G.R. No.

112573 February 9, 1995

NORTHWEST ORIENT AIRLINES, INC. petitioner,
vs.
COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents.
PADILLA, JR., J.:
This petition for review on certiorari seeks to set aside the decision of the Court of Appeals affirming the dismissal of the petitioner's
complaint to enforce the judgment of a Japanese court. The principal issue here is whether a Japanese court can acquire jurisdiction
over a Philippine corporation doing business in Japan by serving summons through diplomatic channels on the Philippine corporation at
its principal office in Manila after prior attempts to serve summons in Japan had failed.
Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a corporation organized under the laws of the State of Minnesota,
U.S.A., sought to enforce in Civil Case No. 83-17637 of the Regional Trial Court (RTC), Branch 54, Manila, a judgment rendered in its
favor by a Japanese court against private respondent C.F. Sharp & Company, Inc., (hereinafter SHARP), a corporation incorporated
under Philippine laws.
As found by the Court of Appeals in the challenged decision of 10 November 1993, 1 the following are the factual and procedural
antecedents of this controversy:
On May 9, 1974, plaintiff Northwest Airlines and defendant C.F. Sharp & Company, through its Japan branch, entered
into an International Passenger Sales Agency Agreement, whereby the former authorized the latter to sell its air
transportation tickets. Unable to remit the proceeds of the ticket sales made by defendant on behalf of the plaintiff
under the said agreement, plaintiff on March 25, 1980 sued defendant in Tokyo, Japan, for collection of the
unremitted proceeds of the ticket sales, with claim for damages.
On April 11, 1980, a writ of summons was issued by the 36th Civil Department, Tokyo District Court of Japan against
defendant at its office at the Taiheiyo Building, 3rd floor, 132, Yamashita-cho, Naka-ku, Yokohoma, Kanagawa
Prefecture. The attempt to serve the summons was unsuccessful because the bailiff was advised by a person in the
office that Mr. Dinozo, the person believed to be authorized to receive court processes was in Manila and would be
back on April 24, 1980.
On April 24, 1980, bailiff returned to the defendant's office to serve the summons. Mr. Dinozo refused to accept the
same claiming that he was no longer an employee of the defendant.
After the two attempts of service were unsuccessful, the judge of the Tokyo District Court decided to have the
complaint and the writs of summons served at the head office of the defendant in Manila. On July 11, 1980, the
Director of the Tokyo District Court requested the Supreme Court of Japan to serve the summons through diplomatic
channels upon the defendant's head office in Manila.
On August 28, 1980, defendant received from Deputy Sheriff Rolando Balingit the writ of summons (p. 276, Records).
Despite receipt of the same, defendant failed to appear at the scheduled hearing. Thus, the Tokyo Court proceeded
to hear the plaintiff's complaint and on [January 29, 1981], rendered judgment ordering the defendant to pay the
plaintiff the sum of 83,158,195 Yen and damages for delay at the rate of 6% per annum from August 28, 1980 up to
and until payment is completed (pp. 12-14, Records).
On March 24, 1981, defendant received from Deputy Sheriff Balingit copy of the judgment. Defendant not having
appealed the judgment, the same became final and executory.
Plaintiff was unable to execute the decision in Japan, hence, on May 20, 1983, a suit for enforcement of the judgment
was filed by plaintiff before the Regional Trial Court of Manila Branch 54. 2
On July 16, 1983, defendant filed its answer averring that the judgment of the Japanese Court sought to be enforced
is null and void and unenforceable in this jurisdiction having been rendered without due and proper notice to the
defendant and/or with collusion or fraud and/or upon a clear mistake of law and fact (pp. 41-45, Rec.).
Unable to settle the case amicably, the case was tried on the merits. After the plaintiff rested its case, defendant on
April 21, 1989, filed a Motion for Judgment on a Demurrer to Evidence based on two grounds:
(1) the foreign judgment sought to be enforced is null and void for want of jurisdiction and (2) the said judgment is
contrary to Philippine law and public policy and rendered without due process of law. Plaintiff filed its opposition after
which the court a quo rendered the now assailed decision dated June 21, 1989 granting the demurrer motion and
dismissing the complaint (Decision, pp. 376-378, Records). In granting the demurrer motion, the trial court held that:
The foreign judgment in the Japanese Court sought in this action is null and void for want of
jurisdiction over the person of the defendant considering that this is an action in personam; the
Japanese Court did not acquire jurisdiction over the person of the defendant because jurisprudence
requires that the defendant be served with summons in Japan in order for the Japanese Court to
acquire jurisdiction over it, the process of the Court in Japan sent to the Philippines which is outside
Japanese jurisdiction cannot confer jurisdiction over the defendant in the case before the Japanese
Court of the case at bar. Boudard versus Tait 67 Phil. 170. The plaintiff contends that the Japanese
Court acquired jurisdiction because the defendant is a resident of Japan, having four (4) branches
doing business therein and in fact had a permit from the Japanese government to conduct business
in Japan (citing the exhibits presented by the plaintiff); if this is so then service of summons should
have been made upon the defendant in Japan in any of these alleged four branches; as admitted
by the plaintiff the service of the summons issued by the Japanese Court was made in the
Philippines thru a Philippine Sheriff. This Court agrees that if the defendant in a foreign court is a
resident in the court of that foreign court such court could acquire jurisdiction over the person of the

defendant but it must be served upon the defendant in the territorial jurisdiction of the foreign court.
Such is not the case here because the defendant was served with summons in the Philippines and
not in Japan.
Unable to accept the said decision, plaintiff on July 11, 1989 moved for reconsideration of the decision, filing at the
same time a conditional Notice of Appeal, asking the court to treat the said notice of appeal "as in effect after and
upon issuance of the court's denial of the motion for reconsideration."
Defendant opposed the motion for reconsideration to which a Reply dated August 28, 1989 was filed by the plaintiff.
On October 16, 1989, the lower court disregarded the Motion for Reconsideration and gave due course to the
plaintiff's Notice of Appeal. 3
In its decision, the Court of Appeals sustained the trial court. It agreed with the latter in its reliance upon Boudard vs. Tait 4 wherein it
was held that "the process of the court has no extraterritorial effect and no jurisdiction is acquired over the person of the defendant by
serving him beyond the boundaries of the state." To support its position, the Court of Appeals further stated:
In an action strictly in personam, such as the instant case, personal service of summons within the forum is required
for the court to acquire jurisdiction over the defendant (Magdalena Estate Inc. vs. Nieto, 125 SCRA 230). To confer
jurisdiction on the court, personal or substituted service of summons on the defendant not extraterritorial service is
necessary (Dial Corp vs. Soriano, 161 SCRA 739).
But while plaintiff-appellant concedes that the collection suit filed is an action in personam, it is its theory that a
distinction must be made between an action in personam against a resident defendant and an action in
personam against a non-resident defendant. Jurisdiction is acquired over a non-resident defendant only if he is
served personally within the jurisdiction of the court and over a resident defendant if by personal, substituted or
constructive service conformably to statutory authorization. Plaintiff-appellant argues that since the defendantappellee maintains branches in Japan it is considered a resident defendant. Corollarily, personal, substituted or
constructive service of summons when made in compliance with the procedural rules is sufficient to give the court
jurisdiction to render judgment in personam.
Such an argument does not persuade.
It is a general rule that processes of the court cannot lawfully be served outside the territorial limits of the jurisdiction
of the court from which it issues (Carter vs. Carter; 41 S.E. 2d 532, 201) and this isregardless of the residence or
citizenship of the party thus served (Iowa-Rahr vs. Rahr, 129 NW 494, 150 Iowa 511, 35 LRC, NS, 292, Am. Case
1912 D680). There must be actual service within the proper territorial limits on defendant or someone authorized to
accept service for him. Thus, a defendant, whether a resident or not in the forum where the action is filed, must be
served with summons within that forum.
But even assuming a distinction between a resident defendant and non-resident defendant were to be adopted, such
distinction applies only to natural persons and not in the corporations. This finds support in the concept that "a
corporation has no home or residence in the sense in which those terms are applied to natural persons" (Claude
Neon Lights vs. Phil. Advertising Corp., 57 Phil. 607). Thus, as cited by the defendant-appellee in its brief:
Residence is said to be an attribute of a natural person, and can be predicated on an artificial being only by more or
less imperfect analogy. Strictly speaking, therefore, a corporation can have no local residence or habitation. It has
been said that a corporation is a mere ideal existence, subsisting only in contemplation of law an invisible being
which can have, in fact, no locality and can occupy no space, and therefore cannot have a dwelling place. (18 Am.
Jur. 2d, p. 693 citing Kimmerle v. Topeka, 88 370, 128 p. 367; Wood v. Hartfold F. Ins. Co., 13 Conn 202)
Jurisprudence so holds that the foreign or domestic character of a corporation is to be determined by the place of its
origin where its charter was granted and not by the location of its business activities (Jennings v. Idaho Rail Light & P.
Co., 26 Idaho 703, 146 p. 101), A corporation is a "resident" and an inhabitant of the state in which it is incorporated
and no other (36 Am. Jur. 2d, p. 49).
Defendant-appellee is a Philippine Corporation duly organized under the Philippine laws. Clearly, its residence is the
Philippines, the place of its incorporation, and not Japan. While defendant-appellee maintains branches in Japan, this
will not make it a resident of Japan. A corporation does not become a resident of another by engaging in business
there even though licensed by that state and in terms given all the rights and privileges of a domestic corporation
(Galveston H. & S.A.R. Co. vs. Gonzales, 151 US 496, 38 L ed. 248, 4 S Ct. 401).
On this premise, defendant appellee is a non-resident corporation. As such, court processes must be served upon it
at a place within the state in which the action is brought and not elsewhere (St. Clair vs. Cox, 106 US 350, 27 L ed.
222, 1 S. Ct. 354). 5
It then concluded that the service of summons effected in Manila or beyond the territorial boundaries of Japan was null and did not
confer jurisdiction upon the Tokyo District Court over the person of SHARP; hence, its decision was void.
Unable to obtain a reconsideration of the decision, NORTHWEST elevated the case to this Court contending that the respondent court
erred in holding that SHARP was not a resident of Japan and that summons on SHARP could only be validly served within that country.
A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also proper
to presume the regularity of the proceedings and the giving of due notice therein. 6
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having
jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a

subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion,
fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys the
presumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its official duty.
Consequently, the party attacking a foreign judgment has the burden of overcoming the presumption of its validity. 7 Being the party
challenging the judgment rendered by the Japanese court, SHARP had the duty to demonstrate the invalidity of such judgment. In an
attempt to discharge that burden, it contends that the extraterritorial service of summons effected at its home office in the Philippines
was not only ineffectual but also void, and the Japanese Court did not, therefore acquire jurisdiction over it.
It is settled that matters of remedy and procedure such as those relating to the service of process upon a defendant are governed by
the lex fori or the internal law of the forum. 8 In this case, it is the procedural law of Japan where the judgment was rendered that
determines the validity of the extraterritorial service of process on SHARP. As to what this law is is a question of fact, not of law. It may
not be taken judicial notice of and must be pleaded and proved like any other fact. 9 Sections 24 and 25, Rule 132 of the Rules of Court
provide that it may be evidenced by an official publication or by a duly attested or authenticated copy thereof. It was then incumbent
upon SHARP to present evidence as to what that Japanese procedural law is and to show that under it, the assailed extraterritorial
service is invalid. It did not. Accordingly, the presumption of validity and regularity of the service of summons and the decision thereafter
rendered by the Japanese court must stand.
Alternatively in the light of the absence of proof regarding Japanese
law, the presumption of identity or similarity or the so-called processual presumption 10 may be invoked. Applying it, the Japanese law
on the matter is presumed to be similar with the Philippine law on service of summons on a private foreign corporation doing business
in the Philippines. Section 14, Rule 14 of the Rules of Court provides that if the defendant is a foreign corporation doing business in the
Philippines, service may be made: (1) on its resident agent designated in accordance with law for that purpose, or, (2) if there is no
such resident agent, on the government official designated by law to that effect; or (3) on any of its officers or agents within the
Philippines.
If the foreign corporation has designated an agent to receive summons, the designation is exclusive, and service of summons is without
force and gives the court no jurisdiction unless made upon him. 11
Where the corporation has no such agent, service shall be made on the government official designated by law, to wit: (a) the Insurance
Commissioner in the case of a foreign insurance company; (b) the Superintendent of Banks, in the case of a foreign banking
corporation; and (c) the Securities and Exchange Commission, in the case of other foreign corporations duly licensed to do business in
the Philippines. Whenever service of process is so made, the government office or official served shall transmit by mail a copy of the
summons or other legal proccess to the corporation at its home or principal office. The sending of such copy is a necessary part of the
service. 12
SHARP contends that the laws authorizing service of process upon the Securities and Exchange Commission, the Superintendent of
Banks, and the Insurance Commissioner, as the case may be, presuppose a situation wherein the foreign corporation doing business in
the country no longer has any branches or offices within the Philippines. Such contention is belied by the pertinent provisions of the
said laws. Thus, Section 128 of the Corporation Code13 and Section 190 of the Insurance Code 14 clearly contemplate two situations:
(1) if the corporation had left the Philippines or had ceased to transact business therein, and (2) if the corporation has no designated
agent. Section 17 of the General Banking Act 15 does not even speak a corporation which had ceased to transact business in the
Philippines.
Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive court processes in Japan. This
silence could only mean, or least create an impression, that it had none. Hence, service on the designated government official or on
any of SHARP's officers or agents in Japan could be availed of. The respondent, however, insists that only service of any of its officers
or employees in its branches in Japan could be resorted to. We do not agree. As found by the respondent court, two attempts at service
were made at SHARP's Yokohama branch. Both were unsuccessful. On the first attempt, Mr. Dinozo, who was believed to be the
person authorized to accept court process, was in Manila. On the second, Mr. Dinozo was present, but to accept the summons
because, according to him, he was no longer an employee of SHARP. While it may be true that service could have been made upon
any of the officers or agents of SHARP at its three other branches in Japan, the availability of such a recourse would not preclude
service upon the proper government official, as stated above.
As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons for SHARP be served at its head office
in the Philippine's after the two attempts of service had failed. 16 The Tokyo District Court requested the Supreme Court of Japan to
cause the delivery of the summons and other legal documents to the Philippines. Acting on that request, the Supreme Court of Japan
sent the summons together with the other legal documents to the Ministry of Foreign Affairs of Japan which, in turn, forwarded the
same to the Japanese Embassy in Manila . Thereafter, the court processes were delivered to the Ministry (now Department) of Foreign
Affairs of the Philippines, then to the Executive Judge of the Court of First Instance (now Regional Trial Court) of Manila, who forthwith
ordered Deputy Sheriff Rolando Balingit to serve the same on SHARP at its principal office in Manila. This service is equivalent to
service on the proper government official under Section 14, Rule 14 of the Rules of Court, in relation to Section 128 of the Corporation
Code. Hence, SHARP's contention that such manner of service is not valid under Philippine laws holds no water. 17
In deciding against the petitioner, the respondent court sustained the trial court's reliance on Boudard vs. Tait 18where this Court held:
The fundamental rule is that jurisdiction in personam over nonresidents, so as to sustain a money judgment, must be
based upon personal service within the state which renders the judgment.
xxx xxx xxx
The process of a court, has no extraterritorial effect, and no jurisdiction is acquired over the person of the defendant
by serving him beyond the boundaries of the state. Nor has a judgment of a court of a foreign country against a
resident of this country having no property in such foreign country based on process served here, any effect here
against either the defendant personally or his property situated here.

Process issuing from the courts of one state or country cannot run into another, and although a nonresident
defendant may have been personally served with such process in the state or country of his domicile, it will not give
such jurisdiction as to authorize a personal judgment against him.
It further availed of the ruling in Magdalena Estate, Inc. vs. Nieto 19 and Dial Corp. vs. Soriano, 20 as well as the principle laid down by
the Iowa Supreme Court in the 1911 case of Raher vs. Raher. 21
The first three cases are, however, inapplicable. Boudard involved the enforcement of a judgment of the civil division of the Court of
First Instance of Hanoi, French Indo-China. The trial court dismissed the case because the Hanoi court never acquired jurisdiction over
the person of the defendant considering that "[t]he, evidence adduced at the trial conclusively proves that neither the appellee [the
defendant] nor his agent or employees were ever in Hanoi, French Indo-China; and that the deceased Marie Theodore Jerome Boudard
had never, at any time, been his employee." In Magdalena Estate, what was declared invalid resulting in the failure of the court to
acquire jurisdiction over the person of the defendants in an action in personam was the service of summons through publication against
non-appearing resident defendants. It was claimed that the latter concealed themselves to avoid personal service of summons upon
them. In Dial, the defendants were foreign corporations which were not, domiciled and licensed to engage in business in the Philippines
and which did not have officers or agents, places of business, or properties here. On the other hand, in the instant case, SHARP was
doing business in Japan and was maintaining four branches therein.
Insofar as to the Philippines is concerned, Raher is a thing of the past. In that case, a divided Supreme Court of Iowa declared that the
principle that there can be no jurisdiction in a court of a territory to render a personal judgment against anyone upon service made
outside its limits was applicable alike to cases of residents and non-residents. The principle was put at rest by the United States
Supreme Court when it ruled in the 1940 case ofMilliken vs. Meyer 22 that domicile in the state is alone sufficient to bring an absent
defendant within the reach of the state's jurisdiction for purposes of a personal judgment by means of appropriate substituted service or
personal service without the state. This principle is embodied in section 18, Rule 14 of the Rules of Court which allows service of
summons on residents temporarily out of the Philippines to be made out of the country. The rationale for this rule was explained
inMilliken as follows:
[T]he authority of a state over one of its citizens is not terminated by the mere fact of his absence from the state. The
state which accords him privileges and affords protection to him and his property by virtue of his domicile may also
exact reciprocal duties. "Enjoyment of the privileges of residence within the state, and the attendant right to invoke
the protection of its laws, are inseparable" from the various incidences of state citizenship. The responsibilities of that
citizenship arise out of the relationship to the state which domicile creates. That relationship is not dissolved by mere
absence from the state. The attendant duties, like the rights and privileges incident to domicile, are not dependent on
continuous presence in the state. One such incident of domicile is amenability to suit within the state even during
sojourns without the state, where the state has provided and employed a reasonable method for apprising such an
absent party of the proceedings against him. 23
The domicile of a corporation belongs to the state where it was incorporated. 24 In a strict technical sense, such domicile as a
corporation may have is single in its essence and a corporation can have only one domicile which is the state of its creation. 25
Nonetheless, a corporation formed in one-state may, for certain purposes, be regarded a resident in another state in which it has offices
and transacts business. This is the rule in our jurisdiction and apropos thereto, it may be necessery to quote what we stated in State
Investment House, Inc, vs. Citibank, N.A., 26 to wit:
The issue is whether these Philippine branches or units may be considered "residents of the Philippine Islands" as
that term is used in Section 20 of the Insolvency Law . . . or residents of the state under the laws of which they were
respectively incorporated. The answer cannot be found in the Insolvency Law itself, which contains no definition of
the term, resident, or any clear indication of its meaning. There are however other statutes, albeit of subsequent
enactment and effectivity, from which enlightening notions of the term may be derived.
The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to a foreign
corporation engaged in trade or business within the Philippines," as distinguished from a "'non-resident foreign
corporation' . . . (which is one) not engaged in trade or bussiness within the Philippines." [Sec. 20, pars. (h) and (i)].
The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extension
offices or any other units of corporation or juridical person organized under the laws of any foreign country operating
in the Philippines shall be considered residents of the Philippines. [Sec. 1(e)].
The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . .
. (which are) called Philippine branches," in the same category as "commercial banks, savings associations,
mortgage banks, development banks, rural banks, stock savings and loan associations" (which have been formed
and organized under Philippine laws), making no distinction between the former and the latter in so far as the terms
"banking institutions" and "bank" are used in the Act [Sec. 2], declaring on the contrary that in "all matters not
specifically covered by special provisions applicable only to foreign banks, or their branches and agencies in the
Philippines, said foreign banks or their branches and agencies lawfully doing business in the Philippines "shall be
bound by all laws, rules, and regulations applicable to domestic banking corporations of the same class, except such
laws, rules and regulations as provided for the creation, formation, organization, or dissolution of corporations or as
fix the relation, liabilities, responsibilities, or duties of members, stockholders or officers of corporation. [Sec. 18].
This court itself has already had occasion to hold [Claude Neon Lights, Fed. Inc. vs. Philippine Advertising Corp., 57
Phil. 607] that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may
not be considered a non-resident within the scope of the legal provision authorizing attachment against a
defendant not residing in the Philippine Islands; [Sec. 424, in relation to Sec. 412 of Act No. 190, the Code of Civil
Procedure; Sec. 1(f), Rule 59 of the Rules of 1940, Sec. 1(f), Rule 57, Rules of 1964] in other words, a preliminary
attachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporation
authorized to do business in the Philippines and is consequently and necessarily, "a party who resides out of the
Philippines." Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who
resides out of the country, then, logically, it must be considered a party who does reside in the Philippines, who is a
resident of the country. Be this as it may, this Court pointed out that:

. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed
to do business here, to the status of domestic corporations. (Cf. Section 73, Act No. 1459, and
Marshall Wells Co. vs. Henry W. Elser & Co., 46 Phil. 70, 76; Yu Cong Eng vs. Trinidad, 47 Phil.
385, 411) We think it would be entirely out of line with this policy should we make a discrimination
against a foreign corporation, like the petitioner, and subject its property to the harsh writ of seizure
by attachment when it has complied not only with every requirement of law made specially of
foreign corporations, but in addition with every requirement of law made of domestic corporations. .
..
Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to the status
of domestic corporations, subsumes their being found and operating as corporations, hence,residing, in the country.
The same principle is recognized in American law: that the residence of a corporation, if it can be said to have a
residence, is necessarily where it exercises corporate functions . . .;" that it is considered as dwelling "in the place
where its business is done . . .," as being "located where its franchises are exercised . . .," and as being "present
where it is engaged in the prosecution of the corporate enterprise;" that a "foreign corporation licensed to do business
in a state is a resident of any country where it maintains an office or agent for transaction of its usual and customary
business for venue purposes;" and that the "necessary element in its signification is locality of existence." [Words and
Phrases, Permanent Ed., vol. 37, pp. 394, 412, 493].
In as much as SHARP was admittedly doing business in Japan through its four duly registered branches at the time the collection suit
against it was filed, then in the light of the processual presumption, SHARP may be deemed a resident of Japan, and, as such, was
amenable to the jurisdiction of the courts therein and may be deemed to have assented to the said courts' lawful methods of serving
process. 27
Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not only under the processual presumption
but also because of the presumption of regularity of performance of official duty.
We find NORTHWEST's claim for attorney's fees, litigation expenses, and exemplary damages to be without merit. We find no evidence
that would justify an award for attorney's fees and litigation expenses under Article 2208 of the Civil Code of the Philippines. Nor is an
award for exemplary damages warranted. Under Article 2234 of the Civil Code, before the court may consider the question of whether
or not exemplary damages should be awarded, the plaintiff must show that he is entitled to moral, temperate, or compensatory
damaged. There being no such proof presented by NORTHWEST, no exemplary damages may be adjudged in its favor.
WHEREFORE, the instant petition is partly GRANTED, and the challenged decision is AFFIRMED insofar as it denied NORTHWEST's
claims for attorneys fees, litigation expenses, and exemplary damages but REVERSED insofar as in sustained the trial court's dismissal
of NORTHWEST's complaint in Civil Case No. 83-17637 of Branch 54 of the Regional Trial Court of Manila, and another in its stead is
hereby rendered ORDERING private respondent C.F. SHARP L COMPANY, INC. to pay to NORTHWEST the amounts adjudged in the
foreign judgment subject of said case, with interest thereon at the legal rate from the filing of the complaint therein until the said foreign
judgment is fully satisfied.
Costs against the private respondent.
SO ORDERED.
Padilla, Bellosillo, Quaison and Kapunan, JJ., concur.

G.R. No. L-41093 October 30, 1978

ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and LOLITA MILLAN, respondents.
Purugganan & Bersamin for petitioner.
Salvador N. Beltran for respondent.

MUOZ PALMA, J.:

This is a direct appeal on questions of law from a decision of the Court of First Instance of Rizal, Branch XXXIV, presided by the
Honorable Bernardo P. Pardo, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered commanding the defendant to register the deed of absolute sale it had
executed in favor of plaintiff with the Register of Deeds of Caloocan City and secure the corresponding title in the
name of plaintiff within ten (10) days after finality of this decision; if, for any reason, this not possible, defendant is
hereby sentenced to pay plaintiff the sum of P5,193.63 with interest at 4% per annum from June 22, 1972 until fully
paid.
In either case, defendant is sentenced to pay plaintiff nominal damages in the amount of P20,000.00 plus attorney's
fee in the amount of P5,000.00 and costs.
SO ORDERED.
Caloocan City, February 11, 1975. (rollo, p. 21)
Petitioner corporation questions the award for nominal damages of P20,000.00 and attorney's fee of P5,000.00 which are allegedly
excessive and unjustified.
In the Court's resolution of October 20, 1975, We gave due course to the Petition only as regards the portion of the decision awarding
nominal damages. 1
The following incidents are not in dispute:
In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner, agreed to sell to private respondent Lolita Millan for
and in consideration of the sum of P3,864.00, payable in installments, a parcel of land containing an area of approximately 276 square
meters, situated in Barrio Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its Franville Subdivision. 2
Millan complied with her obligation under the contract and paid the installments stipulated therein, the final payment having been made
on December 22, 1971. The vendee made a total payment of P5,193.63 including interests and expenses for registration of title. 3
Thereafter, Lolita Millan made repeated demands upon the corporation for the execution of the final deed of sale and the issuance to
her of the transfer certificate of title over the lot. On March 2, 1973, the parties executed a deed of absolute sale of the aforementioned
parcel of land. The deed of absolute sale contained, among others, this particular provision:
That the VENDOR further warrants that the transfer certificate of title of the above-described parcel of land shall be
transferred in the name of the VENDEE within the period of six (6) months from the date of full payment and in case
the VENDOR fails to issue said transfer certificate of title, it shall bear the obligation to refund to the VENDEE the
total amount already paid for, plus an interest at the rate of 4% per annum. (record on appeal, p. 9)
Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months, the corporation failed to cause the issuance of
the corresponding transfer certificate of title over the lot sold to Millan, hence, the latter filed on August 14, 1974 a complaint for specific
performance and damages against Robes-Francisco Realty & Development Corporation in the Court of First Instance of Rizal, Branch
XXXIV, Caloocan City, docketed therein as Civil Case No. C-3268. 4
The complaint prayed for judgment (1) ordering the reformation of the deed of absolute sale; (2) ordering the defendant to deliver to
plaintiff the certificate of title over the lot free from any lien or encumbrance; or, should this be not possible, to pay plaintiff the value of
the lot which should not be less than P27,600.00 (allegedly the present estimated value of the lot); and (3) ordering the defendant to
pay plaintiff damages, corrective and actual in the sum of P15 000.00. 5
The corporation in its answer prayed that the complaint be dismissed alleging that the deed of absolute sale was voluntarily executed
between the parties and the interest of the plaintiff was amply protected by the provision in said contract for payment of interest at 4%
per annum of the total amount paid, for the delay in the issuance of the title. 6
At the pretrial conference the parties agreed to submit the case for decision on the pleadings after defendant further made certain
admissions of facts not contained in its answer. 7
Finding that the realty corporation failed to cause the issuance of the corresponding transfer certificate of title because the parcel of
land conveyed to Millan was included among other properties of the corporation mortgaged to the GSIS to secure an obligation of P10
million and that the owner's duplicate certificate of title of the subdivision was in the possession of the Government Service Insurance
System (GSIS), the trial court, on February 11, 1975, rendered judgment the dispositive portion of which is quoted in pages 1 and 2 of

this Decision. We hold that the trial court did not err in awarding nominal damages; however, the circumstances of the case warrant a
reduction of the amount of P20,000.00 granted to private respondent Millan.
There can be no dispute in this case under the pleadings and the admitted facts that petitioner corporation was guilty of delay,
amounting to nonperformance of its obligation, in issuing the transfer certificate of title to vendee Millan who had fully paid up her
installments on the lot bought by her. Article 170 of the Civil Code expressly provides that those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.
Petitioner contends that the deed of absolute sale executed between the parties stipulates that should the vendor fail to issue the
transfer certificate of title within six months from the date of full payment, it shall refund to the vendee the total amount paid for with
interest at the rate of 4% per annum, hence, the vendee is bound by the terms of the provision and cannot recover more than what is
agreed upon. Presumably, petitioner in invoking Article 1226 of the Civil Code which provides that in obligations with a penal clause, the
penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to
the contrary.
The foregoing argument of petitioner is totally devoid of merit. We would agree with petitioner if the clause in question were to be
considered as a penal clause. Nevertheless, for very obvious reasons, said clause does not convey any penalty, for even without it,
pursuant to Article 2209 of the Civil Code, the vendee would be entitled to recover the amount paid by her with legal rate of interest
which is even more than the 4% provided for in the clause. 7-A
It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause which will preclude an award of damages
to the vendee Millan. In fact the clause is so worded as to work to the advantage of petitioner corporation.
Unfortunately, the vendee, now private respondent, submitted her case below without presenting evidence on the actual damages
suffered by her as a result of the nonperformance of petitioner's obligation under the deed of sale. Nonetheless, the facts show that the
right of the vendee to acquire title to the lot bought by her was violated by petitioner and this entitles her at the very least to nominal
damages.
The pertinent provisions of our Civil Code follow:
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded
by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any source enumerated in article
1157, or in every case where any property right has been invaded.
Under the foregoing provisions nominal damages are not intended for indemnification of loss suffered but for the vindication or
recognition of a right violated or invaded. They are recoverable where some injury has been done the amount of which the evidence
fails to show, the assessment of damages being left to the discretion of the court according to the circumstances of the case. 8
It is true as petitioner claims that under American jurisprudence nominal damages by their very nature are small sums fixed by the court
without regard to the extent of the harm done to the injured party.
It is generally held that a nominal damage is a substantial claim, if based upon the violation of a legal right; in such
case, the law presumes a damage, although actual or compensatory damages are not proven; in truth nominal
damages are damages in name only and not in fact, and are allowed, not as an equivalent of a wrong inflicted, but
simply in recogniton of the existence of a technical injury. (Fouraker v. Kidd Springs Boating and Fishing Club, 65 S.
W. 2d 796-797, citing 17 C.J. 720, and a number of authorities). 9
In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al. 1956, which was an action for damages arising out of a vehicular
accident, this Court had occasion to eliminate an award of P10,000.00 imposed by way of nominal damages, the Court stating inter
alia that the amount cannot, in common sense, be demeed "nominal". 10
In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca, 1965, this Court, however, through then Justice Roberto
Concepcion who later became Chief Justice of this Court, sustained an award of P20,000.00 as nominal damages in favor of
respnodent Cuenca. The Court there found special reasons for considering P20,000.00 as "nominal". Cuenca who was the holder of a
first class ticket from Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to the tourist class
notwithstanding its knowledge that Cuenca as Commissioner of Public Highways of the Republic of the Philippines was travelling in his
official capacity as a delegate of the country to a conference in Tokyo." 11
Actually, as explained in the Court's decision in Northwest Airlines, there is no conflict between that case and Medina, for in the latter,
the P10,000.00 award for nominal damages was eliminated principally because the aggrieved party had already been awarded
P6,000.00 as compensatory damages, P30,000.00 as moral damages and P10,000.00 as exemplary damages, and "nominal damages
cannot coexist with compensatory damages," while in the case of Commissioner Cuenca, no such compensatory, moral, or exemplary
damages were granted to the latter. 12
At any rate, the circumstances of a particular case will determine whether or not the amount assessed as nominal damages is within
the scope or intent of the law, more particularly, Article 2221 of the Civil Code.
In the situation now before Us, We are of the view that the amount of P20,000.00 is excessive. The admitted fact that petitioner
corporation failed to convey a transfer certificate of title to respondent Millan because the subdivision property was mortgaged to the
GSIS does not in itself show that there was bad faith or fraud. Bad faith is not to be presumed. Moreover, there was the expectation of
the vendor that arrangements were possible for the GSIS to make partial releases of the subdivision lots from the overall real estate
mortgage. It was simply unfortunate that petitioner did not succeed in that regard.

For that reason We cannot agree with respondent Millan Chat the P20,000.00 award may be considered in the nature of exemplary
damages.
In case of breach of contract, exemplary damages may be awarded if the guilty party acted in wanton, fraudulent, reckless, oppressive
or malevolent manner. 13 Furthermore, exemplary or corrective damages are to be imposed by way of example or correction for the
public good, only if the injured party has shown that he is entitled to recover moral, temperate or compensatory damages."
Here, respondent Millan did not submit below any evidence to prove that she suffered actual or compensatory damages. 14
To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by way of nominal damages is fair and just under the
following circumstances, viz: respondent Millan bought the lot from petitioner in May, 1962, and paid in full her installments on
December 22, 1971, but it was only on March 2, 1973, that a deed of absolute sale was executed in her favor, and notwithstanding the
lapse of almost three years since she made her last payment, petitioner still failed to convey the corresponding transfer certificate of
title to Millan who accordingly was compelled to file the instant complaint in August of 1974.
PREMISES CONSIDERED, We modify the decision of the trial court and reduce the nominal damages to Ten Thousand Pesos
(P10,000.00). In all other respects the aforesaid decision stands.
Without pronouncement as to costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

EN BANC
[G.R. No. L-8194. July 11, 1956.]
EMERENCIANA M. VDA. DE MEDINA, ET AL., Plaintiffs-Appellees, vs. GUILLERMO CRESENCIA, ET AL., Defendants.
GUILLERMO CRESENCIA, Appellant.

DECISION
REYES, J.B.L., J.:
Appeal by Defendant Guillermo Cresencia from the judgment of the Court of First Instance of Manila in its civil case No. 19890,
sentencing Appellant, jointly and severally with his co-DefendantBrigido Avorque, to pay Plaintiffs Emerencia M. Vda. de Medina and
her minor children damages in the total amount of P56,000, P5,000 attorneys fees, and costs.
It appears that on May 31, 1953, passenger jeepney bearing plate No. TPU-2232 (Manila), driven by Brigido Avorque, smashed into a
Meralco post on Azcarraga Street, resulting in the death of Vicente Medina, one of its passengers. A criminal case for homicide through
reckless imprudence was filed against Avorque (criminal case No. 22775 of the Court of First Instance of Manila), to which he pleaded
guilty on September 9, 1953. The heirs of the deceased, however, reserved their right to file a separate action for damages, and on
June 16, 1953, brought suit against the driver Brigido Avorque and Appellant Guillermo Cresencia, the registered owner and operator of
the jeepney in question. Defendant Brigido Avorque did not file any answer; chan roblesvirtualawlibrarywhile DefendantCresencia
answered, disclaiming liability on the ground that he had sold the jeepney in question on October 14, 1950 to one Maria A.
Cudiamat; chan roblesvirtualawlibrarythat the jeepney had been repeatedly sold by one buyer after another, until the vehicle was
purchased on January 29, 1953 by Rosario Avorque, the absolute owner thereof at the time of the accident. In view of Cresencias
answer, Plaintiffsfiled leave, and was allowed, to amend their complaint making Rosario Avorque a co-Defendant; chan
roblesvirtualawlibraryand the latter, by way of answer, admitted having purchased the aforesaid jeepney on May 31, 1953, but alleged
in defense that she was never the public utility operator thereof. The case then proceeded to trial, during which, after the Plaintiffs had
presented their evidence, DefendantsGuillermo Cresencia and Rosario Avorque made manifestations admitting that the former was still
the registered operator of the jeepney in question in the records of the Motor Vehicles Office and the Public Service Commission, while
the latter was the owner thereof at the time of the accident;chan roblesvirtualawlibraryand submitted the case for the decision on the
question of who, as between the two, should be held liable to Plaintiffs for damages. The lower court, by Judge Jose Zulueta, held that
as far as the public is concerned, Defendant Cresencia, in the eyes of the law, continued to be the legal owner of the jeepney in
question; chan roblesvirtualawlibraryand rendered judgment against him, jointly and severally with the driver Brigido Avorque, for
P6,000 compensatory damages, P30,000 moral damages, P10,000 exemplary damages, P10,000 nominal damages, P5,000 attorneys
fees, and costs, while DefendantRosario Avorque was absolved from liability. From this judgment, Defendant Cresencia appealed.
We have already held in the case of Montoya vs. Ignacio, 94 Phil., 182 (December 29, 1953), which the court below cited, that the law
(section 20 [g], C. A. No. 146 as amended) requires the approval of the Public Service Commission in order that a franchise, or any
privilege pertaining thereto, may be sold or leased without infringing the certificate issued to the grantee; chan roblesvirtualawlibraryand
that if property covered by the franchise is transferred or leased without this requisite approval, the transfer is not binding against the
public or the Service Commission; chan roblesvirtualawlibraryand in contemplation of law, the grantee of record continues to be
responsible under the franchise in relation to the Commission and to the public. There we gave the reason for this rule to be as
follows:chanroblesvirtuallawlibrary
cralaw Since a franchise is personal in nature any transfer or lease thereof should be notified to the Public Service Commission so
that the latter may take proper safeguards to protect the interest of the public. In fact, the law requires that, before the approval is
granted, there should be a public hearing, with notice to all interested parties, in order that the Commission may determine if there are
good and reasonable grounds justifying the transfer or lease of the property covered by the franchise, or if the sale or lease is
detrimental to public interest cralaw .
The above ruling was later reiterated in the cases of Timbol vs. Osias, L-7547, April 30, 1955 and Roque vs. Malibay Transit Inc., L8561, November 18, 1955.
As the sale of the jeepney here in question was admittedly without the approval of the Public Service Commission, Appellant herein,
Guillermo Cresencia, who is the registered owner and operator thereof, continued to be liable to the Commission and the public for the
consequences incident to its operation. Wherefore, the lower court did not err in holding him, and not the buyer Rosario Avorque,
responsible for the damages sustained by Plaintiff by reason of the death of Vicente Medina resulting from the reckless negligence of
the jeepneys driver, Brigido Avorque.
Appellant also argues that the basis of Plaintiffs action being the employers subsidiary liability under the Revised Penal Code for
damages arising from his employees criminal acts, it isDefendant Rosario Avorque who should answer subsidiarily for the damages
sustained byPlaintiffs, since she admits that she, and not Appellant, is the employer of the negligent driver Brigido Avorque. The
argument is untenable, because Plaintiffs action for damages is independent of the criminal case filed against Brigido Avorque, and
based, not on the employers subsidiary liability under the Revised Penal Code, but on a breach of the carriers contractual obligation to
carry his passengers safely to their destination (culpa contractual). And it is also for this reason that there is no need of first proving the
insolvency of the driver Brigido Avorque before damages can be recovered from the carrier, for in culpa contractual, the liability of the
carrier is not merely subsidiary or secondary, but direct and immediate (Articles 1755, 1756, and 1759, New Civil Code).
The propriety of the damages awarded has not been questioned, Nevertheless, it is patent upon the record that the award of P10,000
by way of nominal damages is untenable as a matter of law, since nominal damages cannot co-exist with compensatory damages. The
purpose of nominal damages is to vindicate or recognize a right that has been violated, in order to preclude further contest
thereon; chan roblesvirtualawlibraryand not for the purpose of indemnifying the Plaintiff for any loss suffered by him (Articles 2221,
2223, new Civil Code.) Since the court below has already awarded compensatory and exemplary damages that are in themselves a
judicial recognition that Plaintiffs right was violated, the award of nominal damages is unnecessary and improper. Anyway, ten
thousand pesos cannot, in common sense, be deemed nominal.
With the modification that the award of P10,000 nominal damages be eliminated, the decision appealed from is affirmed. Costs
against Appellant. SO ORDERED.
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

G.R. No. L-17681

February 26, 1965

MINDANAO ACADEMY, INC., MAURICIO O. BAS, ERLINDA D. DIAZ, accompanied by her husband ANTOLIN DIAZ, ESTER
AIDA D. BAS, accompanied by her husband MAURICIO O. BAS, ROSALINDA D. BELLEZA, accompanied by her husband
APOLINARIO BELLEZA, LUZ MINDA D. DAJAO, accompanied by her husband ELIGIO C. DAJAO, ADELAIDA D. NUESA,
accompanied by her husband WILSON NUESA, PEDRO N. ABUTON, SY PAOCO, JOSEFA DIGNUM, and PERFECTO
VELASQUEZ, plaintiffs-appellees,
vs.
ILDEFONSO D. YAP, ROSENDA A. DE NUQUI, and SOTERO A. DIONISIO, JR., defendants,
ILDEFONSO D. YAP, defendant-appellant.
----------------------------G.R. No. L-17682

February 26, 1965

ROSENDA A. DE NUQUI, SOTERO DIONISIO, JR., ERLINDA DIONISIO-DIAZ and ANTOLIN DIAZ, plaintiffs-appellees,
vs.
ILDEFONSO D. YAP, defendant-appellant.
Mauricio O. Bas for and in his own behalf as plaintiff-appellee.
Eligio C. Dayao for and in his own behalf as plaintiff-appellee.
Roque Desquitado for other plaintiffs-appellees.
Ambrosio Padilla Law Offices for defendant-appellant.
MAKALINTAL, J.:
By deed entitled "Mutual Agreement," executed on May 10, 1964, Rosenda A. de Nuqui (widow of deceased Sotero Dionisio) and her
son Sotero Dionisio, Jr. sold three parcels of residential land in Oroquieta, Misamis Occidental, and another parcel in Ozamis City in
favor of Ildefonso D. Yap. Included in the sale were certain buildings situated on said lands as well as laboratory equipment, books,
furniture and fixtures used by two schools established in the respective properties, the Mindanao Academy in Oroquieta and the
Misamis Academy in Ozamis City. The aggregate price stated in the deed was P100,700.00, to be paid according to the terms and
conditions specified in the contract.
Besides Rosenda and her son Sotero, Jr., both of whom signed the instrument, Adelaida Dionisio-Nuesa (a daughter of Rosenda) is
also named therein as co-vendor, but actually did not take part either personally or through her uncle and supposed attorney-in-fact,
Restituto Abuton.
These three Rosenda and her two children above named are referred to in the deed as the owners pro-indiviso of the properties
sold. The truth, however, was that there were other co-owners of the lands, namely, Erlinda D. Diaz, Ester Aida D. Bas, Rosalinda D.
Belleza, and Luz Minda D. Dajao, children also of Rosenda by her deceased husband Sotero Dionisio, Sr., and that as far as the school
building, equipment, books, furniture and fixtures were concerned, they were owned by the Mindanao Academy, Inc., a corporation
operating both the Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City.
The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue of the sale, took over the operation of the two schools and
even changed their names to Harvardian Colleges. In view thereof two actions were commenced in the Court of First Instance of
Misamis Occidental. The first was for annulment of the sale and recovery of rents and damages (Civil Case No. 1774, filed May 3,
1955) with the Mindanao Academy, Inc., the five children of Rosenda Nuqui who did not take part in the deed of sale, and several other
persons who were stockholders of the said corporation, as plaintiffs, and the parties who signed the deed of sale as defendants. The
second action was for rescission (Civil Case No. 1907, filed July 17, 1956) with Rosenda Nuqui, Sotero Dionisio, Jr. and Erlinda D. Diaz
(and the latter's husband Antolin Diaz) as plaintiffs, and Ildefonso D. Yap as lone defendant. The other four children of Rosenda did not
join, having previously ceded and quitclaimed their shares in the litigated properties in favor of their sister Erlinda D. Diaz.
The two actions were tried jointly and on March 31, 1960 the court a quo rendered judgment as follows:
In both Cases
(1) The Mutual Agreement is hereby declared null and void ab initio;
(2) Defendant Ildefonso D. Yap is hereby ordered to pay the costs of the proceedings in both cases.
In Civil Case No. 1907 only
(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the plaintiffs in said case all the buildings and grounds
described in the Mutual Agreement together with all the permanent improvements thereon;
(2) To pay to the plaintiffs therein the amount of P300.00 monthly from July 31, 1956 up to the time he shall have surrendered
the properties in question to the plaintiffs herein, plus P1,000.00 as attorney's fees to plaintiffs Antolin and Erlinda D. Diaz.
In Civil Case No. 1774 only
(1) Defendant Ildefonso D. Yap is hereby ordered to restore to the Mindanao Academy, Inc., all the books laboratory
apparatus, furniture and other equipments described in the Mutual Agreement and specified in the inventory attached to the
Records of this case; or in default thereof, their value in the amount of P23,500.00;
(2) To return all the Records of the Mindanao Academy and Misamis Academy;

(3) To pay to the plaintiffs stockholders of the Mindanao Academy, Inc., the amount of P10,000.00 as nominal damages,
P3,000.00 as exemplary damages; and P2,000.00 as attorney's fees. These damages shall be apportioned to each of the
stockholders named as plaintiffs in said case in proportion to their respective interests in the corporation.
Ildefonso D. Yap appealed from the foregoing judgment and has assigned five errors therein.
I. He first contends that the lower court erred "in declaring that the mutual agreement dated May 10, 1954 ... is entirely void and legally
non-existent in that the vendors therein ceded to defendant-appellant not only their interests, rights, shares and participation in the
property sold but also those that belonged to persons who were not parties thereto."
The lower court did not rule categorically on the question of rescission considering it unnecessary to do so in view of its conclusion that
the contract of sale is null and void. This conclusion is premised on two grounds: (a) the contract purported to sell properties of which
the sellers were not the only owners, since of the four parcels of land mentioned in the deed their shares consisted only of 7/12, (6/12
for Rosenda Nuqui and 1/12 for Sotero, Jr.), while in the buildings, laboratory equipment, books, furniture and fixtures they had no
participation at all, the owner being the Mindanao Academy, Inc.; and (b) the prestation involved in the sale was indivisible, and
therefore incapable of partial annulment, inasmuch as the buyer Yap, by his own admission, would not have entered into the
transaction except to acquire all of the properties purchased by him.
These premises are not challenged by appellant. But he calls attention to one point, namely, that the four children of Rosenda Nuqui
who did not take part in the sale, besides Erlinda Dionisio Diaz, quitclaimed in favor of the latter their interests in the properties; and that
the trial court held that Erlinda as well as her husband acted in bad faith, because "having reasonable notice of defendants' having
unlawfully taken possession of the property, they failed to make reasonable demands for (him) to vacate the premises to respect their
rights thereto." It is argued that being herself guilty of bad faith, Erlinda D. Diaz, as owner of 5/12 undivided interest in the properties
(including the 4/12 ceded to her by her four sisters), is in no position to ask for annulment of the sale. The argument does not convince
us. In the first place the quitclaim, in the form of an extrajudicial partition, was made on May 6, 1956, after the action for annulment was
filed, wherein the plaintiffs were not only Erlinda but also the other co-owners who took no part in the sale and to whom there has been
no imputation of bad faith. Secondly, the trial court's finding of bad faith is an erroneous conclusion induced by a manifest oversight of
an undisputed fact, namely, that on July 10, 1954, just a month after the deed of sale in question, Erlinda D. Diaz did file an action
against Ildefonso D. Yap and Rosenda Nuqui, among others, asserting her rights as co-owner of the properties (Case No. 1646).
Finally, bad faith on the part of Erlinda would not militate against the nullity of the sale, considering that it included not only the lands
owned in common by Rosenda Nuqui and her six children but also the buildings and school facilities owned by the Mindanao Academy,
Inc., an entity which had nothing to do with the transaction and which could be represented solely by its Board of Trustees.
The first assignment of error is therefore without merit.
II. The second and third errors are discussed jointly in appellant's brief. They read as follows:
THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE FOR RENTS AND ATTORNEY'S FEES IN
THE SUM OF P1,000.00 AFTER DECLARING THAT ALL THE PLAINTIFFS-APPELLEES IN CIVIL CASE NO. 1907 ACTED
IN BAD FAITH.
THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLEES IN SAID CIVIL CASE NO. 1907 ARE
ENTITLED TO RECOVER ALL THE LANDS, BUILDINGS AND OTHER PERMANENT IMPROVEMENTS DESCRIBED IN
THE MUTUAL AGREEMENT DATED MAY 10, 1954.
The lower court correctly found that both vendors and vendee in the sale acted in bad faith and therefore must be treated, vis-a-vis
each other, as having acted in good faith. The return of the properties by the vendee is a necessary consequence of the decree of
annulment. No part of the purchase price having been paid, as far as the record shows, the trial court correctly made no corresponding
order for the restitution thereof.
In regard to the rents the trial court found that prior to the sale the Mindanao Academy, Inc., was paying P300.00 monthly for its
occupancy of the lands on which the buildings are situated. This is the amount the defendant has been ordered to pay to the plaintiffs in
Civil Case No. 1907, beginning July 31, 1956, when he filed his "first pleading" in the case. There can be no doubt that Erlinda D. Diaz
is entitled to recover a share of the said rents in proportion to her own interests in the lands and the interest in the four co-owners which
she had acquired. Rosenda Nuqui and her son Sotero, it is true, acted in bad faith when they sold the properties as theirs alone, but so
did the defendant Yap when he purchased them with knowledge of the fact that there were other co-owners. Although the bad faith of
one party neutralizes that of the other and hence as between themselves their rights would be as if both of them had acted in good faith
at the time of the transaction, this legal fiction of Yap's good faith ceased when the complaint against him was filed, and consequently
the court's declaration of liability for the rents thereafter is correct and proper. A possessor in good faith is entitled to the fruits only so
long as his possession is not legally interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and
1123, Civil Code).
In our opinion the award of attorney's fees to Erlinda D. Diaz and her husband is erroneous. Civil Case No. 1907, in which said fees
have been adjudged, is for rescission (more properly resolution) of the so-called "mutual agreement" on the ground that the defendant
Yap failed to comply with certain undertakings specified therein relative to the payment of the purchase price. Erlinda Diaz was not a
party to that agreement and hence had no cause of action for rescission. And as already stated, the trial court did not decide the matter
of rescission because of the decree of annulment it rendered in the other case (Civil Case No. 1774), wherein the defendants are not
only Ildefonso D. Yap but also Rosenda Nuqui and her son Sotero. Erlinda D. Diaz could just as well have refrained from joining as
plaintiff in the action for rescission, not being a party to the contract sought to be rescission and being already one of the plaintiffs in the
other action. In other words, it cannot be said with justification that she was constrained to litigate, in Civil Case No. 1907, because of
some cause attributable to the appellant.
The appellant claims reimbursement for the value of the improvements he allegedly introduced in the schools, consisting of a new
building worth P8,000.00 and a toilet costing P800.00, besides laboratory equipment, furniture, fixtures and books for the libraries. It
should be noted that the judgment of the trial court specifies, for delivery to the plaintiffs (in Civil Case No. 1907), only "the buildings
and grounds described in the mutual agreement together with all the permanent improvements thereon." If the defendant constructed a
new building, as he alleges, he cannot recover its value because the construction was done after the filing of the action for annulment,
thus rendering him a builder in bad faith who is denied by law any right of reimbursement.

In connection with the equipment, books, furniture and fixtures brought in by him, he is not entitled to reimbursement either, because
the judgment does not award them to any of the plaintiffs in these two actions. What is adjudged (in Civil Case No. 1774) is for the
defendant to restore to the Mindanao Academy, Inc. all the books, laboratory apparatus, furniture and other equipment "described in
the Mutual Agreement and specified in the Inventory attached to the records of this case; or in default thereof, their value in the amount
of P23,500.00." In other words, whatever has been brought in by the defendant is outside the scope of the judgment and may be
retained by him.
III. The appellant's fourth assignment of error refers to the nominal and exemplary damages, as well as the attorney's fees, granted to
the stockholders of the Mindanao Academy, Inc. The trial court awarded no compensatory damages because the Mindanao Academy,
Inc. had been operating the two schools at a loss before the sale in question, and the defendant himself was no more successful after
he took over. Are the stockholders of the said corporation who joined as plaintiffs in Civil Case No. 1774 entitled to nominal and
exemplary damages? We do not believe so. According to their second amended complaint they were joined merely pro forma, and "for
the sole purpose of the moral damage which has been all the time alleged in the original complaint." Indeed the interests of the said
stockholders, if any, were already represented by the corporation itself, which was the proper party plaintiff; and no cause of action
accruing to them separately from the corporation is alleged in the complaint, other than that for moral damages due to "extreme mental
anguish, serious anxiety and wounded feelings." The trial court, however, ruled out this claim for moral damages and no appeal from
such ruling has been taken. The award for nominal and exemplary damages should be eliminated in toto.
The award for attorney's fees in the amount of P2,000.00 should be upheld, although the same should be for the account, not of the
plaintiff stockholders of the Mindanao Academy, Inc., but of the corporation itself, and payable to their common counsel as prayed for in
the complaint.
IV. Under the fifth and last assignment of error the appellant insists on the warranty provided for in clause VI of the deed of sale in view
of the claims of the co-owners who did not take part therein. The said clause provides: "if any claim shall be filed against the properties
or any right, share or interest which are in the possession of the party of the First Part (vendors) which had been hereby transferred,
ceded and conveyed unto the party of the Second Part (vendee) the party of the First Part assumes as it hereby holds itself
answerable.
It is unnecessary to pass upon the question posed in this assignment of error in view of the total annulment of the sale on grounds
concerning which both parties thereto were at fault. The nullity of the contract precludes enforcement of any of its stipulations.
WHEREFORE, the judgment appealed from is modified by eliminating therefrom the award of attorney's fees of P1,000.00 in favor of
Erlinda D. Diaz and her husband, plaintiffs in Civil Case No. 1907, and the award of nominal and exemplary damages in Civil Case No.
1774; and making the award of attorney's fees in the sum of P2,000.00 payable to counsel for the account of the Mindanao Academy,
Inc. instead of the plaintiff stockholders. In all other respects the judgment appealed from is affirmed. No pronouncement as to costs.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes and Bengzon, J.P., JJ., concur.
Barrera, Dizon, Regala and Zaldivar, JJ., took no part.

G.R. No. 160283 October 14, 2005

JOHN KAM BIAK Y. CHAN, JR., Petitioner,
vs.
Iglesia Ni Cristo, Inc., Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari1 assailing the Decision2 of the Court of Appeals in CA-G.R. CV No. 65976, dated 25
September 2003. Said Decision denied the petitioners appeal from the decision of the Regional Trial Court (RTC), La Union, Branch
31, in Civil Case No. A-1646.
THE FACTS
The antecedents of the instant case are quite simple.
The Aringay Shell Gasoline Station is owned by the petitioner. It is located in Sta. Rita East, Aringay, La Union, and bounded on the
south by a chapel of the respondent.
The gasoline station supposedly needed additional sewerage and septic tanks for its washrooms. In view of this, the services of
Dioscoro "Ely" Yoro (Yoro), a retired general of the Armed Forces of the Philippines, was procured by petitioner, as the former was
allegedly a construction contractor in the locality.
Petitioner and Yoro executed a Memorandum of Agreement3 (MOA) on 28 February 1995 which is reproduced hereunder:
MEMORANDUM OF AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT, executed this 28th day of February, 1995, by and between:
JOHN Y. CHAN, of legal age, single, and a resident of Aringay, La Union, now and hereinafter called the FIRST PARTY;
GEN. ELY E. YORO, Jr., of legal age, married, and a resident of Damortis, Sto. Tomas, La Union, hereinafter referred to as the
SECOND PARTY:
WITNESSETH that:
WHEREAS, the FIRST PARTY is the owner of a parcel of land located at Sta. Rita, Aringay, La Union.
WHEREAS, the FIRST PARTY, desires to dig a septic tank for its perusal in the property bordering Iglesia ni Cristo.
WHEREAS, the SECOND PARTY is willing to contract the intended digging of septic tank for the first party.
WHEREAS, the FIRST PARTY and SECOND PARTY has (sic) agreed verbally as to the compensation of the said digging of septic
tank.
WHEREFORE, for and in consideration of the terms and covenants hereinbelow set forth, the FIRST PARTY hereby AGREES and
ALLOWS the SECOND PARTY to undertake the digging of the parcel of land for the exclusive purpose of having a septic tank.
TERMS AND COVENANTS
1. The SECOND PARTY shall contract the said digging;
2. The FIRST PARTY shall have complete control over the number of personnel who will be entering the property for said contract;
3. The digging shall be allowed for a period of three (3) weeks only, commencing on March 28, 1995, unless extended by agreement of
the parties;
4. Any damage within or outside the property of the FIRST PARTY incurred during the digging shall be borne by the SECOND PARTY;
5. In the event that valuable objects are found on the property, the same shall be divided among the parties as follows:
FIRST PARTY - 60%
SECOND PARTY - 40%
6. In the event that valuable objects are found outside the property line during the said digging, the same shall be divided among the
parties as follows:

FIRST PARTY - 35%

SECOND PARTY - 65%
7. In case government or military interference or outside intervention is imminent, the FIRST PARTY hereby reserves the option to stop
the digging at any stage thereof.
IN WITNESS WHEREOF, We have hereunto set our hands on the day and year first above-written at Aringay, La Union.4
Diggings thereafter commenced. After some time, petitioner was informed by the members of the respondent that the digging traversed
and penetrated a portion of the land belonging to the latter. The foundation of the chapel was affected as a tunnel was dug directly
under it to the damage and prejudice of the respondent.
On 18 April 1995, a Complaint5 against petitioner and a certain Teofilo Oller, petitioners engineer, was filed by the respondent before
the RTC, La Union, Branch 31, docketed therein as Civil Case No. A-1646. Petitioner and Oller filed an Answer with Third-Party
Complaint6 impleading Yoro as third-party defendant.
Yoro filed an Answer to the Third-Party Complaint7 dated 13 July 1995. An Amended and Supplemental Complaint8 dated 30 August
1995 was later filed by the respondent already naming Yoro as a party-defendant, to which the petitioner and Oller filed an
Answer.9 Yoro filed his own Answer.10
After four years of hearing the case, the trial court promulgated its Decision11 holding that the diggings were not intended for the
construction of sewerage and septic tanks but were made to construct tunnels to find hidden treasure.12 The trial court adjudged the
petitioner and Yoro solidarily liable to the respondent on a 35%-65% basis (the petitioner liable for the 35%), and absolving Oller from
any liability, viz:
WHEREFORE, this Court renders judgment in favor of plaintiff IGLESIA NI CRISTO and against defendants JOHN KAMBIAK CHAN
and DIOSCORO "ELY" YORO, JR. who are respectively solidarily liable to PLAINTIFF on a 35%-65% basis, with JOHN CHAN taking
the 35% tab, Ordering the two (2) aforesaid DEFENDANTS to pay PLAINTIFF the following amounts:
1. SIX HUNDRED THIRTY-THREE THOUSAND FIVE HUNDRED NINETY-FIVE PESOS AND FIFTY CENTAVOS (P633,595.50);
representing ACTUAL DAMAGES;
2. FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing MORAL DAMAGES;
3. TEN MILLION PESOS (P10,000,000.00) as EXEMPLARY DAMAGES;
4. FIFTY THOUSAND PESOS (P50,000.00) as plaintiffs attorneys fees; and
5. TWENTY THOUSAND PESOS (P20,000.00) as litigation expenses.
Defendant TEOFILO OLLER is absolved of any civil liability.
Any counterclaim filed against PLAINTIFF IGLESIA NI CRISTO is dismissed.13
Petitioner filed a Notice of Appeal14 dated 18 August 1999. Yoro filed his own Notice of Appeal15 dated 20 August 1999.
In a Resolution16 dated 19 November 1999, the trial court disallowed Yoros appeal for failure to pay the appellate court docket and
other lawful fees within the reglementary period for taking an appeal.17 In view of Yoros failure to appropriately file an appeal, an order
was issued for the issuance of a Writ of Execution as against him only, the dispositive portion of which reads:
WHEREFORE, premises considered, this Court GRANTS the motion of plaintiff Iglesia ni Cristo for the issuance of a Writ of Execution
as against Dioscoro "Ely" Yoro, Jr. only.18
The petitioners appeal to the Court of Appeals, on the other hand, was given due course.19 On 25 September 2003, the Court of
Appeals rendered its Decision denying the appeal. It affirmed the trial court but with modifications. The decretal portion of the decision
states:
WHEREFORE, the appeal is hereby DENIED. The assailed decision in Civil Case No. A-1646 is hereby AFFIRMED with
MODIFICATIONS as follows:
(a) The award of moral damages in the amount of P500,000.00 is hereby deleted.
(b) The award of exemplary damages is hereby reduced to P50,000.00.
(c) The award of attorneys fees and litigation expenses is hereby reduced to P30,000.00.20
Undeterred, petitioner instituted the instant case before this Court. On 15 December 2004, the instant petition was given due course.21
ASSIGNMENT OF ERRORS
Petitioner assigns as errors the following:

I
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT (BRANCH 31, AGOO, LA
UNION) PARTICULARLY IN SAYING THAT THE BASIS OF THE SOLIDARY OBLIGATION OF PETITIONER AND YORO VIS-VIS PLAINTIFF IS BASED NOT ON THE MOA BUT ON TORT
II
THE COURT OF APPEALS ERRED IN NOT GIVING EFFECT TO THE MOA WHICH SHOULD EXONERATE THE PETITIONER
FROM ALL LIABILITIES TO THE PRIVATE RESPONDENT
III
THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE THIRD-PARTY COMPLAINT AS CROSS-CLAIM OF THE
PETITIONER AGAINST YORO.22
ISSUE
Drawn from the above assignment of errors, the solitary issue that needs to be resolved is:
WHETHER OR NOT THE MEMORANDUM OF AGREEMENT ENTERED INTO BY THE PETITIONER AND YORO HAS THE EFFECT
OF MAKING THE LATTER SOLELY RESPONSIBLE FOR DAMAGES TO THE RESPONDENT.
THE RULINGS OF THE COURT
Petitioner avers that no liability should attach to him by laying the blame solely on Yoro. He argues that the MOA executed between him
and Yoro is the law between them and must be given weight by the courts. Since nothing in the MOA goes against the law, morals,
good customs and public policy, it must govern to absolve him from any liability.23 Petitioner relies heavily in Paragraph 4 of the MOA,
which is again reproduced hereunder:
4. Any damage within or outside the property of the FIRST PARTY incurred during the digging shall be borne by the SECOND PARTY.
In answer to this, the respondent asserts that the MOA should not absolve petitioner from any liability. This written contract, according
to the respondent, clearly shows that the intention of the parties therein was to search for hidden treasure. The alleged digging for a
septic tank was just a cover-up of their real intention.24 The aim of the petitioner and Yoro to intrude and surreptitiously hunt for hidden
treasure in the respondents premises should make both parties liable.25
At this juncture, it is vital to underscore the findings of the trial court and the Court of Appeals as to what was the real intention of the
petitioner and Yoro in undertaking the excavations. The findings of the trial court and the Court of Appeals on this point are in complete
unison. Petitioner and Yoro were in quest for hidden treasure26and, undoubtedly, they were partners in this endeavor.
The Court of Appeals, in its Decision, held in part:
The basis of their solidarity is not the Memorandum of Agreement but the fact that they have become joint tortfeasors. There is solidary
liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.27
We find no compelling reason to disturb this particular conclusion reached by the Court of Appeals. The issue, therefore, must be ruled
in the negative.
Article 2176 of the New Civil Code provides:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
Based on this provision of law, the requisites of quasi-delict are the following:
(a) there must be an act or omission;
(b) such act or omission causes damage to another;
(c) such act or commission is caused by fault or negligence; and
(d) there is no pre-existing contractual relation between the parties.
All the requisites are attendant in the instant case. The tortious act was the excavation which caused damage to the respondent
because it was done surreptitiously within its premises and it may have affected the foundation of the chapel. The excavation on
respondents premises was caused by fault. Finally, there was no pre-existing contractual relation between the petitioner and Yoro on
the one hand, and the respondent on the other.
For the damage caused to respondent, petitioner and Yoro are jointly liable as they are joint tortfeasors. Verily, the responsibility of two
or more persons who are liable for a quasi-delict is solidary.28
The heavy reliance of petitioner in paragraph 4 of the MOA cited earlier cannot steer him clear of any liability.

As a general rule, joint tortfeasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate
in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit.29
Indubitably, petitioner and Yoro cooperated in committing the tort. They even had provisions in their MOA as to how they would divide
the treasure if any is found within or outside petitioners property line. Thus, the MOA, instead of exculpating petitioner from liability, is
the very noose that insures that he be so declared as liable.
Besides, petitioner cannot claim that he did not know that the excavation traversed the respondents property. In fact, he had two (2) of
his employees actually observe the diggings, his security guard and his engineer Teofilo Oller.30
Coming now to the matter on damages, the respondent questions the drastic reduction of the exemplary damages awarded to it. It may
be recalled that the trial court awarded exemplary damages in the amount ofP10,000,000.00 but same was reduced by the Court of
Appeals to P50,000.00.
Exemplary or corrective damages are imposed by way of example or correction for the public good.31 In quasi-delicts, exemplary
damages may be granted if the defendant acted with gross negligence.32 By gross negligence is meant such entire want of care as to
raise a presumption that the person in fault is conscious of the probable consequences of carelessness, and is indifferent, or worse, to
the danger of injury to person or property of others.33
Surreptitiously digging under the respondents chapel which may weaken the foundation thereof, thereby endangering the lives and
limbs of the people in worship, unquestionably amounts to gross negligence. Not to mention the damage that may be caused to the
structure itself. The respondent may indeed be awarded exemplary damages.
For such tortious act done with gross negligence, the Court feels that the amount awarded by the Court of Appeals is inadequate. The
exemplary damages must correspondingly be increased to P100,000.00.
The modification made by this Court to the judgment of the Court of Appeals must operate as against Yoro, for as fittingly held by the
court a quo:
While it is settled that a party who did not appeal from the decision cannot seek any relief other than what is provided in the judgment
appealed from, nevertheless, when the rights and liability of the defendants are so interwoven and dependent as to be inseparable, in
which case, the modification of the appealed judgment in favor of appellant operates as a modification to Gen. Yoro who did not appeal.
In this case, the liabilities of Gen. Yoro and appellant being solidary, the above exception applies.34
WHEREFORE, the Decision of the Court of Appeals dated 25 September 2003 is AFFIRMED with MODIFICATION as to the award of
exemplary damages, which is hereby increased to P100,000.00. Costs against petitioner.
SO ORDERED.

G.R. No. 153874

March 1, 2007

TITAN CONSTRUCTION CORPORATION, Petitioner,

vs.
UNI-FIELD ENTERPRISES, INC., Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 7 January 2002 Decision2 and 20 May 2002 Resolution of the Court of Appeals in CA-G.R. CV No.
56816. The Court of Appeals affirmed the 9 September 1997 Decision3 of the Regional Trial Court of Quezon City, Branch 224 (trial
court) in Civil Case No. Q-95-24170.
The Facts
Petitioner Titan Construction Corporation (petitioner) is engaged in the construction business, while respondent Uni-Field Enterprises,
Inc.4 (respondent) is engaged in the business of selling various construction materials.
From 1990 to 1993, petitioner purchased on credit various construction supplies and materials from respondent. Petitioners purchases
amounted to P7,620,433.12 but petitioner was only able to pay P6,215,795.70, leaving a balance of P1,404,637.42. On 19 October
1994, respondent sent a demand letter to petitioner.5 But the balance remained unpaid.
On 26 June 1995, respondent filed with the trial court a complaint for collection of sum of money with damages against petitioner.
In its Answer dated 18 August 1995, petitioner admitted the purchases but disputed the amount claimed by respondent. Petitioner also
interposed a counterclaim and sought to recover P204,527.99 from respondent based on damaged vinyl tiles, non-delivery of materials,
and advances for utility expenses, dues, and insurance premiums on the condominium unit turned over by petitioner to respondent.
On 9 September 1997, the trial court rendered judgment in favor of respondent. The 9 September 1997 Decision provides:
Accordingly, therefore, judgment is hereby rendered for the plaintiff [respondent] as against the defendant [petitioner] and ordering the
latter to pay the plaintiff [respondent] the following:
1. The principal amount of P1,404,114.00;
2. Interest Charges in the amount of P504,114.00 plus accrued interest charges at 24% per annum compounded yearly
reckoned from July, 1995 up to the time of full payment;
3. Liquidated Damages in the amount of P324,147.94;
4. Attorneys Fees equivalent to 25% of whatever amount is due and payable and accumulated appearance fees at P1,000.00
per hearing; and
5. Costs of suits.
IT IS SO ORDERED.6
Petitioner appealed to the Court of Appeals. In its 7 January 2002 Decision, the Court of Appeals denied the appeal for lack of merit
and affirmed the trial courts 9 September 1997 Decision.
In its 20 May 2002 Resolution, the Court of Appeals denied petitioners motion for reconsideration. Hence, this petition.
The Ruling of the Court of Appeals
The 7 January 2002 Decision of the Court of Appeals reads:
A careful reading of the records of the case shows that in the answer to the complaint, the existence of the delivery receipts and
invoices were not denied by appellant, rather, it admitted the transactions subject of the instant case. Clearly, if the damages alleged
are liquidated or stipulated, they are deemed admitted when not specifically denied.
xxxx
Further, appellant cannot question the interest rate on overdue accounts as the same was provided for in the delivery receipts and
sales invoices, which have not been denied by it. Therefore, the terms and conditions therein have become the law between the
parties, and both are bound by said conditions. Failure of a party to contest the terms and conditions results in his admission thereof.
Appellant asserts that "nowhere is there any stipulation that plaintiff is entitled to a 24% interest". This is absurd. The Sales Invoices
and Delivery Receipts, contained the provision that:

"This invoice is the written contract between Unifield Enterprises, [I]nc. and the above-named customer. This is payable on demand
unless otherwise indicated hereinabove. Interest of 24% per annum will be charged on overdue accounts, compounded with the
outstanding principal obligation as they accrue. Claims or corrections hereto or in the goods must be communicated in writing to Unifield Enterprises within two (2) days from receipt of the goods. x x x Should Unifield Enterprises, Inc. be constrained to effect collection
through Court action and proceedings before the Fiscals [sic], said customer agrees to pay the following additional sums: (1) 25%
liquidated damages based on the outstanding total obligation; (2) 25% attorneys fees based on the total claim including said liquidated
damages; (3) appearance fees of counsel at P500.00 per hearing in addition to all other court costs and expenses. x x x"
It is emphasized that contracts are perfected by mere consent; the stipulations of the contract being the law between the parties, courts
have no alternative but to enforce them as they are agreed upon and written, there being no law or public policy against the stipulated
provisions.
Verily, this Court finds no reason to go against the findings of the lower court considering that the assailed decision was arrived at "after
a careful review and perusal of the evidence presented by both parties in their pleadings filed before the" lower court.7 (Citations
omitted)
The Issues
Petitioner raises the following issues:
1. THE COURT OF APPEALS ERRED IN FINDING LEGAL BASIS FOR [AWARDING] LIQUIDATED DAMAGES,
ATTORNEYS FEES AND INTEREST IN FAVOR OF RESPONDENT; and
2. THE COURT OF APPEALS ERRED BY OVERLOOKING CERTAIN FACTS OR CIRCUMSTANCES OF WEIGHT AND
INFLUENCE WHICH IF CONSIDERED WOULD ALTER THE RESULTS OF THE CASE.8
The Ruling of the Court
Factual Findings of the Trial Court and the Court of Appeals
Bind the Court
Petitioner asks the Court to review the records of the case and re-examine the evidence presented before the trial court and the Court
of Appeals.
As a rule, only questions of law may be appealed to the Court by petition for review. The Court is not a trier of facts, its jurisdiction being
limited to errors of law.9 Moreover, factual findings of the trial court, particularly when affirmed by the Court of Appeals, are generally
binding on this Court.10 In this case, the factual findings of the trial court and the Court of Appeals were based on substantial evidence
which were not refuted with contrary proof by petitioner. We thus find no reason to disturb the factual findings of the trial court and the
Court of Appeals.
On the Award of Interests, Liquidated Damages, and Attorneys Fees
Petitioner insists that the trial court and the Court of Appeals had no legal basis to award interest, liquidated damages, and attorneys
fees because the delivery receipts and sales invoices, which served as the basis for the award, were not formally offered as evidence
by respondent. Petitioner also alleges that the delivery receipts and sales invoices were in the nature of contracts of adhesion and
petitioner had no option but to accept the conditions imposed by respondent.
While the delivery receipts and sales invoices did not form part of respondents formal offer of evidence,11records show that the delivery
receipts and sales invoices formed part of petitioners formal offer of evidence.12The delivery receipts and sales invoices expressly
stipulated the payment of interest, liquidated damages, and attorneys fees in case of overdue accounts and collection suits. Petitioner
did not only bind itself to pay the principal amount, it also promised to pay (1) interest of 24% per annum on overdue accounts,
compounded with the principal obligations as they accrue; (2) 25% liquidated damages based on the outstanding total obligation; and
(3) 25% attorneys fees based on the total claim including liquidated damages. Since petitioner freely entered into the contract, the
stipulations in the contract are binding on petitioner. Thus, the trial court and the Court of Appeals did not err in using the delivery
receipts and sales invoices as basis for the award of interest, liquidated damages, and attorneys fees.
On the allegation that the delivery receipts and sales invoices are in the nature of contracts of adhesion, the Court has repeatedly held
that contracts of adhesion are as binding as ordinary contracts.13 Those who adhere to the contract are in reality free to reject it entirely
and if they adhere, they give their consent.14 It is true that on some occasions the Court struck down such contract as void when the
weaker party is imposed upon in dealing with the dominant party and is reduced to the alternative of accepting the contract or leaving it,
completely deprived of the opportunity to bargain on equal footing.15
Considering that petitioner and respondent have been doing business from 1990 to 1993 and that petitioner is not a small time
construction company, petitioner is "presumed to have full knowledge and to have acted with due care or, at the very least, to have
been aware of the terms and conditions of the contract."16 Petitioner was free to contract the services of another supplier if respondents
terms were not acceptable. Moreover, petitioner failed to show that in its transactions with respondent it was the weaker party or that it
was compelled to accept the terms imposed by the respondent. In fact, petitioner only questioned the terms of the contract after the trial
court issued its 9 September 1997 Decision. The Court, therefore, upholds the validity of the contract between petitioner and
respondent.
However, the Court will reduce the amount of attorneys fees awarded by the trial court and the Court of Appeals. In this case, aside
from the award of P324,147.94 as liquidated damages, the trial court and the Court of Appeals also ordered petitioner to pay
respondent attorneys fees "equivalent to 25% of whatever amount is due and payable."17
The law allows a party to recover attorneys fees under a written agreement.18 In Barons Marketing Corporation v. Court of Appeals, the
Court ruled that:

[T]he attorneys fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been
said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The
attorneys fees so provided are awarded in favor of the litigant, not his counsel.19
On the other hand, the law also allows parties to a contract to stipulate on liquidated damages to be paid in case of breach.20 A
stipulation on liquidated damages is a penalty clause where the obligor assumes a greater liability in case of breach of an
obligation.21 The obligor is bound to pay the stipulated amount without need for proof on the existence and on the measure of damages
caused by the breach.22
Articles 122923 and 222724 of the Civil Code empower the courts to reduce the penalty if it is iniquitous or unconscionable. The
determination of whether the penalty is iniquitous or unconscionable is addressed to the sound discretion of the court and depends on
several factors such as the type, extent, and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences.25
The Court notes that respondent had more than adequately protected itself from a possible breach of contract because of the
stipulations on the payment of interest, liquidated damages, and attorneys fees. The Court finds the award of attorneys fees
"equivalent to 25% of whatever amount is due and payable" to be exorbitant because it includes (1) the principal of P1,404,114.00; (2)
the interest charges of P504,114.00 plus accrued interest charges at 24% per annum compounded yearly reckoned from July 1995 up
to the time of full payment; and (3) liquidated damages of P324,147.94. Moreover, the liquidated damages and the attorneys fees serve
the same purpose, that is, as penalty for breach of the contract. Therefore, we reduce the award of attorneys fees to 25% of
the principal obligation, or P351,028.50.
WHEREFORE, we AFFIRM the appealed Decision dated 7 January 2002 of the Court of Appeals in CA-G.R. CV No. 56816
with MODIFICATION as regards the award of attorneys fees. Petitioner Titan Construction Corporation is ordered to pay respondent
Uni-Field Enterprises, Inc. attorneys fees of P351,028.50.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice

G.R. No. 174474

May 28, 2007

PEOPLE OF THE PHILIPPINES, Plaintiff-appellee,

vs.
LEODEGARIO G. GREGORIO, JR., Accused-appellant.
DECISION
GARCIA, J.:
Under automatic review is the decision1 dated May 23, 2006 of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 01978 which
affirmed, with modification, an earlier decision2 of the Regional Trial Court (RTC) of Balanga, Bataan, Branch 3, in Criminal Case Nos.
7835 and 7836, finding herein appellant Leodegario G. Gregorio, Jr. guilty beyond reasonable doubt of the crime of Rape on two (2)
counts and sentencing him to suffer the extreme penalty of death.
Pursuant to our pronouncement in People v. Mateo3 which modified the provisions of the Rules of Court insofar as they provide for
direct appeals from the RTC to this Court in cases where the penalty imposed by the trial court is death, reclusion perpetua or life
imprisonment, this case was earlier4 referred to the CA for appropriate action and disposition whereat it was docketed as CA-G.R. CRH.C. No. 01978.
Consistent with our decision in People v. Cabalquinto,5 the real name of the rape victim in this case is withheld and instead fictitious
initials are used to represent her. Also, the personal circumstances of the victim or any other information tending to establish or
compromise her identity, as well as those of her immediate family or household members, are not disclosed in this decision.
The Case
In the court of origin, appellant Leodegario G. Gregorio, Jr. was charged with two (2) counts of rape committed against his 14-year old
daughter, XXX. One of the counts, allegedly committed on September 18, 1998, is the subject of the Information docketed as Criminal
Case No. 7836. The other refers to the rape committed on July 27, 2000 subject of the Information docketed in the same court as
Criminal Case No. 7835. The respective informations alleged, as follows:
In Criminal Case No. 7836:
That on or about September 18, 1998 at Liyang, Pilar, Bataan, Philippines and within the jurisdiction of this Honorable Court, the said
accused, thru force and intimidation, did then and there, willfully, unlawfully and feloniously succeed to have sexual intercourse with the
offended party, XXX, then 12-year old minor girl, against her will and consent, thus, degrading or demeaning her intrinsic worth and
dignity as a child and a human being and subjecting her to sexual abuse and emotional maltreatment, to her damage and prejudice.
CONTRARY TO LAW.
That the accused is the father of the offended party, XXX.
In Criminal Case No. 7835:
That on or about July 27, 2000 at Brgy. Bagumbayan, Bagac, Bataan, Philippines and within the jurisdiction of this Honorable Court, the
said accused, thru force and intimidation, did then and there, willfully, unlawfully and feloniously succeed to have sexual intercourse
with the offended party, XXX, a 14-year old minor girl, against her will and consent, thus degrading or demeaning her intrinsic worth and
dignity as a child and a human being and subjecting her to sexual abuse and emotional maltreatment, to her damage and prejudice.
CONTRARY TO LAW.
That the accused is the father of the offended party, XXX.
Arraigned on December 20, 2000, appellant, assisted by counsel, entered a plea of "Not Guilty" to both charges. Thereafter, a joint trial
of the cases ensued, in the course of which the prosecution presented the oral testimonies of the victim herself, XXX; Dr. Wynne
Gubuan, a physician at Bagac Medical Hospital where XXX was brought for examination; a certain Eugenio Oquindo; and Estrella
Tuazon, the victims aunt.
For its part, the defense presented the appellant himself, Leodegario G. Gregorio, Jr.; his common-law wife and stepmother of the
victim, Marlene Gregorio; his cousin, Gloria Mendoza; a certain Medardo Dapitan who claimed to be fishing with the accused the whole
day of July 27, 2000 when the alleged second incident of rape occurred; and one Joseph Nojadera, a family friend of the
Gregorios.1a\^/phi1.net
The Evidence
The Peoples version of the incidents is succinctly summarized by the Office of the Solicitor General (OSG) in its Appellees Brief6 as
follows:
On the night of September 18, 1998, XXX was in their farm in Liyang, Pilar, Bataan. She woke up in the middle of the night when she
felt someone's hand on her "private part." She saw that it was her father, appellant herein, fondling her. She tried to remove his hand,
but her father got angry and told her that she had no right to refuse because she was "just his child."
When appellant took off her clothes, she trembled. She was warned that if she resisted, he would place her in the oven ("isasalang niya
ako sa pugon"). And even as she gave all her strength to shield herself from his advances, appellant succeeded in inserting his penis
into her vagina.

XXX kept on pushing appellant, but he was just too strong for her. Her vagina bled and she cried. After appellant had satisfied his lust,
he told her daughter that before he goes to jail, he would kill her first.
XXX kept the matter to herself as she was afraid and had no one tell her harrowing experience. She was of the impression that nobody
would listen to her, including her stepmother whom she used to live with in Bagumbayan, Bagac, Bataan, because all were afraid of her
father. As to her mother, she has no idea where she is or if she is still alive.1a\^/phi1.net
After the incident, appellant in the twilight hours of July 27, 2000 raped XXX again in their house in Bagac, Bataan. He went to where
XXX was sleeping, removed her blanket and clothes, and placed himself on top of her. XXX struggled but it did not help her. Appellant
got mad and covered her face with a blanket. He punched her thighs, put his entire weigh upon her and succeeded in inserting his
penis to her vagina and at the same time kissing her. XXX, however, could not do anything but cry. After the lecherous assault,
appellant went out of the house.
Confused and in anguish, XXX ran to take refuge in the house of her friend in Ibis, Bagac, Bataan. However, darkness prevented her
from pursuing her course and she was prompted to stop, knowing that her friend's house was still far away. Finding herself in a not so
trodden part of the road, she waited there till morning. At about 6:30 a.m., she started walking until she reached the house of her friend.
When her friend Maricel Tiburcia asked her why she ran away from home, XXX covered up what her father did and told her that the
latter had been mauling her. However, when her father and her uncle Roberto Gregorio tried on separate occasions to fetch her but did
not succeed, XXX was compelled to disclose the truth. She told Eugenio Oquindo, stepfather of Maricel, about the molestation she
suffered in the hands of her own father. She stayed in the house of Maricel at Ibis, Bagac, Bataan from July 28, 2000 until she was
placed in the custody of the DSWD in September 2000. She had to stay under its care because she did not want to go back anymore to
her father at Bagumbayan, Bagac, Bataan.
On September 19, 2000, the rape was reported to the police authorities of Bagac, Bataan who on the same day accompanied XXX to
the Bagac Medical Hospital for medical examination.
On the other hand, appellants version is hinged mainly on denial and alibi. He denied having raped his daughter on September 18,
1998. As for the other charge of rape committed on July 27, 2000, appellant testified that at around 8:00 p.m. of that day, he went
fishing with Medardo Dapitan at the river at Sitio Caragman, Barangay Banawang, until 5:00 a.m. of the following day. Then, they went
to the house of his cousin, Gloria Mendoza, where they segregated the big fish from the small ones, as well as the shrimp. He went
home while Gloria went on her way to sell their catch.
Upon reaching his house at around 9:00 a.m., he was told by his common-law wife, Marlene Gregorio, that his daughter, XXX, left their
house the night before and had not returned since. It was only two days after that they were able to find XXX at her friends house at
Sitio Alambre, Barangay Ibis. Appellant asked XXX why she left and the latter told him that there were things she wanted to discuss
with her friend. He even granted XXXs request to stay at her friends house for two (2) more days.
Then, on September 26, 2000, appellant was shocked to learn that he was being charged with two counts of rape by XXX. He
insinuated that his sister-in-law, Estrella Tuazon, may have instigated the filing of the charges against him as he and Estrella were not
in good terms ever since he and his wife, mother of XXX and sister of Estrella, separated. In fact, Estrella owed him P22,000.00 which
remained unpaid.
The other witnesses for the defense merely corroborated appellants testimony that he went fishing from 8:00 p.m. of July 27, 2000 until
5 a.m. of the next day. They also theorized that XXX may have been possibly motivated by ill-feelings in filing the charges against
appellant as the latter would often scold and beat XXX.
The Trial Courts Decision
In a "Judgment"7 dated August 19, 2003, the trial court found appellant guilty, as charged, and accordingly sentenced him, thus:
WHEREFORE, accused LEODEGARIO G. GREGORIO, JR. is found guilty beyond reasonable doubt as principal for two (2) counts of
Rape, punishable under Article 266-A, paragraph 1(a) of the Revised Penal Code and qualified under Article 266-B, paragraph 1 of the
same Code, and is hereby sentenced to suffer the penalty of Death.
Accused is ordered to pay complainant XXX the amount of P75,000.00 for each count or a total of P150,000.00 as civil indemnity,
P50,000.00 or a total of P100,000.00 as moral damages and P25,000.00 or a total of P50,000.00 as exemplary damages.
Let the entire record of these two cases be forwarded to the Supreme Court for automatic review within five (5) days after the fifteenth
(15th) day following the promulgation of this judgment, pursuant to Section 10 of Rule 122, Revised Rules of Criminal Procedure.
SO ORDERED.
As earlier stated, the Court, in its Resolution8 of January 17, 2006 and pursuant to its ruling in People v. Mateo,9referred the case and
its records to the CA for appropriate action and disposition, whereat it was docketed as CA-G.R. CR-H.C. No. 01978.
In its decision of May 23, 2006, the CA affirmed the judgment of conviction rendered by the trial court but reduced the penalty imposed
from death to reclusion perpetua on account of the failure of the informations to allege the qualifying circumstance of relationship
between the victim and appellant. Says the CA:
The twin requisites of minority of the victim and her filiation with appellant must be alleged in the Information as mandated by Section 8,
Rule 110 of the Revised Rules of Criminal Procedure and proved by the prosecution, otherwise conviction for rape in its qualified form
which is punishable with death is barred as the omission is prejudicial to the right of the accused to be informed of the nature of the
accusations against him.
Dispositively, the CA decision reads:

WHEREFORE, the Decision of the Regional Trial Court of Bataan, Branch 3, is AFFIRMED WITH MODIFICATION. Accused-appellant
is found guilty beyond reasonable doubt of two (2) counts of simple rape under Article 335 of the Revised Penal Code as amended by
Republic Act No. 7659. He is sentenced to suffer the penalty of reclusion perpetua for each count.1a\^/phi1.net Also, he is ordered to
pay private complainant XXX the amount of P50,000.00 as civil indemnity and P50,000.00 as moral damages for each count or in the
total amount of P200,000.00; and P25,000.00 for each count as exemplary damages.
SO ORDERED.
From the CA, the case was then elevated to this Court for automatic review. In its Resolution10 of December 6, 2006, the Court resolved
to accept the case and required the parties to submit their respective supplemental briefs.
In its Manifestation of January 25, 2007, the OSG, in behalf of appellee People, informed the Court that it is no longer filing a
supplemental brief since all the arguments raised by appellant have already been addressed and refuted in the appellees brief before
the CA.
For his part, appellant filed on February 23, 2007 his supplemental brief, on the lone assigned error that THE HONORABLE COURT OF APPEALS ERRED IN GIVING UNDUE CREDENCE TO THE TESTIMONY OF THE PRIVATE
COMPLAINANT IN UTTER DISREGARD OF THE EXACTING STANDARD OF PROOF BEYOND REASONABLE DOUBT.
Insisting that the prosecution failed to establish his guilt beyond reasonable doubt, appellant pleads for acquittal. To him, his daughters
testimony lacks the element of truthfulness. He maintains that XXX merely fabricated a tale of defloration because she harbors a
grudge against him for being strict on her. In short, appellant would want the Court to view his daughters tale as a complete falsehood
and a mere concoction to get even with him. At bottom then is the issue of credibility.
The appeal must fail.
Jurisprudence is clear that when the issue boils down to credibility, the trial court judge is in a better position to calibrate it because he
has observed first hand the demeanor and deportment of the witnesses. And as a rule, appellate courts will not disturb the credibility
accorded by trial courts to the witnesses and their testimonies, unless certain facts and circumstances of significance have been
overlooked or arbitrarily disregarded.11 In reposing credence to XXXs tale of her harrowing experience with her own father, the trial
court observed:
The accuser is the minor XXX who conveyed in stirring manner how her own father sexually defiled her. She declared that she was first
raped by accused Leodegario G. Gregorio, Jr. in a far-off farm on September 18, 1998, a date she will never forget because according
to her, it marked the day her father destroyed her life. She bitterly recounted the incident in tears, expelling in the process the enormous
pain and fury that she had been keeping. When her father did it over again on the night of July 27, 2000, she could bear it no more, and
so off in the dark she fled to where fate would lead her.12
Our own review of the evidence on record impels us to impart truth to what XXX unfolded before the trial court. In clear, direct and
categorical manner, she recounted the sordid details of how she was raped by her own father. The Court also notes that at one point,
the young girl broke down in tears and cried while testifying. If anything else, her hysterical and obviously agitated deportment while
recounting on the witness box the ordeals she went through during the bestial outbursts of her father is an eloquent demonstration of
truth unabashedly released from the heart of one who had truly suffered. The Court cannot bring its mind to a rest that a young girl, like
XXX, could have the courage and strength to fabricate a tale of defloration against her very own father and relate in public all its
horrifying details were she not in fact physically abused and violated. The stigma of such a tale and the haunting shadow it will surely
cast on the life of this young girl simply negate any notion of falsehood on her part.
To discredit his daughter, appellant claims that she had long harbored a grudge against him for being strict with her, obviously
suggesting that XXX fabricated the rape story to get back at him. We are not persuaded. XXXs revelation that she had been raped,
coupled with her voluntary submission to humiliating medical examination and her willingness to pass through, as she did, a public trial
where she could and was compelled to dish out details of an assault against her very womanhood, dignity and honor cannot be
dismissed as mere concoction. Incestuous rape is not an ordinary crime that can be easily fabricated or manufactured. The very parties
involved in it, let alone the psychological toil, social scandal and humiliation it is likely to generate, are already deterrent factors against
its concoction. The victim, the perpetrator, nay, the entire family must deal with a crisis that goes to the very core of familial
integrity.13 In fine, the Court has every reason to believe that in going to court, XXX is simply seeking justice for the bestial acts done to
her even if the ax has to fall against her very own father.
The Court likewise finds no merit in the alleged ill-motive imputed by appellant on his sister-in law, Estrella Tuazon, whom he claimed to
have instigated the filing of the rape charges against him, saying that he and Estrella were not in good terms because he parted ways
with Estrella's sister who is the victims mother. To us, the reason given is too petty a cause to move Estrella to goad her niece to
charge her very own father with two (2) counts of rape. Besides, motive is not necessary when, as here, the identity of the wrongdoer is
positively identified by the victim herself.14
Also, the failure of XXX to immediately disclose the rape incidents should not be taken against her. We have ruled that failure of the
victim to immediately report the rape is not necessarily an indication of a fabricated charge.15For sure, it is not uncommon for young
girls, like XXX, to conceal for some time the assault on their virtues because of the rapists threat on their lives, more so when the rapist
is living with her, as in this case. XXX, in fact, testified that her father threatened to kill her should she report what he had done to her.
Thus, XXXs delay in reporting the sexual violations is thus understandable and cannot undermine her credibility.
Appellant makes capital of the testimony of the examining physician, Dr. Gubuan, that the lacerations in XXXs vagina were about two
to three weeks old when she was examined on September 19, 2000, thus casting doubt on her claim that she was raped on July 27,
2000.
We are not impressed.

The doctors testimony and opinion do not at all detract from the commission of rape. As consistently held by the Court, a medical
examination of the victim is merely corroborative in character and is not an essential element of rape. The accused may be convicted
even on the basis of the lone uncorroborated testimony of the victim, provided that her testimony is clear, positive, and credible, as in
this case.16 For sure, the existence of lacerations in XXXs vagina indicates that she was indeed raped, as in fact, lacerations in the
victims vagina, whether healed or fresh, are the best physical evidence of forcible defloration.17
In exculpation, appellant relies mainly on denial and alibi. He simply discharged as not true the accusation that he raped his daughter
on September 18, 1998. Given the unequivocal and positive testimony of XXX vis--vis the incident of September 18, 1998, as charged
in Criminal Case No. 7836, appellants bare denial thereof must simply collapse. A denial, unsubstantiated by clear and convincing
evidence, is negative, self-serving and merits no weight in law.18
As regards the rape on July 27, 2000, as charged in Criminal Case No. 7835, appellant offered alibi by way of defense. He testified that
from 8 p.m. of July 27, 2000 to 5 a.m. of the following day, he went fishing with a certain Medardo Dapitan.
It is a hornbook rule that for alibi to prosper, there must be a showing that the accused was at another place at the time of the
perpetration of the offense and that it was physically impossible for him to be at the locus of the crime at the time of its
commission.19 The accused must not only prove that he was somewhere else when the crime was committed; he must also
convincingly demonstrate that it was physically impossible for him to be at thelocus criminis at the time of the incident.
Here, the evidence shows that the place (Banawang, Bagac, Bataan) where appellant allegedly went fishing and his house at
Bagumbayan, Bagac, Bataan where the rape incident of July 27, 2000 occurred, are located in the same town. In fact, appellants livein partner, Marlene Gregorio, declared that the distance between Banawang and Bagumbayan can be negotiated in 20 minutes by
tricycle. In short, it was not physically impossible for appellant to be at the scene of the other count of rape on the date and time of its
commission.
But while we are in full square with the trial court on its assessment of the evidence, we differ with it and agree with the CA that the
penalty of death should not have been imposed on appellant because the relationship of the offender as the father of the victim has not
been alleged in the two Informations filed before it. In imposing the death penalty, the trial court relies on Section 11(1) of Republic Act
(RA) No. 765920 which reads:
The death penalty shall be imposed if the crime of rape is committed with any of the following attendant circumstances:
(1) When the victim is under eighteen (18) years of age and the offender is a parent, ascendant, step-parent, guardian, relative by
consanguinity or affinity within the third civil degree, or the common-law spouse of the parent of the victim. (Italics ours)
The Court has repeatedly held that the circumstances mentioned in the aforesaid provision of RA 7659, i.e. minority of the victim and
her relationship to the offender, are in the nature of qualifying circumstances which cannot be proved as such unless alleged in the
information. To impose the death penalty on the basis of a qualifying circumstance which has not been alleged in the information would
violate the accuseds constitutional and statutory right to be informed of the nature and cause of the accusation against him.21
While the two (2) separate Informations in this case commonly allege the age or minority of XXX, both, however, did not properly and
specifically allege appellants relationship with XXX. True it is that below the usual phrase "CONTRARY TO LAW," there appears in
both informations the statement "[T]that the accused is the father of the offended party, XXX." As correctly ruled by the CA, however,
such a statement is "a mere description of the identity of the party who committed the crime charged." In any event, the Solicitor
General himself, in his Brief for the People, acknowledges the flaw in the Informations filed in this case and submits that "appellant
should only be held liable for the crime of simple rape and the penalty imposed upon him should be reclusion perpetua and not death."
With regard to the civil indemnity, we rule that XXX is entitled to the amount of P50,000.00 for each count of rape in keeping with the
current jurisprudence authorizing the mandatory award without need of proof other than the fact of the commission of the offense.22 In
addition, the victim should be awarded moral damages in the amount of P50,000.00 for each count.23 Finally, exemplary damages in
the sum of P25,000.00 in each case of rape are likewise imposed on appellant to deter other fathers with perverse tendencies and
aberrant sexual behavior from preying upon and sexually abusing their daughters.24
WHEREFORE, the decision dated May 23, 2006 of the Court of Appeals in CA-G.R. CR-H.C. No. 01978, adjudging appellant
Leodegario G. Gregorio, Jr. guilty beyond reasonable doubt of two counts of simple rape and sentencing him to suffer the penalty of
reclusion perpetua is AFFIRMED. Appellant is ordered to indemnify XXX the following: (a) P50,000.00 as civil indemnity for each count
or a total of P100,000.00; (b) P50,000.00 as moral damages for each count or a total of P100,000.00; and (c) P25,000.00 as exemplary
damages for each count or a total of P50,000.00.
Costs de oficio.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice

G.R. No. 164012

June 8, 2007

FLORDELIZA MENDOZA, petitioner,

vs.
MUTYA SORIANO and Minor JULIE ANN SORIANO duly represented by her natural mother and guardian ad litem MUTYA
SORIANO, respondents.
DECISION
QUISUMBING, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner asks this Court to reverse and set aside the Decision1 dated
November 17, 2003 and the Resolution2 dated May 24, 2004 of the Court of Appeals in CA-G.R. CV No. 69037. The appellate court
found petitioner, as employer of Lomer Macasasa, liable for damages.
The facts are as follows:
At around 1:00 a.m., July 14, 1997, Sonny Soriano, while crossing Commonwealth Avenue near Luzon Avenue in Quezon City, was hit
by a speeding Tamaraw FX driven by Lomer Macasasa. Soriano was thrown five meters away, while the vehicle only stopped some 25
meters from the point of impact. Gerard Villaspin, one of Sorianos companions, asked Macasasa to bring Soriano to the hospital, but
after checking out the scene of the incident, Macasasa returned to the FX, only to flee. A school bus brought Soriano to East Avenue
Medical Center where he later died. Subsequently, the Quezon City Prosecutor recommended the filing of a criminal case for reckless
imprudence resulting to homicide against Macasasa.3
On August 20, 1997, respondents Mutya Soriano and Julie Ann Soriano, Sorianos wife and daughter, respectively, filed a complaint for
damages against Macasasa and petitioner Flordeliza Mendoza, the registered owner of the vehicle. The complaint was docketed as
Civil Case No. C-18038 in the Regional Trial Court of Caloocan City, Branch 121. Respondents prayed that Macasasa and petitioner be
ordered to pay them: P200,000 moral damages; P500,000 for lost income; P22,250 for funeral services; P45,000 for burial lot; P15,150
for interment and lapida; P8,066 for hospitalization, other medical and transportation expenses; P28,540 for food and drinks during the
wake; P50,000 exemplary damages; P60,000 indemnity for Sorianos death; and P25,000 for attorneys fees plus P500 per court
appearance.4
In her answer, petitioner Mendoza maintained that she was not liable since as owner of the vehicle, she had exercised the diligence of
a good father of a family over her employee, Macasasa.
Upon respondents motion, the complaint for damages against Macasasa was dismissed.
After trial, the trial court also dismissed the complaint against petitioner.5 It found Soriano negligent for crossing Commonwealth Avenue
by using a small gap in the islands fencing rather than the pedestrian overpass. The lower court also ruled that petitioner was not
negligent in the selection and supervision of Macasasa since complainants presented no evidence to support their allegation of
petitioners negligence.6
Respondents appealed. The Court of Appeals reversed the trial court. The dispositive portion of the appellate courts decision reads:
WHEREFORE, the judgment appealed from is REVERSED, and another one is hereby rendered ordering [petitioner] Flordeliza
Mendoza to pay [respondents] Mutya Soriano and Julie Ann Soriano the following amounts:
1. Hospital and Burial Expenses P80,926.25
2. Loss of earning capacity P77,000.00
3. Moral Damages P20,000.00
4. Indemnity for the death of Sonny Soriano P50,000.00
Actual payment of the aforementioned amounts should, however, be reduced by twenty (20%) per cent due to the presence of
contributory negligence by the victim as provided for in Article 2179 of the Civil Code.
SO ORDERED.7
While the appellate court agreed that Soriano was negligent, it also found Macasasa negligent for speeding, such that he was unable to
avoid hitting the victim. It observed that Sorianos own negligence did not preclude recovery of damages from Macasasas negligence.
It further held that since petitioner failed to present evidence to the contrary, and conformably with Article 21808 of the Civil Code, the
presumption of negligence of the employer in the selection and supervision of employees stood.
Petitioners motion for reconsideration was denied by the appellate court in a Resolution9 dated May 24, 2004.
Hence, this appeal where petitioner alleges that:
I.
THE TOTAL AMOUNT PRAYED FOR IN THE COMPLAINT IS NOT WITHIN THE JURISDICTION OF THE REGIONAL TRIAL
COURT.
II.

[COROLLARILY], THE AWARD OF DAMAGES IN FAVOR OF THE RESPONDENTS [HAS] NO BASIS IN LAW.10
The issues are simple: (1) Did the Regional Trial Court have jurisdiction to try the case? and (2) Was there sufficient legal basis to
award damages?
Petitioner argues that the amount claimed by respondents is within the jurisdiction of the Metropolitan Trial Court. She posits that to
determine the jurisdictional amount, what should only be considered are the following: P22,250 for funeral services; P45,000 for burial
lot; P15,150 for interment and lapida; P8,066 for hospitalization and transportation; P28,540 for food and drinks during the wake;
and P60,000 indemnity for Sorianos death. She maintains that the sum of these amounts, P179,006, is below the jurisdictional amount
of the Regional Trial Court. She states that under Section 19(8) of the Judiciary Reorganization Act of 1980, the following claims of
respondents must be excluded: P200,000 moral damages, P500,000 for lost income; P50,000 exemplary damages; P25,000 attorneys
fees plus P500 per court appearance. Petitioner thus prays that the decision of the Court of Appeals be reversed, and the dismissal of
the case by the trial court be affirmed on the ground of lack of jurisdiction.
Section 19(8) of Batas Pambansa Blg. 129,11 as amended by Republic Act No. 7691, states the pertinent law.
SEC. 19. Jurisdiction in civil cases.Regional Trial Courts shall exercise exclusive original jurisdiction:
xxxx
(8) In all other cases in which the demand, exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses, and
costs or the value of the property in controversy exceeds One hundred thousand pesos (P100,000.00) or, in such other cases in Metro
Manila, where the demand, exclusive of the abovementioned items exceeds Two hundred thousand pesos (P200,000.00).
But relatedly, Administrative Circular No. 09-9412 expressly states:
xxxx
2. The exclusion of the term "damages of whatever kind" in determining the jurisdictional amount under Section 19(8) and Section 33(1)
of BP Blg. 129, as amended by RA No. 7691, applies to cases where the damages are merely incidental to or a consequence of the
main cause of action. However, in cases where the claim for damages is the main cause of action, or one of the causes of action, the
amount of such claim shall be considered in determining the jurisdiction of the court. (Underscoring supplied.)
Actions for damages based on quasi-delicts, as in this case, are primarily and effectively actions for the recovery of a sum of money for
the damages for tortious acts.13 In this case, respondents claim of P929,006 in damages and P25,000 attorneys fees plus P500 per
court appearance represents the monetary equivalent for compensation of the alleged injury. These money claims are the principal
reliefs sought by respondents in their complaint for damages.14 Consequently then, we hold that the Regional Trial Court of Caloocan
City possessed and properly exercised jurisdiction over the case.15
Petitioner further argues that since respondents caused the dismissal of the complaint against Macasasa, there is no longer any basis
to find her liable. She claims that "no iota of evidence" was presented in this case to prove Macasasas negligence, and besides,
respondents can recover damages in the criminal case against him.
Respondents counter that as Macasasas employer, petitioner was presumed negligent in selecting and supervising Macasasa after he
was found negligent by the Court of Appeals.
The records show that Macasasa violated two traffic rules under the Land Transportation and Traffic Code. First, he failed to maintain a
safe speed to avoid endangering lives.16 Both the trial and the appellate courts found Macasasa overspeeding.17 The records show also
that Soriano was thrown five meters away after he was hit.18Moreover, the vehicle stopped only some 25 meters from the point of
impact.19
Both circumstances support the conclusion that the FX vehicle driven by Macasasa was overspeeding. Second, Macasasa, the vehicle
driver, did not aid Soriano, the accident victim, in violation of Section 55,20 Article V of the Land Transportation and Traffic Code. While
Macasasa at first agreed to bring Soriano to the hospital, he fled the scene in a hurry. Contrary to petitioners claim, there is no showing
of any factual basis that Macasasa fled for fear of the peoples wrath. What remains undisputed is that he did not report the accident to
a police officer, nor did he summon a doctor. Under Article 218521 of the Civil Code, a person driving a motor vehicle is presumed
negligent if at the time of the mishap, he was violating traffic regulations.
While respondents could recover damages from Macasasa in a criminal case and petitioner could become subsidiarily liable, still
petitioner, as owner and employer, is directly and separately civilly liable for her failure to exercise due diligence in supervising
Macasasa.22 We must emphasize that this damage suit is for the quasi-delict of petitioner, as owner and employer, and not for the delict
of Macasasa, as driver and employee.
Under Article 2180 of the Civil Code, employers are liable for the damages caused by their employees acting within the scope of their
assigned tasks. The liability arises due to the presumed negligence of the employers in supervising their employees unless they prove
that they observed all the diligence of a good father of a family to prevent the damage.
In this case, we hold petitioner primarily and solidarily liable for the damages caused by Macasasa.23Respondents could recover
directly from petitioner24 since petitioner failed to prove that she exercised the diligence of a good father of a family in supervising
Macasasa.25 Indeed, it is unfortunate that petitioner harbored the notion that the Regional Trial Court did not have jurisdiction over the
case and opted not to present her evidence on this point.
Lastly, we agree that the Court of Appeals did not err in ruling that Soriano was guilty of contributory negligence for not using the
pedestrian overpass while crossing Commonwealth Avenue. We even note that the respondents now admit this point, and concede that
the appellate court had properly reduced by 20% the amount of damages it awarded. Hence, we affirm the reduction26 of the amount
earlier awarded, based on Article 2179 of the Civil Code which reads:

When the plaintiff's own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his
negligence was only contributory, the immediate and proximate cause of the injury being the defendant's lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the damages to be awarded.
WHEREFORE, we DENY the petition for lack of merit and hereby AFFIRM the Decision dated November 17, 2003 and the Resolution
dated May 24, 2004 of the Court of Appeals in CA-G.R. CV No. 69037.
Costs against petitioner.
SO ORDERED.

G.R. No. 123498

November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate this exhortation in the
case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision1 in CA-G.R. CV No. 43424
which affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 9053295.
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by respondent Amado
Franco (Franco) in conspiracy with other individuals,3 some of whom opened and maintained separate accounts with BPI-FB, San
Francisco del Monte (SFDM) branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with BPI-FB. Soon
thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a time deposit account with the same branch
of BPI-FB with a deposit of P100,000,000.00, to mature one year thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time deposit,6 with BPI-FB. The
current and savings accounts were respectively funded with an initial deposit ofP500,000.00 each, while the time deposit account
had P1,000,000.00 with a maturity date of August 31, 1990. The total amount of P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in consideration of Francos introduction of Eladio Teves,7 who was looking for a
conduit bank to facilitate Tevestecos business transactions, to Jaime Sebastian, who was then BPI-FB SFDMs Branch Manager. In
turn, the funding for the P2,000,000.00 check was part of the P80,000,000.00 debited by BPI-FB from FMICs time deposit account and
credited to Tevestecos current account pursuant to an Authority to Debit purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs officers on the Authority to Debit were forged.8 On September 4, 1989, Antonio
Ong,9 upon being shown the Authority to Debit, personally declared his signature therein to be a forgery. Unfortunately, Tevesteco had
already effected several withdrawals from its current account (to which had been credited the P80,000,000.00 covered by the forged
Authority to Debit) amounting to P37,455,410.54, including the P2,000,000.00 paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMICs forgery claim, BPI-FB, thru its Senior VicePresident, Severino Coronacion, instructed Jesus Arangorin10 to debit Francos savings and current accounts for the amounts
remaining therein.11 However, Francos time deposit account could not be debited due to the capacity limitations of BPI-FBs
computer.12
In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored upon presentment for payment,
and stamped with a notation "account under garnishment." Apparently, Francos current account was garnished by virtue of an Order of
Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been filed
by BPI-FB against Franco et al.,14 to recover the P37,455,410.54 representing Tevestecos total withdrawals from its account.
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Francos receipt of notice that his
accounts were under garnishment.15 In fact, at the time the Notice of Garnishment dated September 27, 1989 was served on BPI-FB,
Franco had yet to be impleaded in the Makati case where the writ of attachment was issued.
It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-4996, that Franco
was impleaded in the Makati case.16 Immediately, upon receipt of such copy, Franco filed a Motion to Discharge Attachment which the
Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with Franco
demanding the release to him of the funds in his savings and current accounts. Jesus Arangorin, BPI-FBs new manager, could not
forthwith comply with the demand as the funds, as previously stated, had already been debited because of FMICs forgery claim. As
such, BPI-FBs computer at the SFDM Branch indicated that the current account record was "not on file."
With respect to Francos savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian,
whereby P400,000.00 from his savings account was temporarily transferred to Domingo Quiaoits savings account, subject to its
immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his visa application at the Taiwan
Embassy. As part of the arrangement, Sebastian retained custody of Quiaoits savings account passbook to ensure that no withdrawal
would be effected therefrom, and to preserve Francos deposits.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of P63,189.00 from the remaining
balance of the time deposit account representing advance interest paid to him.
These transactions spawned a number of cases, some of which we had already resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount of P80,000,000.00 debited from its account.17 The case
eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,18 we upheld the finding of
the courts below that BPI-FB failed to exercise the degree of diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in its time deposit. It was ordered to
pay P65,332,321.99 plus interest at 17% per annum from August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest
at 12% from October 4, 1989 until fully paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),19 recipients of a P500,000.00 check
proceeding from the P80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco,
were also prevented from effecting withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa, Caloocan City
Branch. Likewise, when the case was elevated to this Court docketed as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had
no right to freeze Buenaventura, et al.s accounts and adjudged BPI-FB liable therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-million peso
scam.22 In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who was still at large, were acquitted
of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code.23 However, the civil
case24 remains under litigation and the respective rights and liabilities of the parties have yet to be adjudicated.
Consequently, in light of BPI-FBs refusal to heed Francos demands to unfreeze his accounts and release his deposits therein, the
latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the following reliefs: (1) the interest
on the remaining balance25 of his current account which was eventually released to him on October 31, 1991; (2) the balance26 on his
savings account, plus interest thereon; (3) the advance interest27 paid to him which had been deducted when he pre-terminated his time
deposit account; and (4) the payment of actual, moral and exemplary damages, as well as attorneys fees.
BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release his deposits,
claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently withdrawn from it by
Tevesteco and ending up in Francos accounts. BPI-FB asseverated that the claimed consideration of P2,000,000.00 for the
introduction facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime Sebastian, on the other,
spoke volumes of Francos participation in the fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB], ordering the latter to
pay to the former the following sums:
1. P76,500.00 representing the legal rate of interest on the amount of P450,000.00 from May 18, 1990 to October 31, 1991;
2. P498,973.23 representing the balance on [Francos] savings account as of May 18, 1990, together with the interest thereon
in accordance with the banks guidelines on the payment therefor;
3. P30,000.00 by way of attorneys fees; and
4. P10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.
Costs against [BPI-FB].
SO ORDERED.28
Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to the Manila RTCs
denial of his claim for moral and exemplary damages, and the diminutive award of attorneys fees. In affirming with modification the
lower courts decision, the appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB] to pay
[Franco] P63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant.P200,000.00 as moral damages
and P100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the award of moral and exemplary
damages) and increasing the award of attorneys fees from P30,000.00 to P75,000.00.
Cost against [BPI-FB].
SO ORDERED.29
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the subject accounts
which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his current account; (3) Franco can
recover the P400,000.00 deposit in Quiaoits savings account; (4) the dishonor of Francos checks was not legally in order; (5) BPI-FB
is liable for interest on Francos time deposit, and for moral and exemplary damages; and (6) BPI-FBs counter-claim has no factual and
legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Francos accounts and preclude
him from withdrawing his deposits. However, contrary to the appellate courts ruling, we hold that Franco is not entitled to unearned
interest on the time deposit as well as to moral and exemplary damages.
First. On the issue of who has a better right to the deposits in Francos accounts, BPI-FB urges us that the legal consequence of
FMICs forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering that it was able to recover
possession of the same when the money was redeposited by Franco, it had the right to set up its ownership thereon and freeze
Francos accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is stolen, and to
illustrate this point, BPI-FB gives the following example: where Xs television set is stolen by Y who thereafter sells it to Z, and where Z

unwittingly entrusts possession of the TV set to X, the latter would have the right to keep possession of the property and preclude Z
from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid therefor.
BPI-FBs argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains to a specific or
determinate thing.30 A determinate or specific thing is one that is individualized and can be identified or distinguished from others of the
same kind.31
In this case, the deposit in Francos accounts consists of money which, albeit characterized as a movable, is generic and
fungible.32 The quality of being fungible depends upon the possibility of the property, because of its nature or the will of the parties,
being substituted by others of the same kind, not having a distinct individuality.33
Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover the exact same
thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of money, i.e., the value thereof, which it
had mistakenly debited from FMICs account and credited to Tevestecos, and subsequently traced to Francos account. In fact, this is
what BPI-FB did in filing the Makati Case against Franco, et al. It staked its claim on the money itself which passed from one account to
another, commencing with the forged Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar ownership,34 and this characteristic is all the more manifest in the
instant case which involves money in a banking transaction gone awry. Its primary function is to pass from hand to hand as a medium
of exchange, without other evidence of its title.35 Money, which had passed through various transactions in the general course of
banking business, even if of traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FBs illustrative example, ostensibly based
on Article 559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence of its unauthorized
transfer of FMICs deposits to Tevestecos account. BPI-FB conveniently forgets that the deposit of money in banks is governed by the
Civil Code provisions on simple loan or mutuum.36 As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB
ultimately acquired ownership of Francos deposits, but such ownership is coupled with a corresponding obligation to pay him an equal
amount on demand.37 Although BPI-FB owns the deposits in Francos accounts, it cannot prevent him from demanding payment of BPIFBs obligation by drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when
Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks would be honored
by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion that the funds
therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-FB, or any bank for that matter,
the right to take whatever action it pleases on deposits which it supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to resonate, thus:
The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of every civilized
nation. Whether as mere passive entities for the safekeeping and saving of money or as active instruments of business and commerce,
banks have become an ubiquitous presence among the people, who have come to regard them with respect and even gratitude and,
most of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his lifes savings to the bank of his choice,
knowing that they will be safe in its custody and will even earn some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the settling of his monthly bills and the payment of ordinary
expenses. x x x.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as
possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of the bank, such as the dishonor of the
check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and
criminal litigation.
The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers. Having failed to
detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now
shift liability thereon to Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to Debit, effected the
transfer of P80,000,000.00 from FMICs to Tevestecos account, when FMICs account was a time deposit and it had already paid
advance interest to FMIC. Considering that there is as yet no indubitable evidence establishing Francos participation in the forgery, he
remains an innocent party. As between him and BPI-FB, the latter, which made possible the present predicament, must bear the
resulting loss or inconvenience.

Second. With respect to its liability for interest on Francos current account, BPI-FB argues that its non-compliance with the Makati
RTCs Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to be taken up in that court.
The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila RTCs order to pay
interests on Francos current account arose from BPI-FBs unjustified refusal to comply with its obligation to pay Franco pursuant to
their contract of mutuum. In other words, from the time BPI-FB refused Francos demand for the release of the deposits in his current
account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue thereon.39
Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FBs non-compliance with the
Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC from ruling on BPI-FBs liability to
Franco for payment of interest based on its continued and unjustified refusal to perform a contractual obligation upon demand. After all,
this was the core issue raised by Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoits account, we find no reason to depart from the factual findings of both the
Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco who simply
accommodated Jaime Sebastians request to temporarily transfer P400,000.00 from Francos savings account to Quiaoits
account.40 His testimony cannot be characterized as hearsay as the records reveal that he had personal knowledge of the arrangement
made between Franco, Sebastian and himself.41
BPI-FB makes capital of Francos belated allegation relative to this particular arrangement. It insists that the transaction with Quiaoit
was not specifically alleged in Francos complaint before the Manila RTC. However, it appears that BPI-FB had impliedly consented to
the trial of this issue given its extensive cross-examination of Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried with
the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such
amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made
upon motion of any party at any time, even after judgment; but failure to amend does not affect the result of the trial of these issues. If
evidence is objected to at the trial on the ground that it is now within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice
will be subserved thereby. The court may grant a continuance to enable the amendment to be made. (Emphasis supplied)
In all, BPI-FBs argument that this case is not the right forum for Franco to recover the P400,000.00 begs the issue. To reiterate,
Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and pointed to Franco as the actual
owner thereof. Clearly, Francos action for the recovery of his deposits appropriately covers the deposits in Quiaoits account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Francos checks respectively dated September
11 and 18, 1989 was legally in order in view of the Makati RTCs supplemental writ of attachment issued on September 14, 1989. It
posits that as the party that applied for the writ of attachment before the Makati RTC, it need not be served with the Notice of
Garnishment before it could place Francos accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FBs clever but transparent ploy to circumvent Section 4,42 Rule 13 of the
Rules of Court. It should be noted that the strict requirement on service of court papers upon the parties affected is designed to comply
with the elementary requisites of due process. Franco was entitled, as a matter of right, to notice, if the requirements of due process are
to be observed. Yet, he received a copy of the Notice of Garnishment only on September 27, 1989, several days after the two checks
he issued were dishonored by BPI-FB on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Francos accounts
without even awaiting service of the Makati RTCs Notice of Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including in the main suit
the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically provides that "no levy or
attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service of
summons, together with a copy of the complaint, the application for attachment, on the defendant within the Philippines."
Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over the person of
Franco when BPI-FB garnished his accounts.43 Effectively, therefore, the Makati RTC had no authority yet to bind the deposits of
Franco through the writ of attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued by Franco.
Fifth. Anent the CAs finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from Francos time
deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of the trial court, and allow only
the recovery of nominal damages in the amount of P10,000.00. However, we retain the CAs award of P75,000.00 as attorneys fees.
In granting Francos prayer for interest on his time deposit account and for moral and exemplary damages, the CA attributed bad faith
to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly claimed that Francos deposits were under
garnishment; (3) misrepresented that Francos current account was not on file; and (4) refused to return the P400,000.00 despite the
fact that the ostensible owner, Quiaoit, wanted the amount returned to Franco.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are
the natural and probable consequences of the breach of the obligation, and which the parties have foreseen or could have reasonable
foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill will. BPI-FB was
not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all damages now being imputed to it for its
breach of obligation. For the same reason, it is not liable for the unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it partakes of the nature of fraud.44 We have held that it is a breach of a known duty through some motive of interest or
ill will.45 In the instant case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court found, there was
no denial whatsoever by BPI-FB of the existence of the accounts. The computer-generated document which indicated that the current
account was "not on file" resulted from the prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the
garnishment, or even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of holding on to the
funds as a security for its intended court action,46 and with no other goal but to ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages cannot be awarded; and that the adverse
result of an action does not per se make the action wrongful, or the party liable for it. One may err, but error alone is not a ground for
granting such damages.48
An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury clearly sustained by the
claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission factually established; (3) the wrongful
act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for damages is
predicated on any of the cases stated in Article 2219 of the Civil Code.49
Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,50 upon which to base his claim for
moral damages.1wphi1
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil Code for breach of
contract.51
We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or compensatory damages
before the court may even consider the question of whether exemplary damages should be awarded to him.52 As there is no basis for
the award of moral damages, neither can exemplary damages be granted.
While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is entitled to reasonable attorneys
fees for having been compelled to go to court in order to assert his right. Thus, we affirm the CAs grant of P75,000.00 as attorneys
fees.
Attorneys fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,54or when the court
deems it just and equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of Franco despite the Makati RTCs Order
Lifting the Order of Attachment and Quiaoits unwavering assertion that the P400,000.00 was part of Francos savings account. This
refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order to protect his interests and recover his
deposits. Therefore, this Court deems it just and equitable to grant Franco P75,000.00 as attorneys fees. The award is reasonable in
view of the complexity of the issues and the time it has taken for this case to be resolved.56
Sixth. As for the dismissal of BPI-FBs counter-claim, we uphold the Manila RTCs ruling, as affirmed by the CA, that BPI-FB is not
entitled to recover P3,800,000.00 as actual damages. BPI-FBs alleged loss of profit as a result of Francos suit is, as already pointed
out, of its own making. Accordingly, the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29, 1995 is AFFIRMED with the
MODIFICATION that the award of unearned interest on the time deposit and of moral and exemplary damages is DELETED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 160026

December 10, 2007

EDMERITO ANG GOBONSENG, and EDUARDO ANG GOBONSENG, SR., Petitioners,

vs.
UNIBANCARD CORPORATION, Respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari1 seeking the nullification of the Decision rendered by the Court of Appeals (CA) on February 27,
2003, and its Resolution, dated September 2, 2003, in CA-G.R. SP No. 67510 entitled "Edmerito Ang Gobonseng, et al. v. Unibancard
Corporation."
The facts are as follows:
Respondent Unibancard Corporation (Unicard) is engaged in the credit card business. Petitioner Edmerito Ang Gobonseng applied with
Unicard for the issuance of a Unicard credit card in his name with co-petitioner Eduardo Ang Gobonseng as co-obligor. A Unicard credit
card2 with a monthly credit limit of P10,000 was issued to petitioners.
As of May 16, 1995, petitioner Edmeritos credit card purchases had accumulated to P179,638.74. Petitioner defaulted in his monthly
payments, so respondents lawyer sent a demand letter to petitioners requiring the payment of the following amounts:
Principal

P179,638.74

Interest

73,112.97

Penalty

148,447.17

TOTAL

P401,198.88

Despite repeated demands, Unicard was unable to recover the amounts stated. A complaint for the collection of a sum of money was
thus filed by Unicard against petitioners with the Metropolitan Trial Court (MeTC) of Makati City.
Petitioners, instead of filing an Answer, filed a motion to dismiss on the ground of improper venue. The motion was denied by the
MeTC, and so was the motion for reconsideration. A petition for certiorari was subsequently filed with the Regional Trial Court (RTC) of
Makati City. The same was denied, as well as petitioners motion for reconsideration. A petition for certiorari was then filed with the
CA3 but the same was likewise denied.4
The proceedings before the MeTC continued notwithstanding the pendency of the petition before the CA. Respondent moved to declare
petitioners in default for non-filing of an answer within the reglementary period, and upon the courts approval thereof, the former was
allowed to present evidence ex parte.
The RTC rendered a decision on January 22, 1998, the dispositive portion of which reads:
WHEREFORE, judgment is rendered ordering defendants [petitioners], jointly and severally, to pay the plaintiff the amount
of P179,638.74 as of October 10, 1997 representing the principal amount of the credit charges plus interest at the rate of 3% per
month; penalties at the rate of 5% per month to be reckoned from the filing of the complaint until the amount is fully paid and 25% of the
amount due, as and for attorneys fees, and to pay the cost.
SO ORDERED.5
Petitioners motion for reconsideration was denied and they filed a petition for certiorari with the CA.6
On February 27, 2003, the CA7 rendered a decision, the pertinent portions of which read:
It is herein emphasized that petitioners were declared in default for non-filing of an answer; thus, the facts relied upon by the trial court,
[upon] which its judgment was rooted, were established in an ex-parte presentation of evidence of private respondents. Nevertheless,
gathered from the pleadings, petitioners did not deny the existence of the principal obligation but merely contested the sky-high interest
rate and penalty charges including the charge of attorneys fees.
In the instant case, the penalty of 5% per month on top of the monthly interest of 3% is considerably high, which if added, would result
to almost 100% per annum. Moreover, the lowering of penalty is justified by the contributory negligence of private respondent since it
did not observe diligence in monitoring petitioners use of the credit card which had accumulated to P179,638.74 or more than ten times
his credit card limit of only P10,000.00 per month. Although well-settled is the rule that a contract has the force of law between the
parties, and each is bound to fulfill what has been expressly stipulated therein, it is not always so, since any contract, which appears to
be so heavily weighted in favor of one of the parties so as to lead to an unconscionable result, is void. There is no way a prospective
credit card holder can object to any onerous provision in the contract containing standard stipulations imposed upon those who seek to
avail of credit services as they are offered on a take-it-or-leave-it basis as the contract between them is one of adhesion (Polotan, Sr. v.
Court of Appeals, 296 SCRA 247).
Finally, the attorneys fees of 25% of the amount due, with the interest and penalties as of May 16, 1995 ofP221,560.14 which even
exceed the principal debt of P179,638.74 are considered exorbitant. While the parties may have agreed to the payment of attorneys
fees, the court has jurisdiction to determine the reasonableness of the sum stipulated. For the court to ignore an express contract for
attorneys fees, it is sufficient that it is unreasonable or unconscionable (Civil Code, Volume 4, 1996, by Arturo M. Tolentino, p. 269).

WHEREFORE, premises considered and finding no grave abuse of discretion amounting to lack or excess of jurisdiction was
committed by the respondent Presiding Judge of Branch 57 of the Regional Trial Court of Makati City in the issuance of the assailed
Orders dated December 5, 2000, May 28, 2001, and August 10, 2001, the said Orders are AFFIRMED with MODIFICATION in that the
penalties are reduced to 1% per month and attorneys fees to 10%.
SO ORDERED.8
Petitioners motion for reconsideration was denied, hence, the petition herein raising the following arguments:9
First, the baseless and exorbitant interest of 3% per month which is shocking to the conscience of man and the court is contrary to the
12% interest per annum set by the Supreme Court in Medel v. Court of Appeals10 andEastern Assurance and Surety, Corporation
(EASCO) v. Court of Appeals;11
Second, the penalty of 5% per month violates Article 1226 of the Civil Code which states that in obligations with a penal clause, the
penalty shall substitute the indemnity for damages and the payment of interest in case of noncompliance; and
Lastly, the attorneys fees should be fixed below 10%.
The issue is whether the CA erred in failing to: 1) apply the interest rate of 12% to the principal amount owed; 2) disregard the penalty
of 5%; and, 3) reduce the attorneys fees to below 10%.
The contract between the parties stipulated the following:
9. All charges made through the use of [the] card shall be paid by the UNICARD holder and/or co-obligor within twenty (20) days from
the date of the said statement of account without the necessity of demand. These charges or balance thereof remaining unpaid after
this 20-day period shall bear interest at the rate of 3% per month and a penalty equivalent to 5% of the amount due for every month or
a fraction of a months delay In case it is necessary to collect the account by or thru an attorney-at-law or collection agency, the
UNICARD holder and co-obligor shall pay 25% of the amount due which shall in no case be less than P1,000.00, as collection or
attorneys fees, in addition to costs and other litigation expenses.12
The CA was correct in applying the 3% interest on the principal amount owed by petitioners to respondent Unicard, as well as the
penalty due thereon, for the following reasons:
One, Article 1226 of the Civil Code provides that in obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
In other words, where the contract stipulates the rate of interest and the amount of penalty to be paid in case of failure to pay the
obligation within a given period, both the penalty and the interest can be collected by the creditor.
Two, petitioners reliance on this Courts ruling in Medel v. Court of Appeals13 and Eastern Assurance and Surety, Corporation
(EASCO) v. Court of Appeals14 is misplaced.
Contrary to petitioners assertion, it is only when the parties to a contract have failed to fix the rate of interest or when such amount is
unwarranted that the Court will apply the 12% interest per annum on a loan or forbearance of money.
In Medel v. Court of Appeals,15 the 12% interest rate per annum was applied because this Court considered the stipulated rate of
interest at 5.5% per month excessive and iniquitous.
Moreover, the case of Eastern Assurance and Surety, Corporation (EASCO) v. Court of Appeals16 reiterated the rules in fixing the rate
of interest, thus:
With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed as follows:
1. When an 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.
Hence, unless the stipulated amounts are exorbitant, the court will sustain the amounts agreed upon by the parties because, as stated
in Pryce Corporation v. Philippine Amusement and Gaming Corporation,17 obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith. If the terms of the contract clearly express the intention of
the contracting parties, the literal meaning of the stipulations would be controlling. The court has to enforce the contractual stipulations
in the manner that they have been agreed upon for as long as they are not unconscionable or contrary to morals and public
policy.1wphi1
With regard to the award of attorneys fees, the same is recoverable because petitioners signified their adherence to such an
arrangement when they availed of the Unicard credit card. The 25% attorneys fees was, however, excessive, thus, the reduction of the
amount was appropriate.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals on February 27, 2003 and September 2,
2003, respectively, are AFFIRMED.
Costs against petitioners.
SO ORDERED.

G.R. No. 131723

December 13, 2007

MANILA ELECTRIC COMPANY, petitioner,

vs.
T.E.A.M. ELECTRONICS CORPORATION, TECHNOLOGY ELECTRONICS ASSEMBLY and MANAGEMENT PACIFIC
CORPORATION; and ULTRA ELECTRONICS INSTRUMENTS, INC., respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal of the Decision1of the Court of
Appeals (CA) dated June 18, 1997 and its Resolution2 dated December 3, 1997 in CA-G.R. CV No. 40282 denying the appeal filed by
petitioner Manila Electric Company.
The facts of the case, as culled from the records, are as follows:
Respondent T.E.A.M. Electronics Corporation (TEC) was formerly known as NS Electronics (Philippines), Inc. before 1982 and National
Semi-Conductors (Phils.) before 1988. TEC is wholly owned by respondent Technology Electronics Assembly and Management Pacific
Corporation (TPC). On the other hand, petitioner Manila Electric Company (Meralco) is a utility company supplying electricity in the
Metro Manila area.
Petitioner and NS Electronics (Philippines), Inc., the predecessor-in-interest of respondent TEC, were parties to two separate contracts
denominated as Agreements for the Sale of Electric Energy under the following account numbers: 09341-1322-163 and 09341-181213.4 Under the aforesaid agreements, petitioner undertook to supply TEC's building known as Dyna Craft International Manila (DCIM)
located at Electronics Avenue, Food Terminal Complex, Taguig, Metro Manila, with electric power. Another contract was entered into
for the supply of electric power to TEC's NS Building under Account No. 19389-0900-10.
In September 1986, TEC, under its former name National Semi-Conductors (Phils.) entered into a Contract of Lease5 with respondent
Ultra Electronics Industries, Inc. (Ultra) for the use of the former's DCIM building for a period of five years or until September 1991. Ultra
was, however, ejected from the premises on February 12, 1988 by virtue of a court order, for repeated violation of the terms and
conditions of the lease contract.
On September 28, 1987, a team of petitioner's inspectors conducted a surprise inspection of the electric meters installed at the DCIM
building, witnessed by Ultra's6 representative, Mr. Willie Abangan. The two meters covered by account numbers 09341-1322-16 and
09341-1812-13, were found to be allegedly tampered with and did not register the actual power consumption in the building. The results
of the inspection were reflected in the Service Inspection Reports7 prepared by the team.
In a letter dated November 25, 1987, petitioner informed TEC of the results of the inspection and demanded from the latter the payment
of P7,040,401.01 representing its unregistered consumption from February 10, 1986 until September 28, 1987, as a result of the
alleged tampering of the meters.8 TEC received the letters on January 7, 1988. Since Ultra was in possession of the subject building
during the covered period, TEC's Managing Director, Mr. Bobby Tan, referred the demand letter to Ultra9 which, in turn, informed TEC
that its Executive Vice-President had met with petitioner's representative. Ultra further intimated that assuming that there was tampering
of the meters, petitioner's assessment was excessive.10 For failure of TEC to pay the differential billing, petitioner disconnected the
electricity supply to the DCIM building on April 29, 1988.
TEC demanded from petitioner the reconnection of electrical service, claiming that it had nothing to do with the alleged tampering but
the latter refused to heed the demand. Hence, TEC filed a complaint on May 27, 1988 before the Energy Regulatory Board (ERB)
praying that electric power be restored to the DCIM building.11 The ERB immediately ordered the reconnection of the service but
petitioner complied with it only on October 12, 1988 after TEC paid P1,000,000.00, under protest. The complaint before the ERB was
later withdrawn as the parties deemed it best to have the issues threshed out in the regular courts. Prior to the reconnection, or on June
7, 1988, petitioner conducted a scheduled inspection of the questioned meters and found them to have been tampered anew.12
Meanwhile, on April 25, 1988, petitioner conducted another inspection, this time, in TEC's NS Building. The inspection allegedly
revealed that the electric meters were not registering the correct power consumption. Petitioner, thus, sent a letter dated June 18, 1988
demanding payment of P280,813.72 representing the differential billing.13 TEC denied petitioner's allegations and claim in a letter dated
June 29, 1988.14 Petitioner, thus, sent TEC another letter demanding payment of the aforesaid amount, with a warning that the electric
service would be disconnected in case of continued refusal to pay the differential billing.15 To avert the impending disconnection of
electrical service, TEC paid the above amount, under protest.16
On January 13, 1989, TEC and TPC filed a complaint for damages against petitioner and Ultra17 before the Regional Trial Court (RTC)
of Pasig. The case was raffled to Branch 162 and was docketed as Civil Case No. 56851.18 Upon the filing of the parties' answer to the
complaint, pre-trial was scheduled.
At the pre-trial, the parties agreed to limit the issues, as follows:
1. Whether or not the defendant Meralco is liable for the plaintiffs' disconnection of electric service at DCIM Building.
2. Whether or not the plaintiff is liable for (sic) the defendant for the differential billings in the amount ofP7,040,401.01.
3. Whether or not the plaintiff is liable to defendant for exemplary damages.19
For failure of the parties to reach an amicable settlement, trial on the merits ensued. On June 17, 1992, the trial court rendered a
Decision in favor of respondents TEC and TPC, and against respondent Ultra and petitioner. The pertinent portion of the decision
reads:

WHEREFORE, judgment is hereby rendered in this case in favor of the plaintiffs and against the defendants as follows:
(1) Ordering both defendants Meralco and ULTRA Electronics Instruments, Inc. to jointly and severally reimburse
plaintiff TEC actual damages in the amount of ONE MILLION PESOS with legal rate of interest from the date of the
filing of this case on January 19, 1989 until the said amount shall have been fully paid;
(2) Ordering defendant Meralco to pay to plaintiff TEC the amount of P280,813.72 as actual damages with legal rate
of interest also from January 19, 1989;
(3) Ordering defendant Meralco to pay to plaintiff TPC the amount of P150,000.00 as actual damages with interest at
legal rate from January 19, 1989;
(4) Condemning defendant Meralco to pay both plaintiffs moral damages in the amount pfP500,000.00;
(5) Condemning defendant Meralco to pay both plaintiffs corrective and/or exemplary damages in the amount
of P200,000.00;
(6) Ordering defendant Meralco to pay attorney's fees in the amount of P200,000.00
Costs against defendant Meralco.
SO ORDERED.20
The trial court found the evidence of petitioner insufficient to prove that TEC was guilty of tampering the meter installations. The
deformed condition of the meter seal and the existence of an opening in the wire duct leading to the transformer vault did not, in
themselves, prove the alleged tampering, especially since access to the transformer was given only to petitioner's employees. 21 The
sudden drop in TEC's (or Ultra's) electric consumption did not, per se, show meter tampering. The delay in the sending of notice of the
results of the inspection was likewise viewed by the court as evidence of inefficiency and arbitrariness on the part of petitioner. More
importantly, petitioner's act of disconnecting the DCIM building's electric supply constituted bad faith and thus makes it liable for
damages.22 The court further denied petitioner's claim of differential billing primarily on the ground of equitable
negligence.23 Considering that TEC and TPC paid P1,000,000.00 to avert the disconnection of electric power; and because Ultra
manifested to settle the claims of petitioner, the court imposed solidary liability on both Ultra and petitioner for the payment of
the P1,000,000.00.
Ultra and petitioner appealed to the CA which affirmed the RTC decision, with a modification of the amount of actual damages and
interest thereon. The dispositive portion of the CA decision dated June 18, 1997, states:
WHEREFORE, this Court renders judgment affirming in toto the Decision rendered by the trial court with the slight modification
that the interest at legal rate shall be computed from January 13, 1989 and that Meralco shall pay plaintiff T.E.A.M. Electronics
Corporation and Technology Electronics Assembly and Management Pacific Corporation the sum of P150,000.00 per month
for five (5) months for actual damages incurred when it was compelled to lease a generator set with interest at the legal rate
from the above-stated date.
SO ORDERED.24
The appellate court agreed with the RTC's conclusion. In addition, it considered petitioner negligent for failing to discover the alleged
defects in the electric meters; in belatedly notifying TEC and TPC of the results of the inspection; and in disconnecting the electric
power without prior notice.
Petitioner now comes before this Court in this petition for review on certiorari contending that:
The Court of Appeals committed grievous errors and decided matters of substance contrary to law and the rulings of this
Honorable Court:
1. In finding that the issue in the case is whether there was deliberate tampering of the metering installations at the building
owned by TEC.
2. In not finding that the issue is: whether or not, based on the tampered meters, whether or not petitioner is entitled to
differential billing, and if so, how much.
3. In declaring that petitioner ME RALCO had the burden of proof to show by clear and convincing evidence that with respect
to the tampered meters that TEC and/or TPC authored their tampering.
4. In finding that petitioner Meralco should not have held TEC and/or TPC responsible for the acts of Ultra.
5. In finding that TEC should not be held liable for the tampering of this electric meter in its DCIM Building.
6. In finding that there was no notice of disconnection.
7. In finding that petitioner MERALCO was negligent in informing TEC of the alleged tampering.
8. In making the finding that it is difficult to believe that when petitioner MERALCO inspected on June 7, 1988 the meter
installations, they were found to be tampered.
9. In declaring that petitioner MERALCO estopped from claiming any tampering of the meters.

10. In finding that "the method employed by MERALCO to as certain (sic) the 'correct' amount of electricity consumed is
questionable";
11. In declaring that MERALCO all throughout its dealings with TEC took on an "attitude" which is oppressive, wanton and
reckless.
12. In declaring that MERALCO acted arbitrarily in inspecting TEC's DCIM building and the NS building.
13. In declaring that respondents TEC and TPC are entitled to the damages which it awarded.
14. In not declaring that petitioner is entitled to the differential bill.
15. In not declaring that respondents are liable to petitioner for exemplary damages, attorney's fee and expenses for
litigation.25
The petition must fail.
The issues for resolution can be summarized as follows: 1) whether or not TEC tampered with the electric meters installed at its DCIM
and NS buildings; 2) If so, whether or not it is liable for the differential billing as computed by petitioner; and 3) whether or not petitioner
was justified in disconnecting the electric power supply in TEC's DCIM building.
Petitioner insists that the tampering of the electric meters installed at the DCIM and NS buildings owned by respondent TEC has been
established by overwhelming evidence, as specifically shown by the shorting devices found during the inspection. Thus, says petitioner,
tampering of the meter is no longer an issue.
It is obvious that petitioner wants this Court to revisit the factual findings of the lower courts. Well-established is the doctrine that under
Rule 45 of the Rules of Court, only questions of law, not of fact, may be raised before the Court. We would like to stress that this Court
is not a trier of facts and may not re-examine and weigh anew the respective evidence of the parties. Factual findings of the trial court,
especially those affirmed by the Court of Appeals, are binding on this Court.26
Looking at the record, we note that petitioner claims to have discovered three incidences of meter-tampering; twice in the DCIM building
on September 28, 1987 and June 7, 1988; and once in the NS building on April 24, 1988.
The first instance was supposedly discovered on September 28, 1987. The inspector allegedly found the presence of a short circuiting
device and saw that the meter seal was deformed. In addition, petitioner, through the Supervising Engineer of its Special Billing
Analysis Department,27 claimed that there was a sudden and unexplainable drop in TEC's electrical consumption starting February 10,
1986. On the basis of the foregoing, petitioner concluded that the electric meters were tampered with.
However, contrary to petitioner's claim that there was a drastic and unexplainable drop in TEC's electric consumption during the
affected period, the Pattern of TEC's Electrical Consumption28 shows that the sudden drop is not peculiar to the said period. Noteworthy
is the observation of the RTC in this wise:
In fact, in Account No. 09341-1812-13 (heretofore referred as Account/Meter No. 2), as evidenced by Exhibits "35" and "35-A,"
there was likewise a sudden drop of electrical consumption from the year 1984 which recorded an average 141,300
kwh/month to 1985 which recorded an average kwh/month at 87,600 or a difference-drop of 53,700 kwh/month; from 1985's
87,600 recorded consumption, the same dropped to 18,600 kwh/month or a difference-drop of 69,000 kwh/month. Surely, a
drop of 53,700 could be equally categorized as a sudden drop amounting to 69,000 which, incidentally, the Meralco claimed as
"unexplainable. x x x.29
The witnesses for petitioner who testified on the alleged tampering of the electric meters, declared that tampering is committed by
consumers to prevent the meter from registering the correct amount of electric consumption, and result in a reduced monthly electric
bill, while continuing to enjoy the same power supply. Only the registration of actual electric energy consumption, not the supply of
electricity, is affected when a meter is tampered with.30 The witnesses claimed that after the inspection, the tampered electric meters
were corrected, so that they would register the correct consumption of TEC. Logically, then, after the correction of the allegedly
tampered meters, the customer's registered consumption would go up.
In this case, the period claimed to have been affected by the tampered electric meters is from February 1986 until September 1987.
Based on petitioner's Billing Record31 (for the DCIM building), TEC's monthly electric consumption on Account No. 9341-1322-16 was
between 4,500 and 27,000 kwh.32 Account No. 9341-1812-13 showed a monthly consumption between 9,600 and 34,200 kwh.33 It is
interesting to note that, after correction of the allegedly tampered meters, TEC's monthly electric consumption from October 1987 to
February 1988 (the last month that Ultra occupied the DCIM building) was between 8,700 and 24,300 kwh in its first account, and
16,200 to 46,800 kwh on the second account.
Even more revealing is the fact that TEC's meters registered 9,300 kwh and 19,200 kwh consumption on the first and second accounts,
respectively, a month prior to the inspection. On the first month after the meters were corrected, TEC's electric consumption registered
at 9,300 kwh and 22,200 kwh on the respective accounts. These figures clearly show that there was no palpably drastic difference
between the consumption before and after the inspection, casting a cloud of doubt over petitioner's claim of meter-tampering. Indeed,
Ultra's explanation that the corporation was losing; thus, it had lesser consumption of electric power appear to be the more plausible
reason for the drop in electric consumption.
Petitioner likewise claimed that when the subject meters were again inspected on June 7, 1988, they were found to have been
tampered anew. The Court notes that prior to the inspection, TEC was informed about it; and months before the inspection, there was
an unsettled controversy between TEC and petitioner, brought about by the disconnection of electric power and the non-payment of
differential billing. We are more disposed to accept the trial court's conclusion that it is hard to believe that a customer previously
apprehended for tampered meters and assessed P7 million would further jeopardize itself in the eyes of petitioner.34 If it is true that
there was evidence of tampering found on September 28, 1987 and again on June 7, 1988, the better view would be that the defective
meters were not actually corrected after the first inspection. If so, then Manila Electric Company v. Macro Textile Mills

Corporation35 would apply, where we said that we cannot sanction a situation wherein the defects in the electric meter are allowed to
continue indefinitely until suddenly, the public utilities demand payment for the unrecorded electricity utilized when they could have
remedied the situation immediately. Petitioner's failure to do so may encourage neglect of public utilities to the detriment of the
consuming public. Corollarily, it must be underscored that petitioner has the imperative duty to make a reasonable and proper
inspection of its apparatus and equipment to ensure that they do not malfunction, and the due diligence to discover and repair defects
therein. Failure to perform such duties constitutes negligence.36 By reason of said negligence, public utilities run the risk of forfeiting
amounts originally due from their customers.37
As to the alleged tampering of the electric meter in TEC's NS building, suffice it to state that the allegation was not proven, considering
that the meters therein were enclosed in a metal cabinet the metal seal of which was unbroken, with petitioner having sole access to
the said meters.38
In view of the negative finding on the alleged tampering of electric meters on TEC's DCIM and NS buildings, petitioner's claim of
differential billing was correctly denied by the trial and appellate courts. With greater reason, therefore, could petitioner not exercise the
right of immediate disconnection.
The law in force at the time material to this controversy was Presidential Decree (P.D.) No. 40139 issued on March 1, 1974.40 The
decree penalized unauthorized installation of water, electrical or telephone connections and such acts as the use of tampered electrical
meters. It was issued in answer to the urgent need to put an end to illegal activities that prejudice the economic well-being of both the
companies concerned and the consuming public.41 P.D. 401 granted the electric companies the right to conduct inspections of electric
meters and the criminal prosecution42 of erring consumers who were found to have tampered with their electric meters. It did not
expressly provide for more expedient remedies such as the charging of differential billing and immediate disconnection against erring
consumers. Thus, electric companies found a creative way of availing themselves of such remedies by inserting into their service
contracts (or agreements for the sale of electric energy) a provision for differential billing with the option of disconnection upon nonpayment by the erring consumer. The Court has recognized the validity of such stipulations.43 However, recourse to differential billing
with disconnection was subject to the prior requirement of a 48-hour written notice of disconnection.44
Petitioner, in the instant case, resorted to the remedy of disconnection without prior notice. While it is true that petitioner sent a demand
letter to TEC for the payment of differential billing, it did not include any notice that the electric supply would be disconnected. In fine,
petitioner abused the remedies granted to it under P.D. 401 and Revised General Order No. 1 by outrightly depriving TEC of electrical
services without first notifying it of the impending disconnection. Accordingly, the CA did not err in affirming the RTC decision.
As to the damages awarded by the CA, we deem it proper to modify the same. Actual damages are compensation for an injury that will
put the injured party in the position where it was before the injury. They pertain to such injuries or losses that are actually sustained and
susceptible of measurement. Except as provided by law or by stipulation, a party is entitled to adequate compensation only for such
pecuniary loss as is duly proven. Basic is the rule that to recover actual damages, not only must the amount of loss be capable of proof;
it must also be actually proven with a reasonable degree of certainty, premised upon competent proof or the best evidence obtainable.45
Respondent TEC sufficiently established, and petitioner in fact admitted, that the former paid P1,000,000.00 andP280,813.72 under
protest, the amounts representing a portion of the latter's claim of differential billing. With the finding that no tampering was committed
and, thus, no differential billing due, the aforesaid amounts should be returned by petitioner, with interest, as ordered by the Court of
Appeals and pursuant to the guidelines set forth by the Court.46
However, despite the appellate court's conclusion that no tampering was committed, it held Ultra solidarily liable with petitioner
for P1,000,000.00, only because the former, as occupant of the building, promised to settle the claims of the latter. This ruling is
erroneous. Ultra's promise was conditioned upon the finding of defect or tampering of the meters. It did not acknowledge any culpability
and liability, and absent any tampered meter, it is absurd to make the lawful occupant liable. It was petitioner who received the P1
million; thus, it alone should be held liable for the return of the amount.
TEC also sufficiently established its claim for the reimbursement of the amount paid as rentals for the generator set it was constrained
to rent by reason of the illegal disconnection of electrical service. The official receipts and purchase orders submitted by TEC as
evidence sufficiently show that such rentals were indeed made. However, the amount of P150,000.00 per month for five months,
awarded by the CA, is excessive. Instead, a total sum ofP150,000.00, as found by the RTC, is proper.
As to the payment of exemplary damages and attorney's fees, we find no cogent reason to disturb the same. Exemplary damages are
imposed by way of example or correction for the public good in addition to moral, temperate, liquidated, or compensatory damages.47 In
this case, to serve as an example that before a disconnection of electrical supply can be effected by a public utility, the requisites of
law must be complied with we affirm the award of P200,000.00 as exemplary damages. With the award of exemplary damages, the
award of attorney's fees is likewise proper, pursuant to Article 220848 of the Civil Code. It is obvious that TEC needed the services of a
lawyer to argue its cause through three levels of the judicial hierarchy. Thus, the award ofP200,000.00 is in order.49
We, however, deem it proper to delete the award of moral damages. TEC's claim was premised allegedly on the damage to its goodwill
and reputation.50 As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience
physical suffering or sentiments like wounded feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule
is when the corporation has a reputation that is debased, resulting in its humiliation in the business realm.51 But in such a case, it is
imperative for the claimant to present proof to justify the award. It is essential to prove the existence of the factual basis of the damage
and its causal relation to petitioner's acts.52 In the present case, the records are bereft of any evidence that the name or reputation of
TEC/TPC has been debased as a result of petitioner's acts. Besides, the trial court simply awarded moral damages in the dispositive
portion of its decision without stating the basis thereof.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 40282 dated June 18, 1997 and its
Resolution dated December 3, 1997 are AFFIRMED with the following MODIFICATIONS: (1) the award of P150,000.00 per month for
five months as reimbursement for the rentals of the generator set isREDUCED to P150,000.00; and (2) the award of P500,000.00 as
moral damages is hereby DELETED.
SO ORDERED.
Ynares-Santiago, Chairperson, Austria-Marinez, Chico-Nazario, Reyes, JJ., concur.

G.R. No. 166382

June 27, 2006

GLORIA JEAN R. CHAVES, Petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, ST. BRIDGET SCHOOL and SISTER MARY TARCILA ABAO,
RGS, Respondents.
DECISION
PUNO, J.:
First, the facts.
Petitioner Gloria Jean R. Chaves started teaching at respondent St. Bridget School in school year 1988-1989. In March 1995, petitioner
successfully defended her theses and earned a degree of Master of Arts in Education, major in Educational Administration. To reward
herself, she took a leave of absence during the 1996-1997 school year to travel. After returning, she reassumed her position as
Academic Coordinator for the school year 1997-1998. The next school year, she again taught English to third-year high school students
at the respondent school. Due to her conscientious performance of her teaching duties, the petitioner received a rating of "Very Good"
for school years 1998-2000.
Sometime in June 2000, petitioner went to the offices of the Professional Regulation Commission (PRC) to inquire regarding the written
examination to acquire a certificate of registration and professional license. A PRC employee informed her that she need not take the
written examination as she taught for five years prior to 1995 and obtained a Masters Degree in Education. Thereafter, the PRC
personnel gave petitioner a list of documents to submit by September 2000. Unfortunately, petitioner was unable to meet the deadline
due to extreme work pressure.
In the meantime, employer-employee relations at the respondent school had soured. On February 6, 2001, the petitioner and her fellow
faculty members began holding meetings to discuss the advantages and disadvantages of forming a faculty union. On March 9, 2001,
the faculty members elected the temporary officers of the proposed faculty union and elected petitioner as secretary of the union. The
group also decided that the union name would be "St. Bridget School Faculty Union." It was clear to the faculty members present that
forming a union would likely have repercussions. On March 19, 2001, union president Mr. Jerold Yap emphasized the need to keep
their plans of forming a faculty union a secret and Mr. Rolly Casuaga, a fellow union member, mentioned that the respondent school
may find reasons to terminate their employment. Despite these concerns, a majority of the faculty members present at the March 22,
2001 faculty meeting voted to form the union.
During the period when the secret meetings were being conducted, petitioner returned to the PRC on March 2001 with the required
documents to secure the issuance of a certificate of registration and professional license without examination. The PRC personnel
informed the petitioner that the September 2000 deadline for the submission of requirements was not extended. However, they advised
her to await announcements from the newly appointed Secretary of Education as to possible policy changes.
On June 7, 2001, former Secretary of Education, Raul S. Roco, sent a letter to Fr. Roderick Salazar, President of the Catholic
Educational Association of the Philippines, which stated, viz.:
This refers to your letter of June 4. You will recall that on March 5, I informed COCOPEA members at a meeting at the Department of
Education, Culture and Sports with the Fund for Assistance to Private Education that Secretary of Justice Hernando Perez was
amenable to review RA 7836 in light of the non-impairment clause in the Constitution. The Secretary of Justice was also concerned with
the academic freedom guarantees to institutions of higher learning. I requested COCOPEA officials then to put together the appropriate
query describing the effects of, and difficulties, created by the law. I mentioned this again at the meeting with the private school
educators at the Educators Congress last 24 April at the Manila Midtown Hotel. To date, however, the appropriate paper has not
reached me.
Time is now upon us. Nonetheless, the Secretary of Justice and I will await your letter so that the Constitutional and legal issues can be
reexamined. In the meantime, for public policy reasons and to protect the welfare of the students in both public and private schools,
please maintain status quo of your teaching staff and ensure that the right to education is protected and enhanced.1
On June 13, 2001, respondent Sr. Mary Tarcila summoned the petitioner to her office and handed her a letter. The contents thereof are
reproduced below:
MEMO NOTE
TO: GLORIA JEAN CHAVES
FROM: THE PRINCIPAL
DATE: June 13, 2001
RE: Your PRC License under R.A. 7836
This is to document measures that have been taken in connection with requiring compliance with Republic Act 7836. Sometime towards
the end of March 2001, your attention was personally called upon (sic) to do something about your PRC registration. I made you to (sic)
understand that you will give me some document from PRC, BEFORE THE BEGINNING OF School year 2001-2002 that you have
complied with the above legislation.
The school year 2001-2002 has formally opened today and I have not received any such document from you, neither have I any
information that you are taking concrete steps to regularize your status as a Professional teacher under the above-mentioned law.

In view of the foregoing you are hereby given until July 15, 2001 to show cause why a case of neglect of duty under Republic Act 7836
may not be brought against you and this is notice of termination as well in case of failure to do so.
Your immediate compliance with this directive will be to your advantage. Please comply accordingly. (Emphases supplied)2
The petitioner was taken aback by the letter as she did not recall that any order was made by respondent Sr. Tarcila to that effect.
Thereafter, petitioner went to the PRC offices on June 15, 2001 to secure a document certifying that she was in the process of
complying with the requirements of Republic Act No. 7836, as instructed. During the visit, petitioner was informed that the previous
PRC deadline in September 2000 was not extended. Petitioner was advised to return to the PRC offices in January 2002 to apply for
test permits for the August 2002 examinations as the deadline for applying for the August 2001 examinations had expired last May
2001. She was also given a Certificate of Appearance to submit to respondent Sr. Mary Tarcila which stated that: 1) petitioner inquired
regarding the application for conversion/registration without examination; 2) petitioner inquired regarding the requirements for the LET
exam; and 3) petitioner was advised to take the LET exam in 2002.
On or around July 6, 2001, petitioner handed the Certificate of Appearance to respondent Sr. Mary Tarcila. To petitioners surprise, the
respondent returned the certificate to her without comment after glancing at its contents.
One week later, or on July 13, 2001, Mrs. Felina Naca, an Information Office Clerk at the respondent school, handed petitioner a
termination letter as she was about to leave the school campus at around 5:00 p.m. The letter stated in part, viz.:
Considering that as of date you have not provided the required documentation, YOU ARE HEREBY TERMINATED AS OF JULY 15,
2001 due to your failure to acquire a teachers license or to take [the] necessary steps in order to get the required exams this August
2001. (Emphasis supplied)3
The following day or on June 14, 2001, petitioner went to the respondent school to meet with respondent Sr. Mary Tarcila. However,
when petitioner asked to speak with Sr. Tarcila, she was informed that Sr. Tarcila was out. Undaunted, petitioner and a Mr. Willy
Lipayon proceeded to the Sisters house, talked with Sr. Clare, and presented copies of documents as proof of her efforts to secure her
PRC license. Sr. Clare informed petitioner that respondent Sr. Mary Tarcila would be back between 4:00 and 4:30 p.m.
At 6:15 p.m., petitioner was finally able to talk to respondent Sr. Mary Tarcila but only through the intercom system. The latter refused to
see the petitioner and told her that the documents that the petitioner presented were meaningless. Respondent Sr. Tarcila asserted that
what she required was a letter explaining what the petitioner had been doing regarding her application for a license. However, to the
petitioners recollection, and based on respondent Sr. Tarcilas memorandum dated June 13, 2001, no mention was made by the latter
as to the type of document she required from the PRC.
On June 16, 2001, petitioner reported to the respondent school at 7:10 a.m. However, the guard at the school gate physically restrained
the petitioner, in full view of her students, from entering the school premises. At that time, Sr. Mary Tarcila had given instructions to the
guards not to allow the petitioner to enter the school premises due to her termination. Two of the petitioners colleagues, Mr. Dio Sta.
Maria and Mr. Jog Yap, saw the petitioner at the school gate and offered to help. They proceeded to see respondent Sr. Tarcila to
convince her to talk with petitioner. Their efforts were for naught as Sr. Tarcila informed them that petitioner would be considered
absent for the day.
That afternoon, petitioners lawyer, Atty. Francis V. Sobrevias, wrote a demand letter to respondent Sr. Mary Tarcila, which stated:
In the interest of justice and fair play, demand is hereby made upon you to do the following:
1. Recall or revoke the termination letter of July 13, 2001;
2. Apologize in writing for the wrong you have done to her;
3. Immediately reinstate Ms. Chaves to her former position without loss of benefits and seniority.4
Respondent Sr. Tarcila did not act upon the demand letter. Consequently, petitioner filed her complaint for illegal dismissal with the
National Labor Relations Commission (NLRC) Arbitration Branch of the National Capital Region on September 14, 2001.
Despite respondent Sr. Tarcilas insistence on petitioner obtaining her PRC license, the former engaged the services of unlicensed
fresh graduates to replace petitioner and Mr. Casuaga. Moreover, while only petitioner and Mr. Casuaga were dismissed, there were 15
other unlicensed teachers at the respondent school at the time of their dismissal.
On March 8, 2002, the Labor Arbiter issued a decision in favor of respondents, which petitioner received on May 2, 2002. The
dispositive portion of the decision reads, viz.:
Indeed, there is just and valid cause for the termination of complainant from her employment.
For insufficiency of evidence, the claims for unfair labor practice and money claims are hereby dismissed.
SO ORDERED.5
Petitioner then filed an Appeal Memorandum with the respondent NLRC on May 10, 2002. On June 30, 2003, the respondent NLRC
rendered its decision which was received by the petitioner on August 25, 2003. The NLRC decision partially granted the appeal, ruled
that petitioner was illegally dismissed, and ordered respondent school to reinstate her to her former position without loss of seniority
rights and privileges, and pay her full backwages and other benefits from the date of her dismissal up to the date of her actual
reinstatement. However, the NLRC decision denied petitioners claims of unfair labor practice, and moral and exemplary damages for
lack of merit.

On August 8, 2003, the respondents filed their Motion for Reconsideration. Petitioner likewise filed her Motion for Partial
Reconsideration on September 2, 2003, assailing the NLRC decision only insofar as it denied the award of attorneys fees and moral
and exemplary damages, and failed to make a finding of unfair labor practices.
On September 22, 2003, the NLRC issued its Resolution denying petitioners and respondents Motions for Reconsideration for lack of
merit.
Subsequently, both parties filed petitions for certiorari with the Court of Appeals challenging the respondent NLRCs decision. The
petition for certiorari of the petitioner was filed on November 11, 2003, docketed as CA-G.R. SP No. 80457, and entitled "Gloria Jean R.
Chaves vs. National Labor Relations Commission, St. Bridget School and Sister Mary Tarcila Abao, RGS." In support of her petition,
the petitioner alleged grave abuse of discretion on the part of the NLRC in so far as it failed to recognize the existence of unfair labor
practices and denied the awarding of attorneys fees and moral and exemplary damages. The petition of the respondents was docketed
as CA-G.R. SP No. 80605 and entitled "St. Bridget School and Sr. Tarcila Abao, RGS vs. National Labor Relations Commission and
Gloria Jean R. Chaves."
On January 23, 2004, petitioner filed a Motion for Consolidation with the Second Division of the Court of Appeals where CA-G.R. SP
No. 80605 was pending, praying that the case be consolidated with CA-G.R. SP No. 80457 pending before the Eighth Division of the
same court. The Second Division of the Court of Appeals failed to act on the motion.
On June 25, 2004, the Eighth Division of the Court of Appeals rendered a decision in CA-G.R. SP No. 80457, affirming the decision of
the NLRC, and dismissing the petitioners petition.
Petitioner filed a Motion for Partial Reconsideration on July 26, 2004 arguing that the Court of Appeals erred in ruling that the petitioner
was not entitled to moral and exemplary damages and attorneys fees. The motion was denied by the Court of Appeals in its resolution
issued on December 6, 2004.
On January 7, 2005, petitioner filed a Motion for Extension of Time praying that she be given up to February 12, 2005 to file her petition
with this Court. About a month later, or on February 8, 2005, petitioner filed her petition for certiorari under Rule 45 of the 1997 Rules of
Civil Procedure with this Court raising the following errors: 1) the Court of Appeals erred in not ruling that the petitioner is entitled to
moral and exemplary damages; and 2) the Court of Appeals erred in not ruling that the petitioner is not entitled to attorneys fees. The
petition was docketed as G.R. No. 166382, and is the case at bar.
We rule for the petitioner.
For attorneys fees, moral and exemplary damages to be granted, the plaintiff must prove that the facts of his case fall within the
enumerated instances in the Civil Code. Thus, moral damages may only be recovered where the dismissal or suspension of the
employee was attended by bad faith or fraud, or constituted an act oppressive to labor, or was done in a manner contrary to morals,
good customs or public policy. In other words, the act must be a conscious and intentional design to do a wrongful act for a dishonest
purpose or some moral obliquity.6Exemplary damages, on the other hand, may only be awarded where the act of dismissal was
effected in a wanton, oppressive or malevolent manner.7 In this case, the NLRC ruled that there was insufficient evidence to prove the
foregoing elements,8 and the Court of Appeals sustained the NLRCs decision.9 These rulings were made despite the NLRCs
conclusion that "undue discrimination" was committed by the respondents in dismissing the petitioner.10 In view of these findings, and
given that the contemptible manner that the petitioner was treated is extant from the records, we rule that the NLRC and Court of
Appeals erred in disallowing the award of attorneys fees, and moral and exemplary damages in favor of the petitioner.
IN VIEW WHEREOF, the petition is GRANTED. The decision of the Court of Appeals promulgated on June 25, 2004 and its resolution
promulgated on December 6, 2004 are AFFIRMED with MODIFICATIONS. In addition to petitioners reinstatement to her former
position without loss of seniority rights and privileges, and full backwages and other benefits from the date of her dismissal up to the
date of her actual reinstatement, the petitioner is hereby AWARDED attorneys fees in the amount of P10,000.00, moral damages in the
amount of P25,000.00, and exemplary damages in the amount of P25,000.00.
SO ORDERED.
REYNATO S. PUNO
Associate Justice

G.R. No. 140422 August 7, 2006

MERCEDES CRISTOBAL CRUZ, ANSELMO A. CRISTOBAL and ELISA CRISTOBAL SIKAT, Petitioners,
vs.
EUFROSINA CRISTOBAL, FLORENCIO CRISTOBAL, JOSE CRISTOBAL, HEIRS OF NORBERTO CRISTOBAL and THE COURT
OF APPEALS, Respondents.

DECISION
CHICO-NAZARIO, J.:
This Petition assails the Decision 1 of the Court of Appeals dated 22 July 1999 in CA-G.R. CV No. 56402, affirming in toto the Decision
of the Regional Trial Court (RTC) of Pasig City, Branch 156, in Civil Case No. 65035 entitled, "Mercedes Cristobal, Anselmo A.
Cristobal and Elisa Cristobal Sikat vs. Eufrosina Cristobal, Florencio Cristobal, Jose Cristobal, Heirs of Norberto Cristobal and The
Register of Deeds, San Juan, M.M."
Facts of the case are as follows:
Petitioners (Mercedes Cristobal, Anselmo Cristobal, the heirs of the deceased Socorro Cristobal, and Elisa Cristobal-Sikat) claim that
they are the legitimate children of Buenaventura Cristobal during his first marriage to Ignacia Cristobal. On the other hand, private
respondents (Norberto, Florencio, Eufrosina and Jose, all surnamed Cristobal) are also the children of Buenaventura Cristobal resulting
from his second marriage to Donata Enriquez.
On 18 June 1926, Buenaventura Cristobal purchased a parcel of land with an area of 535 square meters located at 194 P. Parada St.,
Sta. Lucia, San Juan, Metro Manila, covered by Transfer Certificate of Title (TCT) No. 10878-2 (the subject property).
Sometime in the year 1930, Buenaventura Cristobal died intestate.
More than six decades later, petitioners learned that private respondents had executed an extrajudicial partition of the subject property
and transferred its title to their names.
Petitioners filed a petition in their barangay to attempt to settle the case between them and private respondents, but no settlement was
reached. Thus, a Complaint 2 for Annulment of Title and Damages was filed before the RTC by petitioners against private respondents
to recover their alleged pro-indiviso shares in the subject property. In their prayer, they sought the annulment of the Deed of Partition
executed by respondents on 24 February 1948; the cancellation of TCTs No. 165132, No. 165133, No. 165134 and No. 165135 issued
in the individual names of private respondents; re-partitioning of the subject property in accordance with the law of succession and the
payment of P1,000,000.00 as actual or compensatory damages; P300,000.00 as moral damages; P50,000.00 as attorneys fees
and P100,000.00 as exemplary damages.
To prove their filiation with the deceased Buenaventura Cristobal, the baptismal certificates of Elisa, 3 Anselmo, 4and the late
Socorro 5 were presented. In the case of Mercedes who was born on 31 January 1909, she produced a certification 6 issued by the
Office of the Local Civil Registrar of San Juan, Metro Manila, attesting to the fact that records of birth for the years 1901, 1909, 1932 to
1939, 1940, 1943, and 1948 were all destroyed due to ordinary wear and tear.
The testimonies of the parties as summarized by the trial court are as follows:
Witness [petitioner Elisa] further testified that her mother died when she was only one year and seven months old. She lived with the
sister of her father because the latter married his second wife, Donata Enriquez. Her brother Anselmo and sister Socorro lived with their
father and the latters family in the subject property at P. Parada St., San Juan, Metro Manila.
She claimed that when their father died on February 12, 1930, his brother Anselmo stayed with her and her auntie while Socorro stayed
with their eldest sister, Mercedes, who was then married.
Meanwhile, when her stepmother Donata Enriquez died, the children from the second marriage lived with them and her aunt Martina
Cristobal.
Witness testified that she is now residing at No. 194 P. Parada St., Sta. Lucia, San Juan, Metro Manila, the property subject of the
present litigation. She has been living in the said property since 1948. She claimed that there are other houses in the area particularly
those which belong to her half brothers and sisters which were now converted into factories.
She claimed that out of the five hundred thirty-five (535) square meters she occupies only thirty-six (36) square meters of the subject
lot.
She testified that the [private respondents] divided the property among themselves without giving the [petitioners] their share. She said
that she was offered by [private respondent] Eufrosina to choose between a portion of the land in question or money because one of
the children of defendant Jose Cristobal wanted to construct an apartment on the lot. She said that she will have to ask the opinion of
her other brothers and sisters.
Thereafter witness testified that she made an inquiry regarding the land and she found out that the property belonging to their father
Buenaventura Cristobal had been transferred to the defendants as evidenced by transfer certificates of title issued under the names of
Florencio Cristobal (Exhibit "E"), Norberto Cristobal (Exhibit "F"), Eufrosina Cristobal (Exhibit "G") and Jose Cristobal (Exhibit "H").
She declared that she felt bad when she learned that the title to the property belonging to her father had been transferred to her half
brothers and sisters with the exclusion of herself and the other children from the first marriage.

She filed a petition in the barangay to settle the issue among themselves, however, no settlement was reached therein. This prompted
the [petitioners] to file the present case.
On cross-examination, [petitioner] Elisa Cristobal Sikat admitted that she was aware that the subject property was owned by her father
Buenaventura Cristobal even before the latter died. She likewise stated that the [private respondents] are the ones paying the real
estate tax due on the lot.
Ester Santos testified for the [petitioners]. In her "Sinumpaang Salaysay" she claimed that she was a neighbor of Mercedes, Anselmo,
Socorro, Elisa, Norberto, Florencio, Eufrosina and Jose Cristobal in San Juan, Metro Manila. She said that she knows that Mercedes,
Anselmo, Socorro and Elisa are the children of Buenaventura Cristobal from the latters first marriage and the Norberto, Florencio,
Eufrosina, and Jose are the children of Buenaventura Cristobal from the latters second marriage.
The said witness testified that Buenaventura Cristobal and his first family lived right across where she stayed.
Witness corroborated the testimony of Elisa Cristobal Sikat regarding that the fact that Martina Cristobal is the sister of Buenaventura
Cristobal. The said sister of Buenaventura Cristobal allegedly took care of Elisa. Anselmo and Socorro were taken care of by
Buenaventura Cristobal and the latters second wife, Donata Enriquez, at P. Parada St., San Juan, Metro Manila.
When Buenaventura Cristobal died Anselmo was taken care of by Martina Cristobal together with Elisa. Socorro on the other hand lived
with Mercedes who was then married.
Witness testified that she and Elisa were classmates from Grade I until they finished high school at the Philippine School of Commerce
in Manila.
When the second wife of Buenaventura Cristobal died, Martina Cristobal took care of Norberto, Florencio, Eufrosina and Jose Cristobal.
Witness said that the brothers and sisters from the first and second marriages lived together with their aunt Martina Cristobal for a long
time.
When Elisa got married, she and her husband built their house on the lot located at 194 P. Parada St., San Juan, Metro Manila. Until at
present, Elisa and her family lives in the said vicinity.
Witness Ester Santos declared that the children from the second marriage namely Norberto, Eufrosina, Florencio and Jose built their
houses and factory at 194 P. Parada St., San Juan, Metro Manila.
She said that the children from the first and second marriages of Buenaventura Cristobal had a harmonious relationship until sometime
in 1994 when [petitioners] and Elisa Cristobals grandchildren were called "squatters" by the [private respondents] and their
grandchildren for residing in the subject parcel of land.
On cross-examination, witness Ester Santos said she cannot recall the name of the first wife of Buenaventura Cristobal and that she
only knew them to be married although she is not aware of the date when they were married.
[Petitioners] presented Jose Cristobal to bolster the claim that they are brothers and sisters of the [private respondents].
He claimed that the only time when he became aware that [petitioners] are his brothers and sisters was when he lived with their aunt
Martina.
He said that the reason why they were giving a portion of the lot in question to Elisa Cristobal Sikat was because the [private
respondents] want her to have a piece of property of her own and is not an admission that she is their sister.
[Private respondents] on the other hand presented Eufrosina Cristobal as their first witness. She testified that her parents,
Buenaventura Cristobal and Donata Enriquez were married on March 24, 1919 at San Felipe Neri, Mandaluyong, Metro Manila. Out of
the said union, Norberto, Florentino, Eufrosina and Jose Cristobal were born.
The witness professed that on June 18, 1926, her parents were able to buy a certain property containing five hundred thirty-five (535)
square meters.
Said witness claimed that her brother Norberto died on September 20, 1980 leaving his wife Marcelina and children Buenaflor and
Norberto, Jr.
The witness presented marked as Exhibit "33" for Norberto, Exhibit "34" for Florencio, Exhibit "35" for Eufrosina and Exhibit "36 for
Jose the birth certificates of her brothers and sisters.
On February 24, 1948, Eufrosina admitted having executed an Extrajudicial Partition (Exhibit "D-4") with her brothers and sisters of the
property left by their parents.
She declared that since her father died in 1930, Elisa, Mercedes, and Anselmo never asserted their alleged right over the property
subject of the present litigation.
She claimed that the [private respondents] have been paying all the taxes due on the parcel of land and that title to the property has
been subdivided under their respective names.
On cross-examination, she said that when their parents passed away they were taken care of by their aunt Martina who was the sister
of her father. She testified that she addressed Elisa Cristobal as "Kaka" and that since the time they were kids, she had known that the
[petitioners] are their brothers and sisters. 7

After trial on the merits, the trial court rendered a judgment 8 on 11 July 1997, dismissing the case, ruling that petitioners failed to prove
their filiation with the deceased Buenaventura Cristobal as the baptismal and birth certificates presented have scant evidentiary value
and that petitioners inaction for a long period of time amounts to laches.
Not satisfied, petitioners sought recourse in the Court of Appeals which, in its Decision 9 dated 22 July 1999, ruled that they were able
to prove their filiation with the deceased Buenaventura Cristobal thru "other means allowed by the Rules of Court and special laws," but
affirmed the ruling of the trial court barring their right to recover their share of the subject property because of laches.
Hence, this Petition anchored on the sole ground that:
RESPONDENT COURT GRIEVOUSLY ERRED IN APPLYING THE PRINCIPLE OF LACHES TO THE CASE AT BAR RESULTING
AS IT DOES TO GROSS INJUSTICE AND INEQUITY WHICH ARE EXACTLY THE VERY EVILS SOUGHT TO BE PREVENTED BY
SUCH PRINCIPLE 10
The petition is impressed with merit. We agree with petitioners that the Court of Appeals committed reversible error in upholding the
claim of private respondents that they acquired ownership of the entire subject property and that the claim of petitioners to the subject
property was barred by laches.
Before anything else, it must be noted that the title of the original complaint filed by petitioners before the RTC was denominated as
"Annulment of Title and Damages"; nevertheless, the complaint prayed for the following:
1. Declaring the Extrajudicial Partition executed by the defendants NORBERTO CRISTOBAL, FLORENCIO CRISTOBAL, EUFROCINA
CRISTOBAL and JOSE CRISTOBAL on February 24, 1948 as null and void for being fraudulent contrary to law on succession.
2. Canceling the following Transfer Certificates of Titles issued by the Register of Deeds for the Province of Rizal to wit:
(a) TCT No. 165132 issued in the name of FLORENCIO CRISTOBAL married to MAURA RUBIO;
(b) TCT No. 165133 issued in the name of NORBERTO CRISTOBAL, married to PAULINA IBANEZ;
(c) TCT No. 165134 issued in the name of EUFROCINA CRISTOBAL married to FORTUNATO DELA GUERRA; and
(d) TCT No. 165135 issued in the name of JOSE CRISTOBAL married to ADELAIDA IBANEZ and/or TCT No. 3993- ( if TCT No.
165035 was cancelled and in lieu thereof to ISABELITA/MA. VICTORIA, EMMA, MA. CRISTINA, JOSELITO and NELIA, all surnamed
CRISTOBAL and children of JOSE CRISTOBAL, one of the defendants.)
3. Re-partitioning the subject property left by deceased BUENAVENTURA CRISTOBAL according to the law on succession applicable
at the time of his death.
4. Awarding ONE-HALF of the subject property to herein plaintiffs as their lawful portions in the inheritance.
5. Ordering the defendants to pay to the plaintiffs the following sums of money, to wit:
a. P1,000,000.00 as actual or compensatory damages
b. P300,000.00 as moral damages
c. P50,000.00 as attorneys fees
d. P100,000.0 as exemplary damages 11
While the title of the complaint alone implies that the action involves property rights to a piece of land, the afore-quoted prayer in the
complaint reveals that, more than property rights, the action involves hereditary or successional rights of petitioners to their deceased
fathers estate solely, composed of the subject property.
Thus, even if the original complaint filed by petitioners before the RTC is denominated as "Annulment of Title and Damages," we find it
practicable to rule on the division of the subject property based on the rules of succession as prayed for in the complaint, considering
that the averments in the complaint, not the title are controlling. 12
To arrive at the final resolution of the instant Petition and the lone assignment of error therein, the following need to be resolved first: (1)
whether or not petitioners were able to prove their filiation with the deceased Buenaventura Cristobal; (2) whether or not the petitioners
are bound by the Deed of Partition of the subject property executed by the private respondents; (3) whether or not petitioners right to
question the Deed of Partition had prescribed; and (4) whether or not petitioners right to recover their share of the subject property is
barred by laches.
Undeniably, the foregoing issues can be resolved only after certain facts have been established. Although it is settled that in the
exercise of the Supreme Courts power of review, the findings of facts of the Court of Appeals are conclusive and binding on the
Supreme Court, there are recognized exceptions to this rule, namely: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in
making the findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellee and the appellant; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs
are not disputed by the respondent; (10) when the findings of facts are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed

by the parties, which if properly considered, would justify a different conclusion. 13 Since exceptions (4) and (11) are present in the case
at bar, this Court shall make its own determination of the facts relevant for the resolution of the case.
The initial fact that needs to be established is the filiation of petitioners with the deceased Buenaventura Cristobal.
Article 172 of the Family Code provides:
Art. 172. The filiation of legitimate children is established by any of the following:
(1) The record of birth appearing in the civil register or a final judgment; or
(2) An admission of legitimate filiation in a public document or a private handwritten instrument and signed by the parent concerned.
In the absence of the foregoing evidence, the legitimate filiation shall be proved by:
(1) the open and continuous possession of the status of a legitimate child; or
(2) Any other means allowed by the Rules of Court and special laws.
"Any other means allowed by the Rules of Court and Special Laws," may consist of the childs baptismal certificate, a judicial
admission, a family bible in which the childs name has been entered, common reputation respecting the childs pedigree, admission by
silence, the testimony of witnesses, and other kinds of proof of admission under Rule 130 of the Rules of Court. 14
In the present case, the baptismal certificates of Elisa, 15 Anselmo, 16 and the late Socorro 17 were presented. Baptismal certificate is
one of the acceptable documentary evidence to prove filiation in accordance with the Rules of Court and jurisprudence. In the case of
Mercedes, who was born on 31 January 1909, she produced a certification 18 issued by the Office of the Local Civil Registrar of San
Juan, Metro Manila, attesting to the fact that records of birth for the years 1901, 1909, 1932 to 1939, 1940, 1943, and 1948 were all
destroyed due to ordinary wear and tear.
Petitioners likewise presented Ester Santos as witness who testified that petitioners enjoyed that common reputation in the community
where they reside as being the children of Buevaventura Cristobal with his first wife. Testimonies of witnesses were also presented to
prove filiation by continuous possession of the status as a legitimate child. 19
In contrast, it bears to point out that private respondents were unable to present any proof to refute the petitioners claim and evidences
of filiation to Buenaventura Cristobal.
The foregoing evidence thus suffice to convince this Court that petitioners are, indeed, children of the late Buenaventura Cristobal
during the first marriage.
As to the validity of the Deed of Partition of the subject property executed by the private respondents among themselves to the
exclusion of petitioners, the applicable rule is Section 1, Rule 74 of the Rules of Court, which states:
The fact of the extrajudicial settlement or administration shall be published in a newspaper of general circulation in the manner provided
in the next succeeding section; but no extrajudicial settlement shall be binding upon any person who has not participated therein or had
no notice thereof. (Underscoring supplied)
Under the said provision, without the participation of all persons involved in the proceedings, the extrajudicial settlement is not binding
on said persons. 20 In the case at bar, since the estate of the deceased Buenaventura Cristobal is composed solely of the subject
property, the partition thereof by the private respondents already amounts to an extrajudicial settlement of Buenaventura Cristobals
estate. The partition of the subject property by the private respondents shall not bind the petitioners since petitioners were excluded
therefrom. Petitioners were not aware of the Deed of Partition executed by private respondents among themselves in 1948. Petitioner
Elisa became aware of the transfer and registration of the subject property in the names of private respondents only in 1994 when she
was offered by private respondent Eufrocina to choose between a portion of the subject property or money, as one of the children of
private respondent Jose wanted to construct an apartment on the subject property. 21 This led petitioner Elisa to inquire as to the status
of the subject property. She learned afterwards that the title to the subject property had been transferred to the names of private
respondents, her half brothers and sisters, to the exclusion of herself and her siblings from the first marriage of Buenaventura Cristobal.
The Deed of Partition excluded four of the eight heirs of Buenaventura Cristobal who were also entitled to their respective shares in the
subject property. Since petitioners were not able to participate in the execution of the Deed of Partition, which constitutes as an
extrajudicial settlement of the estate of the late Buenaventura Cristobal by private respondents, such settlement is not binding on
them. 22 As the extrajudicial settlement executed by the private respondents in February 1948 did not affect the right of petitioners to
also inherit from the estate of their deceased father, it was incorrect for the trial and appellate court to hold that petitioners right to
challenge the said settlement had prescribed. Respondents defense of prescription against an action for partition is a vain proposition.
Pursuant to Article 494 of the Civil Code, "no co-owner shall be obliged to remain in the co-ownership. Such co-owner may demand at
anytime the partition of the thing owned in common, insofar as his share is concerned." In Budlong v. Bondoc, 23 this Court has
interpreted said provision of law to mean that the action for partition is imprescriptible. It cannot be barred by prescription. For Article
494 of the Civil Code explicitly declares: "No prescription shall lie in favor of a co-owner or co-heirs as long as he expressly or impliedly
recognizes the co-ownership." 24
Considering that the Deed of Partition of the subject property does not affect the right of petitioners to inherit from their deceased father,
this Court shall then proceed to divide the subject property between petitioners and private respondents, as the rule on succession
prescribes.
It appears that the 535 square meters subject property was a conjugal property of Buenaventura Cristobal and Donata Enriquez, the
second wife, as the property was purchased in 1926, during the time of their marriage. 25Upon the deaths of Buenaventura in 1930 and
Donata in 1936, both deaths occurring before the enactment of the New Civil Code in 1950, all the four children of the first marriage and
the four children of the second marriage shall share equally in the subject property in accordance with the Old Civil Code. Absent any

allegation showing that Buenaventura Cristobal left any will and testament, the subject property shall be divided into eight equal parts
pursuant to Articles 921 26 and 931 27 of the Old Civil Code on intestate succession, each receiving 66.875 square meters thereof.
At the time of death of Buenaventura Cristobal in 1930, Donata was only entitled to the usufruct of the land pursuant to Article 834 of
the Old Civil Code, which provides:
ART. 834. A widower or widow who, on the death of his or her spouse, is not divorced, or should be so by the fault of the deceased,
shall be entitled to a portion in usufruct equal to that corresponding by way of legitime to each of the legitimate children or descendants
who has not received any betterment.
If only one legitimate child or descendant survives, the widow or widower shall have the usufruct of the third availment for betterment,
such child or descendant to have the naked ownership until, on the death of the surviving spouse, the whole title is merged in him.
Donatas right to usufruct of the subject property terminated upon her death in 1936.
Accordingly, the pro-indiviso shares of Buenaventura Cristobals eight children and their heirs, by right of representation, upon his death
in 1930, are as follows:
(1) Mercedes Cristobal- 66.875 square meters
(2) Amselmo Crostobal- 66.875 square meters
(3) Socorrro Crostobal- 66.875 square meters
(4) Elisa Crostobal-Sikat- 66.875 square meters
(5) Norberto Cristobal-66.875 square meters
(6) Florencio Cristobal-66.875 square meters
(7) Eufrocina Cristobal-66.875 square meters
(8) Jose Cristobal - 66.875 square meters
The Court will now determine whether petitioners right to their shares in the subject property can be barred by laches.
Respondents defense of laches is less than convincing. Laches is the negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it has abandoned it or declined to assert it. It does not involve mere lapse or
passage of time, but is principally an impediment to the assertion or enforcement of a right, which has become under the circumstances
inequitable or unfair to permit. 28
In our view, the doctrine of laches does not apply in the instant case. Note that upon petitioner Elisas knowledge in 1994 that the title to
the subject property had been transferred to the private respondents to the exclusion of herself and her siblings from the first marriage
of Buenaventura Cristobal, petitioners filed in 1995 a petition with their barangay to settle the case among themselves and private
respondents, but since no settlement was had, they lodged a complaint before the RTC on 27 March 1995, to annul private
respondents title over the land. There is no evidence showing failure or neglect on their part, for an unreasonable and unexplained
length of time, to do that which, by exercising due diligence, could or should have been done earlier. The doctrine of stale demands
would apply only where for the reason of the lapse of time, it would be inequitable to allow a party to enforce his legal rights.
Moreover, absence any strong or compelling reason, this Court is not disposed to apply the doctrine of laches to prejudice or defeat the
rights of an owner. 29 Laches is a creation of equity and its application is controlled by equitable considerations. Laches cannot be used
to defeat justice or perpetuate an injustice. Neither should its application be used to prevent the rightful owners of a property from
recovering what has been fraudulently registered in the name of another. 30
Considering that (1) petitioners were unlawfully deprived of their legal participation in the partition of the subject property; (2) this case
has dragged on for more than a decade, and (3) undoubtedly, petitioners sustained injury but the exact amount of which, unfortunately,
was not proved, we find it reasonable to grant in petitioners favor nominal damages. Nominal damages is adjudicated in order that a
right of the plaintiff, which has been violated and invaded by defendant, may be vindicated and recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered. 31 Where these are allowed, they are not treated as an equivalent of a wrong but simply
in recognition of the existence of a technical injury. The amount to be awarded as such damages should at least be commensurate to
the injury sustained by the petitioners considering the concept and purpose of said damages.32 Such award is given in view of the
peculiar circumstances cited and the special reasons extant in the present case; 33
WHEREFORE, in view of the foregoing, this Court rules as follows:
(1) The Petition is GRANTED, and the assailed Decision of the Court of Appeals is hereby REVERSED and SET ASIDE;
(2) Petitioners are RECOGNIZED and DECLARED as children of the late Buenaventura Cristobal from his first marriage to Ignacia
Cristobal;
(3) The Deed of Partition executed by private respondents is DECLARED not binding upon petitioners who were not notified or did not
participate in the execution thereof;

(4) The subject property, covered by TCTs No. 165132, No. 165133, 165134, and No. 165135, in the name of private respondents
consisting of 535 square meters is ORDERED to be partitioned and distributed in accordance with this Decision and appropriate
certificates of title be issued in favor of each of the recognized heirs of the late Cristobal Buenaventura, and
(5) Petitioners are AWARDED the amount of ONE HUNDRED THOUSAND (P100,000.00) PESOS as damages, to be paid by private
respondents.
Costs against private respondents.
SO ORDERED.

G.R. No. 171731

August 11, 2006

PEOPLE OF THE PHILIPPINES, Appellee,

vs.
JOVEN OCAMPO and ERWIN MAGALLONES, Accused.
ERWIN MAGALLONES, Appellant.
DECISION
YNARES-SANTIAGO, J.:
For review is the December 23, 2005 Decision1 of the Court of Appeals in CA-G.R. CR.-H.C. NO. 01552 which affirmed in toto the July
2, 2001 Decision2 of the Regional Trial Court of Irosin, Sorsogon, Branch 55 in Criminal Case No. 1137 finding Joven Ocampo and
Erwin Magallones guilty beyond reasonable doubt of the crime of rape.
On September 11, 1995, Joven Ocampo and Erwin Magallones were charged with rape in an Information that reads:
That on or about the 14th day of July, 1995, at barangay Macawayan, municipality of Irosin, province of Sorsogon, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, conspiring, confederating and mutually helping one another,
enter[ed] the house of Diane Balesnomo thru the window and once inside, by means of force and intimidation, did then and there,
willfully, unlawfully and feloniously have sexual intercourse with said offended party, against her will and without her consent, to her
damage and prejudice.
CONTRARY TO LAW.3
During arraignment, both accused pleaded not guilty.4 Thereafter, a "Motion to Release Accused Joven Ocampo from Jail for being
Youthful Offender"5 was filed which was granted by the trial court after a favorable recommendation from the Department of Social
Welfare and Development (DSWD).6 Meanwhile, the petition for bail filed by Magallones was denied in a Resolution dated April 27,
2000.7 Thereafter, trial on the merits ensued.
The facts as found by the trial court8 are as follows:
On July 14, 1995 at about 7:00 oclock in the evening, Diane Balesnomo bought lemon from a store located about 80 to 100 meters
away from their house. On her way home, Ocampo, Magallones and Totong Echano invited her to go to the waiting shed but when she
refused, they followed her home. When she was already in the house, Ocampo and Magallones went near the window in the sala and
told her to go to the back of the house but Diane instead went to her room. However, Ocampo and Magallones were able to enter the
room by climbing up the window. She attempted to go out but they pulled her back.
Magallones proceeded to undress her and inserted his penis into her vagina while she was standing. She tried to push them away but
she was easily overcome by the two. The sexual assault by Magallones lasted for about one minute afterwhich he went home.
Ocampo took his turn and had sexual intercourse with her. In the same standing position, he pulled her legs open and inserted his
penis into her vagina. While his penis was inside her, he kept on mashing her breast. She tried to push him but she was already feeling
weak. The sexual act lasted for about three minutes.
When Dianes mother called her to eat, she put on her dress and went outside while Ocampo hid in the bodega near Dianes room.
While Diane was narrating the incident to her mother, they saw Ocampo jump out of the window.
On July 2, 2001,9 the trial court convicted Ocampo and Magallones of the crime of rape and sentenced them, thus:
WHEREFORE, premises considered, accused JOVEN OCAMPO and ERWIN MAGALLONES having been found GUILTY beyond
reasonable doubt of the crime of RAPE (Art. 335, R.P.C. as amended by R.A. 7659) absent any other mitigating or aggravating
circumstances, are hereby sentenced as follows:
(a) JOVEN OCAMPO to an indeterminate penalty of Ten (10) years and One (1) Day of prision mayor maximum, as minimum,
to Seventeen (17) years and Four (4) Months of reclusion temporal medium, as maximum, to indemnify Diane Balesnomo in
the amount of P50,000.00 as moral damages and another P25,000.00 as exemplary damages, and to pay the costs;
(b) ERWIN MAGALLONES to a single indivisible penalty of RECLUSION PERPETUA, regardless of any mitigating or
aggravating circumstances present; to indemnify Diane Balesnomo in the amount of P50,000.00 as moral damages and
another P25,000.00 as exemplary damages, and to pay the costs.
The period of preventive imprisonment already served by accused ERWIN MAGALLONES shall be credited in the service of his
sentence in accordance with the provision of Art. 29 of the Revised Penal Code, as amended.
SO ORDERED.10
The trial court found that Diane positively identified the two accused because they are personally known to her since childhood.
Likewise, no prior intimate relationship was proven between the malefactors and Diane to induce her to consent to the sexual
intercourse. Moreover, the claim of rape was amply supported by the medical findings and the testimony of Dr. Ma. Nerissa B. Tagum.
Finally, no ill motive could be attributed to the victim in accusing Ocampo and Magallones of rape.11
The July 2, 2001 Decision of the trial court was promulgated on July 11, 2001 in the presence only of Magallones because Ocampo
jumped bail.12

The case was elevated to this Court for automatic review because the penalty imposed was reclusion perpetua. However, pursuant to
our ruling in People v. Mateo,13 the case was referred to the Court of Appeals. In a Decision dated December 23, 2005,14 the Court of
Appeals affirmed the trial court in toto.
The Court of Appeals ruled that as regards Ocampo, the decision is final and executory since he jumped bail, failed to attend the
promulgation of the decision, and did not appeal within 15 days from notice thereof. The appellate court disregarded Magallones
argument that there was no evidence to prove force and intimidation during the sexual assault. It found that the alleged failure of the
victim to ask for help during the incident does not mean there was no force or intimidation as different people react differently to the
same set of circumstances.15
Magallones avers that the testimony of Diane is not credible considering that at the time she was raped, she never resisted her rapists
nor called for help. He claims that since he was not armed and she was not threatened, there was no showing of force or intimidation.
Appellants contention lacks merit.
The rule is well-settled that factual findings of trial courts and those which revolve on matters of credibility of witnesses deserve to be
respected when no glaring errors bordering on a gross misapprehension of the facts, or where no speculative, arbitrary and
unsupported conclusions, can be gleaned from such findings.16 The evaluation of the credibility of witnesses and their testimonies are
best undertaken by the trial court because of its unique opportunity to observe the witnesses' deportment, demeanor, conduct and
attitude under grilling examination. As this opportunity is denied the appellate court, the lower courts findings of fact and assessment of
the credibility of witnesses are generally binding on this Court absent a clear showing that they were reached arbitrarily or that the trial
court had plainly overlooked certain facts or substance of value which, if considered, might affect the result of the case.17 In the instant
case, we find nothing in the records which warrants a departure from the findings of the trial court.
The workings of a human mind are unpredictable; people react differently and there is no standard form of behavior when one is
confronted by a shocking incident. More so, if one is a victim of a misfortune which in the victims young mind is beyond
comprehension.18 The Court also notes the testimony of Diane19 that she suffers from excessive trembling when her parents quarrel or
when she is surprised, to wit:
Direct Examination of Diane Balesnomo
xxxx
Q Are you still studying?
A No more, sir.
Q Since when did you stop going to school?
A July 1995.
Q Prior to July 1995, where were you studying?
A In Holy Spirit.
xxxx
Q You said a while ago that you stopped going to school since July 1995, why did you stop going to school?
A Because I got sick.
Q Did you inform any authority from your school that you are going to stop schooling?
A Yes, sir.
Q What did the principal tell you?
A She told me that I could stop and continue my schooling next year.
Q Since when have you been experiencing this sickness?
A Since my childhood.
Q Can you please explain to this court what exactly do you feel?
A I am trembling.
Q In what instances do you experience this trembling?
A When my parents or every time they quarrel(l)ed it makes me tremble and everytime I was surprised.
Cross-Examination of Diane Balesnomo

xxxx
Q The time when you got the match you were not already trembling, do I get you right?
A I was still trembling.
Q The same as you are now before this Court, that you are always trembling?
A Yes sir.
Q So the trembling you are now feeling is just an ordinary mood of your life as a matter of fact from the moment
you were presented to Court you began trembling, do I get you right?
A Yes sir.
Q And that feeling is just the same that occurred on July 14, 1995 on that particular evening?
A This trembling started since my childhood.
Q Will you please tell the Honorable Court when you were very happy you were trembling, do I get you right?
A No, it is only when I am surprised that I tremble. (Emphasis supplied)
It is of no moment that Magallones was not armed, it was enough that she felt threatened by a man bigger than she is and who climbed
the window and entered her room surreptitiously.
Magallones also claims that the testimony of Diane was not corroborated by the medical findings that there were no signs of injury,
contusion or abrasion in any part of her body.
The absence of any external injury does not negate the use of force. Neither does it mean that she consented to the sexual
intercourse.1wphi1 Besides, the examining physician, Dr. Ma. Nerissa B. Tagum, found positive hymenal lacerations.20 Physical
resistance, in any case, need not be established in rape cases when threats and intimidation are employed and the victim ultimately
gives up to the unwanted embrace of her rapist.21 In this case, the presence of two men inside her room would be enough to intimidate
a 16 year old girl who is easily plagued with nervousness.
In rape cases, courts are guided by the following principles: (1) to accuse a man of rape is easy, but to disprove it is difficult though the
accused may be innocent; (2) considering that in the nature of things, only two persons are usually involved in the crime of rape, the
testimony of the complainant should be scrutinized with great caution; and (3) the evidence for the prosecution must stand or fall on its
own merit and not be allowed to draw strength from the weakness of the evidence for the defense.22
The evidence of the prosecution is unassailable. The trial court found the testimony of Diane consistent and credible to sustain a verdict
of conviction. On the contrary, Magallones admission that he and Ocampo entered the room of the victim by passing through the
window because they wanted to assist in carrying her invalid father is hardly credible.23 Significantly, Ocampo and Magallones did not
impute any ill motive that would have prompted Diane to file a case of rape against them. When there is no evidence to show any
improper motive on the part of the complainant to testify against the accused or to falsely implicate him in the commission of the crime,
the logical conclusion is that the testimony is worthy of full faith and credence.24
This Court is convinced beyond reasonable doubt that Ocampo and Magallones committed the crime of rape by having carnal
knowledge of Diane using force and intimidation. Thus, the trial court properly imposed on Magallones the penalty of reclusion perpetua
for the crime of simple rape through force and intimidation.25
Regarding damages, this Court has consistently held that upon a finding of the fact of rape, the award of civil indemnity ex delicto is
mandatory.26 Diane is therefore entitled to P50,000.00 as civil indemnity. The trial court correctly awarded moral damages in the
amount of P50,000.00. Even without allegation or proof of the trauma constituting the basis for the award, the same is necessarily
included in a conviction of rape.27 Under Article 2230 of the Civil Code, exemplary damages as part of the civil liability may be imposed
when the crime was committed with one or more aggravating circumstances.28 Considering that no aggravating circumstance attended
the commission of the crime, the award by the trial court of exemplary damages in the amount of P25,000.00 is without basis and
should be deleted.
The award of interest on damages is proper and allowed under Article 2211 of the Civil Code, which states that in crimes and quasidelicts, interest as a part of the damages may, in proper case, be adjudicated in the discretion of the court.29
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CR-H.C. NO. 01552 which affirmed in toto the July 2, 2001 Decision of
the Regional Trial Court of Irosin, Sorsogon, Branch 55, in Criminal Case No. 1137, finding Erwin Magallones guilty beyond reasonable
doubt of the crime of rape and sentencing him to suffer the penalty of reclusion perpetua and ordering him to pay P50,000.00 as moral
damages is AFFIRMED with the MODIFICATION that Magallones is ordered to pay Diane Balesnomo the sum of P50,000.00 as civil
indemnity. The award of exemplary damages is DELETED for lack of basis. The amounts of P50,000.00 as moral damages and
another P50,000.00 as civil indemnity should each earn legal interest at the rate of six percent (6%) per annum computed from the date
of the judgment of the trial court.
SO ORDERED.

G.R. No. 147791

September 8, 2006

CONSTRUCTION DEVELOPMENT CORPORATION OF THE PHILIPPINES, petitioner,

vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER, PHILIPPINE PHOENIX SURETY & INSURANCE INC., BATANGAS LAGUNA
TAYABAS BUS CO., and WILFREDO DATINGUINOO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 29, 2001 Decision1 of the Court of Appeals in CA-G.R. CV No. 46896, which affirmed with
modification the February 9, 1993 Decision2 of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137, finding
Batangas Laguna Tayabas Bus Co. (BLTB) and Construction Development Corporation of the Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G. Estrella and her granddaughter, Rachel E. Fletcher, boarded in San Pablo City, a
BLTB bus bound for Pasay City. However, they never reached their destination because their bus was rammed from behind by a
tractor-truck of CDCP in the South Expressway. The strong impact pushed forward their seats and pinned their knees to the seats in
front of them. They regained consciousness only when rescuers created a hole in the bus and extricated their legs from under the
seats. They were brought to the Makati Medical Center where the doctors diagnosed their injuries to be as follows:
Medical Certificate of Rebecca Estrella
Fracture, left tibia mid 3rd
Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3
Medical Certificate of Rachel Fletcher
Extensive lacerated wounds, right leg posterior aspect popliteal area
and antero-lateral aspect mid lower leg with severance of muscles.
Partial amputation BK left leg with severance of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4
Thereafter, respondents filed a Complaint5 for damages against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo Datinguinoo before
the Regional Trial Court of Manila, Branch 13. They alleged (1) that Payunan, Jr. and Datinguinoo, who were the drivers of CDCP and
BLTB buses, respectively, were negligent and did not obey traffic laws; (2) that BLTB and CDCP did not exercise the diligence of a
good father of a family in the selection and supervision of their employees; (3) that BLTB allowed its bus to operate knowing that it
lacked proper maintenance thus exposing its passengers to grave danger; (4) that they suffered actual damages amounting to
P250,000.00 for Estrella and P300,000.00 for Fletcher; (5) that they suffered physical discomfort, serious anxiety, fright and mental
anguish, besmirched reputation and wounded feelings, moral shock, and lifelong social humiliation; (6) that defendants failed to act with
justice, give respondents their due, observe honesty and good faith which entitles them to claim for exemplary damage; and (7) that
they are entitled to a reasonable amount of attorney's fees and litigation expenses.
CDCP filed its Answer6 which was later amended to include a third-party complaint against Philippine Phoenix Surety and Insurance,
Inc. (Phoenix).7
On February 9, 1993, the trial court rendered a decision finding CDCP and BLTB and their employees liable for damages, the
dispositive portion of which, states:
WHEREFORE, judgment is rendered:
In the Complaint
1. In favor of the plaintiffs and against the defendants BLTB, Wilfredo Datinguinoo, Construction and Development Corporation
of the Philippines (now PNCC) and Espiridion Payunan, Jr., ordering said defendants, jointly and severally to pay the plaintiffs
the sum of P79,254.43 as actual damages and to pay the sum of P10,000.00 as attorney's fees or a total of P89,254.43;
2. In addition, defendant Construction and Development Corporation of the Philippines and defendant Espiridion Payunan, Jr.,
shall pay the plaintiffs the amount of Fifty Thousand (P50,000.00) Pesos to plaintiff Rachel Fletcher and Twenty Five
Thousand (P25,000.00) Pesos to plaintiff Rebecca Estrella;
3. On the counterclaim of BLTB Co. and Wilfredo Datinguinoo
Dismissing the counterclaim;
4. On the crossclaim against Construction and Development Corporation of the Philippines (now PNCC) and Espiridion
Payunan, Jr.
Dismissing the crossclaim;

5. On the counterclaim of Construction and Development Corporation of the Philippines (now PNCC)
Dismissing the counterclaim;
6. On the crossclaim against BLTB
Dismissing the crossclaim;
7. On the Third Party Complaint by Construction and Development Corporation of the Philippines against Philippine Phoenix
Surety and Insurance, Incorporated
Dismissing the Third Party Complaint.
SO ORDERED.8
The trial court held that BLTB, as a common carrier, was bound to observe extraordinary diligence in the vigilance over the safety of its
passengers. It must carry the passengers safely as far as human care and foresight provide, using the utmost diligence of very cautious
persons, with a due regard for all the circumstances. Thus, where a passenger dies or is injured, the carrier is presumed to have been
at fault or has acted negligently. BLTB's inability to carry respondents to their destination gave rise to an action for breach of contract of
carriage while its failure to rebut the presumption of negligence made it liable to respondents for the breach.9
Regarding CDCP, the trial court found that the tractor-truck it owned bumped the BLTB bus from behind. Evidence showed that CDCP's
driver was reckless and driving very fast at the time of the incident. The gross negligence of its driver raised the presumption that CDCP
was negligent either in the selection or in the supervision of its employees which it failed to rebut thus making it and its driver liable to
respondents.10
Unsatisfied with the award of damages and attorney's fees by the trial court, respondents moved that the decision be reconsidered but
was denied. Respondents elevated the case11 to the Court of Appeals which affirmed the decision of the trial court but modified the
amount of damages, the dispositive portion of which provides:
WHEREFORE, the assailed decision dated October 7, 1993 of the Regional Trial Court, Branch 13, Manila is hereby
AFFIRMED with the following MODIFICATION:
1. The interest of six (6) percent per annum on the actual damages of P79,354.43 should commence to run from the time the
judicial demand was made or from the filing of the complaint on February 4, 1980;
2. Thirty (30) percent of the total amount recovered is hereby awarded as attorney's fees;
3. Defendants-appellants Construction and Development Corporation of the Philippines (now PNCC) and Espiridion Payunan,
Jr. are ordered to pay plaintiff-appellants Rebecca Estrella and Rachel Fletcher the amount of Twenty Thousand (P20,000.00)
each as exemplary damages and P80,000.00 by way of moral damages to Rachel Fletcher.
SO ORDERED.12
The Court of Appeals held that the actual or compensatory damage sought by respondents for the injuries they sustained in the form of
hospital bills were already liquidated and were ascertained. Accordingly, the 6% interest per annum should commence to run from the
time the judicial demand was made or from the filing of the complaint and not from the date of judgment. The Court of Appeals also
awarded attorney's fees equivalent to 30% of the total amount recovered based on the retainer agreement of the parties. The appellate
court also held that respondents are entitled to exemplary and moral damages. Finally, it affirmed the ruling of the trial court that the
claim of CDCP against Phoenix had already prescribed.
Hence, this petition raising the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENTS BLTB AND/OR ITS
DRIVER WILFREDO DATINGUINOO SOLELY LIABLE FOR THE DAMAGES SUSTAINED BY HEREIN RESPONDENTS
FLETCHER AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN AWARDING EXCESSIVE OR UNFOUNDED
DAMAGES, ATTORNEY'S FEES AND LEGAL INTEREST TO RESPONDENTS FLETCHER AND ESTRELLA.
III
WHETHER OR NOT THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING RESPONDENT PHOENIX LIABLE
UNDER ITS INSURANCE POLICY ON THE GROUND OF PRESCRIPTION.
The issues for resolution are as follows: (1) whether BLTB and its driver Wilfredo Datinguinoo are solely liable for the damages
sustained by respondents; (2) whether the damages, attorney's fees and legal interest awarded by the CA are excessive and
unfounded; (3) whether CDCP can recover under its insurance policy from Phoenix.
Petitioner contends that since it was made solidarily liable with BLTB for actual damages and attorney's fees in paragraph 1 of the trial
court's decision, then it should no longer be held liable to pay the amounts stated in paragraph 2 of the same decision. Petitioner claims

that the liability for actual damages and attorney's fees is based on culpa contractual, thus, only BLTB should be held liable. As regards
paragraph 2 of the trial court's decision, petitioner claims that it is ambiguous and arbitrary because the dispositive portion did not state
the basis and nature of such award.
Respondents, on the other hand, argue that petitioner is also at fault, hence, it was properly joined as a party. There may be an action
arising out of one incident where questions of fact are common to all. Thus, the cause of action based on culpa aquiliana in the civil suit
they filed against it was valid.
The petition lacks merit.
The case filed by respondents against petitioner is an action for culpa aquiliana or quasi-delict under Article 2176 of the Civil Code.13 In
this regard, Article 2180 provides that the obligation imposed by Article 2176 is demandable for the acts or omissions of those persons
for whom one is responsible. Consequently, an action based on quasi-delict may be instituted against the employer for an employee's
act or omission. The liability for the negligent conduct of the subordinate is direct and primary, but is subject to the defense of due
diligence in the selection and supervision of the employee.14 In the instant case, the trial court found that petitioner failed to prove that it
exercised the diligence of a good father of a family in the selection and supervision of Payunan, Jr.
The trial court and the Court of Appeals found petitioner solidarily liable with BLTB for the actual damages suffered by respondents
because of the injuries they sustained. It was established that Payunan, Jr. was driving recklessly because of the skid marks as shown
in the sketch of the police investigator.
It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the owner of the other vehicle which collided with a common carrier is solidarily
liable to the injured passenger of the same. We held, thus:
The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff was riding
concurred with the negligence of a third party who was the driver of another vehicle, thus causing an accident. In Anuran v.
Buo, Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, and Metro Manila Transit Corporation v. Court of
Appeals, the bus company, its driver, the operator of the other vehicle and the driver of the vehicle were jointly and
severally held liable to the injured passenger or the latter's heirs. The basis of this allocation of liability was explained
in Viluan v. Court of Appeals, thus:
Nor should it make any difference that the liability of petitioner [bus owner] springs from contract while that of
respondents [owner and driver of other vehicle] arises from quasi-delict. As early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger due to the negligence of the driver of the bus on
which he was riding and of the driver of another vehicle, the drivers as well as the owners of the two vehicles are jointly and
severally liable for damages. x x x
xxxx
As in the case of BLTB, private respondents in this case and her co-plaintiffs did not stake out their claim against the carrier
and the driver exclusively on one theory, much less on that of breach of contract alone.After all, it was permitted for them to
allege alternative causes of action and join as many parties as may be liable on such causes of action so long as
private respondent and her co-plaintiffs do not recover twice for the same injury. What is clear from the cases is the
intent of the plaintiff there to recover from both the carrier and the driver, thus justifying the holding that the carrier and the
driver were jointly and severally liable because their separate and distinct acts concurred to produce the same
injury.16(Emphasis supplied)
In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several" obligation, the
relationship between the active and the passive subjects is so close that each of them must comply with or demand the fulfillment of the
whole obligation. In Lafarge Cement v. Continental Cement Corporation,17we reiterated that joint tort feasors are jointly and severally
liable for the tort which they commit. Citing Worcester v. Ocampo,18 we held that:
x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is tort.
They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in which he
participates, but is also jointly liable with his tort feasors. x x x
It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their
benefit. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful
act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any
number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole
damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined with him as
defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. x x
x
Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves. They
cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and severally liable for
the whole amount. x x x
A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist against
the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to
discharge all. x x x

Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The
courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though
they are charged jointly and severally.19
Petitioner's claim that paragraph 2 of the dispositive portion of the trial court's decision is ambiguous and arbitrary and also entitles
respondents to recover twice is without basis. In the body of the trial court's decision, it was clearly stated that petitioner and its driver
Payunan, Jr., are jointly and solidarily liable for moral damages in the amount of P50,000.00 to respondent Fletcher and P25,000.00 to
respondent Estrella.20 Moreover, there could be no double recovery because the award in paragraph 2 is for moral damages while the
award in paragraph 1 is for actual damages and attorney's fees.
Petitioner next claims that the damages, attorney's fees, and legal interest awarded by the Court of Appeals are excessive.
Moral damages may be recovered in quasi-delicts causing physical injuries.21 The award of moral damages in favor of Fletcher and
Estrella in the amount of P80,000.00 must be reduced since prevailing jurisprudence fixed the same at P50,000.00.22 While moral
damages are not intended to enrich the plaintiff at the expense of the defendant, the award should nonetheless be commensurate to
the suffering inflicted.23
The Court of Appeals correctly awarded respondents exemplary damages in the amount of P20,000.00 each. Exemplary damages may
be awarded in addition to moral and compensatory damages.24 Article 2231 of the Civil Code also states that in quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence.25 In this case, petitioner's driver was driving
recklessly at the time its truck rammed the BLTB bus. Petitioner, who has direct and primary liability for the negligent conduct of its
subordinates, was also found negligent in the selection and supervision of its employees. In Del Rosario v. Court of Appeals,26 we held,
thus:
ART. 2229 of the Civil Code also provides that such damages may be imposed, by way of example or correction for the public
good. While exemplary damages cannot be recovered as a matter of right, they need not be proved, although plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether
or not exemplary damages should be awarded. Exemplary Damages are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.
Regarding attorney's fees, we held in Traders Royal Bank Employees Union-Independent v. National Labor Relations
Commission,27 that:
There are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its ordinary
concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal services he has rendered
to the latter. The basis of this compensation is the fact of his employment by and his agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the court to be paid by the
losing party in a litigation. The basis of this is any of the cases provided by law where such award can be made, such as
those authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the client, unless they have agreed
that the award shall pertain to the lawyer as additional compensation or as part thereof.28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly awarded attorney's fees and other expenses of litigation as they may be recovered as
actual or compensatory damages when exemplary damages are awarded; when the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's valid, just and demandable claim; and in any other case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be recovered.29
Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the complaint, we held inEastern Shipping Lines,
Inc. v. Court of Appeals,30 that when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for payment of interest in the concept of actual and compensatory damages,31 subject to
the following rules, to wit
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 itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
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 until the demand can be established with reasonable certainty. Accordingly,
where the demand is established 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 at the time the
demand is made, the interest 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 actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.32 (Emphasis
supplied)
Accordingly, the legal interest of 6% shall begin to run on February 9, 1993 when the trial court rendered judgment and not on February
4, 1980 when the complaint was filed. This is because at the time of the filing of the complaint, the amount of the damages to which
plaintiffs may be entitled remains unliquidated and unknown, until it is definitely ascertained, assessed and determined by the court and
only upon presentation of proof thereon.33 From the time the judgment becomes final and executory, the interest rate shall be 12% until
its satisfaction.

Anent the last issue of whether petitioner can recover under its insurance policy from Phoenix, we affirm the findings of both the trial
court and the Court of Appeals, thus:
As regards the liability of Phoenix, the court a quo correctly ruled that defendant-appellant CDCP's claim against Phoenix
already prescribed pursuant to Section 384 of P.D. 612, as amended, which provides:
Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay,
present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of
the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from
date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss
or injury must be brought in proper cases, with the Commissioner or Courts within one year from denial of the claim,
otherwise, the claimant's right of action shall prescribe. (As amended by PD 1814, BP 874.)34
The law is clear and leaves no room for interpretation. A written notice of claim must be filed within six months from the date of the
accident. Since petitioner never made any claim within six months from the date of the accident, its claim has already prescribed.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 46896 dated March 29, 2001,
which modified the Decision of the Regional Trial Court of Manila, Branch 13, in Civil Case No. R-82-2137, is AFFIRMED with the
MODIFICATIONS that petitioner is held jointly and severally liable to pay (1) actual damages in the amount of P79,354.43; (2) moral
damages in the amount of P50,000.00 each for Rachel Fletcher and Rebecca Estrella; (3) exemplary damages in the amount of
P20,000.00 each for Rebecca Estrella and Rachel Fletcher; and (4) thirty percent (30%) of the total amount recovered as attorney's
fees. The total amount adjudged shall earn interest at the rate of 6% per annum from the date of judgment of the trial court until finality
of this judgment. From the time this Decision becomes final and executory and the judgment amount remains unsatisfied, the same
shall earn interest at the rate of 12% per annum until its satisfaction.
SO ORDERED.
Panganiban, C.J., Chairperson, Austria-Martinez, Callejo, Sr., Chico-Nazario, J.J., concur.

G.R. No. 74269

November 27, 2006

SOLID HOMES, INC. and V.V. SOLIVEN REALTY CORPORATION, Petitioners,

vs.
HON. INTERMEDIATE APPELLATE COURT, BENJAMIN V. ZABAT and LUNINGNING ZABAT, Respondents.
x------------------------------------------x
G.R. No. 92137

November 27, 2006

SOLID HOMES, INC., and V.V. SOLIVEN REALTY CORPORATION, Petitioners,

vs.
HON. COURT OF APPEALS, BENJAMIN V. ZABAT and LUNINGNING ZABAT, Respondents.
DECISION
TINGA, J.:
These consolidated cases stemmed from a Decision1 of the then Court of First Instance (CFI) of Rizal, Branch 15, awarding private
respondents as plaintiffs in an action seeking rescission of contract with damages in the amount of P15,938.00, with interest, as well as
actual, moral and exemplary damages plus attorneys fees.2 The petition in G.R. No. 74269 seeks the review of the interest rate of 12%
per annum imposed by the then Intermediate Appellate Court (IAC) when it affirmed the CFIs decision; while the other petition, G.R.
No. 92137, questions the propriety of an order allowing the partial execution pending appeal of the CFIs decision.
The undisputed or admitted facts follow.
Solid Homes, Inc. is the owner and developer of a subdivision project known as Greenheights Newton Subdivision (Greenheights)
located in Antipolo, Rizal.3 V.V. Soliven Realty Corporation sold lots in this subdivision and Pedro B. de la Pea was one of its brokers.
In January 1976, De la Pea was introduced to Colonel Benjamin V. Zabat (Zabat) and his wife Luningning (respondents) for the
purpose of making them interested in buying lots in Greenheights. De la Pea offered Lot Nos. 1, 2 and 3 of Block 8 of Greenheights
representing to respondents Lot No. 1 as having 296 square meters, Lot No. 2 with 240 square meters and Lot No. 3 with 296 square
meters.4Respondents agreed to buy Lot No. 1 of Block 8 while expressing their desire to purchase Lot Nos. 2 and 3 of the same block,
which were adjacent to Lot No. 1, for the purpose of turning the three lots into a family compound.5The purchase price for Lot No. 1
was P53,280.00 with down payment of 20% of the purchase price orP10,656.00. The parties agreed to pay the down payment
of P10,656.00 according to the following arrangementpayment of P500.00 upon execution of the Reservation Application and the
remainder to be offset by the value of G.I. sheets which respondents undertook to deliver to petitioners.6
On 29 January 1976, G.I. sheets worth P14,291.60 were delivered to Solid Homes, Inc. On the same date, Zabat signed and delivered
to De la Pea the reservation agreements for Lot Nos. 1, 2 and 3.7 Zabat retained a personal copy of these reservation
agreements.8 As the value of the G.I. sheets was higher than the agreed down payment for Lot No. 1, V.V. Soliven applied the excess
of the value of the G.I. sheets as down payment for Lot Nos. 2 and 3.9
However, Solid Homes, Inc. still sold Lot Nos. 2 and 3 to third parties on 2 March 1976, alleging failure of respondents to submit the
reservation application for Lot Nos. 2 and 3 on time.10
Respondents were only informed of the sale of Lot Nos. 2 and 3 in May 1976. Thus, on 11 May 1976, Zabat sent a letter to petitioners
stating his intention to rescind the contract because of petitioners failure to reserve Lot Nos. 2 and 3; the purchase of these lots being
the principal consideration for the purchase of Lot No. 1.11 Solid Homes, Inc. countered by saying that the reservation applications for
Lot Nos. 2 and 3 were submitted beyond the set deadline.12
Respondents then filed an action for specific performance or rescission of contract with damages on 29 September 1976 before the
CFI, praying that petitioners comply with the agreement for petitioners to sell to respondents Lot Nos. 1, 2 and 3 or, in the alternative,
that petitioners be required to return to respondents their payments, together with interest and damages.
Trial ensued. On 31 August 1979, the trial court rendered a Decision13 in favor of respondents, ordering petitioners to return to
respondents the sum of P15,938.00 with interest thereon at the legal rate computed from 11 February 1976 until full restoration.
Petitioners were likewise declared liable to pay respondents P1,000.00 for actual damages, P20,000.00 as moral damages, P1,000.00
as exemplary damages plus P5,000.00 as attorneys fees.14
Upon appeal by petitioners,15 the IAC affirmed16 the decision of the trial court with modification. Petitioners were ordered to return to
respondents the sum of P16,438.0017 with interest thereon at 12% per annum from date of first demand, 11 May 1976,18 until full
payment. The award for moral damages was decreased to P10,000.00 while the award for actual damages was withdrawn. No
reference was made to the award of exemplary damages and attorneys fees,19 hence, it was deemed affirmed.
From the IACs decision, petitioners filed the petition in G.R. No. 74269, raising the correct rate of interest to be imposed on petitioners
obligation as declared by the lower courts as the sole issue. As earlier noted, petitioners no longer raised before this Court the matter of
their liability to pay for the principal obligation and moral damages.
After the filing of the instant petition in G.R. No. 74269, respondents filed a Motion for Partial Execution of Judgment before the
Regional Trial Court (RTC) of Makati, Branch 132, to which the original case was transferred. On 28 January 1988, the lower court
granted said motion on the ground that the sole issue still pending before this Court was merely the determination of the applicable rate
of interest for the principal obligation, all other matters having become final and executory.20 Initially, the Court of Appeals reversed the
decision of the trial court.21 However, upon motion for reconsideration, the appellate court promulgated an amended decision granting
the motion for partial execution of judgment.22 This amended decision is now challenged in G.R. No. 92137.
Back to the lone issue in G.R. No. 74269 on the applicable rate of interest on a money judgment. Strikingly, the IAC did not provide an
explanation why it imposed the interest rate of 12%.

This precise issue was subsequently addressed by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals.23 Although the filing
of petition in G.R. No. 74269 preceded Eastern Shipping, the guidelines laid down therein are applicable to this case as they
implemented and clarified laws that were already in existence even before this instant petition was filed.24
Respondents cause of action in this case arose from petitioners failure to reserve lots intended to be purchased by respondents in
accordance with their contract. This prompted respondents to rescind the contract. The trial court ordered petitioners to return the sum
of P15,938.00 with interest and to pay damages to respondents. The IAC affirmed the trial courts decision with modification by ordering
petitioners to return to respondentsP16,438.00 with interest at 12% per annum and to pay moral damages.25
Eastern Shipping teaches that, with respect to an award of interest in the concept of actual and compensatory damages, interest on the
amount of damages awarded may be imposed at the discretion of the Court at the rate of 6% per annum for a breach of an obligation
not constituting a loan or forbearance of money. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially. But when such certainty cannot be reasonably
established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made.261wphi1
The ruling of the appellate court imposing the interest rate of 12% is incompatible with the consistently reiterated doctrine in Eastern
Shipping.27 In this case, an interest of only 6% should be imposed on the obligation of petitioners as such obligation did not constitute a
loan or forbearance of credit. The 6% interest imposed on the principal obligation of P16,438.00 shall commence on the date of first
demand as determined by the lower court which is 11 May 1976.28
As aforestated, petitioners did not challenge their liability for the principal obligation, damages and attorneys fees as found by the trial
court. Thus, petitioners liability for the judgment amount, save for the interest, has become final and executory.29
In Eastern Shipping, the Court went on to state that when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of
credit.30
Accordingly, the principal obligation of P16,438.00 shall bear 6% interest from the date of first demand or from 11 May
1976.1wphi1 From the date the liability for the principal obligation, moral and exemplary damages and attorneys fees had become
final and executory, an annual interest of 12% shall be imposed on these obligations until their final satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
Turning to the petition in G.R. No. 92137, what needs to be asked is whether it is proper to issue a partial writ of execution of a decision
ordering a return of a sum of money while the determination of the applicable rate of interest on said monetary obligation is still subject
for final determination.
In resolving the motion for partial execution of judgment filed by respondents, the appellate court referred to Section 9, Rule 41 of the
1964 Rules of Court, to wit:
Sec. 9. When appeal deemed perfected; effect thereof. If the notice of appeal, the appeal bond and the record on appeal have been
filed in due time, the appeal is deemed perfected upon the approval of the record on appeal and of the appeal bond other than a cash
bond, and thereafter the trial court loses its jurisdiction over the case, except to issue orders for the protection and preservation of the
rights of the parties which do not involve any matter litigated by the appeal, to approve compromises offered by the parties prior to the
transmittal of the record on appeal to the appellate court, and to permit the prosecution of paupers appeals.31
The appellate court then granted the motion for partial execution on the ground that the unappealed portion of the trial courts decision
had become final and executory. The appellate court also followed the ruling in Baldisimo v. CFI of Capiz, et al., 32 that it is within the
power of the trial court to issue orders for the protection and preservation of the rights of the parties which do not involve any matter
litigated in the appeal.33
On the other hand, petitioners contend that the case of Alcober, et al. v. Hon. Garciano, et al., 34 should have been applied by the
appellate court instead of Baldisimo as Alcober was rendered on a later date. An examination of the two cases would show, however,
that it is Baldisimo and not Alcober that squarely addresses the issue in this instant case.
Alcober involved an action to establish title to a parcel of land and the Court therein applied the general rule set in Sec. 9, Rule 41 of
the 1964 Rules that when an appeal is perfected, the trial court loses jurisdiction over the case. Even though Alcober applied the
general rule, it nevertheless acknowledged that there are exceptions to the same, namely: 1) when the issue orders for the protection
and preservation of the rights of the parties which do not involve any matter litigated by the appeal; 2) to approve compromises offered
by the parties prior to the transmittal of the record on appeal to the appellate court; and 3) to permit the prosecution of a paupers
appeal.35
The case of Baldisimo involved the application of the exception to the general rule. Petitioner in Baldisimo sought to recover the
ownership and possession of a parcel of land. The lower court awarded ownership of the whole property to petitioner and declared him
entitled to the possession thereof while respondent therein was declared entitled to the refund of expenses made for the construction of
improvements on the land. Respondent raised in his appeal the reasonableness of the amount fixed for the value of the improvements
but did not appeal the ruling adjudicating the ownership of the land and the right of possession thereto. Consequently, this Court held
that under Sec. 9, Rule 41 of the then Rules of Court,36 it was within the power of the trial court to issue orders for the protection and
preservation of the rights of the parties which do not involve any matter litigated in the appeal.37
The principle in Baldisimo applies to the instant case because save for the determination of the applicable rate of interest, the decision
of the appellate court awarding to respondents P16,438.00 plus P10,000.00 as moral damages had become final and executory. No
similar complexity attended the appeal raised in Alcober. These aspects of the decision are matters that are no longer litigated in the
appeal. Thus, the trial court can proceed with their execution.38

WHEREFORE, the petition in G.R. No. 74259 is GRANTED IN PART. The decision of the Intermediate Appellate Court is MODIFIED in
that petitioners are ORDERED to pay interest at 6% per annum on the principal obligation in the amount of P16,438.00 from 11 May
1976, the date of first demand by respondent, until said decision on the principal obligation became final and executory, and interest at
12% per annum on the principal obligation, moral and exemplary damages, as well as attorneys fees, from the time said decision
became final and executory until full payment of said amounts.
The petition in G.R. No. 92137 is DENIED and the amended decision of the Court of Appeals is AFFIRMED.
No pronouncement as to costs.
SO ORDERED
DANTE O. TINGA
Associate Justice

G.R. No. 126890

March 9, 2010

UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO), Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST (APT), AS
TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES Respondents.
RESOLUTION
PERALTA, J.:
For consideration is the Motion for Reconsideration of petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO) seeking to
reverse and set aside the Resolution of the Court dated April 2, 2009 which granted both Second Motions for Reconsideration filed by
respondents Privatization and Management Office (PMO), formerly Asset Privatization Trust (APT), and Philippine National Bank
(PNB), and reinstated the Decision of the Court of Appeals dated February 29, 1996 which, in turn, reversed and set aside the Decision
of the Regional Trial Court, Branch 45, Bais, Negros Oriental. The dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is hereby set aside and judgment is herein rendered declaring that the subject Deed of
Assignment has not condoned all of UPSUMCOs obligations to APT as assignee of PNB.
To determine how much APT is entitled to recover on its counterclaim, it is required to render an accounting before the Regional Trial
Court on the total payments made by UPSUMCO on its obligations including the following amounts:
(1) The sum seized from it by APT whether in cash or in kind (from UPSUMCOs bank deposits as well as sugar and molasses
proceeds):
(2) The total obligations covered by the following documents:
(a) Credit agreement dated November 05, 1974 (Exh. "1," Record p. 528); and
(b)
(c) The Restructuring Agreements dated (i) June 24, 1982, (ii) December 10, 1982, and (3) May 9, 1984 and
(3) The P450,000,000.00 proceeds of the foreclosure
Should there be any deficiency due APT after deducting the foregoing amounts from UPSUMCOs total obligation in the amount of
(P2,137,076,433.15), the latter is hereby ordered to pay the same. However, if after such deduction there should be any excess
payment, the same should be turned over to UPSUMCO.
The Regional Trial Court is hereby directed to receive APTs accounting and thereafter, to render the proper disposal of this case in
accordance with the foregoing findings and disposition.
Costs against appellees.
SO ORDERED.
Petitioner prefaces its arguments that it is the aggrieved party, not the government as represented by respondent APT (now the PMO),
as its deposits with respondent PNB were taken without its prior knowledge and that it was reluctant to give assent to the desire of the
government to forego redemption of its assets by reason of uncontested foreclosure.
Facts showed that in 1974, petitioner, engaged in the business of milling sugar, obtained "takeoff loans" from respondent PNB to
finance the construction of a sugar milling plant which were covered by a Credit Agreement dated November 5, 1974. The said loans
were thrice restructured through Restructuring Agreements dated June 24, 1982, December 10, 1982, and May 9, 1984. The takeoff
loans were secured by a real estate mortgage over two parcels of land where the milling plant stood and chattel mortgages over certain
machineries and equipment. Also included in the condition for the takeoff loans, petitioner agreed to "open and/or maintain a deposit
account with [respondent PNB] and the bank is authorized at its option to apply to the payment of any unpaid obligations of the client
any/and all monies, securities which may be in its hands on deposit."
From 1984 to 1987, petitioner contracted another set of loans from respondent PNB, denominated as"operational loans," for the
purpose of financing its operations, which also contained setoff clauses relative to the application of payments from petitioners bank
accounts. They were likewise secured by pledge contracts whereby petitioner assigned to respondent PNB all its sugar produce for the
latter to sell and apply the proceeds to satisfy the indebtedness arising from the operational loans.
Later, respondent APT and petitioner agreed to an "uncontested" or "friendly foreclosure" of the mortgaged assets, in exchange for
petitioners waiver of its right of redemption. On July 28, 1987, respondent PNB (as mortgagee) and respondent APT (as assignee and
transferee of PNBs rights, titles and interests) filed a Petition for Extrajudicial Foreclosure Sale with the Ex-Officio Regional Sheriff of
Dumaguete City, seeking to foreclose on the real estate and chattel mortgages which were executed to secure the takeoff loans. The
foreclosure sale was conducted on August 27, 1987 whereby respondent APT purchased the auctioned properties forP450,000,000.00.
Seven (7) days after the foreclosure sale, or on September 3, 1987, petitioner executed a Deed of Assignment assigned to respondent
APT its right to redeem the foreclosed properties, in exchange for or in consideration of respondent APT "condoning any deficiency
amount it may be entitled to recover from the Petitioner under the Credit Agreement dated November 5, 1974, and the Restructuring
Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984, respectively, executed between [UPSUMCO] and PNB" On
the same day, the Board of Directors of petitioner approved the Board Resolution authorizing Joaquin Montenegro, its President, to
enter into said Deed of Assignment.1avvphi1

Despite the Deed of Assignment, petitioner filed a complaint on March 10, 1989 for sum of money and damages against respondents
PNB and APT before the Regional Trial Court (RTC) of Bais City alleging therein that respondents had illegally appropriated funds
belonging to petitioner, through the following means: (1) withdrawals made from the bank accounts opened by petitioner beginning
August 27, 1987 until February 12, 1990; (2) the application of the proceeds from the sale of the sugar of petitioner beginning August
27, 1987 until December 4, 1987; (3) the payment from the funds of petitioner with respondent PNB for the operating expenses of the
sugar mill after September 3, 1987, allegedly upon the instruction of respondent APT and with the consent of respondent PNB.
The RTC rendered judgment in favor of the petitioner. On appeal, the CA reversed and set aside the RTC Decision and ruled that only
the "takeoff" loans and not the operational loans were condoned by the Deed of Assignment. In a Decision dated November 28, 2006
and Resolution dated July 11, 2007, the Court (Third Division) reversed and set aside the CA Decision. The case was thereafter
referred to the Court en banc which reversed the ruling of the Third Division.
In its Motion for Reconsideration, petitioner raises the following grounds:
1. The order of the Honorable Court En Banc reinstating the decision of the Honorable Court of Appeals would be inconsistent
with the facts of the case and the findings of this Honorable Court.
2. There is no valid ground to conclude that APT has still the right to the deposit of UPSUMCO after the August 27, 1987
friendly foreclosure, and the withdrawal of P80,200,806.41 as payment could be applied either as repayment on the Take-off
Loans or for the Operational Loans.
3. The findings that the condonation took effect only after the execution of the Deed of Assignment hence upholds the validity
of APTs taking of the deposit of P80,200,806.41 in UPSUMCOs PNB account as payment of the deficiency is without basis.
4. The admission of the case by Honorable Court En Banc after the denial of the Second Division of the Second Motion for
Reconsideration and the referral of the case to the Honorable Court En Banc appear not to be in accordance with the Rules of
Procedure.
5. The basis for admission of the case to the Honorable Court En Banc are belated issues which have no other purpose but to
give apparent reasons for the elevation of the case.
6. There is no legal basis for the withdrawals of UPSUMCOs deposit on the ground of conventional compensation.
7. Since the amount of P17,773,185.24 could not be the subject of conventional compensation, it should be returned to
petitioner immediately by respondents.
After a careful review of the arguments in the petitioners motion for reconsideration, the Court finds the same to be mere rehash of the
main points already set forth in the Courts En Banc Resolution of April 2, 2009 and, hence, denies the same for lack of merit. The
pertinent portions of the decision read as follows:
The rulings of the lower courts, as well as the petition itself, are not clear as to the amount extended by way of takeoff loans by PNB to
UPSUMCO. However, the Court of Appeals did enumerate the following transactions consisting of the operational loans, to wit:
(1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;
(2) Deed of Assignment By Way of Payment dated November 16, 1984 (Exh. 3 [PNB]; Exh. 12 [APT]; Record, p. 545);
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans (Exh. 13 to 16; Record, pp 548 to 551);
(5) Credit Agreements dated February 19, 1987 (Exhs. "2" [PNB] & "4" [APT]; Record, pp. 541-544) and April 29, 1987 (Exh.
"11" [APT]; Record, pp. 314-317).
(6) Promissory Notes dated February 20, 1987 (Exh. "17"; Record, p. 573); March 2, 1987 (Exh. "18"; Record, p. 574); March
3, 1987 (Exh. "19"; Record, p. 575); March 27, 1987; (Exh. "20"; Record, p. 576); March 30, 1987(Exh. "21"; Record, p. 577);
April 7, 1987 (Exh. "22"; Record, p. 578); May 22, 1987 (Exh. "23"; Record, p. 579); and July 30, 1987 (Exh. "24"; record p.
580).
On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its "rights" titles and interests over UPSUMCO,
among several other assets. The Deed of Transfer acknowledged that said assignment was being undertaken "in compliance with
Presidential Proclamation No. 50." The Government subsequently transferred these "rights" titles and interests" over UPSUMCO to
respondent Asset and Privatization Trust (APT), [now PMO].
xxxx
This much is clear. The Deed of Assignment condoned only the take-off loans, and not the operational loans. The Deed of Assignment
in its operative part provides, thus:
That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") pursuant to a resolution passed by its board of Directors on
September 3, 1087, and confirmed by the Corporations stockholders in a stockholders Meeting held on the same (date), for and in
consideration of the Asset Privatization Trust ("APT") condoning any deficiency amount it may be entitled to recover from the
Corporation under the Credit Agreement dated November 5, 1974 and the Restructuring Agreement[s] dated June 24, and December
10, 1982, and May 9, 1984, respectively, executed between the Corporation and the Philippine National Bank ("PNB"), which financial
claims have been assigned to APT, through the National Government, by PNB, hereby irrevocably sells, assigns and transfer to APT its
right to redeem the foreclosed real properties covered by Transfer Certificates of Titles Nos. T-16700 and T-16701.

IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf by Mr. Joaquin S. Montenegro,
thereunto duly authorized, this 3rd day of September, 1997.
xxxx
This notwithstanding, the RTC Decision was based on the premise that all of UPSUMCOs loans were condoned in the Deed of
Assignment. In contrast, the Court of Appeals acknowledged that only the take-off loans were condoned, and thus ruled that APT was
entitled to have the funds from UPSUMCOSs accounts transferred to its own account "to the extent of UPSUMCOs remaining
obligation, less the amount condoned in the Deed of Assignment and the 450,000,000.00 proceeds of the foreclosure."
The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale. UPSUMCO argues
that after that date, respondents no longer had the right to collect monies from the PNB bank accounts which UPSUMCO had
opened and maintained as collateral for its operational take-off loans. UPSUMCO is wrong. After 27 August 1987, there were
at least two causes for the application of payments from UPSUMCOs PNB accounts. The first was for the repayment of the
operational loans, which were never condoned. The second was for the repayment of the take-off loans which APT could
obtain until 3 September 1987, the day the condonation took effect.
The error of the Courts earlier rulings, particularly the Resolution dated 11 July 2007, was in assuming that the non-condonation of the
operational loans was immaterial to the application of payments made in favor of APT from UPSUMCOSs PNB accounts that occurred
after 27 August 1987. For as long as there remained outstanding obligations due to APT (as PNBs successor-in-interest), APT would
be entitled to apply payments from the bank accounts of PNB. That right had been granted in favor of PNB, whether on account of the
take-off loans or the operational loans.
Petitioner filed with the RTC the complaint which alleged that "among the conditions of the friendly foreclosure are: (A) That all the
accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding." It was incumbent on petitioner,
not respondents, to prove that particular allegation in its complaint. Was petitioner able to establish that among the conditions of the
"friendly foreclosure was that "all its accounts are condoned"? It did not, as it is now agreed by all that only the take-off loans were
condoned.
This point is material, since the 2007 Resolution negated the findings that only the take-off loans were condoned by faulting
respondents for failing to establish that there remained outstanding operational loans on which APT could apply payments from
UPSUMCOs bank accounts. By the very language of the Deed of Assignment, it was evident that UPSUMCOs allegation in its
complaint that all of its accounts were condoned was not proven. Even if neither PNB nor APT had filed an answer, there would have
been no basis in fact for the trial court to conclude that all of UPSUMCOs loans were condoned (as the RTC in this case did), or issue
reliefs as if all the loans were condoned (as the 2007 Resolution did).
As noted earlier, APT had the right to apply payments from UPSUMCOs bank accounts, by virtue of the terms of the operational loan
agreements. Considering that UPSUMCO was spectacularly unable to repay the take-off loans it had earlier transacted, it simply
beggars belief to assume that it had fully paid its operational loans. Moreover, APT had the right to obtain payment of the operational
loans by simply applying payments from UPSUMCOs bank accounts, without need of filing an action for collection with the courts. The
bank accounts were established precisely to afford PNB (and later APT) extrajudicial and legal means to obtain repayment of
UPSUMCOs outstanding loans without hassle.
B.
There is no question that the Deed of Assignment condoned the outstanding take-off loans of UPSUMCO due then to APT. The Deed
of Assignment was executed on 3 September 1987 as was the UPSUMCO Board Resolution authorizing its President to sign the Deed
of Assignment. However, despite the absence of any terms to that effect in the Deed of Assignment, it is UPSUMCOs position that the
condonation actually had retroacted to 27 August 1987. The previous rulings of the Court unfortunately upheld that position.
It is easy to see why UPSUMCO would pose such an argument. It appears that between 27 August 1987 and 3 September 1987. APT
applied payments from UPSOMCOs bank accounts in the amount of around 80 Million Pesos. UPSUMCO obviously desires the return
of the said amount. But again, under the terms of the loan arguments, APT as successor-in-interest of PNB, had the right to seize any
amounts deposited in UPSUMCOS bank accounts as long as UPSUMCO remained indebted under the loan agreements. Since
UPSUMCO was released from its take-off loans only on 3 September 1987, as indicated in the Deed of Assignment, then APTs
application of payments is perfectly legal.
The earlier rulings of the Court were predicated on a finding that there was a "friendly foreclosure" agreement between APT and
UPSUMCO, whereby APT agreed to condone all of UPSUMCOs outstanding obligations in exchange for UPSUMCOs waiver of its
right to redeem the foreclosed property. However, no such agreement to the effect was ever committed to writing or presented in
evidence. The written agreement actually set forth was not as contended by UPSUMCO. For one, not all of the outstanding loans were
condoned by APT since the take-off loans were left extant. For another, the agreement itself did not indicate any date of effectivity other
than the date of the execution of the agreement, namely 3 September 1987.
It is argued that the use of the word "any" in "any deficiency amount" sufficiently establishes the retroactive nature of the condonation.
The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the remaining deficiency amount after the
27 August foreclosure sale, but also the remaining deficiency amount as of 3 September 1987, when the Deed of Assignment was
executed and after APT had exercised its right as creditor to apply payments from petitioners PNB accounts. The Deed of Assignment
was not cast in intractably precise terms, and both interpretations can certainly be accommodated.
It is in that context that the question of parol evidence comes into play. The parol evidence rule states that generally, when the terms of
an agreement have been reduced into writing, it is considered as containing all the terms agreed upon and there can be no evidence of
such terms other than the contents of the written agreement. Assuming that the Deed of Assignment failed to accurately reflect an
intent of the parties to retroact the effect of condonation to the date of the foreclosure sale, none of the parties, particularly UPSUMCO,
availed of its right to seek the reformation of the instrument to the end that such true intention may be expressed. As there is nothing in
the text of Deed of Assignment that clearly gives retroactive effect to the condonation, the parol evidence rule generally bars any other
evidence of such terms other than the contents of the written agreement, such as evidence that the said Deed had retroactive effect.

It is argued that under Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the written
agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true intent and the agreement of the
parties thereto."
Petitioner did not exactly state in its Amended Complaint that the condonation effected in the Deed of Assignment had retroacted to the
date of the foreclosure sale. What petitioner contented in its amended complaint was that the Deed of Assignment "released and
discharged plaintiff from any and all obligations due the defendant PNB and defendant APT," that "after the foreclosure by PNB/APT
plaintiff is entitled to all the funds it deposited or being held by PNB in all its branches," and that "among the conditions of the friendly
foreclosure are that all the accounts of the plaintiff are condoned." It remains unclear whether petitioner had indeed alleged in its
Amended Complaint that the Deed of Assignment executed on 3 September1987 had retroacted effect as of the foreclosure sale, or on
27 August 1987. If petitioner were truly mindful to invoke the exception to the parol evidence rule and intent on claiming that the
condonation had such retroactive effect, it should have employed more precise language to the effect in their original and amended
complaints.
xxxx
The right of respondent PNB to set-off payments from UPSUMCO arose from conventional compensation rather than legal
compensation, even if all the requisites for legal compensation were present between those two parties. The determinative factor is the
mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express agreement stipulating compensation,
PNB and UPSUMCO would have been entitled to set-off of payments, as the legal requisites for compensation under Article 1279 were
present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to exist. However,
PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the presence of all the
requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its rights under conventional
compensation. The absence of the mutual creditor-debtor relation between the new creditor APT and UPSUMCO cannot negate the
conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had the right to set-off the outstanding obligations of
UPSUMCO on the basis of conventional compensation before the condonation took effect on 3 September 1987.
V.
The conclusions are clear. First. Between 27 August to 3 September 1987, APT had the right to apply payments from UPSUMCOs
bank accounts maintained with PNB as repayment for the take-off loans and/or the operational loans. Considering that as of 30 June
1987, the total indebtedness of UPSUMCO as to the take-off loans amounted to P2,137,076,433.15, and because the foreclosed
properties were sold during the execution sale for only 450 Million Pesos, it is safe to conclude that the total amount of P80,200,806.41
debited from UPSUMCOs bank accounts from 27 August to 3 September 1987 was very well less than the then outstanding
indebtedness for the take-off loans. It was only on 3 September 1987 that the take-off loans were condoned by APT, which lost only on
that date too the right to apply payments from UPSUMCOS bank accounts to pay the take-off loans.
Second. After 3 September 1987, APT retained the right to apply payments from the bank accounts of UPSUMCO with PNB to answer
for the outstanding indebtedness under the operational loan agreements. It appears that the amount of P17,773,185.24 was debited
from UPSUMCOs bank accounts after 3 September. At the same time, it remains unclear what were the amounts of outstanding
indebtedness under the operational loans at the various points after 3 September 1987 when the bank accounts of UPSUMCO were
debited.
The Court of Appeals ordered the remand of the case to the trial court, on the premise that it was unclear how much APT was entitled
to recover by way of counterclaim. It is clear that the amount claimed by APT by way of counterclaim over 1.6 Billion Pesos is over
and beyond what it can possibly be entitled to, since it is clear that the take-off loans were actually condoned as of 3 September 1987.
At the same time, APT was still entitled to repayment of UPSUMCOs operational loans. It is not clear to what extent, if at all, the
amounts debited from UPSUMCOs bank accounts after 3 September 1987 covered UPSUMCOs outstanding indebtedness under the
operational loans. Said amounts could be insufficient, just enough, or over and beyond what UPSUMCO actually owed, in which case
the petitioner should be entitled to that excess amount debited after 3 September 1987. Because it is not evident from the voluminous
records what was the outstanding balance of the operational loans at the various times post-September 3 UPSUMCOs bank accounts
were debited, the remand ordered by the Court of Appeal is ultimately the wisest and fairest recourse.1
Petitioner insists that the Court should not have taken cognizance of the respondents second motions for reconsideration with the
prayer that the case be referred to the Court en banc as the same appear not to be in accordance with the rules.
Generally, under Section 3 of the Courts Circular No. 2-89, effective March 1, 1989, the referral to the Court en banc of cases assigned
to a Division is to be denied on the ground that the Court en banc is not an Appellate Court to which decisions or resolutions of a
Division may be appealed. Moreover, a second motion for reconsideration of a judgment or final resolution shall not be entertained for
being a prohibited pleading under Section 2, Rule 52, in relation to Section 4, Rule 56 of the Rules of Court, except for extraordinarily
persuasive reasons and only after an express leave shall have first been obtained.2 Accordingly, the Court, in the exercise of its sound
discretion, determines the issues which are of transcendental importance, as in the present case, which necessitates it to accept the
referral of a Division case before it and the grant of a second motion for reconsideration.
In sum, the Resolution of the Court En Banc reinstating the Decision of the CA categorically ruled that only its takeoff loans, not the
operational loans, were condoned by the Deed of Assignment dated September 3, 1987. The Deed of Assignment expressly stipulated
the particular loan agreements which were covered therein. As such, respondent APT was entitled to have the funds from petitioners
savings accounts with respondent PNB transferred to its own account, to the extent of petitioners remaining obligations under the
operational loans, less the amount condoned in the Deed of Assignment and the P450,000,000.00 proceeds of the foreclosure. As the
En Banc Resolution explained, respondent APT had a right to go after the bank deposits of petitioner, in its capacity as the creditor of
the latter. Likewise, respondent PNB had the right to apply the proceeds of the sale of petitioners sugar and molasses, in satisfaction of
petitioners obligations. Respondent PNB never waived these rights and the same were transferred to respondent APT (now PMO) by
virtue of the Deed of Transfer executed between them. Moreover, there was no conventional subrogation since such requires the
consent of the original parties and of the third persons and there was no evidence that the consent of petitioner (as debtor) was secured
when respondent PNB assigned its rights to respondent APT, and that the assignment by respondent PNB to respondent APT arose by
mandate of law and not by the volition of the parties. Accordingly, the remand of the case to the RTC for computation of the parties
remaining outstanding balances was proper.

The doctrine of stare decisis et no quieta movere3 or principle of adherence to precedents does not apply to the present case so as to
bar the Court en banc from taking cognizance over the case which rectified the disposition of the case and reversed and set aside the
Decision rendered by a Division thereof.
WHEREFORE, the Motion for Reconsideration filed by petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO) is DENIED
WITH FINALITY for lack of merit.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice

G.R. No. 150917

September 27, 2006

ARTEMIO YADAO, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.
DECISION
CHICO-NAZARIO, J.:
For Review1 is the 18 April 2001 Decision2 and 13 November 2001 Resolution3 of the Court of Appeals in CA-G.R. CR No. 19818,
affirming in toto the 28 March 1996 Decision4 of the Regional Trial Court of Bauang, La Union, Branch 33, in Criminal Case No. 1042BG.
Petitioner Artemio Yadao (Yadao) prays for the reversal of the decision finding him "guilty beyond reasonable doubt of the crime of
homicide as charged in the information x x x,"5 defined and penalized under Article 249 of the Revised Penal Code for the death of
Deogracias Gundran (Gundran), and sentencing him to suffer the "indeterminate penalty of FOUR (4) YEARS, TWO (2) MONTHS and
ONE (1) DAY of prision correccional in its maximum period, as Minimum to EIGHT (8) YEARS of prision mayor in its minimum period,
as Maximum, x x x."6
On 21 April 1989, petitioner Yadao was charged with the crime of homicide before the Regional Trial Court (RTC) of Bauang, La Union,
Branch 33, for allegedly mauling one Deogracias Gundran, in an Information,7 the accusatory portion of which states:
That on or about the 1st day of October, (sic) 1989, in the Municipality of Bauang, Province of La Union, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, with intent to kill, did then and there willfully,
unlawfully and feloniously attack, assault and maul one DEOGRACIAS GUNDRAN, thereby inflicting upon said victim several
injuries on the different parts of his body which directly caused his death, to the damage and prejudice of the heirs of the
victims.
CONTRARY TO ART. 249 of the Revised Penal Code.
The case was docketed as Criminal Case No. 1042-BG.
Upon arraignment, petitioner Yadao with assistance of a counsel de parte, pleaded "Not Guilty" to the crime charged. Thus, trial
ensued, with the prosecution presenting four witnesses, namely 1) Carmelita Limon,8 2) Teofilo Gundran,9 3) Napoleon Estigoy10 and 4)
Dr. Arturo Llavore,11 to establish petitioner Yadao's culpability beyond reasonable doubt of the crime charged.
To counter the evidence abovementioned, the defense offered the testimonies of the following defense witnesses: 1) petitioner Artemio
Yadao, 2) Reynaldo Feratero,12 3) Dr. Magdalena Alambra,13 4) Calixto Chan14 and 5) Evelyn Uy, as well as documentary
evidence, i.e., the Autopsy Report of Dr. Alambra.
From a review of the record of the case, we cull the following established facts:
It was petitioner Yadao's birthday on 1 October 1988. As such, he had a few guests over at his house to help him celebrate it. The
guests included defense witnesses Reynaldo Feratero, Calixto Chan and Evelyn Uy. At around 9:00 a.m., petitioner Yadao noticed the
victim, Gundran,15 albeit not invited, to be milling around with the guests and was already drinking gin. At around 3:45 p.m. of the said
day, while petitioner Yadao was sitting on one end of a bench, the victim, who happened to be lying down on the other end of the same
bench, suddenly stood up. Because no one else was sitting on the middle, said bench tilted due to the weight of petitioner Yadao, thus,
causing him to fall to the ground. Upon seeing him fall to the ground, the victim went over to petitioner Yadao and began boxing him on
the stomach. Petitioner Yadao's wife tried to pacify her nephew but this merely enraged the latter who then got a can opener and tried
to stab petitioner Yadao with it. The latter deflected said attempt and delivered a slap on the face of the victim in order to "knock some
sense" into him. But because he was already intoxicated, as he had been drinking since early that morning, the victim lost his balance,
hit his head on the edge of a table and fell to the ground landing on his behind. The other guest helped the victim to stand up and
proceeded to show him to the door.
The victim, Gundran, left the house of petitioner Yadao, between 4:00 to 5:00 p.m., and proceeded to the house of Carmelita Limon
who was the sister of one of his friends. At that time, Limon was inside her house doing the laundry. Upon seeing him, Limon noticed a
one-inch in diameter lump on the victim's forehead. The victim told her that he came from the birthday party of petitioner Yadao and that
the latter "mauled" him. While she treated the "wound" with "kutsay," an herb, the victim complained of pain on his breast/stomach area,
the area where he claimed to have been hit by petitioner Yadao.
Two days later, or on 3 October 1988, Teofilo Gundran, the father of the victim was informed by his granddaughter that his son, the
victim, was having difficulty breathing. Teofilo Gundran then proceeded to where the victim was, which happened to be in his (the
victim's) sister's house, a short distance away from Limon's house. When he got to the house, Teofilo Gundran saw the victim sitting on
an "arinola" gasping for breath. He then held the victim's two hands until the latter expired.
On the same day that he died, the body of the victim was autopsied by Dr. Magdalena Alambra, Medical Specialist II of the Rural Health
Unit of Bauang, La Union. In her Autopsy Report, she made the following findings:
PERTINENT PHYSICAL FINDINGS:
1. Hematoma suboponeurotic layer of the scalp rt. Fronto parietal area 10 cm. in length and 9 cm. in width.
2. Fibrocaseous necrosis of the right lung with loss of lung parenchymal tissue and pleural adhesion of the rt. Lateral wall of
the chest.

CAUSE OF DEATH: Cardio respiratory arrest due to pulmonary tuberculosis. Far advanced with massive pleural adhesion rt.
side.16
During the trial of the case, Dr. Alambra testified for the defense. She stated under oath that immediately after the death of the victim,
she conducted the autopsy of the body of said victim; that during the procedure, she made an internal, as well as external, examination
of the body of the victim; that fibrocaseous meant that half of the victim's lungs, the right one in particular, was already gone; that she
was only told that the victim had been mauled and that the latter became weak thereafter; that although a hematoma17 was present on
the victim's forehead, she did not consider it as the cause of death as hematoma alone will not cause the death of a person especially
seven to eight days later; and, that when she opened the skull of the victim to study the latter's brain, she did not see anything unusual.
Dr. Alambra then confirmed that the cause of death of the victim was cardio-respiratory arrest due to pulmonary tuberculosis that was
already so far advanced with massive pleural adhesions. On cross, however, she stated that a person with only one lung left, with
proper medication, would still be able to live normally.
Disbelieving that cardiac arrest secondary to Tuberculosis was the cause of death of his son; Teofilo Gundran had the victim's body reautopsied, this time by the National Bureau of Investigation. The re-autopsy was conducted by Dr. Arturo G. Llavore, a Medico-Legal
Officer of the National Bureau of Investigation (NBI) Regional Office, San Fernando, La Union, on 11 October 1991, or eight days after
the first autopsy.18 Dr. Llavore's autopsy report stated:
AUTOPSY REPORT NO. 88-26-LU
POSTMORTEM FINDINGS
Cadaver, embalmed.
I. Abrasions: Frontal region, left side. 0.9 x 0.2 cm.; Arm, left, upper third, anterior aspect, 2.0 x 0.6 cm.; Forearm, right, upper
third, anteromedial aspect, 0.2 x 0.2 cm.; Elbow, left, posterior aspect, 0.6 x 0.4 cm., and right, posters-medial aspect, 2.0 x
0.5 cm. in size.
II. Hematoma, Scalp, Interstitial; Fronto-tempero-parietal region, right side, 13.0 x 10.0 cms., massive, extensive; Frontal
region, slightly to the right of the anterior medial line, 2.0 x 1.6 cms., mild; Occipital region, mid-aspect, 8.0 x 2.3 cms,
moderate.
III. Brain, markedly congested, with flattening and widening of gyri and narrowing of the sulci. Cerebral blood vessels markedly
engorged.
IV. Lungs, Left lung intact; right lung previously dissected. Cut sections showed areas of fibrosis at the right lung (focal)
surrounded by atelectatic and emphysematous changes, (Pleural Adhesions, right. - B-2)19
V. Other internal visceral organs, markedly congested.
VI. Stomach, with approximately 60 cc of dark brownish fluid.
*** end ***
CAUSE OF DEATH: CEREBRAL EDEMA, SEVERE, SECONDARY TO TRAUMATIC INJURIES; HEAD/
REMARKS: Pls. see pathology Report No. P-88-339. Old healed scars noted at Chest, anterior and lateral aspects, right.
Scalp incision, postmortem, extending from above left ear, over the superior midline and down to the front of right ear, 36.0
cms. long. Postmortem incision, Y-shaped, extending from anterior superior portion of Chest to abdominal area, lower
quadrant, 53.0 cms. long.
During the trial, prosecution witness Dr. Llavore testified that the cause of death of the victim was the collective effect of all the injuries
sustained by the latter on the head. He explained that the forces that could have caused the injuries to the victim's head were also the
same forces that could have caused the edema or swelling of the victim's brain. He illustrated further that a human fist applied with
"sufficient" force on the fronto-temporo-parietalregion of the head could cause an injury the same as that sustained by the victim on his
forehead. Similarly, the injury found at the back of the head of the victim could have been caused by an edge of a palm applied with
sufficient force or it could have been caused by hitting his head on the edge of a table as the shape of said injury is somewhat
elongated. On cross examination, Dr. Llavore admitted that he did the re-autopsy seven (7)20 days after the victim died but that his
Autopsy Report failed to indicate that the cadaver had previously been autopsied by another physician; that the blow inflicted on the
head of the victim was strong enough to have injured the "moorings" of the brain causing the destruction of the brain cells and the
shifting of the fluid in the skull to one side; that the most serious wound between the two injuries sustained by the victim on the head is
the one found on his right forehead; and that the process of swelling became irreversible when the compression of the brain had
caused its center to become "imbalanced," so that the victim's brain ceased to function.
After trial, in a Decision21 promulgated on 28 March 1996, the RTC rendered judgment finding petitioner Yadao guilty of the crime of
homicide, and sentencing him as follows:
WHEREFORE, in view of the foregoing, the Court, finding the accused guilty beyond reasonable doubt of the crime of
Homicide as charged in the information, and after considering two (2) mitigating circumstances, hereby sentences him to
suffer an indeterminate penalty of FOUR (4) YEARS, TWO (2) MONTHS and ONE (1) DAY of prision correccional in its
maximum period, as Minimum to EIGHT (8) YEARS of prision mayor in its minimum period, as Maximum, and to indemnify the
heirs of the deceased the sum of P50,000.00 for the death of Deogracias Gundran and to pay the costs.
SO ORDERED.
The RTC held that:

After a careful consideration and examination of the testimonies of both medico-legal officers, this Court is inclined to give
more weight on the testimony of Dr. Arturo Llavore that the cause of death of Deogracias Gundran was "cerebral edema,
severe, secondary to traumatic injuries, head" and not "Cardio respiratory Arrest due to pulmonary tuberculosis. It is to be
noted that Dra. Magdalena Alambra testified and even admitted that a person even if he has no (sic) lungs can still live.
Hence, the injuries which the victim Deogracias Gundran sustained on his head caused his death as he did not immediately
undergo medical treatment. And as testified to by Dr. Arturo Llavore x x x the blow inflicted was fatal or very serious that "if no
medical intervention is made, it will be untreated (sic)" (T.S.N., September 25, 1991, p. 38).
x x x [g]ranting for the sake of argument that accused Artemio Yadao did not maul the victim but only slapped him slightly
which caused him to fall down as he was very drunk, still accused is liable for the consequences of his act.
xxxx
The case involves the application of Article 4 of the Revised Penal Code, which provides that "Criminal liability shall be
incurred: (1) By any person committing a felony (delito) although the wrongful act done be different from that which he
intended. x x x "Pursuant to this provision, "an accused is criminally responsible for the acts committed by him in violation of
law and for all the natural and logical consequences resulting there from". (sic) x x x.
xxxx
Under paragraph 1, Article 4, revised Penal Code, a person committing a felony is still criminally liable even if "x x x
(c) the injurious result is greater than that intended-prater-intentionem. x x x
Indeed the act of the accused in slapping the victim Deogracias Gundran causing the latter to fall down hitting his head which
caused his eventual death is something which the accused cannot escape. This Court does not favor making conjectures but
looking at the body built (sic) of the accused who is tall and sturdy as compared to the body built (sic) of the victim who was
described to be tall and lanky, it is not hard to believe that accused did not know that natural and inevitable result of the act of
slapping the victim, considering the fact that accused even admitted that the victim was then very drunk.
Aggrieved, petitioner Yadao appealed the aforequoted decision to the Court of Appeals. The appellate court, in itsDecision22 of 18 April
2001, affirmed in toto the judgment of conviction rendered by the RTC. The fallo of Court of Appeals decision states that:
WHEREFORE, FOREGOING PREMISES CONSIDERED, there being no reversible error but instead being in accordance with
law and evidence, the appealed Decision dated March 28, 1996 of the Regional Trial Court, Branch 33, Bauang, La Union (sic)
is AFFIRMED in toto. Costs against accused-appellant.
SO ORDERED.
Petitioner Yadao's ensuing motion for reconsideration was denied by the Court of Appeals in its Resolution of 13 November 2001,
seeing as no "new matters or issues raised in (the) Motion for Reconsideration x x x."23
Hence, this petition for review on certiorari under Rule 45 of the Revised Rules of Court.
Petitioner Yadao seeks the reversal of the decision of the RTC, as affirmed by the Court of Appeals, finding him guilty beyond
reasonable doubt of the crime of homicide. Essentially, it is his contention that the evidence presented by the prosecution was not
sufficient to establish his guilt beyond reasonable doubt as the perpetrator of the crime of homicide. He maintains that the existence of
two autopsy reports entirely differing as to the cause of death of the victim is tantamount to reasonable doubt respecting his legal
culpability thereto. Particularly, he argues that:
x x x [t]he trial court's finding "that the blow inflicted was fatal and very serious" is not in accord with the physical
manifestations of Gundran in going to and while in the house of Carmelita. It is a matter of human experience that when a
person is struck with a fatal or serious blow in the head to such an extent that his brain becomes swollen with its moorings
injured as found by Dr. Llavore in this case, such person will suffer serious, disabling or painful consequences. Either he will
be rendered comatose or unconscious or suffer severe pain in the head.
xxxx
And although Limon noticed a lump in (sic) his forehead, Gundran did not complain of any pain in the head and when asked
what he felt he told Limon that he felt pain in his chest and stomach because that was where he was mauled.
The Office of the Solicitor General, for its part, asserts that:
It is clear from the record that Dr. Alambra failed to notice the brain injury sustained by the victim because she merely relied on
"gross findings" of said organ during her autopsy. After opening the skull, she merely took a look at the brain, felt it, and found
nothing unusual about the organ. She testified that she could not conduct further laboratory examinations on the victim's brain
for lack of facilities (citation omitted).
This circumstance indicates that the findings of the two (2) medico-legal experts, although inconsistent, are not necessarily
irreconcilable.
The threshold issue in this case, therefore, is whether or not the prosecution was able to prove the guilt of petitioner Yadao beyond
reasonable doubt on the basis of the testimonies of the prosecution witnesses, especially Dr. Llavore's, and documentary evidence
presented, i.e., the Dr. Llavore's Autopsy Report.
The petition has merit.

Article 249 of the Revised Penal Code (RPC) defines and punishes the crime of homicide, viz:
ART. 249. Homicide. Any person who, not falling within the provisions of Article 246,24 shall kill another without the
attendance of any of the circumstances enumerated in the next preceding article, shall be guilty of homicide and be punished
by reclusin temporal.
From the abovequoted provision of law, the elements of homicide are as follows: 1) a person was killed; and 2) the accused killed him
without any justifying circumstance; 3) the accused had the intention to kill, which is presumed; and 4) the killing was not attended by
any of the qualifying circumstances of murder, or by that of parricide or infanticide.25
The Constitution demands that every accused be presumed innocent until the charge is proved. Before an accused can be convicted of
any criminal act, his guilt must first be proved beyond reasonable doubt.26 In this jurisdiction, proof beyond reasonable doubt requires
only a moral certainty or that degree of proof which produces conviction in an unprejudiced mind; it does not demand absolute certainty
and the exclusion of all possibility of error;27 it is that engendered by an investigation of the whole proof and an inability, after such
investigation, to let the mind rest easy upon the certainty of guilt.28
Basic is the principle in criminal law that the evidence presented must be sufficient to prove the corpus delicti the body or substance
of the crime and, in its primary sense, refers to the fact that a crime has been actually committed.29 The corpus delicti is a compound
fact composed of two things: 1) the existence of a certain act or aresult forming the basis of the criminal charge, and 2) the existence of
a criminal agency as the cause of this act or result.30 In all criminal prosecutions, the burden is on the prosecution to prove the body or
substance of the crime. In the case at bar, was the prosecution able to prove the two components of the corpus delicti?
We think not.
Though it was established that petitioner Yadao slapped the victim, and as a result of which the latter fell down and struck his head on
the edge of a table, the prosecution nonetheless failed to show the nexus between the injury sustained by the victim and his death. It
failed to discharge the burden to show beyond a reasonable doubt that the death of the victim resulted from the use of violent and
criminal means by petitioner Yadao.
The fact that the victim herein was wounded is not conclusive that death resulted therefrom. To make an offender liable for the death of
the victim, it must be proven that the death is the natural consequence of the physical injuries inflicted. If the physical injury is not the
proximate cause31 of death of the victim, then the offender cannot be held liable for such death.
It has been established in this case that on the afternoon of 1 October 1988, at around 3:45 p.m., petitioner Yadao slapped the victim
once. This is based from the unrebutted testimonies of defense witnesses the only eyewitnesses to the assault. It is also undisputed
that the victim died on 3 October 1988, or two days later. What is in dispute, however, is the cause of the latter's death.
In convicting Petitioner Yadao, the RTC and the Court of Appeals principally relied upon the testimony of Dr. Llavore in addition to the
latter's autopsy report, both essentially stating that the injury sustained by the victim in the head caused massive hematoma and/or
cerebral edema. However, we find said testimonial and documentary evidence utterly insufficient on which to anchor a judgment of
conviction for homicide. To our mind, his testimony, as well as the Autopsy Report containing his findings, vis--vis the first autopsy
conducted by Dr. Alambra and the factual circumstances surrounding the conduct of two autopsies done on said cadaver, do not
engender a moral certainty, much less a belief, that the injury sustained was the cause of his death. This Court's doubt is brought about
by Dr. Llavore's failure to account the effects of the following facts: 1) that the cadaver had previously been autopsied; 2) that during the
first autopsy, Dr. Alambra opened up the skull of the victim to physically examine his brain and did not see anything out of the ordinary,
neither blood clot and/or pooling nor any swelling; 3) that the cadaver of the victim had already been embalmed; 4) that it had not been
established for how long the embalming fluid was supposed to stave off or delay the decomposition of the cadaver of the victim; 5) that
the re-autopsy was conducted eight (8) days after the death of the victim; 6) that when the cadaver of the victim was re-autopsied,
decomposition may have already set in despite the body having been embalmed; and 7) that the only hematoma noted inside of the
cadaver's head was that on the "suboponeurotic layer of the scalp rt. fronto parietal region,"32 or "scalp, interstitial; Fronto-temporoparietal region, right side."33 In layman's terms, the hematoma, noted by both physicians, was merely on the scalp, just below the skin,
of the frontal right side of the head nowhere near the brain as the area was still outside of the skull. Even Dr. Llavore recognized such
fact as clearly stated in his Autopsy Report and testified to in open court, viz:
COURT:
Now, could you tell us could you tell this Court what is the cause of that trauma?
xxxx
Witness:
A x x x the cause of the trauma on the head is physical contact as shown in paragraph 3, there were injuries to these areas on
the right side and actually there were two (2) and one (1) at the back of the head and the force or violence that was applied to
these areas caused the brain to move suddenly also and the displacement of the substances, the brain substances, because
the brain is very fragile, it is very soft, once they are displaced from their place, because they move, there is breaking of very
minute blood vessels the very minute blood vessels if the force is stronger, it could create breakage or rupture of larger
blood vessels which you can say grossly as hemorrhage, but in this case, there is no hemorrhage there is no gross
hemorrhage, there is only minute blood vessels and since there is destruction of the very minute blood vessels, they swell
individually, they swell and collectively, the swelling becomes so great because it already involves the whole brain and the
brain becomes swollen, it expands, it tries to expand, but it cannot. Therefore, it compresses in itself.
Consequently, the post mortem report and testimony of Dr. Alambra should not be easily discounted. The same is significant in that the
testimony and the report on the autopsy, which was done immediately after the death, establishes the nature and extent of the "injury,"
sustained as a result of the assault, as well as the state of the brain and the surrounding area at the time of death. The significance of
said evidence will lead to the precise nature of the injury sustained by the victim. From a legal perspective, therefore, the examination of
a wound should lead to the determination as to the degree of danger of the wound and the danger it poses to the life or bodily function
of the victim when the wound was inflicted.

Wharton and Stille's discussion on the importance of a thorough and painstaking post-mortem examination or assessment of the
degree of injury sustained by the victim is highly instructive, it reads:
x x x [a] careful post-mortem examination will usually show the violent cause of death, and it is the duty of the physician whose
opinion is desired, to make that examination most carefully, and to base his opinion entirely upon the findings of this
examination; not upon previous notions of the probable nature and effects of the wound. Moreover, it is necessary not
merely to make an examination of the regions apparently involved in the injury, but also a thorough examination of the entire
body; for, notwithstanding the immediate cause of death may be evident, it is still advisable to be sure that there was no cause
of death in any other part. [Emphasis supplied.]
This Court recognizes the fact that the most critical aspect of head trauma is what happens to the brain; that the immediate brain
damage that results from head trauma is dependent upon the force applied to the head, the area of its application, and whether the
head is fixed or freely movable; that when viable tissue receives an application of force strong enough to be injurious, it (the body)
responds by alteration in intracellular and extracellular fluid content, by extravasation of blood, by increasing blood supply to the local
area, and by mobilization of cells capable of removing cellular debris and repairing any disruption.34 Moreover, it is acknowledged that
tissues of the nervous system, the brain being one of its components, and like any other tissue of the body, responds to injury by the
formation of edema or the retention of fluid.35 Hence, it is not quite farfetched that the victim may have had cerebral edema as a result
of the injury he sustained in the head. But just the same, such a conclusion, as stated in the second post mortem report, does not
necessarily preclude the fact that the swelling or edema noted in the tissues of the brain may have been due to other factors i.e., such
as decomposition or the fact that the cadaver of the victim had already been embalmed. The foregoing uncertainty is all the more
reinforced by the testimony of Dr. Alambra and her findings stated in the First Autopsy Report stating that there were no signs of
damage to the brain, external or internal. This, by itself, is very much inconsistent with the allegation that the cerebral edema was the
cause of death of the victim, which if it were so, would have already been manifest at the time of death.
From a medical perspective, the abovediscussed issues are essentially significant and must be established first before any correlation
of the injury to the victim's cause of death is done. It is an established fact that during decomposition, numerous cellular changes occur
in the body. A microscopic examination of the tissues (of the body) under the influence of "autolytic enzymes"36 enzymes shows
disintegration, swelling or shrinkage, vacuolization and formation of small granules within the cytoplasm of the cells.37 Therefore, the
swelling of the brain, along with the other organs of the victim as stated in the Pathology Report38 by the NBI, which reads:
FINDINGS
MICROSCOPIC DESCRIPTIONS:
Brain (cerebral cortex): and cerebellum) : sections show markedly widened spaces in the virchow in the white matter of the
cerebrum and collapsed walls of the capillaries. Cloudy swelling of neurons and interstitial edema, marked.
Kidneys: sections show focal infiltrations of chronic inflammatory cells in the interstitium accompanied by tubular atrophy and
glomeruler sclerosis. Cloudy swelling of tubules in the cortex, moderate. Medullary congestion, moderate. The cerebellum
shows
Liver: sections show moderate congestion of red blood cells in the sinusoids and cloudy swelling of liver cells.
Lungs: sections show marked congestion of pulmonary septae exhibiting numerous macrophages containing hemusiderin
pigments. Alternating atelectatic and hyperinflated lung alveoli with emphysematous and bullae formation can be noted.
Fibrosis in diffuse in other areas with calcifications. The small bronchi are irregularly dilated.
Myocardium: congestion of capillaries and cloudy swelling of muscle fibers, moderate.
x x x x [Emphasis supplied.]
may have also been due to the decomposing state of the cadaver of the victim and not just that caused by the head injury he sustained
from the hands of petitioner Yadao.
Additionally, to delay the onset of decomposition, cadavers are embalmed. Embalming is the artificial way of preserving the body after
death by injecting 6 to 8 quarts of antiseptic solutions of formalin, perchloride or mercury or arsenic, which is carried into the common
carotid and the femoral arteries.39 However, a dead body must not be embalmed before the autopsy.40 The embalming fluid may render
the tissue and blood unfit for toxicological analyses.41 The embalming may alter the gross appearance of the tissues or may result
to a wide variety of artifacts that tend to destroy or obscure evidence.42 Thus, in the case at bar, even if the cadaver of the victim
may not have started decomposing at the time of the re-autopsy, all the same, the fact that such had already been embalmed, any
examination will likely lead to findings or conclusion not at all accurate as to the true status of the tissues of the body of the victim.
From the above, absent further clarifications, Dr. Llavore's conclusion that the victim's cause of death is cerebral edema is nothing but
conjecture, being tenuous and flawed. Consequently, the findings as stated in said autopsy report is not decisive of the of the issue of
whether or not injury sustained by the victim in his head when he was slapped by petitioner Yadao and/or when the victim hit his head
on the edge of the table were the sole cause of the cerebral edema observed in the latter's brain during the re-autopsy conducted eight
(8) days after his death. Again, it could have been caused by other factors, one of which could have been the decomposition or the
breakdown of the cellular tissues of the body naturally occurring after death, or the fact that the cadaver of the victim had already been
previously embalmed.
Dr. Llavore's testimony that the cause of death of the victim was the collective effect of the blow sustained by the latter's head; that the
blow was strong enough to have caused the displacement of the brain from its moorings and the resultant swelling. Such conclusion
was brought about by the doctor's external and internal examination of the brain of the victim. The records of the case, however, is
again bereft of any indication that the said inference or conclusion took into account the fact that the cadaver of the victim had been
previously autopsied, more importantly, that his brain had been already been removed from its "moorings" by Dr. Alambra in order for
her to take the same out of the skull when she examined it.

Indeed, the evidence of the defense might not, by itself, suffice to emphatically negate the causal relationship between the actions of
petitioner Yadao causing injury to the victim and the cause of his death, but the same must be considered in conjunction with the
weakness of the evidence given by the prosecution's witness discussed above. Defense witness Dr. Alambra's Autopsy Report, on top
of her testimony that upon opening the skull of the victim, she found nothing out of the ordinary in the brain, tend to reinforce the doubt
already engendered by the weakness of the prosecution's evidence about the fundamental correlation of the injury and the cause of
death. It was incumbent upon the prosecution to demonstrate petitioner Yadao's culpability beyond a reasonable doubt, independently
of whatever the defense has offered to exculpate the latter. Conviction must rest on the strength of the prosecution's evidence, not
merely on conjectures or suppositions, and certainly not on the weakness of the accused's defense; otherwise, the phrase
"constitutional presumption of innocence" will be reduced to nothing but an innocuous grouping of words; worse, to a conspicuous
exercise in futulity. As a rule, findings of fact of trial courts are accorded great weight, even finality, on appeal, unless the trial court has
failed to appreciate certain facts and circumstances that, if taken into account, would materially affect the result of the case.43 In this
case, prescinding from the above discussion, it is arrantly manifest that the RTC, as well as the Court of Appeals, overlooked material
and relevant facts that could affect the outcome of the case. The constitutional presumption of innocence aforementioned requires us to
take "a more than casual consideration" of every circumstance or doubt favoring the innocence of the accused as court have the
imperative duty to "put prosecution evidence under severe testing."44
The principle has been dinned into the ears of the bench and the bar that in this jurisdiction, accusation is not synonymous with
guilt.45 The proof against him must survive the test of reason; the strongest suspicion must not be permitted to sway judgment.46 If the
evidence is susceptible of two interpretations, one consistent with the innocence of the accused and the other consistent
with his guilt, the accused must be acquitted.47The overriding consideration is not whether the court doubts the innocence of the
accused but whether it entertains a reasonable doubt as to his guilt.48 If there exist even one iota of doubt, this Court is "under a long
standing legal injunction to resolve the doubt in favor of herein accused-petitioner."49
From the foregoing, the inevitable conclusion is that the guilt of petitioner Yadao has not been proved beyond reasonable doubt. The
facts of the case, the autopsy reports, as well as the testimony of Dr. Llavore do not definitely establish that the assault was the
proximate cause of the death of the victim. Even assuming for the sake of argument that the blow inflicted on the head of the victim
resulted in an edematous condition of the brain, petitioner Yadao would still not be held liable for the death as the prosecution failed to
present proof that said act was the efficient and proximate cause of the victim's demise. An acquittal based on reasonable doubt will
prosper even though the accused's innocence may be doubted.50 It is better to free a guilty man than to unjustly keep in prison one
whose guilt has not been proved by the required quantum of evidence. For only when there is proof beyond any shadow of doubt that
those responsible should be made answerable.51
The heirs of the victim, however, have not completely lost their case. Settled in jurisprudence is the principle that a court may acquit an
accused on reasonable doubt and still order payment of civil damages in the same case. 52In this case, though petitioner Yadao is
acquitted, nonetheless, his liability for damages is not considered extinguished since the judgment of acquittal is not based on a
pronouncement that the facts from which civil claims might arise did not exist. Accordingly, this Court awards P50,000.00 as civil
damages to the heirs of the victim.
WHEREFORE, the 28 March 1996 Decision of the Regional Tial Court of Bauang, La Union, Branch 33, as well as the 18 April 2001
Decision and 13 November 2001 Resolution both of the Court of Appeals are herebyREVERSED and SET ASIDE. Petitioner Artemio
Yadao is ACQUITTED of the charge of homicide on the ground of reasonable doubt. His immediate release from custody is hereby
ordered unless he is being held for other lawful causes. However, Petitioner Artemio Yadao is ordered to pay the heirs of victim
Deogracias Gundran in the amount of Fifty Thousand Pesos (P50,000.00) as civil indemnity. Costs de oficio.
SO ORDERED.

G.R. No. 171428

November 11, 2013

ALEJANDRO V. TANKEH, Petitioner,

vs.
DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING LINES, INC., RUPERTO V. TANKEH, VICENTE ARENAS,
and ASSET PRIVATIZATION TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the assailed October 25, 2005 Decision and the February 9, 2006 Resolution of
the Court of Appeals1 be reversed, and that the January 4, 1996 Decision of the Regional Trial Court of Manila Branch 32 be affirmed.
Petitioner prays that this Court grant his claims for moral damages and attorneys fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc. It was incorporated on April 23, 1979 to operate oceangoing vessels engaged primarily in foreign trade.2 Ruperto V. Tankeh applied for a $3.5 million loan from public respondent
Development Bank of the Philippines for the partial financing of an ocean-going vessel named the M/V Golden Lilac. To authorize the
loan, Development Bank of the Philippines required that the following conditions be met:
1) A first mortgage must be obtained over the vessel, which by then had been renamed the M/V Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as well as respondents Sterling Shipping Lines, Inc. and
Vicente Arenas should become liable jointly and severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds of Charter and Shipping Contracts, should be assigned to
Development Bank of the Philippines; and
4) Development Bank of the Philippines should be assigned no less than 67% of the total subscribed and outstanding voting shares of
the company. The percentage of shares assigned should be maintained at all times, and the assignment was to subsist as long as the
assignee, Development Bank of the Philippines, deemed it necessary during the existence of the loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh approached him sometime in 1980.4 Ruperto informed petitioner
that he was operating a new shipping line business. Petitioner claimed that respondent, who is also petitioners younger brother, had
told him that petitioner would be given one thousand (1,000) shares to be a director of the business. The shares were
worth P1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares of Stock with Voting Rights.6 Petitioner then signed the May 12, 1981
promissory note in December 1981. He was the last to sign this note as far as the other signatories were concerned.7 The loan was
approved by respondent Development Bank of the Philippines on March 18, 1981. The vessel was acquired on September 29, 1981 for
$5.3 million.8 On December 3, 1981, respondent corporation Sterling Shipping Lines, Inc. through respondent Ruperto V. Tankeh
executed a Deed of Assignment in favor of Development Bank of the Philippines. The deed stated that the assignor, Sterling Shipping
Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE (DBP), its successors and assigns, future earnings of the mortgaged
M/V "Sterling Ace," including proceeds of charter and shipping contracts, it being understood that this assignment shall continue to
subsist for as long as the ASSIGNORS obligation with the herein ASSIGNEE remains unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh saying that he was severing all ties and terminating his
involvement with Sterling Shipping Lines, Inc.10 He required that its board of directors pass a resolution releasing him from all liabilities,
particularly the loan contract with Development Bank of the Philippines. In addition, petitioner asked that the private respondents notify
Development Bank of the Philippines that he had severed his ties with Sterling Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the Development Bank of the Philippines were transferred to public
respondent Asset Privatization Trust on June 30, 1986.12
Presently, respondent Asset Privatization Trust is known as the Privatization and Management Office. Asset Privatization Trust was a
government agency created through Presidential Proclamation No. 50, issued in 1986. Through Administrative Order No. 14, issued by
former President Corazon Aquino dated February 3, 1987, assets including loans in favor of Development Bank of the Philippines were
ordered to be transferred to the national government. In turn, the management and facilitation of these assets were delegated to Asset
Privatization Trust, pursuant to Presidential Proclamation No. 50. In 1999, Republic Act No. 8758 was signed into law, and it provided
that the corporate term of Asset Privatization Trust would end on December 31, 2000. The same law empowered the President of the
Philippines to determine which office would facilitate the management of assets held by Asset Privatization Trust. Thus, on December
6, 2000, former President Joseph E. Estrada signed Executive Order No. 323, creating the Privatization Management Office. Its present
function is to identify disposable assets, monitor the progress of privatization activities, and approve the sale or divestment of assets
with respect to price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for $350,000.00 by Development Bank of the Philippines legal
counsel Atty. Prospero N. Nograles. When petitioner came to know of the sale, he wrote respondent Development Bank of the
Philippines to express that the final price was inadequate, and therefore, the transaction was irregular. At this time, petitioner was still
bound as a debtor because of the promissory note dated May 12, 1981, which petitioner signed in December of 1981. The promissory
note subsisted despite Sterling Shipping Lines, Inc.s assignment of all future earnings of the mortgaged M/V Sterling Ace to
Development Bank of the Philippines. The loan also continued to bind petitioner despite Sterling Shipping Lines, Inc.s cash equity
contribution of P13,663,200.00 which was used to cover part of the acquisition cost of the vessel, pre-operating expenses, and initial
working capital.14

Petitioner filed several Complaints15 against respondents, praying that the promissory note be declared null and void and that he be
absolved from any liability from the mortgage of the vessel and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh, together with Vicente L. Arenas, Jr. and Jose Maria Vargas,
had exercised deceit and fraud in causing petitioner to bind himself jointly and severally to pay respondent Development Bank of the
Philippines the amount of the mortgage loan.16 Although he had been made a stockholder and director of the respondent corporation
Sterling Shipping Lines, Inc., petitioner alleged that he had never invested any amount in the corporation and that he had never been
an actual member of the board of directors.17 He alleged that all the money he had supposedly invested was provided by respondent
Ruperto V. Tankeh.18 He claimed that he only attended one meeting of the board. In that meeting, he was introduced to two directors
representing Development Bank of the Philippines, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Other than that, he had never
been notified of another meeting of the board of directors.
Petitioner further claimed that he had been excluded deliberately from participating in the affairs of the corporation and had never been
compensated by Sterling Shipping Lines, Inc. as a director and stockholder.19According to petitioner, when Sterling Shipping Lines, Inc.
was organized, respondent Ruperto V. Tankeh had promised him that he would become part of the administration staff and oversee
company operations. Respondent Ruperto V. Tankeh had also promised petitioner that the latters son would be given a position in the
company.20 However, after being designated as vice president, petitioner had not been made an officer and had been alienated from
taking part in the respondent corporation.21
Petitioner also alleged that respondent Development Bank of the Philippines had been inexcusably negligent in the performance of its
duties.22 He alleged that Development Bank of the Philippines must have been fully aware of Sterling Shipping Lines, Inc.s financial
situation. Petitioner claimed that Sterling Shipping Lines, Inc. was controlled by the Development Bank of the Philippines because 67%
of voting shares had been assigned to the latter.23 Furthermore, the mortgage contracts had mandated that Sterling Shipping Lines, Inc.
"shall furnish the DBP with copies of the minutes of each meeting of the Board of Directors within one week after the meeting. Sterling
Shipping Lines Inc. shall likewise furnish DBP its annual audited financial statements and other information or data that may be needed
by DBP as its accommodations [sic] with DBP are outstanding."24Petitioner further alleged that the Development Bank of the Philippines
had allowed "highly questionable acts"25 to take place, including the gross undervaluing of the M/V Sterling Aces.26 Petitioner alleged
that one day after Development Bank of the Philippines Atty. Nograles sold the vessel, the ship was re-sold by its buyer for double the
amount that the ship had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that since Arenas had been the treasurer of Sterling Shipping Lines, Inc.
and later on had served as its vice president, he was also responsible for the financial situation of Sterling Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner impleaded respondent Asset Privatization Trust for being the agent
and assignee of the M/V Sterling Ace.
In their Answers28 to the Complaints, respondents raised the following defenses against petitioner: Respondent Development Bank of
the Philippines categorically denied receiving any amount from Sterling Shipping Lines, Inc.s future earnings and from the proceeds of
the shipping contracts. It maintained that equity contributions could not be deducted from the outstanding loan obligation that stood
at P245.86 million as of December 31, 1986. Development Bank of the Philippines also maintained that it is immaterial to the case
whether the petitioner is a "real stockholder" or merely a "pseudo-stockholder" of the corporation.29 By affixing his signature to the loan
agreement, he was liable for the obligation. According to Development Bank of the Philippines, he was in pari delicto and could not be
discharged from his obligation. Furthermore, petitioner had no cause of action against Development Bank of the Philippines since this
was a case between family members, and earnest efforts toward compromise should have been complied with in accordance with
Article 222 of the Civil Code of the Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily signed the promissory note in favor of Development Bank of the
Philippines and with full knowledge of the consequences. Respondent Tankeh also alleged that he did not employ any fraud or deceit to
secure petitioners involvement in the company, and petitioner had been fully aware of company operations. Also, all that petitioner had
to do to avoid liability had been to sell his shareholdings in the company.31
Respondent Asset Privatization Trust raised that petitioner had no cause of action against them since Asset Privatization Trust had
been mandated under Proclamation No. 50 to take title to and provisionally manage and dispose the assets identified for privatization or
deposition within the shortest possible period. Development Bank of the Philippines had transferred and conveyed all its rights, titles,
and interests in favor of the national government in accordance with Administrative Order No. 14. In line with that, Asset Privatization
Trust was constituted as trustee of the assets transferred to the national government to effect privatization of these assets, including
respondent Sterling Shipping Lines, Inc.32 Respondent Asset Privatization Trust also filed a compulsory counterclaim against petitioner
and its co-respondents Sterling Shipping Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr. for the amount of P264,386,713.84.
Respondent Arenas did not file an Answer to any of the Complaints of petitioner but filed a Motion to Dismiss that the Regional Trial
Court denied. Respondent Asset Privatization Trust filed a Cross Claim against Arenas. In his Answer33 to Asset Privatization Trusts
Cross Claim, Arenas claimed that he had been released from any further obligation to Development Bank of the Philippines and its
successor Asset Privatization Trust because an extension had been granted by the Development Bank of the Philippines to the debtors
of Sterling Shipping Lines, Inc. and/or Ruperto V. Tankeh, which had been secured without Arenas consent.
The trial proceeded with the petitioner serving as a sole witness for his case. In a January 4, 1996 Decision,34 the Regional Trial Court
ruled:
Here, we find
1. Plaintiff being promised by his younger brother, Ruperto V. Tankeh, 1,000 shares with par value of P1 Million with all the
perks and privileges of being stockholder and director of SSLI, a new international shipping line;
2. That plaintiff will be part of the administration and operation of the business, so with his son who is with the law firm Romulo
Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real McCoy or the primordial end of congregating the incorporators
proposed - - that he sign the promissory note (Exhibit "C"), the mortgage contract (Exhibit "A"), and deed of assignment so

SSLI could get the US $3.5 M loan from DBP to partially finance the importation of vessel M.V. "Golden Lilac" renamed M.V.
"Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and Vice-President in 1979 but he was never notified of any meeting
of the Board except only once, and only to be introduced to the two (2) directors representing no less than 67% of the total
subscribed and outstanding voting shares of the company. Thereafter, he was excluded from any board meeting, shorn of his
powers and duties as director or Vice-President, and was altogether deliberately demeaned as an outsider.
5. What kind of a company is SSLI who treated one of their incorporators, one of their Directors and their paper Vice-President
in 1979 by preventing him access to corporate books, to corporate earnings, or losses, and to any compensation or
remuneration whatsoever? Whose President and Treasurer did not submit the required SEC yearly report? Who did not remit
to DBP the proceeds on charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was then diverted to Singapore to be disposed on negotiated
sale, and not by public bidding contrary to COA Circular No. 86-264 and without COAs approval. Sterling Ace was seaworthy
but was sold as scrap in Singapore. No foreclosure with public bidding was made in contravention of the Promissory Note to
recover any deficiency should DBP seeks [sic] to recover it on the outstanding mortgage loan. Moreover the sale was done
after the account and asset (nay, now only a liability) were transferred to APT. No approval of SSLI Board of Directors to the
negotiated sale was given.
7. Plaintiffs letter to his brother President, Ruperto V. Tankeh, dated June 15, 1983 (Exhibit "D") his letter thru his lawyer to
DBP (Exhibit "J") and another letter to it (Exhibit "K") show no estoppel on his part as he consistently and continuously
assailed the several injurious acts of defendants while assailing the Promissory Note itself x x x (Citations omitted) applying
the maxim: Rencintiatio non praesumitur. By this Dr. Tankeh never waived the right to question the Promissory Note contract
terms. He did not ratify, by concurring acts, express or tacit, after the reasons had surfaced entitling him to render the contract
voidable, defendants acts in implementing or not the conditions of the mortgage, the promissory note, the deed of assignment,
the lack of audit and accounting, and the negotiated sale of MV Sterling Ace. He did not ratify defendants [sic] defective acts
(Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the fraud committed by plaintiffs brother before the several documents
were signed (SEC documents, Promissory Note, Mortgage (MC) Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the latter of his new shipping business. The project was good
business proposal [sic].
2. Ruperto tells Alejandro hes giving him shares worth P1 Million and hes going to be a Director.
3. He tells his brother that he will be part of the companys Administration and Operations and his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one for the business, and they therefore need a loan, and they
could secure a loan from DBP with the vessel brought to have a first mortgage with DBP but anyway the other two directors
and comptroller will be from DBP with a 67% SSLI shares voting rights.
Without these insidious, devastating and alluring words, without the machinations used by defendant Ruperto V. Tankeh upon the
doctor, without the inducement and promise of ownership of shares and the exercise of administrative and operating functions, and the
partial financing by one of the best financial institutions, the DBP, plaintiff would not have agreed to join his brother; and the
safeguarding of the Banks interest by its nominated two (2) directors in the Board added to his agreeing to the new shipping business.
His consent was vitiated by the fraud before the several contracts were consummated.
This alone convenes [sic] this Court to annul the Promissory Note as it relates to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19, NCC, provides him the way as it requires every person, in the exercise of
his rights and performance of his duties, to act with justice, give everyone his due, and observe honesty and good faith (Velayo vs.
Shell Co. of the Phils., G.R. L-7817, October 31, 1956). Not to release him from the clutch of the Promissory Note when he was never
made a part of the operation of the SSLI, when he was not notified of the Board Meetings, when the corporation nary remitted earnings
of M/V Sterling Ace from charter or shipping contracts to DBP, when the SSLI did not comply with the deed of assignment and
mortgage contract, and when the vessel was sold in Singapore (he, learning of the sale only from the newspapers) in contravention of
the Promissory Note, and which he questioned, will be an injustice, inequitable, and even iniquitous to plaintiff. SSLI and the private
defendants did not observe honesty and good faith to one of their incorporators and directors. As to DBP, the Court cannot put demerits
on what plaintiffs memorandum has pointed out:
While defendant DBP did not exercise the caution and prudence in the discharge of their functions to protect its interest as expected of
them and worst, allowed the perpetuation of the illegal acts committed in contrast to the virtues they publicly profess, namely: "palabra
de honor, delicadeza, katapatan, kaayusan, pagkamasinop at kagalingan" Where is the vision banking they have for our country?
Had DBP listened to a cry in the wilderness that of the voice of the doctor the doctor would not have allowed the officers and board
members to defraud DBP and he would demand of them to hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiffs consent to be with SSLI was vitiated by fraud. The fact that defendant Ruperto Tankeh has not
questioned his liability to DBP or that Jose Maria Vargas has been declared in default do not detract from the fact that there was
attendant fraud and that there was continuing fraud insofar as plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang sense of righteous indignation and fairness, tatahimik na lang siya,
sira naman ang pinangangalagaan niyang pangalan, honor and family prestige [sic] (Emphasis provided).35
xxxx

All of the defendants counterclaims and cross-claims x x x including plaintiffs and the other defendants prayer for damages are not, for
the moment, sourced and proven by substantial evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the Promissory Note (Exhibit "C") and the Mortgage Contract (Exhibit "A") null and void
insofar as plaintiff DR. ALEJANDRO V. TANKEH is concerned, hereby ANNULS and VOIDS those documents as to plaintiff, and it is
hereby further ordered that he be released from any obligation or liability arising therefrom.
All the defendants counterclaims and cross-claims and plaintiffs and defendants prayer for damages are hereby denied and
dismissed, without prejudice.
SO ORDERED.36
Respondents Ruperto V. Tankeh, Asset Privatization Trust, and Arenas immediately filed their respective Notices of Appeal with the
Regional Trial Court. The petitioner filed a Motion for Reconsideration with regard to the denial of his prayer for damages. After this
Motion had been denied, he then filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third Division of the Court of Appeals reversed the trial courts findings. The
Court of Appeals held that petitioner had no cause of action against public respondent Asset Privatization Trust. This was based on the
Court of Appeals assessment of the case records and its findings that Asset Privatization Trust did not commit any act violative of the
right of petitioner or constituting a breach of Asset Privatization Trusts obligations to petitioner. The Court of Appeals found that
petitioners claim for damages against Asset Privatization Trust was based merely on his own self-serving allegations.38
As to the finding of fraud, the Court of Appeals held that:
xxxx
In all the complaints from the original through the first, second and third amendments, the plaintiff imputes fraud only to defendant
Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V. Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and
Jose Maria Vargas signed a promissory note in favor of the defendant, DBP, wherein plaintiff bound himself to jointly and severally pay
the DBP the amount of the mortgage loan. This document insofar as plaintiff is concerned is a simulated document considering that
plaintiff was never a real stockholder of Sterling Shipping Lines, Inc. (Emphasis provided)
More allegations of deceit were added in the Second Amended Complaint, but they are also attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE FACT THAT when the Sterling Shipping Lines,
Inc. was organized in 1980, Ruperto V. Tankeh promised plaintiff that he would be a part of the administration staff so that he could
oversee the operation of the company. He was also promised that his son, a lawyer, would be given a position in the company. None of
these promsies [sic] was complied with. In fact he was not even allowed to find out the data about the income and expenses of the
company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT PLAINTIFF WAS INVITED TO ATTEND
THE BOARD MEETING OF THE STERLING SHIPPING LINES INC. ONLY ONCE, WHICH WAS FOR THE SOLE PURPOSE OF
INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE STERLING SHIPPING LINES, INC.,
NAMELY, MR. JESUS MACALINAG AND MR. GIL CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN. PLAINTIFF WAS
NEVER COMPENSATED BY THE STERLING SHIPPING LINES, INC. FOR HIS BEING A SO-CALLED DIRECTOR AND
STOCKHOLDER.
xxxx
8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER PLAINTIFF MADE EARNEST EFFORTS TOWARDS A COMPROMISE
BETWEEN HIM AND HIS BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO V. TANKEH, AND
ALSO AFTER THE NEWS OF THE SALE OF THE STERLING ACE WAS PUBLISHED AT THE NEWSPAPER, PLAINTIFF TRIED
ALL EFFORTS TO CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF ARRIVING AT SOME COMPROMISE, BUT
DEFENDANT RUPERTO V. TANKEH AVOIDED ALL CONTACTS WITH THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK LEGAL
ASSISTANCE FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the other defendants, namely, the DBP, Vicente Arenas, Sterling
Shipping Lines, Inc., and the Asset Privatization Trust, the plaintiffs evidence thereon should only be against Ruperto, since a plaintiff is
bound to prove only the allegations of his complaint. In any case, no evidence of fraud or deceit was ever presented against defendants
DBP, Arenas, SSLI and APT.
As to the evidence against Ruperto, the same consists only of the testimony of the plaintiff. None of his documentary evidence would
prove that Ruperto was guilty of fraud or deceit in causing him to sign the subject promissory note.39
xxxx
Analyzing closely the foregoing statements, we find no evidence of fraud or deceit. The mention of a new shipping lines business and
the promise of a free 1,000-share and directorship in the corporation do not amount to insidious words or machinations. In any case,
the shipping business was indeed established, with the plaintiff himself as one of the incorporators and stockholders with a share of
4,000, worth P4,000,000.00 of whichP1,000,000.00 was reportedly paid up. As such, he signed the Articles of Incorporation and the
corporations By-Laws which were registered with the Securities and Exchange Commission in April 1979. It was not until May 12, 1981
that he signed the questioned promissory note. From his own declaration at the witness stand, the plaintiff signed the promissory note
voluntarily. No pressure, force or intimidation was made to bear upon him. In fact, according to him, only a messenger brought the
paper to him for signature. The promised shares of stock were given and recorded in the plaintiffs name. He was made a director and
Vice-President of SSLI. Apparently, only the promise that his son would be given a position in the company remained unfulfilled.

However, the same should have been threshed out between the plaintiff and his brother, defendant Ruperto, and its non-fulfillment did
not amount to fraud or deceit, but was only an unfulfilled promise.
It should be pointed out that the plaintiff is a doctor of medicine and a seasoned businessman. It cannot be said that he did not
understand the import of the documents he signed. Certainly he knew what he was signing. He should have known that being an officer
of SSLI, his signing of the promissory note together with the other officers of the corporation was expected, as the other officers also
did. It cannot therefore be said that the promissory note was simulated. The same is a contract validly entered into, which the parties
are obliged to comply with.40(Citations omitted)
The Court of Appeals ruled that in the absence of any competent proof, Ruperto V. Tankeh did not commit any fraud. Petitioner
Alejandro V. Tankeh was unable to prove by a preponderance of evidence that fraud or deceit had been employed by Ruperto to make
him sign the promissory note. The Court of Appeals reasoned that:
Fraud is never presumed but must be proved by clear and convincing evidence, mere preponderance of evidence not even being
adequate. Contentions must be proved by competent evidence and reliance must be had on the strength of the partys evidence and
not upon the weakness of the opponents defense. The plaintiff clearly failed to discharge such burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment and ordered that plaintiffs Complaint be dismissed. Petitioner filed
a Motion for Reconsideration dated October 25, 2005 that was denied in a Resolution42promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of Appeals seriously erred and gravely abused its discretion in acting and
deciding as if the evidence stated in the Decision of the Regional Trial Court did not exist. He averred that the ruling of lack of cause of
action had no leg to stand on, and the Court of Appeals had unreasonably, whimsically, and capriciously ignored the ample evidence on
record proving the fraud and deceit perpetrated on the petitioner by the respondent. He stated that the appellate court failed to
appreciate the findings of fact of the lower court, which are generally binding on appellate courts. He also maintained that he is entitled
to damages and attorney's fees due to the deceit and machinations committed by the respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that petitioner had chosen the wrong remedy. He ought to have filed a
special civil action of certiorari and not a Petition for Review. Petitioner raised questions of fact, and not questions of law, and this
required the review or evaluation of evidence. However, this is not the function of this Court, as it is not a trier of facts. He also
contended that petitioner had voluntarily entered into the loan agreement and the position with Sterling Shipping Lines, Inc. and that he
did not fraudulently induce the petitioner to enter into the contract.
Respondents Development Bank of the Philippines and Asset Privatization Trust also contended that petitioner's mode of appeal had
been wrong, and he had actually sought a special civil action of certiorari. This alone merited its dismissal.
The main issue in this case is whether the Court of Appeals erred in finding that respondent Rupert V. Tankeh did not commit fraud
against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this Court needs to address a procedural issue raised by respondents. Collectively,
respondents argue that the Petition is actually one of certiorari under Rule 65 of the Rules of Court43 and not a Petition for Review on
Certiorari under Rule 45.44 Thus, petitioners failure to show that there was neither appeal nor any other plain, speedy or adequate
remedy merited the dismissal of the Complaint.
Contrary to respondents imputation, the remedy contemplated by petitioner is clearly that of a Rule 45 Petition for Review. In Tagle v.
Equitable PCI Bank,45 this Court made the distinction between a Rule 45 Petition for Review on Certiorari and a Rule 65 Petition for
Certiorari:
Certiorari is a remedy designed for the correction of errors of jurisdiction, not errors of judgment.1wphi1 In Pure Foods Corporation v.
NLRC, we explained the simple reason for the rule in this light: When a court exercises its jurisdiction, an error committed while so
engaged does not deprive it of the jurisdiction being exercised when the error is committed x x x. Consequently, an error of judgment
that the court may commit in the exercise of its jurisdiction is not correctable through the original civil action of certiorari.
xxxx
Even if the findings of the court are incorrect, as long as it has jurisdiction over the case, such correction is normally beyond the
province of certiorari. Where the error is not one of jurisdiction, but of an error of law or fact a mistake of judgment, appeal is the
remedy.
In this case, what petitioner seeks to rectify may be construed as errors of judgment of the Court of Appeals. These errors pertain to the
petitioners allegation that the appellate court failed to uphold the findings of facts of the lower court. He does not impute any error with
respect to the Court of Appeals exercise of jurisdiction. As such, this Petition is simply a continuation of the appellate process where a
case is elevated from the trial court of origin, to the Court of Appeals, and to this Court via Rule 45.
Contrary to respondents arguments, the allegations of petitioner that the Court of Appeals "committed grave abuse of discretion"46 did
not ipso facto render the intended remedy that of certiorari under Rule 65 of the Rules of Court.47
In any case, even if the Petition is one for the special civil action of certiorari, this Court has the discretion to treat a Rule 65 Petition for
Certiorari as a Rule 45 Petition for Review on Certiorari. This is allowed if (1) the Petition is filed within the reglementary period for filing
a Petition for review; (2) when errors of judgment are averred; and (3) when there is sufficient reason to justify the relaxation of the
rules.48 When this Court exercises this discretion, there is no need to comply with the requirements provided for in Rule 65.

In this case, petitioner filed his Petition within the reglementary period of filing a Petition for Review.49 His Petition assigns errors of
judgment and appreciation of facts and law on the part of the Court of Appeals. Thus, even if the Petition was designated as one that
sought the remedy of certiorari, this Court may exercise its discretion to treat it as a Petition for Review in the interest of substantial
justice.
We now proceed to the substantive issue, that of petitioners imputation of fraud on the part of respondents. We are required by the
circumstances of this case to review our doctrines of fraud that are alleged to be present in contractual relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:
x x x fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to.
This is followed by the articles which provide legal examples and illustrations of fraud.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations,
constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves
fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the
former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake
and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
The distinction between fraud as a ground for rendering a contract voidable or as basis for an award of damages is provided in Article
1344:
In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
There are two types of fraud contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo causante or fraud
serious enough to render a contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:
This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either be dolo causante or dolo
incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not have entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those which are not serious in character and without which the other party would still have
entered into the contract. Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligation. The effects of dolo causante are the nullity of the contract and the indemnification of damages,
and dolo incidente also obliges the person employing it to pay damages.51
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al.,52 this Court elaborated on the distinction between dolo causante
and dolo incidente:
Fraud refers to all kinds of deception -- whether through insidious machination, manipulation, concealment or misrepresentation -- that
would lead an ordinarily prudent person into error after taking the circumstances into account. In contracts, a fraud known as dolo
causante or causal fraud is basically a deception used by one party prior to or simultaneous with the contract, in order to secure the
consent of the other. Needless to say, the deceit employed must be serious. In contradistinction, only some particular or accident of the
obligation is referred to by incidental fraud or dolo incidente, or that which is not serious in character and without which the other party
would have entered into the contract anyway.53
Under Article 1344, the fraud must be serious to annul or avoid a contract and render it voidable. This fraud or deception must be so
material that had it not been present, the defrauded party would not have entered into the contract. In the recent case of Spouses
Carmen S. Tongson and Jose C. Tongson, et al., v. Emergency Pawnshop Bula, Inc.,54 this Court provided some examples of what
constituted dolo causante or causal fraud:
Some of the instances where this Court found the existence of causal fraud include: (1) when the seller, who had no intention to part
with her property, was "tricked into believing" that what she signed were papers pertinent to her application for the reconstitution of her
burned certificate of title, not a deed of sale; (2) when the signature of the authorized corporate officer was forged; or (3) when the seller
was seriously ill, and died a week after signing the deed of sale raising doubts on whether the seller could have read, or fully
understood, the contents of the documents he signed or of the consequences of his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it follows that this type of fraud is not serious enough so as to render the
original contract voidable.

A classic example of dolo incidente is Woodhouse v. Halili.56 In this case, the plaintiff Charles Woodhouse entered into a written
agreement with the defendant Fortunato Halili to organize a partnership for the bottling and distribution of soft drinks. However, the
partnership did not come into fruition, and the plaintiff filed a Complaint in order to execute the partnership. The defendant filed a
Counterclaim, alleging that the plaintiff had defrauded him because the latter was not actually the owner of the franchise of a soft drink
bottling operation. Thus, defendant sought the nullification of the contract to enter into the partnership. This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to defendant that he was the holder of the exclusive franchise. The
defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. x x x The record abounds with
circumstances indicative that the fact that the principal consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or
for the partnership. x x x The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was
to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time
the contract was perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation
that he assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff gave in
exchange for the share of 30 percent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per
cent share in the net profits because he was transferring his exclusive franchise to the partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a matter of
fact, when the bottling plant being built, all that he suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate defendant's consent to
the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending that he
had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff) a big
slice in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the other
party's consent to a big share in the profits, an incidental matter in the agreement.57
Thus, this Court held that the original agreement may not be declared null and void. This Court also said that the plaintiff had been
entitled to damages because of the refusal of the defendant to enter into the partnership. However, the plaintiff was also held liable for
damages to the defendant for the misrepresentation that the former had the exclusive franchise to soft drink bottling operations.
To summarize, if there is fraud in the performance of the contract, then this fraud will give rise to damages. If the fraud did not compel
the imputing party to give his or her consent, it may not serve as the basis to annul the contract, which exhibits dolo causante.
However, the party alleging the existence of fraud may prove the existence of dolo incidente.
This may make the party against whom fraud is alleged liable for damages.
Quantum of Evidence to Prove the Existence of Fraud and the Liability of the Parties
The Civil Code, however, does not mandate the quantum of evidence required to prove actionable fraud, either for purposes of
annulling a contract (dolo causante) or rendering a party liable for damages (dolo incidente). The definition of fraud is different from the
quantum of evidence needed to prove the existence of fraud. Article 1338 provides the legal definition of fraud. Articles 1339 to 1343
constitute the behavior and actions that, when in conformity with the legal provision, may constitute fraud.
Jurisprudence has shown that in order to constitute fraud that provides basis to annul contracts, it must fulfill two conditions. First, the
fraud must be dolo causante or it must be fraud in obtaining the consent of the party. Second, this fraud must be proven by clear and
convincing evidence. In Viloria v. Continental Airlines,58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract. In Samson v.
Court of Appeals, causal fraud was defined as "a deception employed by one party prior to or simultaneous to the contract in order to
secure the consent of the other." Also, fraud must be serious and its existence must be established by clear and convincing evidence.
(Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals60 stating that mere preponderance of evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter
into a contract which without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both
contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and
not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of
each case should be considered, taking into account the personal conditions of the victim."61
Thus, to annul a contract on the basis of dolo causante, the following must happen: First, the deceit must be serious or sufficient to
impress and lead an ordinarily prudent person to error. If the allegedly fraudulent actions do not deceive a prudent person, given the
circumstances, the deceit here cannot be considered sufficient basis to nullify the contract. In order for the deceit to be considered

serious, it is necessary and essential to obtain the consent of the party imputing fraud. To determine whether a person may be
sufficiently deceived, the personal conditions and other factual circumstances need to be considered.
Second, the standard of proof required is clear and convincing evidence. This standard of proof is derived from American common law.
It is less than proof beyond reasonable doubt (for criminal cases) but greater than preponderance of evidence (for civil cases). The
degree of believability is higher than that of an ordinary civil case. Civil cases only require a preponderance of evidence to meet the
required burden of proof. However, when fraud is alleged in an ordinary civil case involving contractual relations, an entirely different
standard of proof needs to be satisfied. The imputation of fraud in a civil case requires the presentation of clear and convincing
evidence. Mere allegations will not suffice to sustain the existence of fraud. The burden of evidence rests on the part of the plaintiff or
the party alleging fraud. The quantum of evidence is such that fraud must be clearly and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding fraud to ascertain the liability, if any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo causante that must be proven by clear and convincing
evidence. It stands to reason that both dolo incidente and dolo causante must be proven by clear and convincing evidence. The only
question is whether this fraud, when proven, may be the basis for making a contract voidable (dolo causante), or for awarding damages
(dolo incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly and to assess the personal circumstances of the party alleging
fraud. This may require a review of the case facts and the evidence on record.
In general, this Court is not a trier of facts. It makes its rulings based on applicable law and on standing jurisprudence. The findings of
the Court of Appeals are generally binding on this Court provided that these are supported by the evidence on record. In the recent
case of Medina v. Court of Appeals,62 this Court held that:
It is axiomatic that a question of fact is not appropriate for a petition for review on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze
again and weigh the evidence introduced in and considered by the tribunals below. When supported by substantial evidence, the
findings of fact of the Court of Appeals are conclusive and binding on the parties and are not reviewable by this Court, unless the case
falls under any of the following recognized exceptions: (1) When the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) When the inference made is manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of
discretion; (4) When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting; (6) When the
Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) When the findings are contrary to those of the trial court; (8) When the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) When the facts set forth in the petition as well as in the petitioners
main and reply briefs are not disputed by the respondents; and (10) When the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of this case differently.
The Court of Appeals was not correct in saying that petitioner could only raise fraud as a ground to annul his participation in the
contract as against respondent Rupert V. Tankeh, since the petitioner did not make any categorical allegation that respondents
Development Bank of the Philippines, Sterling Shipping Lines, Inc., and Asset Privatization Trust had acted fraudulently. Admittedly, it
was only in the Petition before this Court that the petitioner had made the allegation of a "well-orchestrated fraud"64 by the respondents.
However, Rule 10, Section 5 of the Rules of Civil Procedure provides that:
Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried with the express
or implied consent of the parties they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of
the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of
any party at any time, even after judgment; but failure to amend does not effect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment to be made. (5a)
In this case, the commission of fraud was an issue that had been tried with the implied consent of the respondents, particularly Sterling
Shipping Lines, Inc., Asset Privatization Trust, Development Bank of the Philippines, and Arenas. Hence, although there is a lack of a
categorical allegation in the pleading, the courts may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter into the contract with respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the Sterling Shipping Lines, Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached by Ruperto Tankeh mentioning to me that he is operating a new shipping
lines business and he is giving me free one thousand shares (1,000) to be a director of this new business which is worth one million
pesos (P1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that I will be made a part of the administration staff so that I can oversee
the operation of the business plus my son, the eldest one who is already a graduate lawyer with a couple of years of experience in the
law firm of Romulo Ozaeta Law Offices (TSN, April 28, 1988, pp. 10-11.).65

The Second Amended Complaint of petitioner is substantially reproduced below to ascertain the claim:
xxxx
2. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V. Tankeh, plaintiff, together with Vicente L.
Arenas, Jr. and Jose Maria Vargas, signed a promissory note in favor of the defendant DBP, wherein plaintiff bound himself to
jointly and severally pay the DBP the amount of the mortgage loan. This document insofar as plaintiff is concerned is a
simulated document considering that plaintiff was never a real stockholder of the Sterling Shipping Lines, Inc.
3. That although plaintiffs name appears in the records of Sterling Shipping Lines, Inc. as one of its incorporators, the truth is
that he had never invested any amount in said corporation and that he had never been an actual member of said corporation.
All the money supposedly invested by him were put by defendant Ruperto V. Tankeh. Thus, all the shares of stock under his
name in fact belongs to Ruperto V. Tankeh. Plaintiff was invited to attend the board meeting of the Sterling Shipping Lines,
Inc. only once, which was for the sole purpose of introducing him to the two directors of the DBP, namely, Mr. Jesus Macalinag
and Mr. Gil Corpus. Thereafter he was never invited again. Plaintiff was never compensated by the Sterling Shipping Lines,
Inc. for his being a so-called director and stockholder. It is clear therefore that the DBP knew all along that plaintiff was not a
true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE FACT THAT when the Sterling Shipping
Lines, Inc. was organized in 1980, Ruperto V. Tankeh promised plaintiff that he would be a part of the administration staff so
that he could oversee the operation of the company. He was also promised that his son, a lawyer, would be given a position in
the company. None of these promises was complied with. In fact, he was not even allowed to find out the data about the
income and expenses of the company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT THAT PLAINTIFF WAS INVITED TO
ATTEND THE BOARD MEETING OF THE STERLING SHIPPING LINES, INC. ONLY ONCE, WHICH WAS FOR THE SOLE
PUPOSE OF INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE BOARD OF THE STERLING SHIPPING
LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR. GIL CORPUS. THEREAFTER HE WAS NEVER INVITED
AGAIN. PLAINTIFF WAS NEVER COMPENSATED BY THE STERLING SHIPPING LINES, INC. FOR HIS BEING A SOCALLED DIRECTOR AND STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a tool to realize the purposes of Ruperto V. Tankeh, plaintiff
officially informed the company by means of a letter dated June 15, 1983 addressed to the company that he has severed his
connection with the company, and demanded among others, that the company board of directors pass a resolution releasing
him from any liabilities especially with reference to the loan mortgage contract with the DBP and to notify the DBP of his
severance from the Sterling Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER, PLAINTIFF MADE EARNEST EFFORTS TOWARDS A
COMPROMISE BETWEEN HIM AND HIS BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED BY
RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS OF THE SALE OF THE "STERLING ACE" WAS PUBLISHED AT
THE NEWSPAPER [sic], PLAINTIFF TRIED ALL EFFORTS TO CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH AVOIDED ALL CONTACTS [sic] WITH
THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK LEGAL ASSISTANCE FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the undersigned counsel, and to the Honorable Court, most respectfully
alleges:
xxxx
3. That paragraph 4 is admitted that herein answering defendant together with the plaintiff signed the promissory note in favor
of DBP but specifically denied that the same was done through deceit and fraud of herein answering defendant the truth being
that plaintiff signed said promissory note voluntarily and with full knowledge of the consequences thereof; it is further denied
that said document is a simulated document as plaintiff was never a real stockholder of the company, the truth being those
alleged in the special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially the imputation of deceit and fraud against herein
answering defendant, the truth being those alleged in the special and affirmative defenses;
xxxx
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company organized in accordance with the laws of the Republic of the
Philippines with the plaintiff as one of the incorporators;
10. Plaintiff as one of the incorporators and directors of the board was fully aware of the by-laws of the company and if he
attended the board meeting only once as alleged, the reason thereof was known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting through its board of directors, herein answering defendant
could not have promised plaintiff that he would be a part of the administration staff;

12. As member of the board, plaintiff had all the access to the data and records of the company; further, as alleged in the
complaint, plaintiff has a son who is a lawyer who could have advised him;
13. Assuming plaintiff wrote a letter to the company to sever his connection with the company, he should have been aware
that all he had to do was sell all his holdings in the company;
14. Herein answering defendant came to know only of plaintiffs alleged predicament when he received the summons and
copy of the complaint; x x x.67
An assessment of the allegations in the pleadings and the findings of fact of both the trial court and appellate court based on the
evidence on record led to the conclusion that there had been no dolo causante committed against the petitioner by Ruperto V. Tankeh.
The petitioner had given his consent to become a shareholder of the company without contributing a single peso to pay for the shares
of stock given to him by Ruperto V. Tankeh. This fact was admitted by both petitioner and respondent in their respective pleadings
submitted to the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had never invested any amount in said corporation and that he had never
been an actual member of said corporation. All the money supposedly invested by him were put up by defendant Ruperto V.
Tankeh."69 This fact alone should have already alerted petitioner to the gravity of the obligation that he would be undertaking as a
member of the board of directors and the attendant circumstances that this undertaking would entail. It also does not add any
evidentiary weight to strengthen petitioners claim of fraud. If anything, it only strengthens the position that petitioners consent was not
obtained through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in trade which negates fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves
fraudulent.
Given the standing and stature of the petitioner, he was in a position to ascertain more information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in ascertaining whether a party is guilty of fraud in obtaining the consent of the
party claiming that fraud existed. The plaintiff Lamberto Songco sought to recover earnings from a promissory note that defendant
George Sellner had made out to him for payment of Songcos sugar cane production. Sellner claimed that he had refused to pay
because Songco had promised that the crop would yield 3,000 piculs of sugar, when in fact, only 2,017 piculs of sugar had been
produced. This Court held that Sellner would still be liable to pay the promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the probable output of his crop was disingenuous and uncandid, we
nevertheless think that Sellner was bound and that he must pay the price stipulated. The representation in question can only be
considered matter of opinion as the cane was still standing in the field, and the quantity of the sugar it would produce could not be
known with certainty until it should be harvested and milled. Undoubtedly Songco had better experience and better information on
which to form an opinion on this question than Sellner. Nevertheless the latter could judge with his own eyes as to the character of the
cane, and it is shown that he measured the fields and ascertained that they contained 96 1/2 hectares.
xxxx
The law allows considerable latitude to seller's statements, or dealer's talk; and experience teaches that it is exceedingly risky to accept
it at its face value. The refusal of the seller to warrant his estimate should have admonished the purchaser that that estimate was put
forth as a mere opinion; and we will not now hold the seller to a liability equal to that which would have been created by a warranty, if
one had been given.
xxxx
It is not every false representation relating to the subject matter of a contract which will render it void. It must be as to matters of fact
substantially affecting the buyer's interest, not as to matters of opinion, judgment, probability, or expectation. (Long vs. Woodman, 58
Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.], 95; Gordon vs. Parmelee, 2 Allen [Mass.], 212; Williamson vs. McFadden, 23 Fla., 143, 11
Am. St. Rep., 345.) When the purchaser undertakes to make an investigation of his own, and the seller does nothing to prevent this
investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the seller made
misrepresentations. (National Cash Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349; Williamson vs. Holt, 147 N. C., 515.)
We are aware that where one party to a contract, having special or expert knowledge, takes advantage of the ignorance of another to
impose upon him, the false representation may afford ground for relief, though otherwise the injured party would be bound. But we do
not think that the fact that Songco was an experienced farmer, while Sellner was, as he claims, a mere novice in the business, brings
this case within that exception.71
The following facts show that petitioner was fully aware of the magnitude of his undertaking:
First, petitioner was fully aware of the financial reverses that Sterling Shipping Lines, Inc. had been undergoing, and he took great pains
to release himself from the obligation.
Second, his background as a doctor, as a bank organizer, and as a businessman with experience in the textile business and real estate
should have apprised him of the irregularity in the contract that he would be undertaking. This meant that at the time petitioner gave his
consent to become a part of the corporation, he had been fully aware of the circumstances and the risks of his participation. Intent is
determined by the acts.
Finally, the records showed that petitioner had been fully aware of the effect of his signing the promissory note. The bare assertion that
he was not privy to the records cannot counteract the fact that petitioner himself had admitted that after he had severed ties with his

brother, he had written a letter seeking to reach an amicable settlement with respondent Rupert V. Tankeh. Petitioners actions defied
his claim of a complete lack of awareness regarding the circumstances and the contract he had been entering.
The required standard of proof clear and convincing evidence was not met. There was no dolo causante or fraud used to obtain the
petitioners consent to enter into the contract. Petitioner had the opportunity to become aware of the facts that attended the signing of
the promissory note. He even admitted that he has a lawyer-son who the petitioner had hoped would assist him in the administration of
Sterling Shipping Lines, Inc. The totality of the facts on record belies petitioners claim that fraud was used to obtain his consent to the
contract given his personal circumstances and the applicable law.
However, in refusing to allow petitioner to participate in the management of the business, respondent Ruperto V. Tankeh was liable for
the commission of incidental fraud. In Geraldez, this Court defined incidental fraud as "those which are not serious in character and
without which the other party would still have entered into the contract."72
Although there was no fraud that had been undertaken to obtain petitioners consent, there was fraud in the performance of the
contract. The records showed that petitioner had been unjustly excluded from participating in the management of the affairs of the
corporation. This exclusion from the management in the affairs of Sterling Shipping Lines, Inc. constituted fraud incidental to the
performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could not have promised plaintiff that he would be a part of the administration
staff"73 since petitioner had been fully aware that, as a corporation, Sterling Shipping Lines, Inc. acted through its board of directors.
Respondent admitted that petitioner had been "an incorporator and member of the board of directors"74 and that petitioner "was fully
aware of the by-laws of the company."75 It was incumbent upon respondent to act in good faith and to ensure that petitioner would not
be excluded from the affairs of Sterling Shipping Lines, Inc. After all, respondent asserted that petitioner had entered into the contract
voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent on severing his connection with the company, all that petitioner had to do was
to sell all his holdings in the company. Clearly, the respondent did not consider the fact that the sale of the shares of stock alone did not
free petitioner from his liability to Development Bank of the Philippines or Asset Privatization Trust, since the latter had signed the
promissory and had still been liable for the loan. A sale of petitioners shares of stock would not have negated the petitioners
responsibility to pay for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff petitioners claim that the latter only received news about the sale of the vessel M/V
Sterling Ace through the media and not as one of the board members or directors of Sterling Shipping Lines, Inc.
All in all, respondent Ruperto V. Tankehs bare assertion that petitioner had access to the records cannot discredit the fact that the
petitioner had been effectively deprived of the opportunity to actually engage in the operations of Sterling Shipping Lines, Inc. Petitioner
had a reasonable expectation that the same level of engagement would be present for the duration of their working relationship. This
would include an undertaking in good faith by respondent Ruperto V. Tankeh to be transparent with his brother that he would not
automatically be made part of the companys administration.
However, this Court finds there is nothing to support the assertion that Sterling Shipping Lines, Inc. and Arenas committed incidental
fraud and must be held liable. Sterling Shipping Lines, Inc. acted through its board of directors, and the liability of respondent Tankeh
cannot be imposed on Sterling Shipping Lines, Inc. The shipping line has a separate and distinct personality from its officers, and
petitioners assertion that the corporation conspired with the respondent Ruperto V. Tankeh to defraud him is not supported by the
evidence and the records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held that:
In all instances where a common cause of action is alleged against several defendants, some of whom answer and the others do not,
the latter or those in default acquire a vested right not only to own the defense interposed in the answer of their co-defendant or codefendants not in default but also to expect a result of the litigation totally common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiffs cause against all the defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and indivisibility of justice itself.77
As such, despite Arenas failure to submit his Answer to the Complaint or his declaration of default, his liability or lack thereof is
concomitant with the liability attributed to his co-defendants or co-respondents. However, unlike respondent Ruperto V. Tankehs
liability, there is no action or series of actions that may be attributed to Arenas that may lead to an inference that he was liable for
incidental fraud. In so far as the required evidence for both Sterling Shipping Lines, Inc. and Arenas is concerned, there is no basis to
justify the claim of incidental fraud.
In addition, respondents Development Bank of the Philippines and Asset Privatization Trust or Privatization and Management Office
cannot be held liable for fraud. Incidental fraud cannot be attributed to the execution of their actions, which were undertaken pursuant to
their mandated functions under the law. "Absent convincing evidence to the contrary, the presumption of regularity in the performance
of official functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older brother, petitioner Alejandro, for damages. The obligation to pay damages
to petitioner is based on several provisions of the Civil Code.
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;

(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
This enumeration does not preclude the possibility that a single action may serve as the source of several obligations to pay damages
in accordance with the Civil Code. Thus, the liability of respondent Ruperto V. Tankeh is based on the law, under Article 1344, which
provides that the commission of incidental fraud obliges the person employing it to pay damages.
In addition to this obligation as the result of the contract between petitioner and respondents, there was also a patent abuse of right on
the part of respondent Tankeh. This abuse of right is included in Articles 19 and 21 of the Civil Code which provide that:
Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to another in manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.
Respondent Ruperto V. Tankeh abused his right to pursue undertakings in the interest of his business operations. This is because of
his failure to at least act in good faith and be transparent with petitioner regarding Sterling Shipping Lines, Inc.s daily operations.
In National Power Corporation v. Heirs of Macabangkit Sangkay,79 this Court held that:
When a right is exercised in a manner not conformable with the norms enshrined in Article 19 and like provisions on human relations in
the Civil Code, and the exercise results to [sic] the damage of [sic] another, a legal wrong is committed and the wrongdoer is held
responsible.80
The damage, loss, and injury done to petitioner are shown by the following circumstances.
First, petitioner was informed by Development Bank of the Philippines that it would still pursue his liability for the payment of the
promissory note. This would not have happened if petitioner had allowed himself to be fully apprised of Sterling Shipping Lines, Inc.s
financial straits and if he felt that he could still participate in the companys operations. There is no evidence that respondent Ruperto V.
Tankeh showed an earnest effort to at least allow the possibility of making petitioner part of the administration a reality. The respondent
was the brother of the petitioner and was also the primary party that compelled petitioner Alejandro Tankeh to be solidarily bound to the
promissory note. Ruperto V. Tankeh should have done his best to ensure that he had exerted the diligence to comply with the
obligations attendant to the participation of petitioner.
Second, respondent Ruperto V. Tankehs refusal to enter into an agreement or settlement with petitioner after the latters discovery of
the sale of the M/V Sterling Ace was an action that constituted bad faith. Due to Rupertos refusal, his brother, petitioner Alejandro,
became solidarily liable for an obligation that the latter could have avoided if he had been given an opportunity to participate in the
operations of Sterling Shipping Lines, Inc. The simple sale of all of petitioners shares would not have solved petitioners problems, as it
would not have negated his liability under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping Lines, Inc., namely, public respondents Development Bank of the
Philippines and Asset Privatization Trust. This is an additional financial burden for petitioner. Nothing in the records suggested the
possibility that Development Bank of the Philippines or Asset Privatization Trust through the Privatization Management Office will not
pursue or is precluded from pursuing its claim against the petitioner. Although petitioner Alejandro voluntarily signed the promissory
note and became a stockholder and board member, respondent should have treated him with fairness, transparency, and consideration
to minimize the risk of incurring grave financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may be awarded on the following bases:
To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless, malicious, in bad faith,
oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract, moral damages may be recovered when the defendant
acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton disregard of his contractual obligation and,
exceptionally, when the act of breach of contract itself is constitutive of tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant acted fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it 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.
xxxx
The person claiming moral damages must prove the existence of bad faith by clear and convincing evidence for the law always
presumes good faith. It is not enough that one merely suffered sleepless nights, mental anguish, serious anxiety as the result of the
actuations of the other party. Invariably such action must be shown to have been willfully done in bad faith or will ill motive. Mere
allegations of besmirched reputation, embarrassment and sleepless nights are insufficient to warrant an award for moral damages. It
must be shown that the proximate cause thereof was the unlawful act or omission of the [private respondent] petitioners.

An award of moral damages would require certain conditions to be met, to wit: (1) first, there must be an injury, whether physical,
mental or psychological, clearly sustained by the claimant; (2) second, there must be culpable act or omission factually established; (3)
third, the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the
award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. (Citations omitted)82
In this case, the four elements cited in Francisco are present. First, petitioner suffered an injury due to the mental duress of being
bound to such an onerous debt to Development Bank of the Philippines and Asset Privatization Trust. Second, the wrongful acts of
undue exclusion done by respondent Ruperto V. Tankeh clearly fulfilled the same requirement. Third, the proximate cause of his injury
was the failure of respondent Ruperto V. Tankeh to comply with his obligation to allow petitioner to either participate in the business or
to fulfill his fiduciary responsibilities with candor and good faith. Finally, Article 221983 of the Civil Code provides that moral damages
may be awarded in case of acts and actions referred to in Article 21, which, as stated, had been found to be attributed to respondent
Ruperto V. Tankeh.
In the Appellants Brief,84 petitioner asked the Court of Appeals to demand from respondents, except from respondent Asset
Privatization Trust, the amount of five million pesos (P5,000,000.00). This Court finds that the amount of five hundred thousand pesos
(P500,000.00) is a sufficient amount of moral damages.
In addition to moral damages, this Court may also impose the payment of exemplary damages.1wphi1 Exemplary damages are
discussed in Article 2229 of the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example or correction of the public good, in addition to moral,
temperate, liquidated or compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234, particularly regarding the pre-requisites of ascertaining moral
damages and the fact that it is discretionary upon this Court to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they should be
adjudicated.
ART. 2234. While the amount of the exemplary damages need not be proven, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be
awarded x x x
The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar
offense. The case of People v. Rante85 citing People v. Dalisay86 held that:
Also known as punitive or vindictive damages, exemplary or corrective damages are intended to serve as a deterrent to serious
wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty
of outrageous conduct. These terms are generally, but not always, 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
person as a result of an injury that has been maliciously and wantonly inflicted, the theory being that there should be compensation for
the hurt caused by the highly reprehensible conduct of the defendantassociated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or fraud or gross fraudthat intensifies the injury. The terms punitive or
vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended in good measure to deter the wrongdoer and others like him from
similar conduct in the future.87
To justify an award for exemplary damages, the wrongful act must be accompanied by bad faith, and an award of damages would be
allowed only if the guilty party acted in a wanton, fraudulent, reckless or malevolent manner.88In this case, this Court finds that
respondent Ruperto V. Tankeh acted in a fraudulent manner through the finding of dolo incidente due to his failure to act in a manner
consistent with propriety, good morals, and prudence.
Since exemplary damages ensure that future litigants or parties are enjoined from acting in a similarly malevolent manner, it is
incumbent upon this Court to impose the damages in such a way that will serve as a categorical warning and will show that wanton
actions will be dealt with in a similar manner. This Court finds that the amount of two hundred thousand pesos (P200,000.00) is
sufficient for this purpose.
In sum, this Court must act in the best interests of all future litigants by establishing and applying clearly defined standards and
guidelines to ascertain the existence of fraud.
WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of Appeals as to the assailed Decision in so far as the
finding of fraud is SUSTAINED with the MODIFICATION that respondent RUPERTO V. TANKEH be ordered to pay moral damages in
the amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00) and the amount of TWO HUNDRED THOUSAND PESOS
(P200,000.00) by way of exemplary damages.
SO ORDERED.

G.R. No. 173154

December 9, 2013

SANGWOO PHILIPPINES, INC. and/or SANG IK JANG, JISSO JANG, WISSO JANG and NORBERTO TADEO,Petitioners,
vs.
SANGWOO PHILIPPINES, INC. EMPLOYEE UNION - OLALIA, represented by PORFERIA SALIBONGCOGON,1, Respondents.
x---------------x
G.R. No. 173229
SANGWOO PHILIPPINES, INC. EMPLOYEES UNION - OLALIA, represented by PORFERIA SALIBONGCOGON, Petitioners,
vs.
SANGWOO PHILIPPINES, INC. and/or SANG IK JANG, JISSO JANG, WISSO JANG, and NOREBERTO TADEO, Respondents.
DECISION
PERLAS-BERNABE, J.:
Before the Court are consolidated petitions for review on certiorari2 assailing the Decision3 dated January 12, 2006 and
Resolution4 dated June 14, 2006 of the Court of Appeals(CA)in CA-G.R. SP No. 88965 that set aside the Resolutions5 dated January
26, 2005 and March 31, 2005 of the National Labor Relations Commission(NLRC), deleted the award of separation pay, and ordered
the payment of financial assistance ofP15,000.00 each to its employees.
The Facts
On July 25, 2003, during the collective bargaining agreement (CBA)negotiations between Sangwoo Philippines, Inc. Employees Union
Olalia (SPEU) and Sangwoo Philippines, Inc.(SPI), the latter filed with the Department of Labor and Employment (DOLE) a letternotice6of temporary suspension of operations for one (1) month, beginning September 15, 2003, due to lack of orders from its
buyers.7 SPEU was furnished a copy of the said letter. Negotiation son the CBA, however, continued and on September 10, 2003, the
parties signed a handwritten Memorandum of Agreement, which, among others, specified the employees wages and benefits for the
next two (2) years, and that in the event of a temporary shutdown, all machineries and raw materials would not be taken out of the SPI
premises.8
On September 15, 2003,SPI temporarily ceased operations. Thereafter, it successively filed two (2) letters9 with the DOLE, copy
furnished SPEU, for the extension of the temporary shutdown until March 15, 2004.10 Meanwhile, on October 28, 2003, SPEU filed a
complaint for unfair labor practice, illegal closure, illegal dismissal, damages and attorneys fees before the Regional Arbitration Branch
IV of the NLRC.11 Subsequently, or on February 12, 2004, SPI posted, in conspicuous places within the company premises, notices of
its permanent closure and cessation of business operations, effective March 16, 2004, due to serious economic losses and financial
reverses.12 The DOLE was furnished a copy of said notice on February 13, 2004, together with a separate letter notifying it of the
companys permanent closure.13 SPEU was also furnished with a copy of the notice of permanent closure. Forthwith, SPI offered
separation benefits of one-half () month pay for every year of service to each of its employees. 234 employees of SPI accepted the
offer, received the said sums and executed quitclaims.14 Thosewho refused the offer, i.e., the minority employees, were nevertheless
given until March 25, 2004 to accept their checks and correspondingly, execute quitclaims. However, the minority employees did not
claim the said checks.
The LA Ruling
In a Decision15 dated June 4, 2004, the Labor Arbiter (LA) ruled in favor of SPI. The LA found that SPI was indeed suffering from
serious business lossesas evidenced by financial statements which were never contested by SPEU and, as such, validly
discontinued its operations.16 Consequently, the LA held that SPI was not guilty of unfair labor practice, and similarly observed that it
duly complied with the requirement of furnishing notices of closure to its employees and the DOLE. Lastly, the LA ruled that since SPIs
closure of business was due to serious business losses, it was not mandated by law to grant separation benefits to the minority
employees.
Aggrieved, SPEU filed an Appeal Memorandum17 before the NLRC.
The NLRC Ruling
In a Resolution18 dated January 26, 2005, the NLRC sustained the ruling of the LA, albeit with modification. While it upheld SPIs
closure due to serious business losses, it ruled that the members of SPEU are entitled to payment of separation pay equivalent to onehalf () month pay for every year of service. In this relation, the NLRC opined that since SPI already gave separation benefits to 234 of
its employees, the minority employees should not be denied of the same. Dissatisfied, SPI filed a petition for certiorari19 before the CA,
praying for, inter alia, the issuance of a temporary restraining order (TRO) and/or a writ of preliminary injunction against the execution of
the aforesaid NLRC resolution.
The CA Proceedings
In a Resolution20 dated April 12, 2005, the CA issued a TRO, which enjoined the enforcement of the NLRC resolution. Thereafter, in a
Resolution21 dated June 3, 2005, the CA issued a writ of preliminary injunction against the same.
Meanwhile, pursuant to the CAs Resolution22 dated May 19, 2005 which suggested that the parties explore talks of a possible
compromise agreement, SPI sent a Formal Offer of Settlement23 dated May 24, 2005 to SPEU, offering the amount of P15,000.00 as
financial assistance to each of the minority employees. On May 26, 2005, SPI sent a Reiteration of Formal Offer of Settlement to SPEU,
reasserting its previous offer of financial assistance. However, settlement talks broke down as SPEU did not accept SPIs offer.

In a Decision24 dated January 12, 2006, the CA held that the minority employees were not entitled to separation pay considering that
the companys closure was due to serious business losses. It pronounced that requiring an employer to be generous when it was no
longer in a position to be so would be oppressive and unjust. Nevertheless, the CA still ordered SPI to pay the minority
employees P15,000.00 each, representing the amount of financial assistance as contained in the Formal Offer of Settlement.
Both parties filed motions for reconsideration which were, however, denied in a Resolution25 dated June 14, 2006. Hence, these
petitions.
The Issues Before the Court
The issues for the Courts resolution are as follows: (a) whether or not the minority employees are entitled to separation pay; and (b)
whether or not SPI complied with the notice requirement of Article 297 (formerly Article 283)26 of the Labor Code.
The Courts Ruling
Both petitions are partly meritorious.
A. Non-entitlement to Separation Benefits.
Closure of business is the reversal of fortune of the employer whereby there is a complete cessation of business operations and/or an
actual locking-up of the doors of establishment, usually due to financial losses. Closure of business, as an authorized cause for
termination of employment,27 aims to prevent further financial drain upon an employer who cannot pay anymore his employees since
business has already stopped.28 In such a case, the employer is generally required to give separation benefits to its employees, unless
the closure is due to serious business losses.29 As explained in the case of Galaxie Steel Workers Union (GSWU-NAFLU-KMU) v.
NLRC30(Galaxie):
The Constitution, while affording full protection to labor, nonetheless, recognizes "the right of enterprises to reasonable returns on
investments, and to expansion and growth." In line with this protection afforded to business by the fundamental law, Article [297] of the
Labor Code clearly makes a policy distinction. It is only in instances of "retrenchment to prevent losses and in cases of closures or
cessation of operations of establishment or undertaking not due to serious business losses or financial reverses" that employees whose
employment has been terminated as a result are entitled to separation pay. In other words, Article [297] of the Labor Code does not
obligate an employer to pay separation benefits when the closure is due to serious losses. To require an employer to be generous
when it is no longer in a position to do so, in our view, would be unduly oppressive, unjust, and unfair to the employer. Ours is a system
of laws, and the law in protecting the rights of the working man, authorizes neither the oppression nor the self-destruction of the
employer. (Emphasis and underscoring supplied)
In this case, the LA, NLRC, and the CA all consistently found that SPI indeed suffered from serious business losses which resulted in
its permanent shutdown and accordingly, held the companys closure to be valid. It is a rule that absent any showing that the findings of
fact of the labor tribunals and the appellate court are not supported by evidence on record or the judgment is based on a
misapprehension of facts, the Court shall not examine a new the evidence submitted by the parties.31 Perforce, without any cogent
reason to deviate from the findings on the validity of SPIs closure, the Court thus holds that SPI is not obliged to give separation
benefits to the minority employees pursuant to Article 297 of the Labor Code as interpreted in the case of Galaxie. As such, SPI should
not be directed to give financial assistance amounting to P15,000.00 to each of the minority employees based on the Formal Offer of
Settlement. If at all, such formal offer should be deemed only as a calculated move on SPIs part to further minimize the expenses that
it will be bound to incur should litigation drag on, and not as an indication that it was still financially sustainable. However, since SPEU
chose not to accept, said offer did not ripen into an enforceable obligation on the part of SPI from which financial assistance could have
been realized by the minority employees.
B.Insufficient Notice of Closure.
Article 297 of the Labor Code provides that before any employee is terminated due to closure of business, it must give a one (1) month
prior written notice to the employee and to the DOLE. In this relation, case law instructs that it is the personal right of the employee to
be personally informed of his proposed dismissal as well as the reasons therefor; and such requirement of notice is not a mere
technicality or formality which the employer may dispense with.32 Since the purpose of previous notice is to, among others, give the
employee some time to prepare for the eventual loss of his job,33 the employer has the positive duty to inform each and every employee
of their impending termination of employment. To this end, jurisprudence states that an employers act of posting notices to this effect in
conspicuous areas in the workplace is not enough. Verily, for something as significant as the involuntary loss of ones employment,
nothing less than an individually-addressed notice of dismissal supplied to each worker is proper. As enunciated in the case
of Galaxie:34
Finally, with regard to the notice requirement, the Labor Arbiter found, and it was upheld by the NLRC and the Court of Appeals, that
the written notice of closure or cessation of Galaxies business operations was posted on the company bulletin board one month prior to
its effectivity. The mere posting on the company bulletin board does not, however, meet the requirement under Article [297] of
"serving a written notice on the workers."The purpose of the written notice is to inform the employees of the specific date of
termination or closure of business operations, and must be served upon them at least one month before the date of effectivity to give
them sufficient time to make the necessary arrangement. In order to meet the foregoing purpose, service of the written notice
must be made individually upon each and every employee of the company.(Emphasis and underscoring supplied; citations
omitted)
Keeping with these principles, the Court finds that the LA, NLRC, and CA erred in ruling that SPI complied with the notice requirement
when it merely posted various copies of its notice of closure in conspicuous places within the business premises. As earlier explained,
SPI was required to serve written notices of termination to its employees, which it, however, failed to do.It is well to stress that while SPI
had a valid ground to terminate its employees, i.e., closure of business, its failure to comply with the proper procedure for
terminationrenders itliable to pay the employee nominal damages for such omission. Based on existing jurisprudence, an employer
which has a valid cause for dismissing its employee but conducts the dismissal with procedural infirmity is liable to pay the employee
nominal damages in the amount of P30,000.00 if the ground for dismissal is a just cause, or the amount of P50,000.00 if the ground for
dismissal is an authorized cause.35 However, case law exhorts that in instances where the payment of such damages becomes
impossible, unjust, or too burdensome, modification becomes necessary in order to harmonize the disposition with the prevailing

circumstances.36 Thus, in the case of Industrial Timber Corporation v. Ababon37 (Industrial Timber),the Court reduced the amount of
nominal damages awarded to employees from P50,000.00 to P10,000.00 since the authorized cause of termination was the employers
closure or cessation of business which was done in good faith and due to circumstances beyond the employers control,viz.:38
In the determination of the amount of nominal damages which is addressed to the sound discretion of the court, several factors are
taken into account: (1) the authorized cause invoked, whether it was a retrenchment or a closure or cessation of operation of the
establishment due to serious business losses or financial reverses or otherwise; (2) the number of employees to be awarded; (3) the
capacity of the employers to satisfy the awards, taken into account their prevailing financial status as borneby the records; (4) the
employers grant of other termination benefits in favor of the employees; and (5) whether there was a bona fide attempt to comply with
the notice requirements as opposed to giving no notice at all.
In the case at bar, there was a valid authorized cause considering the closure or cessation of ITC's business which was done in good
faith and due to circumstances beyond ITC's control. Moreover, ITC had ceased to generate any income since its closure on August 17,
1990. Several months prior to the closure, ITC experienced diminished income due to high production costs, erratic supply of raw
materials, depressed prices, and poor market conditions for its wood products. It appears that ITC had given its employees all benefits
in accord with the CBA upon their termination.
Thus, considering the circumstances obtaining in the case at bar, we deem it wise and just to reduce the amount of nominal
damages to be awarded for each employee to Pl0,000.00 each instead of 1!50,000.00 each. (Emphasis and underscoring
supplied)
In this case, considering that SPI closed down its operations due to serious business losses and that said closure appears to have been
done in good faith, the Court -similar to the case of Industrial Timber -deems it just to reduce the amount of nominal damages to be
awarded to each of the minority employees from P50,000.00 to Pl0,000.00. To be clear, the foregoing award should only obtain in favor
of the minority employees and not for those employees who already received sums equivalent to separation pay and executed
quitclaims "releasing [SPI] now and in the future any claims and obligation which may arise as results of [their] employment with the
company."39 For these latter employees who have already voluntarily accepted their dismissal, their executed quitclaims practically
erased the consequences of infirmities on the notice of dismissal,40 at least as to them.
WHEREFORE, the petitions are PARTLY GRANTED. The Decision dated January 12, 2006 and Resolution dated June 14, 2006 of the
Court of Appeals in CA-G.R. SP No. 88965 are hereby AFFIRMED with MODIFICATION deleting the award of financial assistance in
the amount of P15,000.00 to each of the minority employees. Instead, Sangwoo Philippines, Inc. is ORDERED to pay nominal
damages in the amount of Pl0,000.00 to each of the minority employees.
SO ORDERED.

G.R. No. 161921

July 17, 2013

JOYCE V. ARDIENTE, PETITIONER,

vs.
SPOUSES JAVIER AND MA. THERESA PASTORFIDE, CAGAYAN DE ORO WATER DISTRICT AND GASPAR
GONZALEZ,* JR., RESPONDENTS.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse and set aside the
Decision1 and Resolution2 of the Court of Appeals (CA), dated August 28, 2003 and December 17, 2003, respectively, in CA-G.R. CV
No. 73000. The CA Decision affirmed with modification the August 15, 2001 Decision3 of the Regional Trial Court (RTC) of Cagayan de
Oro City, Branch 24, while the CA Resolution denied petitioner's Motion for Reconsideration.
The facts, as summarized by the CA, are as follows:
[Herein petitioner] Joyce V. Ardiente and her husband Dr. Roberto S. Ardiente are owners of a housing unit at Emily Homes, Balulang,
Cagayan de Oro City with a lot area of one hundred fifty-three (153) square meters and covered by Transfer Certificate of Title No.
69905.
On June 2, 1994, Joyce Ardiente entered into a Memorandum of Agreement (Exh. "B", pp. 470-473, Records) selling, transferring and
conveying in favor of [respondent] Ma. Theresa Pastorfide all their rights and interests in the housing unit at Emily Homes in
consideration of P70,000.00. The Memorandum of Agreement carries a stipulation:
"4. That the water and power bill of the subject property shall be for the account of the Second Party (Ma. Theresa Pastorfide) effective
June 1, 1994." (Records, p. 47)
vis-a-vis Ma. Theresa Pastorfide's assumption of the payment of the mortgage loan secured by Joyce Ardiente from the National Home
Mortgage (Records, Exh. "A", pp. 468-469)
For four (4) years, Ma. Theresa's use of the water connection in the name of Joyce Ardiente was never questioned nor perturbed
(T.S.N., October 31, 2000, pp. 7-8) until on March 12, 1999, without notice, the water connection of Ma. Theresa was cut off.
Proceeding to the office of the Cagayan de Oro Water District (COWD) to complain, a certain Mrs. Madjos told Ma. Theresa that she
was delinquent for three (3) months corresponding to the months of December 1998, January 1999, and February 1999. Ma. Theresa
argued that the due date of her payment was March 18, 1999 yet (T.S.N., October 31, 2000, pp. 11-12). Mrs. Madjos later told her that
it was at the instance of Joyce Ardiente that the water line was cut off (T.S.N., February 5, 2001, p. 31).
On March 15, 1999, Ma. Theresa paid the delinquent bills (T.S.N., October 31, 2000, p. 12). On the same date, through her lawyer, Ma.
Theresa wrote a letter to the COWD to explain who authorized the cutting of the water line (Records, p. 160).
On March 18, 1999, COWD, through the general manager, [respondent] Gaspar Gonzalez, Jr., answered the letter dated March 15,
1999 and reiterated that it was at the instance of Joyce Ardiente that the water line was cut off (Records, p. 161).
Aggrieved, on April 14, 1999, Ma. Theresa Pastorfide [and her husband] filed [a] complaint for damages [against petitioner, COWD and
its manager Gaspar Gonzalez] (Records, pp. 2-6).
In the meantime, Ma. Theresa Pastorfide's water line was only restored and reconnected when the [trial] court issued a writ of
preliminary mandatory injunction on December 14, 1999 (Records, p. 237).4
After trial, the RTC rendered judgment holding as follows:
xxxx
In the exercise of their rights and performance of their duties, defendants did not act with justice, gave plaintiffs their due and observe
honesty and good faith. Before disconnecting the water supply, defendants COWD and Engr. Gaspar Gonzales did not even send a
disconnection notice to plaintiffs as testified to by Engr. Bienvenido Batar, in-charge of the Commercial Department of defendant
COWD. There was one though, but only three (3) days after the actual disconnection on March 12, 1999. The due date for payment
was yet on March 15. Clearly, they did not act with justice. Neither did they observe honesty.
They should not have been swayed by the prodding of Joyce V. Ardiente. They should have investigated first as to the present
ownership of the house. For doing the act because Ardiente told them, they were negligent. Defendant Joyce Ardiente should have
requested before the cutting off of the water supply, plaintiffs to pay. While she attempted to tell plaintiffs but she did not have the
patience of seeing them. She knew that it was plaintiffs who had been using the water four (4) years ago and not hers. She should have
been very careful. x x x5
The dispositive portion of the trial court's Decision reads, thus:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendants [Ardiente, COWD and Gonzalez] to pay jointly
and severally plaintiffs, the following sums:
(a) P200,000.00 for moral damages;
(b) 200,000.00 for exemplary damages; and

(c) 50,000.00 for attorney's fee.

The cross-claim of Cagayan de Oro Water District and Engr. Gaspar Gonzales is hereby dismissed. The Court is not swayed that the
cutting off of the water supply of plaintiffs was because they were influenced by defendant Joyce Ardiente. They were negligent too for
which they should be liable.
SO ORDERED.6
Petitioner, COWD and Gonzalez filed an appeal with the CA.
On August 28, 2003, the CA promulgated its assailed Decision disposing as follows:
IN VIEW OF ALL THE FOREGOING, the appealed decision is AFFIRMED, with the modification that the awarded damages is reduced
to P100,000.00 each for moral and exemplary damages, while attorney's fees is lowered toP25,000.00. Costs against appellants.
SO ORDERED.7
The CA ruled, with respect to petitioner, that she has a "legal duty to honor the possession and use of water line by Ma. Theresa
Pastorfide pursuant to their Memorandum of Agreement" and "that when [petitioner] applied for its disconnection, she acted in bad faith
causing prejudice and [injury to] Ma. Theresa Pastorfide."8
As to COWD and Gonzalez, the CA held that they "failed to give a notice of disconnection and derelicted in reconnecting the water line
despite payment of the unpaid bills by the [respondent spouses Pastorfide]."9
Petitioner, COWD and Gonzalez filed their respective Motions for Reconsideration, but these were denied by the CA in its Resolution
dated December 17, 2003.
COWD and Gonzalez filed a petition for review on certiorari with this Court, which was docketed as G.R. No. 161802. However, based
on technical grounds and on the finding that the CA did not commit any reversible error in its assailed Decision, the petition was denied
via a Resolution10 issued by this Court on March 24, 2004. COWD and Gonzalez filed a motion for reconsideration, but the same was
denied with finality through this Court's Resolution11 dated June 28, 2004.
Petitioner, on the other hand, timely filed the instant petition with the following Assignment of Errors:
7.1 HONORABLE COURT OF APPEALS (ALTHOUGH IT HAS REDUCED THE LIABILITY INTO HALF) HAS STILL
COMMITTED GRAVE AND SERIOUS ERROR WHEN IT UPHELD THE JOINT AND SOLIDARY LIABILITY OF PETITIONER
JOYCE V. ARDIENTE WITH CAGAYAN DE ORO WATER DISTRICT (COWD) AND ENGR. GASPAR D. GONZALES FOR
THE LATTER'S FAILURE TO SERVE NOTICE UPON RESPONDENTS SPOUSES PASTORFIDE PRIOR TO THE ACTUAL
DISCONNECTION DESPITE EVIDENCE ADDUCED DURING TRIAL THAT EVEN WITHOUT PETITIONER'S REQUEST,
COWD WAS ALREADY SET TO EFFECT DISCONNECTION OF RESPONDENTS' WATER SUPPLY DUE TO NONPAYMENT OF ACCOUNT FOR THREE (3) MONTHS.
7.2 THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR WHEN IT RULED TOTALLY
AGAINST PETITIONER AND FAILED TO FIND THAT RESPONDENTS ARE GUILTY OF CONTRIBUTORY NEGLIGENCE
WHEN THEY FAILED TO PAY THEIR WATER BILLS FOR THREE MONTHS AND TO MOVE FOR THE TRANSFER OF
THE COWD ACCOUNT IN THEIR NAME, WHICH WAS A VIOLATION OF THEIR MEMORANDUM OF AGREEMENT WITH
PETITIONER JOYCE V. ARDIENTE. RESPONDENTS LIKEWISE DELIBERATELY FAILED TO EXERCISE DILIGENCE OF
A GOOD FATHER OF THE FAMILY TO MINIMIZE THE DAMAGE UNDER ART. 2203 OF THE NEW CIVIL CODE.
7.3 THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT DISREGARDED THE FACT THAT
RESPONDENT SPOUSES PASTORFIDE ARE LIKEWISE BOUND TO OBSERVE ARTICLE 19 OF THE NEW CIVIL CODE,
i.e., IN THE EXERCISE OF THEIR RIGHTS AND IN THE PERFORMANCE OF THEIR DUTIES TO ACT WITH JUSTICE,
GIVE EVERYONE HIS DUE AND OBSERVE HONESTY AND GOOD FAITH.
7.4 THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT GRANTED AN AWARD OF MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AS AGAINST PETITIONER ARDIENTE.12
At the outset, the Court noticed that COWD and Gonzalez, who were petitioner's co-defendants before the RTC and her co-appellants
in the CA, were impleaded as respondents in the instant petition. This cannot be done. Being her co-parties before the RTC and the
CA, petitioner cannot, in the instant petition for review on certiorari, make COWD and Gonzalez, adversary parties. It is a grave mistake
on the part of petitioner's counsel to treat COWD and Gonzalez as respondents. There is no basis to do so, considering that, in the first
place, there is no showing that petitioner filed a cross-claim against COWD and Gonzalez. Under Section 2, Rule 9 of the Rules of
Court, a cross-claim which is not set up shall be barred. Thus, for failing to set up a cross-claim against COWD and Gonzalez before
the RTC, petitioner is already barred from doing so in the present petition.
More importantly, as shown above, COWD and Gonzalez's petition for review on certiorari filed with this Court was already denied with
finality on June 28, 2004, making the presently assailed CA Decision final and executory insofar as COWD and Gonzalez are
concerned. Thus, COWD and Gonzalez are already precluded from participating in the present petition. They cannot resurrect their lost
cause by filing pleadings this time as respondents but, nonetheless, reiterating the same prayer in their previous pleadings filed with the
RTC and the CA.
As to the merits of the instant petition, the Court likewise noticed that the main issues raised by petitioner are factual and it is settled
that the resolution of factual issues is the function of lower courts, whose findings on these matters are received with respect and
considered binding by the Supreme Court subject only to certain exceptions, none of which is present in this instant petition.13 This is
especially true when the findings of the RTC have been affirmed by the CA as in this case.14

In any case, a perusal of the records at hand would readily show that the instant petition lacks merit.
Petitioner insists that she should not be held liable for the disconnection of respondent spouses' water supply, because she had no
participation in the actual disconnection. However, she admitted in the present petition that it was she who requested COWD to
disconnect the Spouses Pastorfide's water supply. This was confirmed by COWD and Gonzalez in their cross-claim against petitioner.
While it was COWD which actually discontinued respondent spouses' water supply, it cannot be denied that it was through the instance
of petitioner that the Spouses Pastorfide's water supply was disconnected in the first place.
It is true that it is within petitioner's right to ask and even require the Spouses Pastorfide to cause the transfer of the former's account
with COWD to the latter's name pursuant to their Memorandum of Agreement. However, the remedy to enforce such right is not to
cause the disconnection of the respondent spouses' water supply. The exercise of a right must be in accordance with the purpose for
which it was established and must not be excessive or unduly harsh; there must be no intention to harm another.15 Otherwise, liability
for damages to the injured party will attach.16 In the present case, intention to harm was evident on the part of petitioner when she
requested for the disconnection of respondent spouses water supply without warning or informing the latter of such request. Petitioner
claims that her request for disconnection was based on the advise of COWD personnel and that her intention was just to compel the
Spouses Pastorfide to comply with their agreement that petitioner's account with COWD be transferred in respondent spouses' name. If
such was petitioner's only intention, then she should have advised respondent spouses before or immediately after submitting her
request for disconnection, telling them that her request was simply to force them to comply with their obligation under their
Memorandum of Agreement. But she did not. What made matters worse is the fact that COWD undertook the disconnection also
without prior notice and even failed to reconnect the Spouses Pastorfides water supply despite payment of their arrears. There was
clearly an abuse of right on the part of petitioner, COWD and Gonzalez. They are guilty of bad faith.
The principle of abuse of rights as enshrined in Article 19 of the Civil Code provides that every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.
In this regard, the Court's ruling in Yuchengco v. The Manila Chronicle Publishing Corporation17 is instructive, to wit:
xxxx
This provision of law sets standards which must be observed in the exercise of ones rights as well as in the performance of its duties,
to wit: to act with justice; give everyone his due; and observe honesty and good faith.
In Globe Mackay Cable and Radio Corporation v. Court of Appeals, it was elucidated that while Article 19 "lays down a rule of conduct
for the government of human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally,
an action for damages under either Article 20 or Article 21 would be proper." The Court said:
One of the more notable innovations of the New Civil Code is the codification of "some basic principles that are to be observed for the
rightful relationship between human beings and for the stability of the social order." [REPORT ON THE CODE COMMISSION ON THE
PROPOSED CIVIL CODE OF THE PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect of the old Code which
merely stated the effects of the law, but failed to draw out its spirit, incorporated certain fundamental precepts which were "designed to
indicate certain norms that spring from the fountain of good conscience" and which were also meant to serve as "guides for human
conduct [that] should run as golden threads through society, to the end that law may approach its supreme ideal, which is the sway and
dominance of justice." (Id.) Foremost among these principles is that pronounced in Article 19 x x x.
xxxx
This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain standards which must be
observed not only in the exercise of one's rights, but also in the performance of one's duties. These standards are the following: to act
with justice; to give everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial limitation on
all rights; that in their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by itself legal
because recognized or granted by law as such, may nevertheless become the source of some illegality. When a right is exercised in a
manner which does not conform with the norms enshrined in Article 19 and results in damage to another, a legal wrong is thereby
committed for which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the government of
human relations and for the maintenance of social order, it does not provide a remedy for its violation. Generally, an action for damages
under either Article 20 or Article 21 would be proper.
Corollarilly, Article 20 provides that "every person who, contrary to law, willfully or negligently causes damage to another shall indemnify
the latter for the same." It speaks of the general sanctions of all other provisions of law which do not especially provide for its own
sanction. When a right is exercised in a manner which does not conform to the standards set forth in the said provision and results in
damage to another, a legal wrong is thereby committed for which the wrongdoer must be responsible. Thus, if the provision does not
provide a remedy for its violation, an action for damages under either Article 20 or Article 21 of the Civil Code would be proper.
The question of whether or not the principle of abuse of rights has been violated resulting in damages under Article 20 or other
applicable provision of law, depends on the circumstances of each case. x x x18
To recapitulate, petitioner's acts which violated the abovementioned provisions of law is her unjustifiable act of having the respondent
spouses' water supply disconnected, coupled with her failure to warn or at least notify respondent spouses of such intention. On the
part of COWD and Gonzalez, it is their failure to give prior notice of the impending disconnection and their subsequent neglect to
reconnect respondent spouses' water supply despite the latter's settlement of their delinquent account.
On the basis of the foregoing, the Court finds no cogent reason to depart from the ruling of both the RTC and the CA that petitioner,
COWD and Gonzalez are solidarily liable.
The Spouses Pastorfide are entitled to moral damages based on the provisions of Article 2219,19 in connection with Articles 2020 and
2121 of the Civil Code.

As for exemplary damages, Article 2229 provides that exemplary damages may be imposed by way of example or correction for the
public good. Nonetheless, exemplary damages are imposed not to enrich one party or impoverish another, but to serve as a deterrent
against or as a negative incentive to curb socially deleterious actions.22 In the instant case, the Court agrees with the CA in sustaining
the award of exemplary damages, although it reduced the amount granted, considering that respondent spouses were deprived of their
water supply for more than nine (9) months, and such deprivation would have continued were it not for the relief granted by the RTC.
With respect to the award of attorney's fees, Article 2208 of the Civil Code provides, among others, that such fees may be recovered
when exemplary damages are awarded, when the defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest, and where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim.
WHEREFORE, instant petition for review on certiorari is DENIED. The Decision and Resolution of the Court of Appeals, dated August
28, 2003 and December 17, 2003, respectively, in CA-G.R. CV No. 73000 are AFFIRMED.
SO ORDERED.

G.R. No. 171464

November 27, 2013

SPOUSES ELISEO R. BAUTISTA AND EMPERA TRIZ C. BAUTISTA, Petitioners,

vs.
SPOUSES MILA JALANDONI AND ANTONIO JALANDONI AND MANILA CREDIT CORPORATION,Respondents.
x-----------------------x
G.R. No. 199341
MANILA CREDIT CORPORATION, Petitioner,
vs.
SPOUSES MILA AND ANTONIO JALANDONI, and SPOUSES ELISEO AND EMPERATRIZ C. BAUTISTA,Respondents.
DECISION
MENDOZA, J.:
Before the Court are two consolidated petitions for review under Rule 45 assailing the January 27, 2006 Amended Decision1 of the
Court of Appeals CA) in CA G.R. CV No. 84648 and its October 12, 2011 Resolution2 denying the motion for reconsideration filed by
Manila Credit Corporation (MCC). The controversy stemmed from a complaint3for cancellation of titles with damages filed by Spouses
Mila and Antonio Jalandoni (Spouses Jalandoni) against Spouses Eliseo and Emperatriz Bautista (Spouses Baustista), the Register of
Deeds of Makati City,4 Spouses Eduardo and Ma. Teresa Tongco (Spouses Tongco). and Manila Credit Corporation MCC).
Spouses Jalandoni were the registered owners of two (2) parcels of land, covered by Transfer Certificate of Title (TCT) Nos.
2010485 and 201049.6 The two lots were located in Muntinlupa City, each parcel of land containing an area of Six Hundred (600)
square meters, more or less, amounting to P1,320,000.00 per lot.
In May 1997, the Spouses Jalandoni applied for a loan with a commercial bank and, as a security thereof, they offered to constitute a
real estate mortgage over their two lots. After a routine credit investigation, it was discovered that their titles over the two lots had been
cancelled and new TCT Nos. 206091 and 205624 were issued in the names of Spouses Baustista. Upon further investigation, they
found out that the bases for the cancellation of their titles were two deeds of absolute sale,7 dated April 4, 1996 and May 4, 1996,
purportedly executed and signed by them in favor of Spouses Baustista.
Aggrieved, Spouses Jalandoni filed a complaint for cancellation of titles and damages claiming that they did not sell the subject lots and
denied having executed the deeds of absolute sale. They asserted that the owner's duplicate certificates of title were still in their
possession; that their signatures appearing on the deeds of absolute sale were forged and that said deeds were null and void and
transferred no title in favor of Spouses Bautista; that they never met the Spouses Bautista; that they did not appear before the notary
public who notarized the deeds of absolute sale; that the community tax certificates indicated in the deeds of absolute sale were not
issued to them and that the entries therein were forged and falsified; that Spouses Bautista paid a grossly inadequate price of
only P600,000.00 per lot; and that the Spouses Bautista were aware of the true value of the lots because they mortgaged one lot to
Spouses Tongco for P1,700,000.00 and the other lot for P3,493,379.82 to MCC.
In their answer,8 Spouses Bautista claimed that in March 1996, a certain Teresita Nasino (Nasino) offered to Eliseo Baustista (Eliseo)
two parcels of land located in Muntinlupa City; that the parcels of land were sold at a bargain price because the owners were in dire
need of money; that upon their request, Nasino showed them the photocopies of the titles covering the subject lands; that Nasino told
them that she would negotiate with the Spouses Jalandoni, prepare the necessary documents and cause the registration of the sale
with the Register of Deeds; and that since Nasino was a wife of a friend, Spouses Baustista trusted her and gave her the authority to
negotiate with Spouses Jalandoni on their behalf.
Spouses Bautista further alleged that in April 1996, Nasino informed Eliseo that the deeds of sale had been prepared and signed by
Spouses Jalandoni; that they, in turn, signed the deeds of sale and gave Nasino the amount of P1,200,000.00; that TCT Nos. 206091
and 205624 were issued to them; that since they needed funds for a new project, Eliseo contracted a loan with Spouses Tongco using
as a security the parcel of land covered by TCT No. 205624; that he also contracted a loan with MCC in the amount of P3,493,3 79.82
and used as a security the lot covered by TCT No. 206091; that they eventually paid the loan with the Spouses Tongco, thus, the real
estate mortgage was cancelled; and that since they were having difficulty paying the interests of their loan with the MCC, they also
mortgaged the lot covered by TCT No. 205624.
For its part, MCC reiterated its claim in its motion to dismiss that the venue of the case was improperly laid and that the complaint failed
to state a cause of action against it as there was no allegation made in the complaint as to its participation in the alleged falsification.
MCC averred that they found no indication of any defect in the titles of Spouses Bautista; that it exercised due diligence and prudence
in the conduct of its business and conducted the proper investigation and inspection of the mortgaged properties; and that its mortgage
lien could not be prejudiced by the alleged falsification claimed by Spouses Jalandoni.9
On December 17, 2004, the RTC rendered judgment10 declaring the sale of the subject lots void. The RTC explained that Nasino had
no authority to negotiate for the Spouses Jalandoni, much less to receive the consideration of the sale. Spouses Bautista were not
innocent purchasers in good faith and for value for their failure to personally verify the original copies of the titles of the subject
properties and to ascertain the authority of Nasino since they were not dealing with the registered owner. The RTC, nonetheless, found
MCC a mortgagee in good faith and upheld the validity of the mortgage contract between Spouses Bautista and MCC. The dispositive
portion reads:
WHEREFORE, in view of all the foregoing, the Court hereby renders judgment declaring:
1. The mortgage lien of defendant Manila Credit Corp. over the Transfer Certificate of Title No. 205624 and 206091 and/or
Transfer Certificates of Title No. 201048 and 201049 valid, legal and enforceable;

2. Ordering defendant Eliseo and Emperatriz Bautista jointly and severally to pay the plaintiff Antonio and Mila Jalandoni the
amount of P1,320,000.00 for each lot by way of actual damages; 3. Ordering defendant Eliseo and Emperatriz Bautista jointly
and severally to pay the plaintiff Antonio and Mila J alandoni the amount of P100,000.00 by way of moral damages;
4. Ordering defendant Eliseo and Emperatriz Bautista jointly and severally to pay the plaintiff Antonio and Mila J alandoni the
amount of P50,000.00 by way of exemplary damages;and
5 Ordering defendant Eliseo and Emperatriz Bautista jointly and severally to pay plaintiff Antonio and Mila Jalandoni the
amount of P50,000.00 by way of attorney s fees.
6. No pronouncement as to costs.
SO ORDERED.11
Both not satisfied, Spouses Jalandoni and Spouses Bautista appealed the RTC decision before the CA.
In their appellants brief,12 Spouses Jalandoni prayed that (1) the TCT Nos. 205624 and 201061 in the names of Spouses Bautista be
declared null and void; (2) the real estate mortgage constituted on TCT Nos. 205624 and 201061 in favor of Manila Credit Corporation
be nullified; and (3) the Register of Deeds of Muntinlupa City be ordered to reinstate TCT Nos. 201048 and 201049 in their names.
On the other hand, Spouses Bautista asked for the reversal of the R TC decision and the dismissal of the complaint for lack of merit.13
With leave of court,14 MCC filed its Brief15 praying for the affirmation of the RTC decision or in the event that the title of Spouses
Bautista over the subject lots would be cancelled, they be adjudged to pay MCC their total obligation under the promissory notes.
The CA, in its Decision,16 dated September 30, 2005, modified the RTC decision, ordering Spouses Bautista to pay Spouses Jalandoni
actual damages in the amount of P1,700,000.00 for the property covered by TCT No. 205624 and P3,493,379.82 for the property
covered by TCT No. 206091.
Spouses Bautista filed a motion for reconsideration, whereas Spouses Jalandoni filed a partial motion for reconsideration.
On January 27, 2006, the CA, in an Amended Decision,17 denied Spouses Bautista s motion for reconsideration and ruled in favor of
Spouses Jalandoni. The CA held that MCC s purported right over the subject properties could not be greater than that of Spouses
Jalandoni, who remained the lawful owners of the subject lots. The dispositive portion reads:
WHEREFORE, except for the dismissal of the appeal instituted by defendants-appellants spouses Eliseo Bautista and Emperatriz
Bautista, the dispositive portion of Our Decision dated September 30 2005 is hereby amended to read as follows:
1. Declaring null and void Transfer Certificates of Titles Nos. 205624 and 201061 in the name of defendants- appellants
Spouses Eliseo Bautista and Emperatriz Bautista;
2. Nullifying the Real Estate Mortgages constituted on the lots covered by Transfer Certificates of Titles Nos. 205624 and
201061 by defendant-appellant Eliseo Bautista in favor of defendant-appellee Manila Credit Corporation;
3. Ordering the Register of Deeds of Muntinlupa City to reinstate Transfer Certificates of Title Nos. 201048 and 201049 in the
name of plaintiffs-appellants Spouses Mila J alandoni and Antonio J alandoni, free from any mortgage or lien;
4. Defendants-appellants Spouses Eliseo Bautista and Emperatriz Bautista are liable to pay their obligation under the
Promissory Notes they executed in favor of defendant-appellee Manila Credit Corporation;
5. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Fifty Thousand Pesos
(P50,000.00) by way of moral damages;
6. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Twenty Five Thousand Pesos
(P25,000.00) by way of exemplary damages; and
7. Ordering defendants-appellants jointly and severally to pay plaintiffs-appellants the amount of Twenty Five Thousand Pesos
(P25,000.00) by way of attorney's fees.
SO ORDERED.18
On February 24, 2006, MCC filed a motion for reconsideration19 praying for the reinstatement of the CA s September 30, 2005 decision.
The Spouses Bautista, in turn, filed a petition for review before the Court docketed as G.R. No. 171464. In view thereof, the CA held in
abeyance the resolution on MCC s motion for reconsideration.20
On September 26, 2007, the Court gave due course to the petition.21 Seeing the need, however, to first resolve the motion for
reconsideration of the MCC, the Court directed the CA to resolve the motion.
Consequently, the CA, in a Resolution,22 dated October 12, 2011, denied the petition.
On December 6, 2011, the MCC filed a petition for review before this Court assailing the January 27, 2006 Amended Decision and
October 12, 2011 Resolution of the CA in CA G.R. CV No. 84648.

Considering that G.R. No. 171464 and G.R. No. 199341 are both questioning the January 27, 2006 Amended Decision and October 12,
2011 Resolution of the CA and that the issues raised are intertwined, the Cou1i consolidated the two petitions.
In G.R. No. 171464, Spouses Bautista anchored their petition on the following
ARGUMENTS:
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN FINDING THAT PETITIONERS ARE NOT BUYERS IN GOOD FAITH.
THE COURT OF APPEALS ERRED IN RULING THAT (A) THE TCTs ISSUED UNDER PETITIONERS NAMES SHOULD BE
ANNULLED; AND (B) THEY ARE LIABLE TO THE SPOUSES JALANDONI FOR ACTUAL, MORAL AND EXEMPLARY DAMAGES,
AND ATTORNEY'S FEES.23
Whereas, in G.R. No. 199341, MCC presented the following
ASSIGNMENT OF ERRORS/
GROUNDS/ISSUES
WHETHER OR NOT THE COURT OF APPEALS COMMITTED AN ERROR IN NULLIFYING THE REAL MORTGAGE CONSTITUTED
ON THE SUBJECT PROPERTIES.
WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY COMMITTED AN ERROR IN FAILING TO APPLY THE CASES OF
PINEDA VS. COURT OF APPEALS, CABUHAT VS. COURT OF APPEALS, REPUBLIC VS. UMALI, PHILIPPINE NATIONAL BANK
VS. COURT OF APPEALS, PENULLAR VS. PHILIPPINE NATIONAL BANK AND SUCH OTHER CASES UPHOLDING THE RIGHT
OF AN INNOCENT MORTGAGEE FOR VALUE.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED AN ERROR IN APPLYING THE CASE OF TORRES VS. COURT OF
APPEALS.24
The issues to be resolved are (1) whether or not the Spouses Bautista were buyers in good faith and for value; and, (2) in case they
were not, whether or not Spouses Jalandoni have a better right than MCC.
Before resolving the issue on whether Spouses Bautista were purchasers in good faith for value, the Court shall first discuss the validity
of the sale.
Articles 1874 of the Civil Code provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Likewise, A1iicle 1878 paragraph 5 of the Civil Code specifically mandates that the authority of the agent to sell a real property must be
conferred in writing, to wit:
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) x x x
xxx
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;
x x x.
The foregoing provisions explicitly require a written authority when the sale of a piece of land is through an agent, whether the sale is
gratuitously or for a valuable consideration. Absent such authority in writing, the sale is null and void.25
In the case at bar, it is undisputed that the sale of the subject lots to Spouses Bautista was void. Based on the records, Nasino had no
written authority from Spouses Jalandoni to sell the subject lots. The testimony of Eliseo that Nasino was empowered by a special
power of attorney to sell the subject lots was bereft of merit as the alleged special power attorney was neither presented in court nor
was it referred to in the deeds of absolute sale.26 Bare allegations, unsubstantiated by evidence, are not equivalent to proof under the
Rules of Court.27
Spouses Bautista insist that they were innocent purchasers for value, entitled to the protection of the law. They stress that their
purchase of the subject properties were all coursed through Nasino, who represented that she knew Spouses Jalandoni and that they
were selling their properties at a bargain price because they were in dire need of money. Considering that the Register of Deeds
cancelled the titles of Spouses Jalandoni and subsequently issued new titles in their names, they assert that these were regularly and
validly issued in their names. Moreover, they aver that they were not privy to any fraud committed in the sale of the subject properties.28
The Court finds no merit in their arguments.
"A buyer in good faith is one who buys the property of another without notice that some other person has a right to or interest in such
property. He is a buyer for value if he pays a full and fair price at the time of the purchase or before he has notice of the claim or interest
of some other person in the property."29 "Good faith connotes an honest intention to abstain from taking unconscientious advantage of
another."30 To prove good faith, the following conditions must be present: (a) the seller is the registered owner of the land; (b) the owner

is in possession thereof; and (3) at the time of the sale, the buyer was not aware of any claim or interest of some other person in the
property, or of any defect or restriction in the title of the seller or in his capacity to convey title to the property. All these conditions must
be present, otherwise, the buyer is under obligation to exercise extra ordinary diligence by scrutinizing the certificates of title and
examining all factual circumstances to enable him to ascertain the seller's title and capacity to transfer any interest in the property.31
Tested by these conditions, Spouses Bautista cannot be deemed purchasers in good faith.1wphi1 There were several circumstances
that should have placed them on guard and prompted them to conduct an investigation that went beyond the face of the title of the
subject lots. Their failure to take the necessary steps to determine the status of the subject lots and the extent of Nasino's authority puts
them into bad light. As correctly observed by the RTC:
As a general rule, every person dealing with registered land may safely rely on the correctness of the certificate of title and is under no
obligation to look beyond the certificate itself to determine the actual owner or the circumstances of its ownership. However, there might
be circumstance apparent on the face of the certificate of title or situation availing which would excite suspicion as a reasonable prudent
man to promptly inquire as in the instant case where the transfer is being facilitated by a person other than the registered owner.
In his testimony, defendant Eliseo Bautista admitted not having met the plaintiffs except when the instant case was filed in court (TSN,
July 17, 2003, p. 32.). He also testified that a Special Power of Attorney was executed by the plaintiffs in favor of Nasino. However,
such Special Power of Attorney was not presented in evidence much less the tenor thereof referred to in the Deeds of Sale purportedly
executed by the plaintiffs with Bautista. Hence, this Court cannot sustain Bautista's allegation that Nasino was specifically authorized to
transact for and in behalf of the plaintiffs over the vehement denial of the latter to the contrary.
The foregoing fact alone would have prompted suspicion over the transaction considering that the same involves a valuable
consideration. In addition, the following circumstances would have placed Bautista on guard and should have behooved himself to
inquire further considering: (1) the non-presentation of the owner's duplicate certificate, where only photocopies of the certificates of title
were presented to defendant Bautista; (2) the price at which the subject lots were being sold; and (2) the continued failure and/or
refusal of the supposed sellers to meet and communicate with him.
While it may be true that Bautista's participation over the transaction was merely limited to the signing of the Deeds of Sale, and there is
no evidence on record that he was party to the forgery or the simulation of the questioned contracts. Nevertheless, failing to make the
necessary inquiry under circumstances as would prompt a reasonably prudent man to do so as in the instant case, is hardly consistent
with any pretense of good faith, which defendant Bautista invokes to claim the right to be protected as innocent purchaser for value.32
Spouses Bautistas claim of good faith is negated by their failure to verify the extent and nature of Nasinos authority. Since Spouses
Bautista did not deal with the registered owners but with Nasino, who merely represented herself to be their agent, they should have
scrutinized all factual circumstances necessary to determine her authority to insure that there are no flaws in her title or her capacity to
transfer the land.33 They should not have merely relied on her verbal representation that she was selling the subject lots on behalf of
Spouses Jalandoni. Moreover, Eliseos claim that he did not require Nasino to give him a copy of the special power of attorney because
he trusted her is unacceptable. Well settled is the rule that persons dealing with an assumed agency are bound at their peril, if they
would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.34 As stated, Spouses Bautista's failure to observe the required degree of
caution in ascertaining the genuineness and extent of Nasino's authority is tantamount to bad faith that precludes them from claiming
the rights of a purchaser in good faith.35
Spouses Bautista next argue that they could not be held liable for moral and exemplary damages. In light of the foregoing
circumstances, the Court finds the award of moral and exemplary damages in order.
Moral damages are treated as compensation to alleviate physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury resulting from a wrong.36 Though moral damages are
not capable of pecuniary estimation, the amount should be proportional to and in approximation of the suffering inflicted.37
On the other hand, exemplary damages may be imposed by way of example or correction for the public good.38They are "imposed not
to enrich one party or impoverish another, but to serve as a deterrent against or as a negative incentive to curb socially deleterious
actions."39
Coming now to the petition of MCC, it claims to be a mortgagee in good faith and asserts that it had no participation in the forgery of the
deeds of sale. It argues that since the mortgaged lots were registered lands, it is not required to go beyond their titles to determine the
condition of the property and may rely on the correctness of the certificates of title.
Generally, the law does not require a person dealing with registered land to go beyond the certificate of title to determine the liabilities
attaching to the property.40 In the absence of suspicion, a purchaser or mortgagee has a right to rely in good faith on the certificates of
title of the mortgagor and is not obligated to undertake further investigation.41 For indeed the Court in several cases declared that a void
title may be the source of a valid title in the hands of an innocent purchaser for value.42
Where the owner, however, could not be charged with negligence in the keeping of its duplicate certificates of title or with any act which
could have brought about the issuance of another title relied upon by the purchaser or mortgagee for value, then the innocent
registered owner has a better right over the mortgagee in good faith.43 For "the law protects and prefers the lawful holder of registered
title over the transferee of a vendor bereft of any transmissible rights."44
In the case of C.N. Hodges v. Dy Buncio Co. Inc.45 which was relied upon by the Court in the cases of Baltazar v. Court of
Appeals.46 Torres v. Court of Appeals.47 and in the more recent case of Sanchez v. Quinio.48 the Court held that:
The claim of indefeasibility of the petitioner's title under the Torrens land title system would be correct if previous valid title to the same
parcel of land did not exist. The respondent had a valid title x x x It never parted with it; it never handed or delivered to anyone its
owner's duplicate of the transfer certificate of title; it could not be charged with negligence in the keeping of its duplicate certificate of
title or with any act which could have brought about the issuance of another certificate upon which a purchaser in good faith and for
value could rely. If the petitioner's contention as to indefeasibility of his title should be upheld, then registered owners without the least
fault on their part could be divested of their title and deprived of their property. Such disastrous results which would shake and destroy

the stability of land titles had not been foreseen by those who had endowed with indefeasibility land titles issued under the Torrens
system. [Emphases supplied]
Thus, in the case of Tomas v. Philippine National Bank,49 the Court stated that:
We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who
obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void
one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no
obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee or
transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired title
even as against the holder of an earlier and perfectly valid title.
Similarly, Spouses Jalandoni had not been negligent in any manner and indeed had not performed any act which gave rise to any claim
by a third person. As a matter of fact, Spouses Jalandoni never relinquished their title over the subject lots. They had in their
possession the owner s duplicate of title all this time and they never handed it to anyone. Imagine their surprise when they learned that
the copy of their certificates of title with the Registry of Deeds had been cancelled and new ones issued in the names of Spouses
Bautista. Thus, whatever rights MCC may have acquired over the subject lots cannot prevail over, but must yield to the superior rights
of Spouses Jalandoni as no one can acquire a better right that the transferor has.50
Accordingly, the CA was correct and fair when it ordered Spouses Bautista to pay its obligation to MCC. At any rate, in its petition
before the CA, MCC precisely asked, in the alternative, that Spouses Bautista be adjudged to pay its total obligation under the
promissory note.51 WHEREFORE, the petitions of Spouses Bautista in G.R. No. 171464 and the Manila Credit Corporation in G.R. No.
199341 are both DENIED. The January 27, 2006 Amended Decision and October 12, 2011 Resolution of the Court of Appeals in CA
G.R. CV No. 84648 are AFFIRMED.
SO ORDERED.