvements. Since respondent refused to appropriate compulsion and both parties having a reasonable knowledge of all facts,
the improvements, petitioner cannot compel her to reimburse to him one- such as the extent, character and utility of the property, sales and
half their value.[38] The sole right of petitioner under Article 1678 is to holding prices of similar land and the highest and best use of the
remove the improvements without causing any more damage upon the property. The Court further held that the rental value refers to the value
property leased than is necessary.[39] as ascertained by proof of what the property would rent or by evidence of
other facts from which the fair rental value may be determined.[41]
On the third issue, petitioner avers that the CA erred in ordering him to
pay P30,000.00 monthly rental for the renewal of the lease contract. He
maintains that the amount has no factual basis and is exorbitant.
In D.O. Plaza Management Corporation v. Co-Owners Heirs of Andres
Atega,[42] the Court ruled that the following factors may be considered in
determining the reasonableness of the rental charged: (a) the prevailing
The submission of petitioner has no merit. In the first place, the rates in the vicinity; (b) location of the property; (c) use of the
CA awarded the P30,000.00 monthly rentals not for the renewal of the property; (d) inflation rate; and (e) the testimony of one of the private
lease contract, but as compensation for petitioners continued occupancy respondents.[43]
of the property after the lease expired. However, we agree with
petitioners contention that the increase of the award to P30,000.00 has In the present case, there is no evidence on record to justify the increase
no factual basis, considering that the appellate court failed to state its of the award to P30,000.00. Respondents bare proposal to increase the
basis for doubling the amount adjudged by the trial court. It simply monthly rental to P30,000.00 after July 31, 1995 cannot be the factual
increased the award in the dispositive portion of its decision. Rule 70, basis for such increase in the compensation due to petitioner for
Section 17 of the 1997 Rules of Civil Procedure reads: respondents occupancy on the property after the lease contract
expired. Thus, aside from unilaterally and perfunctorily increasing such
SEC. 17. Judgment. If after trial the court finds that rentals, the appellate court also ignored the trial courts award
the allegations of the complaint are true, it shall render of P15,000.00 which was based on the evidence on record. As this Court
judgment in favor of the plaintiff for the restitution of emphasized in Asian Transmission Corporation v. Canlubang Sugar
the premises, the sum justly due as arrears of rent or as Estates:[44]
reasonable compensation for the use and occupation of
the premises, attorneys fees and costs. If it finds that But the court made no ratiocination as to how it arrived
said allegations are not true, it shall render judgment at the amount of P15,000,000 with reference to the
for the defendant to recover his costs. If a counterclaim evidence that the respondent adduced, if any, to prove
is established, the court shall render judgment for the
the said claim, vis--vis the evidence adduced by the respondent, as plaintiff, would be able to adduce
petitioner. The court made a conclusion without any preponderant evidence to prove its claim.[45]
factual basis. What is so worrisome is that under their
MOA, the parties fixed the annual rental of the The Court holds that the trial courts award of P15,000.00 as reasonable
property for the period of July 1, 1991 to June 30, compensation for petitioners occupancy of the property after the
1992 at P3,373,352.80; and for the period of July 1, expiration of the lease should be maintained.
1992 to June 30, 1993 at the said amount plus 8% or in
the amount of P3,642,187.50. But in its decision, the
IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
MTC increased the amount by no less than 500% for the
GRANTED. The decision of the Court of Appeals is AFFIRMED WITH
period of July 1, 1993 onwards. The trial court did not
MODIFICATION. The award of P30,000.00 a month, by way of
bother to explain or elucidate how and for what reason
the rental value of the property was increased by 500% reasonable compensation for petitioner Johnny Josefas occupancy of the
from P3,642,187.50 to P15,000,000 annually. property from July 31, 1995, is DELETED, and the award of P15,000.00
a month made by the MeTC of Pasig City, Branch 69,
The CA decision is likewise as nebulous. It affirmed the is REINSTATED. No costs.
decision of the RTC, which affirmed on appeal the
decision of the MTC, fixing the reasonable SO ORDERED.
compensation at P15,000,000 simply because the
petitioner offered no controverting evidence as to the
fair rental value of the leased property ROMEO J. CALLEJO, SR.
Associate Justice
With respect to the rental fixed by the
trial court, suffice it to say that
petitioner failed to present
controverting evidence as to the fair
rental value of the leased
premises. The burden of proof to show
that the
rental demanded is unconscionable or
exorbitant rests upon the lessee. The
trial court had the authority to fix the
reasonable value for the continued use
and occupancy of the premises after
termination of the lease contract.
CALLEJO, SR., J.: In a letter[6] to the DECS Secretary dated August 19, 1994,
the spouses Dulay requested that the property be returned to them
considering that the land was never used since 1981, or a period of
This is a petition for review on certiorari of the Decision[1] of the Court more than 13 years. On
of Appeals (CA) in CA-G.R. CV No. 78314 which affirmed the August 28, 1994, the Barangay Council of
Decision[2] of the Regional Trial Court (RTC) of SantiagoCity, Isabela, Rizal, Santiago City issued Resolution No. 39[7] recognizing the right
Branch 35, in Civil Case No. 35-2397. of the donors to redeem the subject parcel of land because of the
DECS failure to utilize it for the intended purpose. It further resolved
that the Rizal National High School no longer needed the donated
The spouses Rufino Dulay, Sr. and Ignacia Vicente were the owners
land considering its distance from the main campus and [the] failure
of a parcel of land located in Rizal, Santiago, Isabela, with an area of
to utilize the property for a long period of time.
29,002 square meters. The lot was covered by Original Certificate of
Title No. P-6776.
On December 22, 1994, Rufino Dulay, Sr. passed away at the age of the fact that rice was planted on the lot was contrary to the intended
80.[8] His heirs sought the help of the Sangguniang purpose of the donation. The respondents likewise denied that the
Panlungsod of Santiago City via an undated letter[9] requesting the property had been sold to the barangay. While the other properties of
approval of a resolution allowing them to redeem the donated the late donor had been sold, the deeds thereon had not been
property. The Sangguniang Panlungsod denied the request inasmuch registered, and the tax declarations not yet transferred in the names
as the city government was not a party to the deed of donation.[10] of the purchasers.
On August 31, 1997, the heirs of Dulay, Sr., herein respondents, Thereafter, trial ensued. On March 6, 2001, an ocular
filed a complaint for the revocation of the deed of donation and inspection of the property was conducted by the parties and their
cancellation of TCT No. T-143337 before the RTC of Santiago City, respective counsels, including the Presiding Judge. It was confirmed
Isabela, Branch 35, against the DECS Secretary and Dr. Benito that the land was barren, save for a small portion which was planted
Tumamao, the Schools Division Superintendent of with palay. A demolished house was also found in the periphery of
Isabela. Respondents alleged that there was a condition in the deed the donated lot.[13]
of donation: that the DECS, as donee, utilize the subject property for
school purposes, that is, the construction of a building to house
the Rizal National High School. Respondents alleged that the DECS
did not fulfill the condition and that the land remained idle up to the On December 26, 2002, the trial court rendered its decision
present. Respondents also averred that the donation inter vivos was in favor of respondents. The fallo reads:
inofficious, since the late Rufino Dulay, Sr. donated more than what
he could give by will. WHEREFORE, in the light of the foregoing
considerations, the Court hereby DECLARES the
deed of donation, Exhibit A, executed by the late
Petitioners, through the Office of the Solicitor General (OSG),
Rufino Dulay, Sr. and his wife Ignacia Vicente over a
interposed the following defenses: (a) the DECS complied with said portion of the land covered by O.C.T. No. P-6776 and
condition because the land was being used by the school as its now covered by T.C.T. No. T-143337 in the name of
technology the donee Department of Education and Culture as
and home economics laboratory; (b) the donation was not inofficious REVOKED. The defendant DECS is ORDERED to
for the donors were the owners of five other parcels of land, all execute the deed of reconveyance of the land in favor
located at Rizal, Santiago City; (c) the DECS acquired the disputed of the plaintiffs heirs of Rufino Dulay, Sr.
property by virtue of purchase made on December 8, 1997 by
the barangay of Rizal, Santiago City in the amount of P18,000.00 as SO ORDERED.[14]
certified by its former Barangay Captain, Jesus San Juan;[11] and (d)
the action of the respondents had prescribed. The OSG also claimed In revoking the deed of donation, the trial court ruled that the
that students planted a portion of the land with rice, mahogany donation was subject to a resolutory condition, namely, that the land
seedlings, and fruit-bearing trees; the produce would then be sold donated shall be used for school purposes. It was no longer
and the proceeds used for the construction of a school building on necessary to determine the intended school purpose because it was
the subject property. established that the donee did not use the land. Thus, the condition
was not complied with since the property was donated in July
In their Reply,[12] respondents denied that the donated land was 1981. Moreover, the DECS did not intend to use the property for
being used as a technology and home economics laboratory, and school purposes because a school had already been built and
averred that there were no improvements on the property. Moreover, established in another lot located in the same barangay, about two
kilometers away from the subject land. Finally, the trial court the condition imposed in the deed
rejected petitioners contention that the donation was inofficious. of donation
Aggrieved, the OSG appealed the decision to the CA. The issue of whether or not petitioner DECS was able to comply with
the condition imposed in the deed of donation is one of fact. There is
On July 30, 2004, the appellate court rendered judgment affirming a question of fact when the doubt or difference arises as to the truth
the decision. The court held that the DECS failed to comply with the or falsehood of alleged facts or when the query necessarily solicits
condition in the donation, that is, to use the property for school calibration of the whole evidence considering mostly the credibility of
purposes. The CA further ruled that the donation was onerous witnesses, existence and relevancy of specific surrounding
considering that the donee was burdened with the obligation to circumstances, their relation to each other and to the whole and
utilize the land for school purposes; therefore, the four-year probabilities of the situation.[16] Under Rule 45 of the 1997 Rules of
prescriptive period under Article 764 of the New Civil Code did not Civil Procedure, only questions of law may be raised in a petition for
apply. Moreover, the CA declared that a deed of review on certiorari, for the simple reason that this Court is not a
donation is considered a written contract and is governed by Article trier of facts. It is not for the Court to calibrate the evidence on
1144 of the New Civil Code, which provides for a 10-year prescriptive record, as this is the function of the trial court.Although there are
period from the time the cause of action accrues. According to the well-defined exceptions to the rule, nevertheless, after a review of the
CA, the respondents cause of action for the revocation of the records, we find no justification to depart therefrom. Moreover, the
donation should be reckoned from the expiration of a reasonable trial courts findings of facts, as affirmed by the appellate court on
opportunity for the DECS to comply with what was incumbent upon appeal, are binding on this Court, unless the trial and appellate
it. courts overlooked, misconstrued or misinterpreted facts and
circumstances of substance which, if considered, would change the
Petitioners filed a motion for reconsideration, which the CA denied. outcome of the case. The case has been reviewed thoroughly, and we
find no justification to reverse the CA decision.
Petitioners seek relief from this Court via petition for review
on certiorari, contending that: Petitioners, through the OSG, maintain that the condition (to use the
property for school purposes) is not limited to the construction of a
I. school building, but includes utilizing it as a technology and home
THE DEPARTMENT OF EDUCATION, THROUGH economics laboratory where students and teachers plant palay,
THE RIZAL NATIONAL HIGH SCHOOL, HAD mahogany seedlings, and fruit-bearing trees. The OSG insists that
COMPLIED WITH THE CONDITION IMPOSED IN the donee did not specify in the deed that the property should be
THE DEED OF DONATION. used for the construction of a school building. According to the OSG,
the proceeds of the harvest were used and are still being used by
II.
the Rizal National High School for the construction and improvement
RESPONDENTS RIGHT TO SEEK THE REVOCATION
OF THE DEED OF DONATION, IF THERE BE ANY, of its present school site. Moreover, it was verified that there
IS ALREADY BARRED BY PRESCRIPTION AND was palay planted on the donated property during the ocular
LACHES.[15] inspection on the property.
The Court shall resolve the issues raised by petitioners seriatim. In their comment on the petition, respondents dispute petitioners
contentions, and aver that no evidence was presented to prove that,
The donee failed to comply with indeed, palay, mahogany seedlings and fruit-bearing trees were
planted on the property. Respondents also emphasized that when the
trial court inspected the subject property, it was discovered to be In its Order[18] dated March 6, 2001, the RTC reiterated that during
barren and without any improvement although some portions thereof the ocular inspection of the property conducted in the presence of
were planted with palay. Petitioners even failed to adduce evidence to the litigants and their counsel, it observed that the land was barren;
identify the person who planted the palay. there were no improvements on the donated property though a
portion thereof was planted with palay [and a demolished house
built in 1979.]
The contention of petitioners has no merit. Moreover, petitioners failed to adduce a shred of evidence to
prove that the palay found in the property was planted by DECS
As gleaned from the CA decision, petitioners failed to prove personnel or at its instance or even by students of
that the donated property was used for school purposes as indicated the Rizal NationalHigh School. No evidence was adduced to prove
in the deed of donation: that there were existing plans to use the property for school
purposes. Petitioners even debilitated their cause when
We find it difficult to sustain that the defendant- they claimed in the trial court that the barangay acquired the
appellants have complied with the condition of property by purchase, relying on the certification of
donation. It is not amiss to state that other than the
former Barangay Captain Jesus San Juan.
bare allegation of the defendant-appellants, there is
nothing in the records that could concretely prove
The right to seek the revocation of
that the condition of donation has been complied
donation had not yet prescribed
with by the defendant-appellants. In the same
when respondents filed their complaint
breadth, the planting of palay on the land donated
can hardly be considered and could not have been
the school purposes referred to and intended by the Anent the second issue, we reject the contention of the OSG that
donors when they had donated the land in respondents cause of action is already barred by prescription under
question. Also, the posture of the defendant- Article 764 of the New Civil Code, or four years from the non-
appellants that the land donated is being used as compliance with the condition in the deed of donation. Since such
technology and home economics laboratory of the failure to comply with the condition of utilizing the property for
Rizal National High School is far from being the school purposes became manifest sometime in 1988 when the DECS
truth considering that not only is the said school utilized another property for the construction of the school building,
located two kilometers away from the land donated the four-year prescriptive period did not commence on such
but also there was not even a single classroom built
date. Petitioner was given more than enough time to comply with the
on the land donated that would reasonably indicate
condition, and it cannot be allowed to use this fact to its
that, indeed, classes have been conducted
therein. These observations, together with the advantage. It must be stressed that the donation is onerous because
unrebutted ocular inspection report made by the the DECS, as donee, was burdened with the obligation to utilize the
trial court which revealed that the land donated land donated for school purposes. Under Article 733 of the New Civil
remains idle and without any improvement thereon Code, a donation with an onerous cause is essentially a contract and
for more than a decade since the time of the is thus governed by the rules on contract.[19] We fully agree with the
donation, give Us no other alternative but to ruling of the appellate court:
conclude that the defendant-appellants have,
indeed, failed to comply with what is incumbent
upon them in the deed of donation.[17]
xxx With this, [we] decline to apply the four-year obligation does not determine the period but from its nature and
prescriptive period for the revocation of donation circumstances it can be inferred that a period was intended, the
provided under Article 764 of the New Civil Code and general rule cannot be applied because to do so would be a mere
instead apply the general rules on contracts since technicality and would serve no other purpose than to delay or lead
Article 733 of the same Code, specifically provided
to an unnecessary and expensive multiplication of suits.[22]
that onerous donations shall be governed by the
rules on contracts.
Altogether, it has been 16 years since the execution of the deed of
Corollarily, since a deed of donation is considered a donation. Petitioner DECS failed to use the property for the purpose
written contract, it is governed by Article 1144 of the specified in the deed of donation. The property remained barren and
New Civil Code, which provides that the prescriptive unutilized. Even after respondents sought the return of the property
period for an action arising from a written contract is before the courts, petitioner DECS still failed to draw up plans to use
ten (10) years from the time the cause of action the property for school purposes. In fine, petitioner DECS has no use
accrues. In the case of donation, the accrual of the for the property; hence, the same shall be reverted to the
cause of action is from the expiration of the time respondents.
within which the donee must comply with the
conditions or obligations of the donation. In the
WHEREFORE, the petition is DENIED. The Decision of the Court of
instant case, however, it must be noted that the
subject donation fixed no period within which the Appeals in CA-G.R. CV No. 78314 dated July 30,
donee can comply with the condition of donation. As 2004 is AFFIRMED.
such, resort to Article 1197 of
Dan T. Lim works in the business of supplying scrap papers, On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper
cartons, and other raw materials, under the name Quality Paper and demanding payment of the amount of 7,220,968.31, but no payment
Plastic Products, Enterprises, to factories engaged in the paper mill was made to him.13
business.4 From February 2007 to March 2007, he delivered scrap
papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. Dan T. Lim filed a complaint14 for collection of sum of money with
(Arco Pulp and Paper) through its Chief Executive Officer and prayer for attachment with the Regional Trial Court, Branch 171,
President, Candida A. Santos.5 The parties allegedly agreed that Arco Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its
Pulp and Paper would either pay Dan T. Lim the value of the raw answer15 but failed to have its representatives attend the pre-trial
materials or deliver to him their finished products of equivalent hearing. Hence, the trial court allowed Dan T. Lim to present his
value.6 evidence ex parte.16
On September 19, 2008, the trial court rendered a judgment in favor Respondent, on the other hand, argues that the Court of Appeals
of Arco Pulp and Paper and dismissed the complaint, holding that was correct in ruling that there was no proper novation in this case.
when Arco Pulp and Paper and Eric Sy entered into the He argues that the Court of Appeals was correct in ordering the
memorandum of agreement, novation took place, which extinguished payment of 7,220,968.31 with damages since the debt of petitioners
Arco Pulp and Paper’s obligation to Dan T. Lim.17 remains unpaid.28 He also argues that the Court of Appeals was
correct in holding petitioners solidarily liable since petitioner
Dan T. Lim appealed18 the judgment with the Court of Appeals. Candida A. Santos was "the prime mover for such outstanding
According to him, novation did not take place since the corporate liability."29 In their reply, petitioners reiterate that novation
memorandum of agreement between Arco Pulp and Paper and Eric took place since there was nothing in the memorandum of agreement
Sy was an exclusive and private agreement between them. He argued showing that the obligation was alternative. They also argue that
that if his name was mentioned in the contract, it was only for when respondent allowed them to deliver the finished products to
supplying the parties their required scrap papers, where his Eric Sy, the original obligation was novated.30
conformity through a separate contract was indispensable.19
A rejoinder was submitted by respondent, but it was noted without
On January 11, 2013, the Court of Appeals20 rendered a action in view of A.M. No. 99-2-04-SC dated November 21, 2000.31
decision21 reversing and setting aside the judgment dated September
19, 2008 and ordering Arco Pulp and Paper to jointly and severally The issues to be resolved by this court are as follows:
pay Dan T. Lim the amount of ₱7,220,968.31 with interest at 12%
per annum from the time of demand; ₱50,000.00 moral damages; 1. Whether the obligation between the parties was
₱50,000.00 exemplary damages; and ₱50,000.00 attorney’s fees.22 extinguished by novation
The appellate court ruled that the facts and circumstances in this 2. Whether Candida A. Santos was solidarily liable with Arco
case clearly showed the existence of an alternative obligation.23 It Pulp and Paper Co., Inc.
also ruled that Dan T. Lim was entitled to damages and attorney’s
fees due to the bad faith exhibited by Arco Pulp and Paper in not
honoring its undertaking.24 3. Whether moral damages, exemplary damages, and
attorney’s fees can be awarded
Its motion for reconsideration25 having been denied,26 Arco Pulp and
Paper and its President and Chief Executive Officer, Candida A. The petition is denied.
Santos, bring this petition for review on certiorari.
The obligation between the parties was an alternative obligation
On one hand, petitioners argue that the execution of the
memorandum of agreement constituted a novation of the original The rule on alternative obligations is governed by Article 1199 of the
obligation since Eric Sy became the new debtor of respondent. They Civil Code, which states:
also argue that there is no legal basis to hold petitioner Candida A.
Santos personally liable for the transaction that petitioner Article 1199. A person alternatively bound by different prestations
corporation entered into with respondent. The Court of Appeals, they shall completely perform one of them.
allege, also erred in awarding moral and exemplary damages and
attorney’s fees to respondent who did not show proof that he was
entitled to damages.27 The creditor cannot be compelled to receive part of one and part of
the other undertaking.
"In an alternative obligation, there is more than one object, and the The memorandum of agreement did not constitute a novation of
fulfillment of one is sufficient, determined by the choice of the debtor the original contract
who generally has the right of election."32 The right of election is
extinguished when the party who may exercise that option The trial court erroneously ruled that the execution of the
categorically and unequivocally makes his or her choice known.33 memorandum of agreement constituted a novation of the contract
between the parties. When petitioner Arco Pulp and Paper opted
The choice of the debtor must also be communicated to the creditor instead to deliver the finished products to a third person, it did not
who must receive notice of it since: The object of this notice is to give novate the original obligation between the parties.
the creditor . . . opportunity to express his consent, or to impugn the
election made by the debtor, and only after said notice shall the The rules on novation are outlined in the Civil Code, thus:
election take legal effect when consented by the creditor, or if
impugned by the latter, when declared proper by a competent
court.34 Article 1291. Obligations may be modified by:
According to the factual findings of the trial court and the appellate (1) Changing their object or principal conditions;
court, the original contract between the parties was for respondent to
deliver scrap papers worth ₱7,220,968.31 to petitioner Arco Pulp (2) Substituting the person of the debtor;
and Paper. The payment for this delivery became petitioner Arco Pulp
and Paper’s obligation. By agreement, petitioner Arco Pulp and (3) Subrogating a third person in the rights of the creditor.
Paper, as the debtor, had the option to either (1) pay the price or(2) (1203)
deliver the finished products of equivalent value to respondent.35
Article 1292. In order that an obligation may be extinguished by
The appellate court, therefore, correctly identified the obligation another which substitute the same, it is imperative that it be so
between the parties as an alternative obligation, whereby petitioner declared in unequivocal terms, or that the old and the new
Arco Pulp and Paper, after receiving the raw materials from obligations be on every point incompatible with each other. (1204)
respondent, would either pay him the price of the raw materials or,
in the alternative, deliver to him the finished products of equivalent
value. Article 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
When petitioner Arco Pulp and Paper tendered a check to respondent consent of the creditor. Payment by the new debtor gives him the
in partial payment for the scrap papers, they exercised their option rights mentioned in Articles 1236 and 1237. (1205a)
to pay the price. Respondent’s receipt of the check and his
subsequent act of depositing it constituted his notice of petitioner
Arco Pulp and Paper’s option to pay. Novation extinguishes an obligation between two parties when there
is a substitution of objects or debtors or when there is subrogation of
the creditor. It occurs only when the new contract declares so "in
This choice was also shown by the terms of the memorandum of unequivocal terms" or that "the old and the new obligations be on
agreement, which was executed on the same day. The memorandum every point incompatible with each other."36
declared in clear terms that the delivery of petitioner Arco Pulp and
Paper’s finished products would be to a third person, thereby
extinguishing the option to deliver the finished products of Novation was extensively discussed by this court in Garcia v.
equivalent value to respondent. Llamas:37
Novation is a mode of extinguishing an obligation by changing its Novation may also be express or implied. It is express when the new
objects or principal obligations, by substituting a new debtor in place obligation declares in unequivocal terms that the old obligation is
of the old one, or by subrogating a third person to the rights of the extinguished. It is implied when the new obligation is incompatible
creditor. Article 1293 of the Civil Code defines novation as follows: with the old one on every point. The test of incompatibility is whether
the two obligations can stand together, each one with its own
"Art. 1293. Novation which consists in substituting a new debtor in independent existence.38 (Emphasis supplied)
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the Because novation requires that it be clear and unequivocal, it is
consent of the creditor. Payment by the new debtor gives him rights never presumed, thus:
mentioned in articles 1236 and 1237."
In the civil law setting, novatio is literally construed as to make new.
In general, there are two modes of substituting the person of the So it is deeply rooted in the Roman Law jurisprudence, the principle
debtor: (1) expromision and (2) delegacion. In expromision, the — novatio non praesumitur —that novation is never presumed.At
initiative for the change does not come from — and may even be bottom, for novation tobe a jural reality, its animus must be ever
made without the knowledge of — the debtor, since it consists of a present, debitum pro debito — basically extinguishing the old
third person’s assumption of the obligation. As such, it logically obligation for the new one.39 (Emphasis supplied) There is nothing in
requires the consent of the third person and the creditor. In the memorandum of agreement that states that with its execution,
delegacion, the debtor offers, and the creditor accepts, a third person the obligation of petitioner Arco Pulp and Paper to respondent would
who consents to the substitution and assumes the obligation; thus, be extinguished. It also does not state that Eric Sy somehow
the consent of these three persons are necessary. Both modes of substituted petitioner Arco Pulp and Paper as respondent’s debtor. It
substitution by the debtor require the consent of the creditor. merely shows that petitioner Arco Pulp and Paper opted to deliver the
finished products to a third person instead.
Novation may also be extinctive or modificatory. It is extinctive when
an old obligation is terminated by the creation of a new one that The consent of the creditor must also be secured for the novation to
takes the place of the former. It is merely modificatory when the old be valid:
obligation subsists to the extent that it remains compatible with the
amendatory agreement. Whether extinctive or modificatory, novation Novation must be expressly consented to. Moreover, the conflicting
is made either by changing the object or the principal conditions, intention and acts of the parties underscore the absence of any
referred to as objective or real novation; or by substituting the person express disclosure or circumstances with which to deduce a clear
of the debtor or subrogating a third person to the rights of the and unequivocal intent by the parties to novate the old
creditor, an act known as subjective or personal novation. For agreement.40 (Emphasis supplied)
novation to take place, the following requisites must concur:
In this case, respondent was not privy to the memorandum of
1) There must be a previous valid obligation. agreement, thus, his conformity to the contract need not be secured.
This is clear from the first line of the memorandum, which states:
2) The parties concerned must agree to a new contract.
Per meeting held at ARCO, April 18, 2007, it has been mutually
3) The old contract must be extinguished. agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .41
4) There must be a valid new contract. If the memorandum of agreement was intended to novate the original
agreement between the parties, respondent must have first agreed to
the substitution of Eric Sy as his new debtor. The memorandum of
agreement must also state in clear and unequivocal terms that it has An award of moral damages would require certain conditions to be
replaced the original obligation of petitioner Arco Pulp and Paper to met, to wit: (1)first, there must be an injury, whether physical,
respondent. Neither of these circumstances is present in this case. mental or psychological, clearly sustained by the claimant; (2)
second, there must be culpable act or omission factually established;
Petitioner Arco Pulp and Paper’s act of tendering partial payment to (3) third, the wrongful act or omission of the defendant is the
respondent also conflicts with their alleged intent to pass on their proximate cause of the injury sustained by the claimant; and (4)
obligation to Eric Sy. When respondent sent his letter of demand to fourth, the award of damages is predicated on any of the cases stated
petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that in Article 2219 of the Civil Code.43
the former neither acknowledged nor consented to the latter as his
new debtor. These acts, when taken together, clearly show that Here, the injury suffered by respondent is the loss of ₱7,220,968.31
novation did not take place. Since there was no novation, petitioner from his business. This has remained unpaid since 2007. This injury
Arco Pulp and Paper’s obligation to respondent remains valid and undoubtedly was caused by petitioner Arco Pulp and Paper’s act of
existing. Petitioner Arco Pulp and Paper, therefore, must still pay refusing to pay its obligations.
respondent the full amount of ₱7,220,968.31.
When the obligation became due and demandable, petitioner Arco
Petitioners are liable for damages Pulp and Paper not only issued an unfunded check but also entered
into a contract with a third person in an effort to evade its liability.
Under Article 2220 of the Civil Code, moral damages may be awarded This proves the third requirement.
in case of breach of contract where the breach is due to fraud or bad
faith: As to the fourth requisite, Article 2219 of the Civil Code provides that
moral damages may be awarded in the following instances:
Art. 2220. Willfull injury to property may be a legal ground for
awarding moral damages if the court should find that, under the Article 2219. Moral damages may be recovered in the following and
circumstances, such damages are justly due. The same rule applies analogous cases:
to breaches of contract where the defendant acted fraudulently or in
bad faith. (Emphasis supplied) (1) A criminal offense resulting in physical injuries;
Moral damages are not awarded as a matter of right but only after (2) Quasi-delicts causing physical injuries;
the party claiming it proved that the breach was due to fraud or bad
faith. As this court stated:
(3) Seduction, abduction, rape, or other lascivious acts;
Moral damages are not recoverable simply because a contract has
been breached. They are recoverable only if the party from whom it is (4) Adultery or concubinage;
claimed acted fraudulently or in bad faith or in wanton disregard of
his contractual obligations. The breach must be wanton, reckless, (5) Illegal or arbitrary detention or arrest;
malicious or in bad faith, and oppressive or abusive.42
(6) Illegal search;
Further, the following requisites must be proven for the recovery of
moral damages: (7) Libel, slander or any other form of defamation;
Persons who have the right to enter into contractual relations must When parties act in bad faith and do not faithfully comply with their
exercise that right with honesty and good faith. Failure to do so obligations under contract, they run the risk of violating Article 1159
results in an abuse of that right, which may become the basis of an of the Civil Code:
action for damages. Article 19, however, cannot be its sole basis:
Article 1159. Obligations arising from contracts have the force of law
Article 19 is the general rule which governs the conduct of human between the contracting parties and should be complied with in good
relations. By itself, it is not the basis of an actionable tort. Article 19 faith.
describes the degree of care required so that an actionable tort may
arise when it is alleged together with Article 20 or Article 21.44 Article 2219, therefore, is not an exhaustive list of the instances
where moral damages may be recovered since it only specifies,
Article 20 and 21 of the Civil Code are as follows: among others, Article 21. When a party reneges on his or her
obligations arising from contracts in bad faith, the act is not only
contrary to morals, good customs, and public policy; it is also a
Article 20. Every person who, contrary to law, wilfully or negligently violation of Article 1159. Breaches of contract become the basis of
causes damage to another, shall indemnify the latter for the same. moral damages, not only under Article 2220, but also under Articles
19 and 20 in relation to Article 1159.
Article 21.Any person who wilfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy Moral damages, however, are not recoverable on the mere breach of
shall compensate the latter for the damage. the contract. Article 2220 requires that the breach be done
fraudulently or in bad faith. In Adriano v. Lasala:46
To be actionable, Article 20 requires a violation of law, while Article
21 only concerns with lawful acts that are contrary to morals, good To recover moral damages in an action for breach of contract, the
customs, and public policy: breach must be palpably wanton, reckless and malicious, in bad
faith, oppressive, or abusive. Hence, the person claiming bad faith
Article 20 concerns violations of existing law as basis for an injury. It must prove its existence by clear and convincing evidence for the law
allows recovery should the act have been willful or negligent. Willful always presumes good faith.
may refer to the intention to do the act and the desire to achieve the
outcome which is considered by the plaintiff in tort action as Bad faith does not simply connote bad judgment or negligence. It
injurious. Negligence may refer to a situation where the act was imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty through some motive or
interest or ill will that partakes of the nature of fraud. It is, therefore, Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or
a question of intention, which can be inferred from one’s conduct corrective damages are intended to serve as a deterrent to serious
and/or contemporaneous statements.47 (Emphasis supplied) wrong doings, and as a vindication of undue sufferings and wanton
invasion of the rights of an injured or a punishment for those guilty
Since a finding of bad faith is generally premised on the intent of the of outrageous conduct. These terms are generally, but not always,
doer, it requires an examination of the circumstances in each case. used interchangeably. In common law, there is preference in the use
of exemplary damages when the award is to account for injury to
feelings and for the sense of indignity and humiliation suffered by a
When petitioner Arco Pulp and Paper issued a check in partial person as a result of an injury that has been maliciously and
payment of its obligation to respondent, it was presumably with the wantonly inflicted, the theory being that there should be
knowledge that it was being drawn against a closed account. Worse, compensation for the hurt caused by the highly reprehensible
it attempted to shift their obligations to a third person without the conduct of the defendant—associated with such circumstances as
consent of respondent. willfulness, wantonness, malice, gross negligence or recklessness,
oppression, insult or fraud or gross fraud—that intensifies the
Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest injury. The terms punitive or vindictive damages are often used to
purpose or some moral obliquity and conscious doing of a wrong, a refer to those species of damages that may be awarded against a
breach of known duty through some motive or interest or ill will that person to punish him for his outrageous conduct. In either case,
partakes of the nature of fraud."48 Moral damages may, therefore, be these damages are intended in good measure to deter the wrongdoer
awarded. and others like him from similar conduct in the future.50 (Emphasis
supplied; citations omitted)
Exemplary damages may also be awarded. Under the Civil Code,
exemplary damages are due in the following circumstances: The requisites for the award of exemplary damages are as follows:
Article 2232. In contracts and quasi-contracts, the court may award (1) they may be imposed by way of example in addition to
exemplary damages if the defendant acted in a wanton, fraudulent, compensatory damages, and only after the claimant's right to
reckless, oppressive, or malevolent manner. them has been established;
Article 2233. Exemplary damages cannot be recovered as a matter of (2) that they cannot be recovered as a matter of right, their
right; the court will decide whether or not they should be determination depending upon the amount of compensatory
adjudicated. damages that may be awarded to the claimant; and
Article 2234. While the amount of the exemplary damages need not (3) the act must be accompanied by bad faith or done in a
be proven, the plaintiff must show that he is entitled to moral, wanton, fraudulent, oppressive or malevolent manner.51
temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages should be Business owners must always be forthright in their dealings. They
awarded. cannot be allowed to renege on their obligations, considering that
these obligations were freely entered into by them. Exemplary
In Tankeh v. Development Bank of the Philippines,49 we stated that: damages may also be awarded in this case to serve as a deterrent to
those who use fraudulent means to evade their liabilities.
The purpose of exemplary damages is to serve as a deterrent to
future and subsequent parties from the commission of a similar Since the award of exemplary damages is proper, attorney’s fees and
offense. The case of People v. Ranteciting People v. Dalisay held that: cost of the suit may also be recovered.
Article 2208 of the Civil Code states: corporate fiction is a question of fact which cannot be the subject of
a petition for review on certiorari under Rule 45, this Court can take
Article 2208. In the absence of stipulation, attorney's fees and cognizance of factual issues if the findings of the lower court are not
expenses of litigation, other than judicial costs, cannot be recovered, supported by the evidence on record or are based on a
except: misapprehension of facts.53 (Emphasis supplied)
(1) When exemplary damages are awarded[.] As a general rule, directors, officers, or employees of a corporation
Petitioner Candida A. Santos is solidarily liable with petitioner cannot be held personally liable for obligations incurred by the
corporation corporation. However, this veil of corporate fiction may be pierced if
complainant is able to prove, as in this case, that (1) the officer is
guilty of negligence or bad faith, and (2) such negligence or bad faith
Petitioners argue that the finding of solidary liability was erroneous was clearly and convincingly proven.
since no evidence was adduced to prove that the transaction was
also a personal undertaking of petitioner Santos. We disagree.
Here, petitioner Santos entered into a contract with respondent in
her capacity as the President and Chief Executive Officer of Arco
In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated Pulp and Paper. She also issued the check in partial payment of
that: petitioner corporation’s obligations to respondent on behalf of
petitioner Arco Pulp and Paper. This is clear on the face of the check
Basic is the rule in corporation law that a corporation is a juridical bearing the account name, "Arco Pulp & Paper, Co., Inc."54 Any
entity which is vested with a legal personality separate and distinct obligation arising from these acts would not, ordinarily, be petitioner
from those acting for and in its behalf and, in general, from the Santos’ personal undertaking for which she would be solidarily liable
people comprising it. Following this principle, obligations incurred by with petitioner Arco Pulp and Paper.
the corporation, acting through its directors, officers and employees,
are its sole liabilities. A director, officer or employee of a corporation We find, however, that the corporate veil must be pierced. In Livesey
is generally not held personally liable for obligations incurred by the v. Binswanger Philippines:55
corporation. Nevertheless, this legal fiction may be disregarded if it is
used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of Piercing the veil of corporate fiction is an equitable doctrine
statutes, or to confuse legitimate issues. developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful purposes.
Under the doctrine, the corporate existence may be disregarded
.... where the entity is formed or used for non-legitimate purposes, such
as to evade a just and due obligation, or to justify a wrong, to shield
Before a director or officer of a corporation can be held personally or perpetrate fraud or to carry out similar or inequitable
liable for corporate obligations, however, the following requisites considerations, other unjustifiable aims or intentions, in which case,
must concur: (1) the complainant must allege in the complaint that the fiction will be disregarded and the individuals composing it and
the director or officer assented to patently unlawful acts of the the two corporations will be treated as identical.56 (Emphasis
corporation, or that the officer was guilty of gross negligence or bad supplied)
faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith. According to the Court of Appeals, petitioner Santos was solidarily
liable with petitioner Arco Pulp and Paper, stating that:
While it is true that the determination of the existence of any of the
circumstances that would warrant the piercing of the veil of
In the present case, We find bad faith on the part of the [petitioners] II. With regard particularly to an award of interest in the concept of
when they unjustifiably refused to honor their undertaking in favor actual and compensatory damages, the rate of interest, as well as the
of the [respondent]. After the check in the amount of 1,487,766.68 accrual thereof, is imposed, as follows:
issued by [petitioner] Santos was dishonored for being drawn against
a closed account, [petitioner] corporation denied any privity with 1. When the obligation is breached, and it consists in the
[respondent]. These acts prompted the [respondent] to avail of the payment of a sum of money, i.e., a loan or forbearance of
remedies provided by law in order to protect his rights.57 money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall
We agree with the Court of Appeals. Petitioner Santos cannot be itself earn legal interest from the time it is judicially
allowed to hide behind the corporate veil.1âwphi1 When petitioner demanded. In the absence of stipulation, the rate of interest
Arco Pulp and Paper’s obligation to respondent became due and shall be 6% per annum to be computed from default, i.e.,
demandable, she not only issued an unfunded check but also from judicial or extrajudicial demand under and subject to
contracted with a third party in an effort to shift petitioner Arco Pulp the provisions of Article 1169 of the Civil Code.
and Paper’s liability. She unjustifiably refused to honor petitioner
corporation’s obligations to respondent. These acts clearly amount to 2. When an obligation, not constituting a loan or forbearance
bad faith. In this instance, the corporate veil may be pierced, and of money, is breached, an interest on the amount of damages
petitioner Santos may be held solidarily liable with petitioner Arco awarded may be imposed at the discretion of the court at the
Pulp and Paper. rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or
The rate of interest due on the obligation must be reduced in until the demand can be established with reasonable
view of Nacar v. Gallery Frames58 certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the
In view, however, of the promulgation by this court of the decision time the claim is made judicially or extrajudicially (Art. 1169,
dated August 13, 2013 in Nacar v. Gallery Frames,59 the rate of Civil Code), but when such certainty cannot be so reasonably
interest due on the obligation must be modified from 12% per annum established at the time the demand is made, the interest
to 6% per annum from the time of demand. shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The
Nacar effectively amended the guidelines stated in Eastern Shipping actual base for the computation of legal interest shall, in any
v. Court of Appeals,60 and we have laid down the following guidelines case, be on the amount finally adjudged.
with regard to the rate of legal interest:
3. When the judgment of the court awarding a sum of money
To recapitulate and for future guidance, the guidelines laid down in becomes final and executory, the rate of legal interest,
the case of Eastern Shipping Linesare accordingly modified to whether the case falls under paragraph 1 or paragraph 2,
embody BSP-MB Circular No. 799, as follows: above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then
I. When an obligation, regardless of its source, i.e., law, contracts, an equivalent to a forbearance of credit.
quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on And, in addition to the above, judgments that have become final and
"Damages" of the Civil Code govern in determining the measure of executory prior to July 1, 2013, shall not be disturbed and shall
recoverable damages. continue to be implemented applying the rate of interest fixed
therein.61 (Emphasis supplied; citations omitted.)
According to these guidelines, the interest due on the obligation of
₱7,220,968.31 should now be at 6% per annum, computed from May
5, 2007, when respondent sent his letter of demand to petitioners.
This interest shall continue to be due from the finality of this
decision until its full satisfaction.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are
hereby ordered solidarily to pay respondent Dan T. Lim the amount
of ₱7,220,968.31 with interest of 6% per annum at the time of
demand until finality of judgment and its full satisfaction, with moral
damages in the amount of ₱50,000.00, exemplary damages in the
amount of ₱50,000.00, and attorney's fees in the amount of
₱50,000.00.
SO ORDERED.
(a) PN No. OACL 636-95 has an outstanding principal of ADD: OTHER EXPENSES
₱325,000.00, cumulative interest of ₱184,679.00, and
cumulative penalties of ₱258,050.00, or a total amount due INSURANCE PREMIUM 22,618.37
of ₱767,729.00; (b) PN No. OACL 634-95 has an outstanding
principal of ₱1,800,000.00, cumulative interest of
₱1,035,787.50, and cumulative penalties of 1,429,200.00, or POSTING OF NOTICE OF SALE 700.00
a total amount due of 4,264,987.50; and
PUBLICATION FEE 17,500.00 On the basis of the above statement of account, and
pursuant to the promissory notes, Chinabank instituted
extrajudicial foreclosure proceedings against the mortgage
REGISTRATION OF CERTIFICATE OF SALE (MISC.) 1,000.00
security. The foreclosure sale was held on May 18, 1998,
with Chinabank offering the highest bid of ₱4,600,000.00,
REGISTRATION OF CERTIFICATE OF SALE (REGISTER OF DEEDS) but by then the defendants’ total obligations on the three
promissory notes had risen to ₱5,401,975.00, before
Registration fee 10,923.00
attorney’s fees of 10% and auction expenses, leaving a loan
deficiency of ₱1,758,427.87.14 Thus, in the complaint before
the RTC, Chinabank prayed to direct the defendants to
Entry fee 30.00 jointly and severally settle the said deficiency, plus 12%
interest per annum after May 18, 1998,15 the date of the
Legal fund 20.00 auction sale.16
BIR certification 60.00 The spouses Sinamban, in their Answer17 dated February
26, 1999, averred that they do not recall having executed PN
No. OACL 636-95 for ₱325,000.00 on May 23, 1995, or PN
Doc. stamps tax 69,000.00 No. CLF 5-93 for ₱1,300,000.00 on February 26, 1991, and
had no participation in the execution of PN No. OACL 634-95
Capital Gains tax 276,000.00 356,033.00 for ₱1,800,000.00 on April 24, 1995. They however admitted
------------------ that they signed some PN forms as co-makers upon the
----- request of the spouses Manalastas who are their relatives;
although they insisted that they derived no money or other
EXPENSES INCURRED ON OCULAR INSPECTION MADE 404.00 benefits from the loans. They denied knowing about the
ON mortgage security provided by the spouses Manalastas, or
TCT#173532-R & TCT#173533-R that the latter defaulted on their loans. They also refused to
acknowledge the loan deficiency of ₱1,758,427.87 on the
PNs, insisting that the mortgage collateral was worth more
ATTORNEY’S FEE 18,000.00
than ₱10,000,000.00, enough to answer for all the loans,
interests and penalties. They also claimed that they were not
notified of the auction sale, and denied that they knew about
416,255.37 the Certificate of Sale18 and the Statement of Account dated
May 18, 1998, and insisted that Chinabank manipulated the
foreclosure sale to exclude them therefrom. By way of
LESS: BID PRICE 4,600,000.00
counterclaim, the Spouses Sinamban prayed for damages
----------
-
and attorney’s fees of 25%, plus litigation expenses and costs
of suit.
From the Order dated December 8, 1999 of the RTC, the 2. Sps. Estanislao and Africa Sinamban are
spouses Sinamban appealed to the CA on January 4, 2000, solidarily liable with Sps. Danilo and Magdalena
Manalastas for the amount of Php844,501.90 showing that it is the Sps. Sinamban, as the
(inclusive of 10% attorney’s fees) on Promissory Note debtors, and not the respondent bank, who are given
No. OACL00636-95 dated 23 May 1995; the choice under Article 1252 of the Civil Code to
have the proceeds of the auction sale applied as
3. Estanislao Sinamban and Sps. Danilo and payments to their obligations under PN# OACL 636-
Magdalena Manalastas are solidarily liable for the 95 dated 23 May 1995 and PN# CLF 5-93 dated 26
amount of Php406,184.35 (inclusive of 10% February 1991.35
attorney’s fees) on Promissory Note No. CLF 5-93
dated 26 February 1991; and Ruling of the Court
4. The foregoing amounts shall bear interest at the The Court modifies the CA decision.
rate of 12% per annum from 18 November 1998
until fully paid. A co-maker of a PN who binds
himself with the maker "jointly and
SO ORDERED.34 (Some emphasis ours) severally" renders himself directly
and primarily liable with the maker
Petition for Review to the Supreme Court on the debt, without reference to his
solvency.
In this petition for review, the spouses Sinamban seek to be
completely relieved of any liability on the PNs, solidary or "A promissory note is a solemn acknowledgment of a debt
otherwise, by interposing the following issues: and a formal commitment to repay it on the date and under
the conditions agreed upon by the borrower and the lender.
A person who signs such an instrument is bound to honor it
5.1 Whether or not the Honorable Court of Appeals as a legitimate obligation duly assumed by him through the
erred in not considering that the Sps. Sinamban’s signature he affixes thereto as a token of his good faith. If he
obligations under PN# OACL 636-95 dated May 23, reneges on his promise without cause, he forfeits the
1995 in the principal sum of Php325,000.00 and sympathy and assistance of this Court and deserves instead
PN# CLF 5-93 dated February 26, 1991 in the its sharp repudiation."36
principal sum of Php1,300,000.00 are more onerous
and burdensome on their part as mere sureties (co-
makers) of their co-defendants-spouses Danilo and Employing words of common commercial usage and well-
Magdalena Manalastas’ (hereinafter referred to as accepted legal significance, the three subject PNs uniformly
the "Sps. Manalastas") obligations over the same, describe the solidary nature and extent of the obligation
compared to the Sps. Manalastas’ sole obligation assumed by each of the defendants in Civil Case No. 11708,
under PN# OACL 634-95 dated 24 April 1995 in the to wit:
principal amount of Php1,800,000.00, such that the
proceeds of the auction sale of the properties "FOR VALUE RECEIVED, I/We jointly and severally promise
securing all the three (3) promissory notes should to pay to the CHINA BANKING CORPORATION or its order
first be applied to satisfy the promissory notes the sum of PESOS x x x[.]"37 (Emphasis ours)
signed by the Sps. Sinamban; and
According to Article 2047 of the Civil Code,38 if a person
5.2 Whether or not the Honorable Court of Appeals binds himself solidarily with the principal debtor, the
erred in not considering the facts indubitably provisions of Articles 1207 to 1222 of the Civil Code (Section
4, Chapter 3,Title I, Book IV) on joint and solidary 1999, "the real estate mortgage was constituted to secure all
obligations shall be observed. Thus, where there is a the three (3) promissory notes," concluding that "[j]ust as the
concurrence of two or more creditors or of two or more liability of the [spouses] Sinamban was lessened by the
debtors in one and the same obligation, Article 1207 foreclosure proceedings, so must they also share in the
provides that among them, "[t]here is a solidary liability only deficiency judgment, in proportion to the PNs they co-signed
when the obligation expressly so states, or when the law or with the [spouses] Manalastas, but notthe entire deficiency
the nature of the obligation requires solidarity." It is settled judgment of ₱1,758,427.87."41
that when the obligor or obligors undertake to be "jointly and
severally" liable, it means that the obligation is solidary. 39 In Significantly, in modifying the RTC’s second amended
this case, the spouses Sinamban expressly bound decision, which provides for the pro rata distribution of the
themselves to be jointly and severally, or solidarily, liable loan deficiency of ₱1,758,427.87, the CA first applied the
with the principal makers of the PNs, the spouses entire net proceeds of the auction sale of ₱4,183,744.63
Manalastas. (after auction expenses of ₱416,255.37), to PN No. OACL
634-95, which on May 18, 1998 had an outstanding balance
Moreover, as the CA pointed out, in Paragraph 5 of the PNs, of ₱4,264,987.50, inclusive of interest and penalties, plus
the borrowers and their co-makers expressly authorized 10% attorney’s fees, or a total of ₱4,691,486.25. Thus,
Chinabank, as follows: ₱4,691,486.25 less ₱4,183,744.63 leaves a deficiency on PN
No. OACL 634-95 of ₱507,741.62, which is due solely from
[T]o apply to the payment of this note and/or any other the spouses Manalastas.
particular obligation or obligations of all or any one of us to
the CHINA BANKING CORPORATION as the said Corporation As for PN No. OACL 636-95, the CA ordered the spouses
may select, irrespective of the dates of maturity, whether or Sinamban to pay, solidarily with the spouses Manalastas,
not said obligations are then due, any or all moneys, the entire amount due thereon, ₱844,501.90, consisting of
securities and things of value which are now or which may the loan principal of ₱767,729.00 plus accrued interest,
hereafter be in its hands on deposit or otherwise to the credit penalties and 10% attorney’s fees; concerning PN No. CLF 5-
of, or belonging to, all or any one of us, and the CHINA 93, the CA ordered the spouses Sinamban to pay, solidarily
BANKING CORPORATION is hereby authorized to sell at with the spouses Manalastas, the amount of ₱406,184.35,
public or private sale such securities or things of value for consisting of the balance of the loan principal of
the purpose of applying their proceeds to such payments.40 ₱369,258.50 plus accrued interest, penalties and 10%
attorney’s fees. The CA further ordered the payment of 12%
Pursuant to Article 1216 of the Civil Code, as well as interest per annum from November 18, 1998, the date of
Paragraph 5 of the PNs, Chinabank opted to proceed judicial demand, until fully paid, on the above deficiencies.
against the co-debtors simultaneously, as implied in its
May 18, 1998 statement of account when it applied the Article 1216 of the Civil Code provides that "[t]he creditor
entire amount of its auction bid to the aggregate amount may proceed against any one of the solidary debtors or some
of the loan obligations. or all of them simultaneously. The demand made against one
of them shall not be an obstacle to those which may
The PNs were executed to acknowledge each loan obtained subsequently be directed against the others, so long as the
from the credit line extended by Chinabank, which the debt has not been fully collected." Article 1252 42 of the Civil
principal makers and true beneficiaries, the spouses Code does not apply, as urged by the petitioners, because in
Manalastas, secured with a REM they executed over their the said article the situation contemplated is that of a debtor
properties. As the RTC noted in its Order dated December 8, with several debts due, whereas the reverse is true, with
each solidary debt imputable to several debtors.
While the CA correctly noted that the choice is given to the the foreclosure of which will also benefit them
solidary creditor to determine against whom he wishes to proportionately. No PN enjoys any priority or preference in
enforce payment, the CA stated that Chinabank, in the payment over the others, with the only difference being that
exercise of the aforesaid option, chose to apply the net the spouses Sinamban are solidarily liable for the deficiency
proceeds of the extrajudicial foreclosure sale first to the PN on two of them.
solely signed by spouses Manalastas.43 Thus, the net
proceeds were applied first to PN No. OACL 634-95 in the Pursuant, then, to the order or manner of application of the
principal amount of ₱1,800,000.00, instead of pro rata to all auction proceeds chosen by Chinabank, the solidary liability
three PNs due. of the defendants pertaining to each PN shall be as follows:
The Court finds this factual conclusion of the CA not a) PN No. OACL 634-95, with a balance as of May
supported by any evidence or any previous 18, 1998 of ₱4,264,987.50: its share in the total
arrangement.1âwphi1 To the contrary, as clearly shown in deficiency is computed as the ratio of ₱4,264,987.50
its Statement of Account dated May 18, 1998, Chinabank to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
opted to apply the entire auction proceeds to the aggregate ₱1,388,320.55, (not ₱507,741.62 as found by the
amount of the three PNs due, ₱5,401,975.00 (before CA);
attorney’s fees and auction expenses). Had it chosen to
enforce the debts as ruled by the CA, the Statement of
Account would have shown that the loan due on PN No. b) PN No. OACL 636-95, with a balance of
OACL 634-95 which is ₱4,691,486.25, should have been ₱767,729.00 as of May 18, 1998: its share in the
deducted first from the net auction proceeds of deficiency is computed as the ratio of ₱767,729.00
₱4,183,744.63, arriving at a deficiency of ₱507,741.62on PN to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
No. OACL 634-95 alone; thereby, leaving no remainder of the ₱249,907.87, (not ₱844,501.90 as computed by the
proceeds available to partially settle the other two PNs. As it CA);
appears, the auction proceeds are not even sufficient to
cover just PN No. OACL 634-95 alone. c) PN No. CLF 5-93, with an outstanding balance of
₱369,258.50 as of May 18, 1998: its share in the
But as the Court has noted, by deducting the auction deficiency is computed as the ratio of ₱369,258.50
proceeds from the aggregate amount of the three loans due, to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
Chinabank in effect opted to apply the entire proceeds of the ₱120,199.45, (not ₱406,184.35 as found by the CA).
auction simultaneously to all the three loans. This implies
that each PN will assume a pro rata portion of the resulting In short, in the CA decision, the spouses Manalastas would
deficiency on the total indebtedness as bears upon each PN’s be solely liable on PN No. OACL 634-95 for only
outstanding balance. Contrary to the spouses Sinamban’s ₱507,741.62(instead of the much bigger amount of
insistence, none of the three PNs is more onerous than the ₱1,388,320.55which this Court found), whereas the spouses
others to justify applying the proceeds according to Article Sinamban would be solidarily liable with the spouses
1254 of the Civil Code, in relation to Articles 1252 and Manalastas for a total deficiency of ₱1,250,686.25 on PN No.
1253.44 Since each loan, represented by each PN, was OACL 636-95 and PN No. CLF 5-93. But under the Court’s
obtained under a single credit line extended by Chinabank interpretation, the spouses Sinamban are solidarily liable
for the working capital requirements of the spouses with the spouses Manalastas for only ₱370,107.32on the
Manalastas’ rice milling business, which credit line was said two PNs, for a significant difference of ₱880,578.93.
secured also by a single REM over their properties, then each
PN is simultaneously covered by the same mortgage security,
Pursuant to Monetary Board Circular No. 799, effective 3. Estanislao Sinamban and spouses Danilo and
July 1, 2013, the rate of interest for the loan or Magdalena Manalastas are solidarily liable for the
forbearance of any money, goods or credits and the rate deficiency amount of ₱120,199.45 (inclusive of 10%
allowed in judgments, in the absence of an express attorney’s fees) on Promissory Note No. CLF 5-93
contract as to such rate of interest, has been reduced to dated February 26, 1991; and
six percent (6%) per annum.
4. The foregoing amounts shall bear interest at the
The subject three PNs bear interests ranging from 21% to rate of twelve percent (12%) per annum from
23% per annum, exclusive of penalty of 1% on the overdue November 18, 1998 to June 30, 2013, and six
amount per month of delay, whereas in its complaint, percent (6%) per annum from July 1, 2013 until
Chinabank prayed to recover only the legal rate of 12% on fully paid.
whatever judgment it could obtain. Meanwhile, the Monetary
Board of the Bangko Sentral ng Pilipinas in its Resolution SO ORDERED.
No. 796 dated May 16, 2013, and now embodied in Monetary
Board Circular No. 799, has effective July 1, 2013 reduced
to 6%, from 12%, the legal rate of interest for the loan or BIENVENIDO L. REYES
forbearance of any money, goods or credits and the rate Associate Justice
allowed in judgments, in the absence of stipulation.45 Since
Chinabank demanded only the legal, not the stipulated,
interest rate on the deficiency and attorney’s fees due, the
defendants will solidarily pay interest on their shares in the
deficiency at the rate of 12% from November 18, 1998 to
June 30, 2013, and 6% from July 1, 2013 until fully paid.
WHEREFORE, the Decision of the Court of Appeals dated
May 19, 2010 in CA-G.R. CV No. 66274 is MODIFIED. The
Decision dated July 30, 1999 and the Order dated December
8, 1999 of the Regional Trial Court of San Fernando City,
Pampanga, Branch 45 in Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATIONS as follows:
Same; Actual Damages; Interest Rates; The benchmark for the computation ofx - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
interest rate on the amount of actual damages is from the moment judgment- - - - x
becomes final and executory.—In the interest of substantial justice, we deem it Decision
necessary to impose legal interest on the awarded actual damages at the rate ofSERENO, J.:
6% per annum from the time the cases were filed with the lower court; and 12%The present case is a Petition for Review1 under Rule 45 filed by
from the time the judgment herein becomes
petitioner Petron Corporation. Petitioner assails the Decision2 of the
Court of Appeals (CA), which affirmed the Decision of the Regional
Trial Court (RTC) of Iloilo City in consolidated Civil Case Nos. 19633,
19684, 20122, respectively filed by herein respondents.
The facts of the case are as follows:
Petitioner presents the following issues for the resolution of Third, petitioner insists that ownership of the petroleum
this Court: products was transferred when the dealer’s representative, Ronnie
1. Whether or not Petron may be considered at fault for Allanaraiz, went to petitioner’s oil depot, bought and paid for the
continuing to do business with Rubin Uy, an independent
gasoline, and had Villaruz’s tank truck receive the products for
petroleum dealer, without renewing or extending their
expired dealership agreement; delivery.
2. Whether or not a causal connection exists between Petron’s
failure to renew or extend its dealership contract with Rubin
Moreover, petitioner points out, neither Igdanis nor Villaruz However, with the use of its trade name and trademark,
was its employee and, thus, it cannot be held vicariously liable for petitioner and the dealer inform and guarantee to the public that the
the damages to respondents caused by Igdanis. Furthermore, it products and services are of a particular standard or quality. More
asserted that the tank truck transporting the petroleum – though not importantly, the public, which is not privy to the dealership contract,
included in the enumeration in the hauling contract – had complied assumes that the gasoline station is owned or operated by petitioner.
with the standards required of Villaruz. Thus, respondents, who suffered damages from the act or omission
that occurred in the gasoline station and that caused the fire, may
Petitioner also alleges that there was no evidence that the file an action against petitioner based on the representations it made
fire was attributable to its distribution and storage safety measures. to the public. As far as the public is concerned, it is enough that the
Finally, petitioner states that both hauler and dealer must establishment carries exclusively the name and products of
bear the costs of their acts and those of their employees, considering petitioner to assume that the latter is liable for acts done within the
that this was an explicit provision in their respective contracts with premises.
it.
The Petition has some merit. Second, respondents have a claim against petitioner based
on the dealership agreement.
We first discuss the liability of petitioner in relation to the
dealership contract. The RTC and the CA ruled that, by virtue of the expiration of
the dealership contract, the dealer was relegated to being petitioner’s
Petitioner, as an importer and a distributer of gasoline and agent. On this point, we agree with petitioner that the expiration or
other petroleum product, executed with a dealer of these products an nonexistence of a dealership contract did not ipso facto transform the
exclusive dealership agreement for mutual benefit and gain. On one relationship of the dealer and petitioner into one of agency. As far as
hand, petitioner benefits from the sale of its products, as well as the the parties to the dealership contract were concerned, the rights and
advertisement it gains when it broadens its geographical coverage in obligations as to them still subsisted, since they continued to
contracting with independent dealers in different areas. The products mutually benefit from the agreement. Thus, neither party can claim
sold and the services rendered by the dealer also contribute to its that it is no longer bound by the terms of the contract and the
goodwill. Thus, despite the transfer of ownership upon the sale and expiration thereof.
delivery of its products, petitioner still imposes the obligation on the
dealer to exclusively carry its products. We then judiciously reviewed the terms of the contract and
found that petitioner is liable to respondents for the damages caused
The dealer also benefits from the dealership agreement, not by the fire.
only from the resale of the products of petitioner, but also from the
latter’s goodwill. As petitioner itself points out, it owns the equipment relevant
to the handling and storage of gasoline, including the gasoline
pumps and the underground tank.10 It is also responsible for the
delivery of the petroleum to the dealer. The incident occurred at the contract, wherein it may impose a penalty ranging from a written
time the petroleum was being unloaded to the underground tank warning to the termination of the contract. Therefore, as far as the
petitioner owned. Aside from failing to show the actual cause of the dealer was concerned with regard to the terms of the dealership
fire, it also failed to rebut the presumption that it was negligent in contract, acts of Villaruz and his employees are also acts of
the maintenance of its properties and in the conduct of its business. petitioner. Both the RTC and the CA held that Villaruz failed to rebut
Petitioner contends that under paragraph 8 of the dealership the presumption that the employer was negligent in the supervision
contract, the dealer’s liability is as follows: of an employee who caused damages to another; and, thus,
LOSSES AND CLAIMS. BUYER shall make petitioner should likewise be held accountable for the negligence of
good, settle and pay, and hold SELLER harmless
Villaruz and Igdanis.
against all losses and claims (including those of the
parties, their agents and employees) for death,
personal injury or property arising out of (1) any use To reiterate, petitioner, the dealer Rubin Uy – acting through
or condition of BUYER’s premises or the equipment his agent, Dortina Uy – shared the responsibility for the maintenance
and facilities thereon, regardless of any defects
therein (2) BUYER’s non-performance of this of the equipment used in the gasoline station and for making sure
contract, or (3) the storage and handling of products that the unloading and the storage of highly flammable products
on the premises. were without incident. As both were equally negligent in those
aspects, petitioner cannot pursue a claim against the dealer for the
While both parties to the contract have the right to provide a
clause for non-liability, petitioner admits that they both incident. Therefore, both are solidarily liable to respondents for
share the maintenance of its equipment. Petitioner states damages caused by the fire.
that its responsibility extended to “the operating condition of
the gasoline station, e.g. whether the fuel pumps were
functioning properly.”11 Petitioner was likewise negligent in allowing a tank truck
different from that specifically provided under its hauling contract
Moreover, it cannot be denied that petitioner likewise with Villaruz. The enumeration and specification of particular tank
obligated itself to deliver the products to the dealer. When
trucks in the contract serve a purpose – to ensure the safe
the incident occurred, petitioner, through Gale Freight
Services, was still in the process of fulfilling its obligation to transportation, storage and delivery of highly flammable products.
the dealer. We disagree with its contention that delivery was Under the hauling contract, these requirements are as follows:12
perfected upon payment of the goods at its depot. There was
yet no complete delivery of the goods as evidenced by the 1. Duly registered under the hired
aforementioned hauling contract petitioner executed with truck (TH) classification and subject
Villaruz. That contract made it clear that delivery would only to the rules and regulations of Land
be perfected upon the complete unloading of the gasoline. Transportation Commission (LTC)
and Board of Transportation (BOT).
Thus, with regard to the delivery of the petroleum, Villaruz was 2. Properly sealed and calibrated in
accordance with the requirements of
acting as the agent of petitioner Petron. For a fee, he delivered the
NSTA.
petroleum products on its behalf. Notably, petitioner even imposed a 3. Equipped with safety and other
penalty clause in instances when there was a violation of the hauling auxiliary equipment as specified by
PETROPHIL (Petron) as per attached allegations. This, petitioner failed to do. To reiterate, it was not able
Annex “8”.13
to prove the proximate cause of the fire, only the involvement of the
4. Provided with fire permits and other
permits required by the government tank truck and the underground storage tank. Notably, both pieces
authorities. of equipment were under its responsibility. Absent any positive
5. In good working condition and in determination of the cause of the fire, a presumption exists that
good appearance at all times,
6. Fully complying with the tank truck there was something wrong with the truck or the underground
color scheme, standard truck storage tank, or both. Petitioner, which had the obligation to ensure
number, bumper stripes, hauler’s that the truck was safe, is likewise liable for the operation of that
name on cab door, and such other
truck.
similar requirements for good
appearance as may be required by
PETROPHIL. Petitioner maintains that by virtue of the hauling contract,
Annex “B” attached to the contract, which refers to the tank Villaruz must be held responsible for the acts of Igdanis, the driver of
truck safety and accessories equipment, likewise provides that the the tank truck. In this aspect, petitioner is correct. While it may be
following are the specified safety equipment and other accessories for vicariously liable to third persons for damages caused by Villaruz,
tank truck operations:14 the latter is nevertheless liable to petitioner by virtue of the non-
liability clause in the hauling contract. Under this provision, he
1. Fire extinguisher, Type B & C saved petitioner from any and all claims of third persons arising out
2. Manhole covers
3. Manhole cover gasket of, but not necessarily limited to, his performance of the terms and
4. Product level markers conditions of this agreement. Petitioner even obligated him to
5. Manhole cover pins maintain an acceptable Merchandise Floater Policy to provide
6. NIST Calibration and scale
insurance coverage for the products entrusted to him; and a
7. Discharge valves (quick closing)
8. Front Fenders Comprehensive General Liability Insurance to cover any and all
9. Door glasses claims for damages for personal injury, including death or damages
10. ________ (illegible) glasses to property, which may arise from operations under the contract.15
11. Windshield
12. Wipers Thus, Villaruz is also liable to petitioner based on the
13. Horn hauling contract. Under Rule 6, Sec. 8 of the Rules of Court,
14. Floor matting petitioner may enforce the terms of the hauling contract against him.
15. Ceiling
However, considering that it did not implead Villaruz in the present
16. Seats
17. (Illegible) case, nor did it assail the Decision of the CA in dismissing the cross-
18. Air hose connector claim, petitioner can no longer go after him based on that cross-
claim.
With respect to the claims of third persons, it is not enough Nonetheless, this is not the same as saying that Villaruz is
for petitioner to allege that the tank truck met the same no longer solidarily liable to respondents.
requirements provided under the contract; it must duly prove its
As the employer of Igdanis, Villaruz was impleaded by herein the hauler Villaruz, the operator Dortina Uy and the dealer Rubin
respondents in the lower court and was found to be solidarily liable Uy. To determine the liability of each defendant to one another, the
with his other co-defendants. Absent an appeal before this Court amount of damages shall be divided by four, representing the share
assailing the ruling of the lower court and the CA, Villaruz remains of each defendant. Supposedly, under the hauling contract,
to be solidarily liable with petitioner and co-defendants Rubin Uy petitioner may require Villaruz to indemnify it for its share. However,
and Dortina Uy. Thus, petitioner may only claim contribution from because it was not able to maintain the cross-claim filed against him,
him in accordance with Article 1217 of the Civil Code, and not by it shall be liable for its own share under Article 1208 and can no
virtue of its hauling contract, in the event that respondents decide to longer seek indemnification or subrogation from him under its
proceed against petitioner alone for the satisfaction of judgment. Art. dismissed cross-claim. Petitioner may not pursue its cross-claim
1217 states: against Rubin Uy and Dortina Uy, because the cross-claims against
Payment made by one of the solidary debtors them were also dismissed; moreover, they were all equally liable for
extinguishes the obligation. If two or more solidary
the conflagration as discussed herein.
debtors offer to pay, the creditor may choose which
offer to accept.
He who made the payment may claim Finally, the incident occurred in 1992. Almost 20 years have
from his co-debtors only the share which passed; yet, respondents, who were innocent bystanders, have not
corresponds to each, with the interest for the
payment already made. If the payment is made been compensated for the loss of their homes, properties and
before the debt is due, no interest for the intervening livelihood. Notably, neither the RTC nor the CA imposed legal interest
period may be demanded. (Emphasis supplied) on the actual damages that it awarded respondents. In Eastern
Shipping Lines v. Court of Appeals,16 enunciated in PCI Leasing &
The share, meanwhile, of solidary debtors is contained in
Finance Inc. v. Trojan Metal Industries, Inc.,17 we laid down the rules
Art. 1208, to wit:
for the imposition of legal interest as follows:
This petition for review on certiorari under Rule 45 of the 1997 Rules
of Civil Procedure assails the February 27, 2009 Decision[1] of the
Regional Trial Court, Pasig City, Branch 71 (RTC), in Civil Case No.
71034, ordering defendant Lucky Star to pay petitioner Asset
Builders Corporation the sum of P575,000.00 with damages, but
absolving respondent Stronghold Insurance Company, Incorporated
(Stronghold) of any liability on its Surety Bond and Performance
Bond.
THE FACTS That we, LUCKY STAR DRILLING &
CONSTRUCTION CORP., 168 ACACIA St., Octagon
On April 28, 2006, Asset Builders Corporation (ABC) entered into an Industrial Estate Subd., Pasig City as principal, and
agreement with Lucky Star Drilling & Construction STRONGHOLD INSURANCE COMPANY, INC., a
corporation duly organized and existing under and
Corporation (Lucky Star) as part of the completion of its project to
by virtue of laws of the Philippines, as surety, are
construct the ACG Commercial Complex on NHA held and firmly bound unto ASSET BUILDERS
Avenue corner Olalia Street, Barangay Dela Paz, Antipolo City.[2] As CORPORATION to the sum of Pesos FIVE HUNDRED
can be gleaned from the Purchase Order,[3] Lucky Star was to supply SEVENTY FIVE THOUSAND ONLY (P575,000.00)
labor, materials, tools, and equipment including technical Philippine Currency, for the payment of which, well
supervision to drill one (1) exploratory production well on the project and truly to be made, we bind ourselves, our heirs,
site. The total contract price for the said project executors, administrators, successors and assigns,
was P1,150,000.00. The salient terms and conditions of said jointly and severally, firmly by these presents.
agreement are as follows:
i. Lump sum price--------PHP1,150,000.00; THE CONDITIONS OF THIS OBLIGATION
ARE AS FOLLOWS:
ii. 50% downpayment---upon submission of
surety bond in an equivalent amount and To fully and faithfully guarantee
performance bond equivalent to 30 % of contract the repayment to be done through
amount; deductions from periodic billings of the
advance payment made or to be made by
iii. Completion date-----60 calendar days; the Obligee to the Principal in connection
with the supply of labor, materials, tools
iv. Penalty----2/10 of 1% of total contract amount and equipment including technical
for every day of delay; supervision to drill one (1) exploratory
production well located at NIA Ave. cor.
v. Terms---50% down payment to be released Olalia St., Brgy. dela
after submission of bonds; Paz, Antipolo City. This bond is callable on
demand.
vi. RetentionSubject to 10% retention to be
released after the project is accepted by the The liability of the surety company
owner; upon determination under this bond shall
in no case exceed the penal sum of
PESOS: FIVE HUNDRED SEVENTY FIVE
To guarantee faithful compliance with their agreement,
THOUSAND (P575,000.00) only, Philippine
Lucky Star engaged respondent Stronghold which issued two (2)
Currency.
bonds in favor of petitioner. The first, SURETY BOND G(16) No.
141558, dated May 9, 2006, covers the sum of P575,000.00[4] or the WHEREAS, the Obligee requires said
required downpayment for the drilling work. The full text of the principal to give a good and sufficient bond in the
surety bond is herein quoted: above stated sum to secure the full and faithful
performance on his part of said undertakings.
(1) to refund the down payment of PHP563,500.00, Lucky Star, on the other hand, failed to file a responsive
plus legal interest thereon;
pleading within the prescribed period and, thus, was declared in
default by the RTC in its Order dated August 24, 2007.[13]
On February 27, 2009, the RTC rendered the assailed decision Defendant Stronghold Insurance Company, Inc.s
ordering Lucky Star to pay ABC but absolving Stronghold from compulsory counterclaim and cross-claim are
liability.[14] Relevant parts of the decision, including the decretal dismissed.[15]
portion, read:
Hence, this petition.
On the liability of defendant Stronghold Petitioner ABC prays for the reversal of the challenged
Insurance, the Court rules on the negative. decision based on the following
The surety bond and performance bond
executed by defendants Lucky Star and Stronghold GROUNDS
Insurance are in the nature of accessory contracts
which depend for its existence upon another A. The Lower Court seriously erred and
contract. Thus, when the agreement (Exhibit A) unjustly ACTED ARBITRARILY with
between the plaintiff and defendant Asset Builders manifest bias and grave abuse of
was rescinded, the surety and performance bond discretion, CONTRARY to applicable
were automatically cancelled. laws and established jurisprudence in declaring
the automatic CANCELLATION of respondent
WHEREFORE, in view of the foregoing, Strongholds Surety Bond and Performance Bond,
judgment is hereby rendered in favor of the plaintiff because:
and against defendant Lucky Star Drilling &
Construction, ordering the latter as follows: (a) Despite rescission, there
exists a continuing VALID PRINCIPAL
1. to pay plaintiff in the amount of OBLIGATION guaranteed by
PHP575,000.00 as actual Respondents Bonds, arising out of the
damages plus legal interest from Contractors DEFAULTand Non-
the filing of the complaint; performance.
(b) Upon breach by its
2. to pay plaintiff in the amount of Principal/contractor,
PHP100,000.00 as liquidated the LIABILITIES of Respondents bonds
damages; had already ACCRUED, automatically
attached, and had become
3. to pay plaintiff in the amount of already DIRECT,
PHP50,000.00 as exemplary PRIMARY and ABSOLUTE, even
damages; before Petitioners legitimate exercise of
its option under Art. 1191 of the New
4. to pay plaintiff in the amount of Civil Code.
PHP 50,000.00 as attorneys
fees; (c) Rescission does
NOT AFFECT the liabilities of the
5. to pay the costs of the suit. Respondent Stronghold as
its LIABILITIES on its subject bonds
have already
become INTERWOVEN and INSEPARABL
E with the liabilities of its Principal, the any benefit therefrom.[17] Let it be stressed that notwithstanding the
Contractor Lucky Star. fact that the surety contract is secondary to the principal obligation,
the surety assumes liability as a regular party to the undertaking.[18]
B. With the Lower Courts completely Stronghold Insurance Company, Inc. v. Republic-Asahi Glass
erroneous ruling on the liabilities of Respondents
Corporation,[19] reiterating the ruling in Garcia v. Court of
bonds, the Lower Court equally ERRED with
Appeals,[20] expounds on the nature of the suretys liability:
manifest bias and grave abuse, in its FAILURE to
comply with the duty of court to make a finding X x x. The suretys obligation is not an
of unreasonable denial or withholding by original and direct one for the performance of his
Respondent Stronghold or Petitioners claims and own act, but merely accessory or collateral to the
impose upon the Respondent obligation contracted by the
the penalties provided for under Section 241 and principal. Nevertheless,although the contract of a
244 of the Insurance Code.[16] surety is in essence secondary only to a valid
principal obligation, his liability to the creditor or
promisee of the principal is said to be direct,
Essentially, the primary issue is whether or not respondent primary and absolute; in other words, he
insurance company, as surety, can be held liable under its bonds. is directly and equally bound with the principal.
The Court rules in the affirmative. Suretyship, in essence, contains two types of relationship
the principal relationship between the obligee (petitioner) and the
Respondent, along with its principal, Lucky Star, bound obligor (Lucky Star), and the accessory surety relationship between
itself to the petitioner when it executed in its favor surety and the principal (Lucky Star) and the surety (respondent). In this
performance bonds. The contents of the said contracts clearly arrangement, the obligee accepts the suretys solidary undertaking to
establish that the parties entered into a surety agreement as defined pay if the obligor does not pay. Such acceptance, however, does not
under Article 2047 of the New Civil Code. Thus: change in any material way the obligees relationship with the
principal obligor. Neither does it make the surety an active party to
Art. 2047. By guaranty a person, called the the principal obligee-obligor relationship. Thus, the acceptance does
guarantor, binds himself to the creditor to fulfill the not give the surety the right to intervene in the principal
obligation of the principal debtor in case the latter contract. The suretys role arises only upon the obligors default, at
should fail to do so.
which time, it can be directly held liable by the obligee for payment
If a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter as a solidary obligor.[21]
3, Title I of this Book shall be observed. In such In the case at bench, when Lucky Star failed to finish the
case the contract is called a suretyship. drilling work within the agreed time frame despite petitioners
[Emphasis supplied] demand for completion, it was already in delay. Due to this default,
Lucky Stars liability attached and, as a necessary consequence,
As provided in Article 2047, the surety undertakes to be respondents liability under the surety agreement arose.
bound solidarily with the principal obligor. That undertaking makes Undeniably, when Lucky Star reneged on its undertaking
a surety agreement an ancillary contract as it presupposes the with the petitioner and further failed to return the P575,000.00
existence of a principal contract. Although the contract of a surety is downpayment that was already advanced to it, respondent, as
in essence secondary only to a valid principal obligation, the surety surety, became solidarily bound with Lucky Star for the repayment of
becomes liable for the debt or duty of another although it possesses the said amount to petitioner. The clause, this bond is callable on
no direct or personal interest over the obligations nor does it receive
demand, strongly speaks of respondents primary and direct Star for the payment of P575,000.00 and the payment
responsibility to the petitioner. of P345,000.00 on the basis of its performance bond.